Small-scale manufacturing enterprises in Jamaica

MSU RURAL DEVELOPMENT SERIES

WORKING PAPER

Institute of Social and Economic Research
University of the West Indies
Kingston, Jamaica

Department of Agricultural Economics
Michigan State University
East Lansing, Michigan 48824

THE SMALL-SCALE MANUFACTURING ENTERPRISES
IN JAMAICA:
SOCIOECONOMIC CHARACTERISTICS AND CONSTRAINTS
By
Yacob Fisseha and Omar Davies

Working Paper No. 16
1981

THE SMALL-SCALE MANUFACTURING ENTERPRISES
IN JAMAICA:
SOCIOECONOMIC CHARACTERISTICS AND CONSTRAINTS

By

Yacob Fisseha and Omar Davies

Working Paper No. 16

1981

THE SMALL SCALE MANUFACTURING ENTERPRISES IN JAMAICA:
SOCIOECONOMIC CHARACTERISTICS AND CONSTRAINTS*

By

Yacob Fisseha**

and

Omar Davies***

*This paper has been published as part of Michigan State University's
Off-Farm Employment Project, which is financed by the Office of Rural
Development and Development Administration, Development Support Bureau,
U.S. Agency for International Development (AID/ta-CA-2). Funding for
the survey and analyses were provided by this project as well as by
USAID/Jamaica.

**Department of Agricultural Economics, Michigan State University

***Institute of Social and Economic Research, University of the West Indies

MSU RURAL DEVELOPMENT WORKING PAPERS

Carl K. Eicher and Carl Liedholm, Co-editors

The MSU Rural Development Working Papers series is designed to report

the preliminary results of comparative studies of rural development in Africa,

Latin America, Asia, and the Near East. The papers will report research

findings on community development and rural development in historical per-

spective as well as studies of contemporary rural development programs. The

series will include papers on a wide range of topics such as alternative

rural development strategies; off-farm employment and small-scale industry;

alternative farming systems; marketing problems of small farmers; agricultural

extension; interrelationships between technology, employment and income dis-

tribution; and evaluation of rural development projects.

The papers are aimed at teachers, researchers, policymakers, donor

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of published papers by writing to:

MSU Rural Development Working Papers
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Acknowledgment

We are indebted to several people who generously contributed towards

the completion of this paper. The following people deserve special mention.

Carl Liedholm reviewed the manuscript and suggested valuable guides throughout

the development of this document. Herb Kriesel and Peter Kilby also read

earlier drafts of the paper and gave us very helpful suggestions. Our

appreciation goes to Anne Morris and Sandra Repic who cheerfully and repeatedly

contributed their typing skills, sometimes under difficult time constraints.

Foreword

This paper is one of a series of reports produced by Michigan State

University's Off-Farm Employment Project. The project, which is funded

by the Office of Rural Development and Development Administration, Development

Support Bureau, U.S. Agency for International Development, has the basic

purpose of enhancing the ability of AID missions and host country insti-

tutions to identify and implement programs and policies that generate

off-farm employment and income opportunities benefiting the rural poor.

One of the major components of the project is the generation of new knowledge

relating to off-farm activities. In collaboration with host country insti-

tutions and AID missions, detailed field surveys of small-scale enterprises

are currently being conducted in Egypt, Jamaica, Honduras, and Thailand;

the results of these studies will be published in this series. A second

component of the project involves the marshalling and dissemination of

existing knowledge of off-farm activities. A state-of-knowledge paper and

special studies relating to off-farm activities will also appear in this

series. Previously completed studies in this area currently available

through the Off-Farm Employment Project include:

1. Carl Liedholm, "Research on Employment in the Rural Non-Farm

Sector in Africa," African Rural Employment Paper No. 5, 1973.

2. Carl Liedholm and Enyinna Chuta, "The Economics of Rural and Urban

Small-Scale Industries in Sierra Leone," African Rural Employment Paper

No. 14, 1974.

3. Enyinna Chuta, "The Economics of the Gara (Tye-Dye) Cloth Industry

in Sierra Leone," African Rural Economy Working Paper No. 25, 1978.

4. Adewale Mabowonku, "An Economic Evaluation of Apprenticeship

Training in Western Nigerian Small-Scale Industry," African Rural Employment

Paper No. 17, 1979.

5. Steve Haggblade, J. Defay and Bob Pitman, "Small Manufacturing

and Repair Enterprises in Haiti: Survey Results," Michigan State University

Rural Development Series, Working Paper No. 4, 1979.

6. Enyinna Chuta and Carl Liedholm, "Rural Non-Farm Employment: A

Review of the State-of-the-Art," Michigan State University Rural Development

Paper, Paper No. 4, 1979.

7. Omar Davies, Yacob Fisseha and Claremont Kirton, "Small-Scale

Enterprises in Jamaica: Initial Survey Results," Michigan State University

Rural Development Series, Working Paper No. 8, 1979.

8. Enyinna Chuta, "Techniques of Production, Efficiency and Profitability

in the Sierra Leone Clothing Industry," African Rural Employment Paper No. 30,

1980.

9. Middleton Wilson, "Some Problems in Operating a Loan Program for

Craft and Emerging Small-Scale Non-Farm Enterprises in Jamaica," Michigan

State University Rural Development Series, Working Paper No. 15, 1981.

Copies of these papers as well as additional information on the Off-Farm

Employment Project can be obtained by writing:

Carl Liedholm
Off-Farm Employment Project
Department of Agricultural Economics
Michigan State University
East Lansing, Michigan 48824
U.S.A.

TABLE OF CONTENTS

Page

I. INTRODUCTION. . . . . . . . . ... . ..
1.1. The Small Scale Manufacturing Enterprise Sector. .
1.2. Objectives of the Project . . . . . .
1.3. Sampling Procedure . . . . . . . . .
1.4. Analytical Presentation . . . . . . .
1.5. Bird's Eye View of Typical Enterprise Types . .
1.5.1. Wearing Apparel . . . . . . .
1.5.2. Woodwork . . . . . . . .
1.5.3. Metal Works . . . . . . . .
1.5.4. Auto Repairs . . . . . . .
1.5.5. Craft Work . . . . . . . .

II. DESCRIPTIVE PROFILE OF THE PROPRIETOR AND THE ENTERPRISE.

2.1. The Proprietor . . . . . . . . .
2.1.1. Age and Sex Distributions . . . .
2.1.2. Marital Status. . . . . . .
2.1.3. Number of Children and Dependents . .
2.2. The Small Scale Manufacturing Enterprise . .
2.2.1. Mode of Business Acquisition. . . .
2.2.2. Form of Current Ownership . . . .
2.2.3. Age of the Enterprise . . . . .
2.2.4. Size Distribution of the Enterprises..
2.2.5. Size, Sex, and Skill Distribution of the
Work Force. ..............
2.2.6. Age Distribution of the Work Force. ..

III. CONSTRAINTS FACING THE SMALL SCALE ENTREPRENEUR . .
3.1. Ranking of Major Constraints . . . . .
3.1.1. Most Important Problem. . . . .
3.1.2. Three Most Important Problems . . .
3.2. Demand-Related Problems. . . . . . .
3.2.1. Level of Demand . . . . . .
3.2.2. Market Outlets and Policies . . .
3.2.3. Sources of Competition. . . . .

IV. PROBLEMS RELATED TO CAPITAL CONSTRAINTS . . . .
4.1. Initial Capital. . . . . . . . .
4.1.1. Size of Initial Capital . . . .

. . 12
. . 14
. . 15
. . 16
. . 16
. . 16
. . 18
. . 18
. . 23

. . 23
. . 25

. . 27
. . 29
. . 29
S. 30
S. 31
. . 35
. . 37
. . 42

. . 45
. . 45
. . 45

TABLE OF CONTENTS (continued)
Page

4.1.2. Composition of Initial Capital. . . .. 49
4.1.3. Sources of Initial Capital. . . . ... 51
4.2. Demand for External Credit . . . . . .... .54
4.2.1. Sources of Credit . . . . . .... .54
4.2.2. Reasons for Not Applying for Credit .... . 62
4.3. Problems in the Credit Market. . . . . . ... 64
4.3.1. Collateral or Security Problem. . . .. 66
4.3.2. Size Limitation .............. 67
4.3.3. Transaction Costs and Other Problems. ... 67

V. PROBLEMS OF RAW MATERIALS AND PRODUCTION TECHNIQUES .... . 69
5.1. Raw Material Constraints . . . . . .... .69
5.2. Production Techniques and Problems . . . ... 71
5.2.1. Production Line . . . . . ... .71
5.2.2. Mechanization . . . . . . ... 72
5.2.3. Sources of Power. . . . . . . ... 72

VI. MANAGERIAL CHARACTERISTICS AND PRACTICES. . . . . ... 76
6.1. Educational Level. . . . . . . . . ... 76
6.2. Participation in Seminars and Vocational Training. .. 78
6.3. Information Needs and Sources. . . . . . ... 81
6.3.1. Information Needs .. .. . . . ... 83
6.3.2. Information Sources . . . . ... 85
6.4. Record Keeping and Business Analysis . . . ... 90
6.5. Personnel Management . . . . . . .... 94

VII. SUMMARY AND RECOMMENDATIONS . . . . . . .... 98
7.1. General Policy Approaches to Problem Areas . . .. 99
7.2. Short-Term Recommendations . . . . . . .. 100
7.2.1. Issues Related to Management. . . . ... 102
7.2.2. Financial Constraints . . . . .. .103
7.3. Long-Term Implications . . . . . . .... 113

LIST OF TABLES

Page

Table 1. Descriptive Characteristics of Small Scale Proprietors
in Jamaica (Percentage of Proprietors). . . . ... 13

Table 2. Mode of Small Scale Business Acquisition in Jamaica
by Location (Percentage). . . . . . . ... 17

Table 3. Form of Small Scale Business Ownership by Location
(Percentage) . . . . . . . . . . 19

Table 4. Small Scale Business Under Ownership of Present
Proprietor (Percentage of Enterprises). . . . .. 20

Table 5. Average Number of Years Under Present Ownership for
Major Enterprise Types. . . . . . . . ... 22

Table 6. Size of Enterprise Work Force by Location (Percentage
of Enterprises). . . . . . . .. . 24

Table 7. Average Number of Workers and Average Worker Age in
All Enterprises . . . . . . . ... . 26

Table 8. Proprietors' Perception of Principal Problems Facing
Jamaican Small Scale Enterprises (Percentages of
Proprietors). . . . . . . . . .. 28

Table 9. Percentage Distribution for Production Levels and for
Enterprise and Machinery Capacities . . . ... 32

Table 10. Classification of Proprietors by Direction of Last
Year's Production Volume Change and Source of Chief
Competition . . . . . . . .. . .33

Table 11. Percentage Shares of Sales Among Market Outlets . . 39

Table 12. Main Transaction Types by Location (Percentage of
Proprietors). . . . . . . . . .. 41

Table 13. Main Source of Competition by Location (Percentage of
Proprietors). . . . . . . . . .. 43

Table 14. Average Initial Investment (Jamaican $) Among
Enterprise Groups . . . . . . . . ... 46

Table 15. Average Investment By Enterprise Type for Each Location
(Jamaican $). . . . . . . . . . 48

Table 16. Breakdown of Initial Investment Levels: Average Share
in Percentage for Different Uses. . . . . ... 50

LIST OF TABLES (continued)

Table

Table

Table

viii

Source of Initial Funding By Location . . . .

Credit Applications and Their Success Rates . . .

Distribution of Application Rates by Ownership Types
Among Locations . . . . . . . . .

Reasons for Not Applying for Credit (Percentages of
Proprietors) . . . . . . . . . .

Proprietors Experiencing Various Credit Problems in
Each Locality (Percentage of Proprietors) . . .

Percentage of Proprietors (by Enterprise Type) Who
Consider Raw Materials Among the Top Three Problems

Percentage of Enterprises Using Various Power Sources
in Each Location . . . . . . . . .

Classification of Proprietors by Highest Level of
Education Attended (Percentage) . . . . . .

Classification of Proprietors by Participation in
Vocational Training and Seminars (Percentage) . .

Classification of Proprietors by Expressed Information
Needs (Percentage) . . . . . . . .

Classification of Proprietors' Sources of Information
Received (Percentage) . . . . . . . .

Classification of Proprietors by Type of Information
Needed and Where Information Received -- for Kingston
and the E.D.'s (Percentage) . . . . . . .

Classification of Proprietors by Record Keeping
Practice (Percentage) . . . . . . . .

Classification of Proprietors by Productivity
Enhancement Practices Used (Percentage) . . . .

Table 20.

Table 21.

Table 22.

Table 23.

Table 24.

Table 25.

Table 26.

Table 27.

Table 28.

Table 29.

Table 30.

Page

53

56

59

63

65

70

73

77

79

82

86

88

91

95

I. INTRODUCTION

In August, 1978, an extensive survey was started in Jamaica on small-

scale, non-farm enterprises (SSE). A SSE is defined as an enterprise em-

ploying 25 or fewer people.1 The project was sponsored by the Small Enterprise

Development Corporation (S.E.D.C.O.) and conducted by the Institute of Social

and Economic Research (I.S.E.R.) of the University of the West Indies in

collaboration with Michigan State University.

Basically, the project consisted of a series of one-shot surveys and

a one-year longitudinal study on flow data for SSE inputs, outputs and credit

services. The study is divided into three phases: Phase I was a one-shot

survey of identification and enumeration as well as a skeletal description

of the employment, mechanization and workshop structure in the SSE sector.

The report of Phase I has already been published (see Davies et al., 1979).

Phase II is concerned with obtaining information about the proprietor and

the business environment, while Phase III is aimed at detailed analyses of

production, marketing and credit situations in this sector.

This report deals with Phase II of the project. We begin with a

descriptive profile of the proprietor (owner/manager) and the enterprise

within the ambits of the main business constraints as perceived by the

proprietors. These constraints include lack of adequate product demand,

problems of finance, and shortages of raw materials and utilities, as well

as possible weaknesses in production techniques and managerial capability.

The report concludes with a summary and recommendations.

1For a detailed description of the definition, see Davies et al.
(1979, p. 1); henceforth, SSE refers to manufacturing enterprises only.

1.1. The Small Scale Manufacturing Enterprise Sector

With a population of about 2.2 million and an area of 4400 square miles,

Jamaica has 40,000 small scale non-farm enterprises employing 80,000 people.

About 35% of these enterprises are manufacturing establishments as per

Department of Statistics industrial classification, which is based on the

International Standard of Industrial Classification (ISIC), and they account

for 37% of the employment in this sector.

The number of small scale manufacturing enterprises and the number of

people they provide with full- or part-time employment have been increasing

over the last few years, both in absolute and relative terms. Publications

of the Department of Statistics2 show that between 1976 and 1977 the

number of people employed in small scale manufacturing enterprises3 rose by

about 12% while that for the large scale manufacturing enterprises fell by

about 7%. This resulted in the small scale employment share rising from

36% to 40% in the manufacturing sector. There is reason to believe that

this trend has continued.

The cause for such a trend cannot be definitely identified at this

stage, but there are several possibilities. First, the large scale

establishments are relatively more dependent on imported raw materials

than the smaller establishments and hence more affected by the severe

foreign exchange restrictions which prevailed in Jamaica recently. Second,

the larger establishments may be less efficient when forced to reduce

production levels than the smaller ones and thus may find it more difficult

2See Department of Statistics, Employment, Earnings, and Hours in
Large Establishments, 1977, p. 15.

3____, The Labour Force, 1977, p. 50. Their definition for
a small scale enterprise is one that employs 10 people or less. This
grouping accounts for a large majority of the enterprises in our definition,
which is 25 people or less.

to survive under difficult economic conditions. Finally, the relative

increase in small scale employment may reflect new enterprises being

established by those who have lost their jobs in either the private or

public sector. (Haggblade, Defay and Pitman (1979) also found in Haiti

that the small scale non-farm sector has been growing over the last few

years.)

The relative rise in the importance of the small scale non-farm sector

may not be a transient phenomenon that occurs during times of economic

difficulties. Studies from other countries have indicated similar growth

in the SSE sector in growing economies as well. Chuta and Liedholm (1979)

cite evidence to support this phenomenon.

When such growth in (self) employment occurs in a country experiencing

declining or stagnant economic conditions, the domestic market share for

those businesses already in the market must shrink, thus creating demand

problems, as will be seen later. Whether such developments in turn lead

to higher enterprise dropouts cannot be ascertained at this stage. However,

besides the fact that the sector is growing as indicated above, there is

evidence to show that in times of poor economic environment, proprietors

would rather absorb a significant part of the fixed costs rather than close

down business (see Fisseha, 1981).

1.2. Objectives of the Project

The overall objective of the project is to provide benchmark informa-

tion on the extent, composition, contributions and socioeconomic charac-

teristics of the small scale non-farm enterprises sector in Jamaica. The

Survey Project is divided into three phases: (a) Phase I deals with the

information already discussed on page 1; (b) Phase II deals with past as

well as current socioeconomic factors related to the proprietor and the

business itself; and (c) Phase III provides comprehensive information about

production, marketing and credit in the sector. In particular, Phase III

provides data on the two factors of production, labor and capital, and

the information base for the comparative economic analysis of businesses.

Both the Phase I and Phase II data are one-shot surveys whereas the

Phase III data were generated over a year of repeated and systematic visits

to individual enterprises.

1.3. Sampling Procedure

For all the survey phases, the country was classified into four population

strata which we call "locations." The locations are (1) Kingston, (2) the Major

Towns, (3) The Rural or Smaller Towns and (4) Rural Localities or Enumeration

Districts (E.D.'s). The locations or strata are defined as follows:

a) Greater than 100,000 population (Kingston only);

b) 20,000 100,000 (the Major Towns--Montego Bay, Spanish
Town and May Pen);

c) 2,000 20,000 (about 60 Smaller or Rural Towns);

d) below 2,000 (about 2,250 Rural Localities or Enumeration
Districts).

For more explanation on the strata and sampling procedure, see pp. 9 11

of the Phase I report by Davies et al. (1979).

To account for possible refusals, closures, wrong addresses, failures

to make contact, business site changes and even migration and death, a bigger

sample than estimated was randomly drawn for Phase II from the listing

obtained in Phase I. A weighting procedure among the locations and among

enterprise types was used to pick this sample. However, the effective random

sample size of 710 enterprises for which data were collected resulted

in a disproportionate sampling outcome. Data collection took about one

and one-half (1) months.

5

The data were collected during January and the first half of February

1979, before we began the collection of flow data in Phase III. It should

be noted that in similar studies (e.g., Liedholm and Chuta in Sierra Leone)

such data collection was carried out near the end of the flow-type survey.

The advantage of our approach is that one gets the data much earlier for

further use and there is less pressure during training and field work than

when the flow-type data collection is under way. The disadvantage is that

one may fail to see important relationships at this early stage and if a

quick supplementary survey (corresponding to our Special Studies) is not

carried out later, deficiencies in the flow-type data collection may not

be corrected.

1.4. Analytical Presentation

The general pattern of analysis here closely follows that of the

Phase I report (see Davies et al.[1979]). Data for the individual enter-

prise type (e.g., tailoring or blacksmithing) and the corresponding enter-

prise group type4 (e.g., wearing apparel or general metal work) are first
discussed for the country as a whole and then differences or similarities

are noted at the locality or stratum levels.

The report focuses on the problems and constraints faced by the

proprietors. In all cases, these problems are what the proprietors perceive

4In the Phase I report, all SSE enterprises are grouped into nine
major categories, seven of which (a-g) describe those in the manufacturing
sector:
a) Food production and processing f) Mechanical repair work, e.g., auto-
b) Wearing apparel, including shoes motive and other machinery
and leather work g) Other manufacturing, e.g., rubber,
c) Craft and related products paper, plastic, brick, miscellaneous
d) Woodwork, including sawmilling chemicals, printing, etc.
and upholstering h) Distribution, e.g., groceries, retail
e) Metal work, including blacksmiths, stores, wholesale, etc.
goldsmiths, and tinsmiths i) Other non-manufacturing services, e.g.,
bars, restaurants, dry cleaning, etc.

them to be except in the section dealing with management issues. Management

weaknesses may not be perceived by a proprietor or, if perceived, may not

be willingly accepted as such. Nevertheless, it is very important to

carefully choose proxy variables that help to identify comparative differences

in management performance. Therefore, even though management problems were

not explicitly mentioned by the proprietors, we have discussed certain topics

considered useful in explaining differences in management practices and

capabilities. When the data for the flow-type information are analyzed,

topics discussed in Phase II will be related to variables such as the income

levels, labor and capital utilizations and general business practices.

1.5. Bird's Eye View of Typical Enterprise Types

This section presents a selective description of a "typical" firm

within each of the major enterprise groups or subsectors. We include it

here with the hope that as a result some of the statistical parameters

of the SSE discussed in this report will be more meaningful. Each enter-

prise type was chosen because of its relative numerical importance within

an enterprise group.

1.5.1. Wearing Apparel

In the wearing apparel group, tailoring/dressmaking and shoemaking

are the most important enterprises. Commonly, a proprietor in one of these

enterprises will set up his or her work table inside a room or under the

porch of his house. The work table or bench may be taken out in the morning

and retrieved at night. There may be a stool or two on which the customers

sit and chat. Sometimes, two tailors or shoemakers may jointly rent a room.

Usually, there is a helper (an apprentice) who is learning the trade

and doing odd jobs such as ironing finished clothes or shining finished pairs

of shoes. When the proprietor is absent the apprentice has the opportunity

to deal with customers in matters concerning prices, sizes and styles.

Tailors and dressmakers usually keep small amounts of raw materials

on hand -- mostly cloth linings, spools of thread, buttons, zippers and

rubbery fabric bands. Occasionally they may have some cloth or fabric

stored on open shelves. Shoemakers usually buy enough leather to last

one week. The permanently stocked materials consist of threads, glue,

nails and rubber soles. A tailor/dressmaker always has a sewing machine

while a shoemaker may not, in which case he would either buy ready-made

(already sewn) coverings for the tops of the shoes or else he would have

them sewn by someone who has the appropriate machine.

The typical, very small tailoring and shoemaking enterprises described

above are different from their larger counterparts at the opposite end of

the small scale enterprise category. The larger businesses have two or

three rooms, about three to five machines, and a larger stock of cloth,

threads, and other materials. They often specialize in the production of

one type or style of a product such as school uniforms, children's clothes,

or formal suits in tailoring enterprises, and ladies' or children's shoes

in the shoemaking enterprises. Sometimes shoemakers will subcontract to

produce specific styles under a well-known trademark name (such as Van

Del or Bata). The bigger businesses frequently employ about six to ten

people and a few apprentices, who are sometimes family members.

1.5.2. Woodwork

A woodworker usually has a bigger and more spacious workshop than

workers in other SSEs. He also has had at least 5 years of experience

elsewhere, for the quality of work or craftsmanship is of great importance

in woodworking. A woodworker may be well-known for the beds, cabinets,

tables and chairs, or doors and windows he constructs and his business

depends greatly on his reputation in these specific areas.

Because of raw material shortages and the lengthy process required to

obtain them, the availability of sufficient stocks of raw materials is

very essential in woodworking. As a result, the amount of working capital

required per purchase tends to be large.

Practically every carpenter has one or two machines -- usually an

electric saw and planer. Many have bigger or more machines than they

currently need, mainly to offset future inflation and possible shortages.

The main problem, as of the first quarter of 1980, seemed to be lack

of raw materials, particularly lumber; but for carpenters in the housing

construction industry, lack of demand was also a big problem. Among the

small carpenters, whose market was entirely domestic, nearly everyone was

converting to using locally produced pine and cedar lumber. A major

complaint, however, is that the trees are cut young and the lumber is not

well seasoned.

Unlike the typical, very small woodworking establishments described

above, relatively larger woodwork shops in the SSE employ from 10 to 20

workers. There is usually a management office where relatively complete

records are kept and production work is planned. The market may not be

entirely domestic; many of these enterprises have had experience in exporting

wooden items to other Caribbean countries and the United States. These

bigger enterprises have better access to raw materials than their smaller

counterparts, because they have more working capital, better access to

financial institutions, differential access to imported raw materials and

because their size makes it economical to import mahogany lumber.

1.5.3. Metal Works

Enterprises in this category are either very small or relatively big.

Blacksmith, locksmith, tinsmith, and goldsmith enterprises are usually one

person operations with very few machines. Any such enterprise may have a

charcoal furnace, gas stove, a bellows, fan, anvil, hammar or soldering

rod, depending on its area of production.

In blacksmith works, raw materials are not a problem because scrap

metal is widely used. But the demand for blacksmithing services is so low

in many places that the art seems to be dying out. This is not so strange,

for blacksmiths have historically been closely associated with horse

carriages and two-wheeled carts, vehicles which have nearly disappeared

from Jamaica.

On the other hand, the bigger metal work enterprises in the SSE category

have more machines and use imported metal rods and sheets. Almost all have

an electric welder, a cutter, a bender and perhaps an acetylene welder and

a sander. There is a shortage of inexpensive electric welders, as those

in current use are quite old. [Raw material shortages do not seem to be

as serious here as in other kinds of enterprises such as woodworking and

shoemaking.] Major products of larger metal works are grilled doors, gates,

windows and fences as well as metal containers; the demand for the former

has increased as the level of crime has risen.

1.5.4. Auto Repairs

In recent years restrictions have been placed on the importation of

new motor cars into Jamaica as a result of the foreign exchange shortage.

Cars which are available are very expensive. Hence there has been a

corresponding increase in the percentage of older cars on the road and

also a growth in the number of auto repair establishments. The shortage

of foreign exchange has affected their operations because spare parts are

difficult to purchase. This situation has led to the development of domestic

substitutes.

Auto repair is different from the other enterprises in that a skilled

mechanic can rent shop and equipment and run a garage.without making an

initial large investment in fixed assets. Mechanics need supply only a

modest working capital, for customers have to pay a great part of the

repair bill in advance. The demand for some specialized machines is so

high, however, that credit to finance such machines is eagerly sought.

As expected, the number of apprentices per enterprise is higher here than

in other businesses.

1.5.5. Craft Work

The two largest craft enterprises are straw work and woodcarving.

Most people who do straw work and some who do woodcarving have farming as

their main occupation.

Straw work is done mostly by women and woodcarving by men. The

collection and processing (curing) of the straw stalks is done by the women

themselves; in a few cases they dye their own straw. Usually the various

stages of work are done by different people. The ownership changes also

at these different stages. For example, the woman at the farm level will

knit or weave plain strips about 3 or 5 inches wide and sell them to another

woman who puts these strips together into a bag or a mat. This woman,

in turn, takes the bags or mats to a retailer who adds plastic or fabric

linings to them and decorates them with different colors. Sometimes this

last stage is carried out not by a retailer but by somebody who does the

decoration at home and sells the product to a retailer. The making of a

hat, on the other hand, is usually completed at the farm level. Although

the ultimate consumer is usually the tourist, information concerning

product demand flows back adequately through the same channel that the

craft woman uses to sell the straw strips.

Woodcarving is a craft most often engaged in by professional woodcarvers,

so the role of the person from the farm is sometimes limited to the prelimi-

nary stages of carving and supplying the raw wood.

In both of these enterprises, particularly straw work, family members

or neighbors begin to learn the art in their childhood. In some cases,

persons will improve their skill so much that they advance to weaving

hats and decorative items from sisal fibers -- products which require a

higher level of skill.

II. DESCRIPTIVE PROFILE OF THE PROPRIETOR AND THE ENTERPRISE

In an attempt to expand both employment and production and to reduce

the demand for severely limited foreign exchange funds, past and present

government administrations in Jamaica have been readily inclined to provide

effective assistance and policy measures to the small business sector (see

Government of Jamaica National Planning Agency, 1978 and Jamaica Labour

Party, 1980). This section attempts to highlight the main characteristics

of the sector by giving a general description of the people employed

and a profile of the sector enterprises.

A descriptive profile of proprietors and enterprises helps to partially

explain some of the problems encountered in the sector and will aid in

formulating the appropriate policy measures. It will also give rough

indications of the number of people who are supported by the sector.

2.1. The Proprietor

Who is the average small business proprietor in Jamaica? Table 1 shows

that on the national level, this person is a man or a woman who is about

40 years old, has 4 children and supports about 5 people. Most proprietors

are Jamaican nationals. In Kingston, as well as in Major and Rural Towns,

-a proprietor will almost certainly be male, while in the E.D.'s female

proprietors outnumber men by two to one.

A further examination of the age category shows that older proprietors

(over 40 years of age) are found in enterprises traditionally known as

"cottage" industries, e.g., shoemaking, straw work, tailoring or dressmaking,

Table 1

Descriptive Characteristics of Small Scale Proprietors
(Percentage of Proprietors)

Descriptive Characteristics

Nationality: Jamaican

Age
30 years or less
31-40 years
over 40 years

Gender
male
female

Martial status
"legal" marriage
common law relationship
widowed
single

Average age

Average number of children

Average number of dependents

Kingston

99.4

20.6
39.4
40.0

85.7
14.3

40.0
20.0

40.0

36.0

2.7

4.6

Major
Towns

99.0

21.8
31.3
46.9

93.0
7.0

57.2
21.4

21.4

41.6

4.5

5.2

Rural
Towns

99.4

21.6
26.9
51.5

93.3
6.7

62.1
17.3

20.7

44.4

4.4

4.3

in Jamaica

E.D.'s*

100.0

20.0
21.5
58.5

35.3
64.7

41.2

17.6
41.2

40.2

4.1

5.1

Source: Nationality and age categories are

*Enumeration Districts, see page 4.

from Phase II data (1979); the rest is from Fisseha (1981).

Jamaica

99.8

20.3
24.9
54.8

50.7
49.3

43.9
5.4
12.6
38.1

40.1

4.0

4.9

bamboo carving, and tin, gold, or blacksmithing. The younger proprietors

are found in enterprises which are relatively new to the sector and require

more skills, such as auto repair, upholstery, metal works (excluding

blacksmithing), cabinet making and woodcarving. However, a direct

relationship appears to exist between the amount of initial investment

required and the age of the proprietor, which probably indicates that

before one can invest in the more expensive ventures, it is necessary to

be employed elsewhere (either for someone else or sel'f-employed in

another business) in order to accumulate both the required capital and

the necessary expertise. Examples of enterprises with large initial

investments are block, brick, or tile production, the baking industry,

sawmilling, printing, fruit and vegetable canning or the production of

paper, pulp, rubber, glass or chemicals.

2.1.1. Age and Sex Distributions

The average age of the proprietors in the different locations is about

40 years. Since the average age of a SSE in Jamaica is about 13 years, it

can be said that many of the proprietors started their business in their

late twenties.5 This is especially true in the two main locations, the

rural localities (E.D.'s) and Kingston, where the average ages of the

small scale enterprise are about 15 and 8 years respectively. About 55% of

the proprietors are over 40 years of age and another 20% are 30 years of

age or younger (including 2% who are 20 years of age or younger).

While the starting age is about the same in all locations there is

an increasingly higher percentage of older proprietors in the more

rural areas. And a markedly lower percentage of younger enterprises (say,

See Table 4 on age of the enterprise and Table 2 for the percentage
of enterprises that were started from scratch by the proprietors.

less than 1, 5, or 10 years old) exists in the more rural areas. These two

observations may indicate that the rate of new businesses being established

in the urban areas is higher than in the rural ones. There are indications

that the incidence of relatively younger enterprises in the urban areas

is not due to high rates of business failures or dropouts.

At the national level, equal number of men and women are owner/operators

(proprietors) of small scale enterprises, but this is caused by an overwhelmingly
high ratio of women to men in the rural enterprises. It is interesting to

note that the cottage industry-type of production may be one avenue by which

some women are increasingly freeing themselves from the confines of the

traditional household chores. The high incidence of female proprietorship

is due to the fact that craft work and dressmaking account for almost

one-quarter and one-fifth respectively of the manufacturing enterprises in

Jamaica. Also, more than 90% of the craft enterprise and 50% of the dress-

making businesses are found in the rural areas (E.D.'s) (see Davies et al.,

1979, pages 16, 17, 24 and Appendix V). All the dressmaking and most of

the straw work are done by women.

2.1.2. Marital Status

The weighted percentage of all the proprietors whose current marital

status is single comes to about 38%.6 The percentages for the Major Towns

and the Rural Towns are substantially lower than those for Kingston or

the E.D.'s; this difference may result in part because, compared with

Kingston and the E.D.'s, the two other urban or semi-urban areas have a

higher percentage of proprietors with higher levels of education (secondary

schooling and above), which is usually associated in Jamaica with a higher

6This category could possibly include persons previously living in
common law relationships.

percentage of married individuals. The remaining balance in the marital

status category is accounted for by "legal" marriages and common law

companionship (nationally about 44% and 5% respectively) and in the case

of the E.D.'s by people with deceased mates.

2.1.3. Number of Children and Dependents

The average number of children per proprietor for all locations is

four. Butthe figure for Kingston is lower (2.7), which is consistent

with the figures indicating that the average age in Kingston is relatively

low and that the category "single" in marital status is relatively higher

here (see Table 1).

The national figure for the average number of dependents per proprietor

is about five. These are family members who depend on the proprietor for

more than half of their support for more than 6 months of the year. Not

much difference exists among locations in this category.

2.2. The Small Scale Manufacturing Enterprise

This section deals with the entrepreneurial capacity and level of

cooperative work among proprietors as well as the potential for future

business growth. It must be noted that, in many instances, it is not

easy to keep the attributes of the proprietor and his business separate

and distinct.

2.2.1. Mode of Business Acquisition

Nationally, the overwhelming majority of entrepreneurs started their

business individually from scratch (see Table 2). The only other important

mode of business acquisition is inheritance, which accounts for about one-

tenth of all businesses. The pattern is the same at the disaggregated

locations, with those who started individually from scratch or from an

Table 2

Mode of Small Scale Business Acquisition in Jamaica by Location
(Percentage)

Location
Mode of Business Acquisition
Kingston MajE.Ds Jamaica
Towns Towns

Started by individual 80.0 92.9 78.5 87.5 86.0
from scratch

Inherited 13.3 7.1 13.6 12.5 11.5

Started in a partnership* ---- ---- 4.3 ---- 1.3

Other 6.7 --- 3.6 --- 1.2

TOTALS

100.0

100.0

100.0

100.0

100.0

Source: Fisseha, 1981

*This is genuine partnership and not just
the rent.

work in the same workshop, with the proprietors sharing

inherited business accounting for over four-fifths of businesses in the

four locational strata. The only other form of acquisition of any

significance in any of the locations is that of partnerships, which

account for about four percent of the businesses in the Rural Towns.

Nationally, however, this mode of acquisition has little significance.

2.2.2. Form of Current Ownership

As can be seen from Table 3, the dominant ownership pattern in the

small scale manufacturing sector is the sole proprietorship, which accounts

for 94% of all businesses in the sector. Partnerships, cooperatives and

limited liability companies combine to account for less than 6% of the

total number of enterprises.

The disaggregated data do not indicate much divergence from the national

pattern, although a clear relationship exists between level of urbanization

and extent of sole proprietorship, which increases from 84% in Kingston and

the Major Towns to 89% in the Rural Towns to 98% in the Rural E.D.'s.

Partnerships are of some importance in Kingston and in the Major and Rural

Towns, representing 11%, 13% and 8% of the total number of businesses

respectively. But this form of ownership is unimportant in the Rural E.D.'s.

2.2.3. Age of the Enterprise

Nationally the small manufacturers have been in business for some

time nearly two-thirds have owned their present businesses for over five

years (see Table 4). In fact, over 44% of these businesses are owned by

persons who have been operating them for over 10 years. Yet the disaggre-

gated data show that the dominance of older businesses nationally results

Actually, the number of years under the present owner is almost
the same as age of enterprise since an overwhelming majority of the
enterprises were started from scratch by the present owner.

Table 3

Form of Small Scale Business Ownership by Location
(Percentage)

Location
Ownership Type
Major Rural
Kingston EMjor Ral.D. 's Jamaica
Towns Towns

Sole Proprietorship 83.9 83.7 89.2 97.7 94.3

Cooperatives 0.6 1.0 1.2 0.8 0.8

Partnerships 11.1 13.3 7.8 1.5 4.0

Limited Liability Companies 4.4 2.0 0.6 --- 0.7
(Ltd.)

Other types --- --- 1.2 --- 0.1

Source: Phase II Survey Data, 1979

Table 4

Small Scale Business Under Ownership of Present Proprietor
(Percentage of Enterprises)

Years Owned by Location
Present ProprietorKingston Major Rural
Tngowns Tn E.D.'s Jamaica
Towns Towns

1 13.3 15.3 12.6 8.3 9.7

2 12.8 15.3 15.0 7.2 9.1

3 5 31.1 26.5 20.4 15.1 18.3

6 10 18.3 21.4 25.0 17.7 18.7

11 20 15.6 17.3 15.0 30.9 26.7

over 20 8.9 4.2 12.0 20.8 17.5

Source: Phase II Survey data (1979)

mainly from the situation in the Rural E.D.'s. For both Kingston and the

Major Towns, well over a half of the enterprises have been operated by

the present owner for only five years or less, while for the Rural Towns

just under a half have been under the present ownership the same length

of time. In contrast, the businesses in the Rural E.D.'s tend to be much

older, with only 30% under present ownership of five years or less. Over

one-half of those surveyed in the Rural E.D.'s have been over ten years in

the present ownership, compared with less than 25% in both Kingston and

the Major Towns and 27% for those in the Rural Towns.

The pattern emerges such that in Kingston, the Major Towns and the Rural

Towns a significant percentage of the entrepreneurs are relatively new to

their business (five years or less) while in the Rural E.D.'s the majority

(nearly 70%) have been in the business for over five years (see Table 4).

The average age or number of years of ownership for all enterprises

is about 13. The youngest enterprise groups are foods, followed by auto

repair, woodwork, and metal work, each with an average age of less than

7 years. The oldest ones are craft work (17 years), followed by wearing

apparel (12 years) and other manufacturing (11 years).

As a whole, tailoring, dressmaking, shoemaking, and straw work are

the more stable types of enterprises (see Table 5). The rest have been

late starters, except for auto repairs, whose lower average indicates
a frequent change of hands rather than the age of a new enterprise.

The financial barriers to entry may not be as great in auto repairs as in

the other types of bigger enterprises since renting of auto repair plants

is the most common way for many people to enter this business (see Fisseha,

1981). The rate of business closure for the corresponding periods would

be necessary, of course, to see the sectoral growth or decline.

Table 5

Average Number of Years Under Present Ownership for Major Enterprise Types

Location
Enterprise Types* Majr
King n Major Rural
Kingston Towns Towns E.D.'s Jamaica
Towns Towns

Tailors 10.2 7.8 7.3 11.5 10.7

Dressmakers 7.0 3.9 10.1 14.0 13.0

Shoemakers 8.0 15.1 15.5 16.4 14.9

Woodwork 9.0 9.6 7.2 4.6 6.3

Metal Work 7.9 6.6 7.6 2.0 4.6

Auto Repairs 6.7 3.0 5.7 5.6 5.6

Straw Work 7.5 6.0 10.0 18.6 18.5

Upholstery 6.8 4.0 6.7 14.0 8.7

Wood Carving 6.2 6.8 13.5 5.7 6.4

Source: Phase II Survey Data, 1979

*These enterprises were chosen because they constitute more than 80% of both the sample size
in Phase II and the small scale manufacturing sector in Jamaica; for more details, see
Appendix I of Davies et al., 1979.

2.2.4. Size Distribution of the Enterprises

Nationally, about two-thirds of the enterprises employed only the

proprietor (see Table 6). In fact, fully 93% of the enterprises employed

five or fewer workers; this figure is consistent with the findings for

Phase I of the survey, where the corresponding number was 94%.

When the data are disaggregated by locations, it is seen that important

variations exist. In Kingston and the Major Towns, for example, approximately

one-fourth of the enterprises employed over five persons. The corresponding

figures are 13% for the Rural Towns and 1% for the E.D.'s. Accordingly, the

dominance of the firm with only one person employed is inversely related to

the level of urbanization; the percentage decreases from 82% in the E.D.'s

to 23% in Kingston.

2.2.5. Size, Sex, and Skill Distribution of the Work Force

The average size and age distribution of the work force (including the

proprietor) per enterprise are shown in Table 7. Compared with Phase I

results, the average size given here is about the same as for the rest of

the locations, but it is higher for the Major Towns (4.2 versus 3.0). Yet

not only is the national average the same as for Phase I, but the relative

size position of all the locations is the same.

Except in the E.D.'s, the gender distribution of the work force is

heavily biased in favor of males. The percentage of females in the work

force ranges from as low as 14% in Kingston to as high as 47% in the E.D.'s --

due to the fact that nearly two-thirds of the proprietors in the E.D.'s are

females. Nationally, however, females account for only one-third of the

work force.

Table 6

Size of Enterprise Work Force by Location
(Percentage of Enterprises)

Location
Size of Work Force
Major Rural
Kingston E.D.'s Jamaica
Towns Towns

1 23.3 26.5 46.7 81.9 68.0

2 19.4 18.4 19.8 9.4 12.1

3 15.0 12.2 6.6 3.4 5.7

4 12.0 12.2 9.6 2.3 4.8

5 6.2 5.2 4.1 1.8 2.7

6 10 17.2 18.4 9.6 .8 4.7

11 20 5.7 7.1 2.4 .4 1.7

over 20 1.2 --- 1.2 --- .3

TOTAL 100.0 100.0 100.0 100.0 100.0

Source: Phase II, Survey data 1979

Among the important enterprises, woodwork, metal work and auto repair

provide the major share of employment opportunities for unskilled8 males.

Employment opportunities for unskilled females are very low except in wearing

apparel and crafts. Enterprises dependent on factory-type production provide

about equal employment opportunities for both men and women.

2.2.6. Age Distribution of the Work Force

The average age for the entire work force is about 35 years (see

Table 7); if the average age of proprietors (40 years, as indicated in

Table 1) is excluded, the average age for the work force is 31.3 years.9

Again, reflecting the stability of enterprises in the rural areas, the

average age for the work force rises as one moves to the more rural areas.

The situation holds also for skilled males and females. For the unskilled

group, the average age declines, both for males and females, as one moves

to the rural areas. Indeed, with the unskilled male labor force in the

E.D.'s averaging approximately 16 years, very young workers appear in some

enterprises. On the whole, not much difference exists between the average

ages of skilled males and skilled females either at the national or

disaggregated locational levels.

Fisseha (1981) estimated that the number of years worked in an enter-

prise by each non-proprietor skilled worker is about 3 years; hence most of
the workers probably worked elsewhere previous to working in their present job.

8The classification into "skilled" or "unskilled" was done using the
propreitor's own knowledge and judgment as to whether a worker has some
training in a given subject or had a special talent in a given field
relevant to the business. All proprietors were considered skilled.

9This figure was extrapolated using Tables 1 and 4 from Davies et al.
(1979) as well as Tables 1 and 7 in this report.

Table 7

Average Number of Workers and Average Worker Age in All Enterprises

Location
Average Per Enterprise
Major Rural
Kingston Tows Tos E.D.'s Jamaica
Towns Towns

Number of Workers
Males 3.8 3.4 2.8 0.8 1.5
Females 0.6 0.7 0.4 0.7 0.7

Total 4.4 4.2 3.1 1.5 2.2

Age of Workers
Males 28.4 30.2 32.0 28.5 28.9
Skilled 31.8 32.1 35.7 38.8 37.2
Unskilled 20.3 22.6 21.8 16.5 17.8

Females 26.2 32.2 27.7 24.8 25.7
Skilled 27.3 34.6 37.4 38.6 36.8
Unskilled 24.3 27.2 23.6 22.7 23.5

Total 28.5 32.1 31.8 37.2 35.3

Source: Phase II Survey Data, 1979

III. CONSTRAINTS FACING THE SMALL SCALE ENTREPRENEUR

In order to place the small scale sector in its proper context within

the economy and in order to develop policy actions aimed at increasing the

sector's contribution to the economy, it is important to understand the

nature of the problems faced by the proprietors.

A number of questions were asked in order to identify and understand

possible bottlenecks in finance, production, marketing and other areas

related to the business. Proprietors were also asked to indicate the most

crucial (perceived) problems they faced and rank the top three. The results

of these inquiries have been integrated and summarized into nine major problem

areas shown in Table 8, and they highlight the difficulties proprietors face.

Because of the open-ended nature of the questions asked, the responses are

much more specific than implied here. However, detailed analysis of these

problems, adding our own knowledge and understanding of the issues

involved, is limited only to those which were viewed as crucial by

a substantial number of the proprietors. These problems mainly related

to demand, finance, raw materials and production technique.

Certain constraints which are very important in conducting a

business may not be perceived as problems by the proprietor or, even

if perceived, may not be disclosed in an interview (Chuta and Liedholm,

1979). Problems related to management shortcomings, for example, often

fall in this category. Therefore, in an attempt to relate some commonly

accepted management characteristics and practices to the proprietors in

the survey, a section on this topic has been added at the end of this

chapter.

Table 8

Proprietors' Perception of Principal Problems Facing Jamaican Small
Scale Enterprises (Percentages of Proprietors)

Location

Kingston Major Rural E.D.'s Jamaica
Kingston Towns Towns
Critical Problem Areas Towns Towns

Among Most Among Most Among Most Among Most Among Most
Top 3 Important Top 3 Important Top 3 Important Top 3 Important Top 3 Important

Demand 80.6 14.5 41.4 20.0 47.9 18.6 77.6 46.0 66.7 38.0

Finance 76.7 53.6 76.8 38.9 77.2 46.1 67.7 31.0 70.2 35.8

Raw Materials 26.7 7.8 34.7 16.8 31.7 13.2 19.4 6.1 22.3 7.6

Import License 8.9 2.8 4.2 1.1 8.4 5.4 1.5 0.8 3.2 1.5

Spare Parts/Machinery 39.4 12.3 33.7 14.7 32.3 5.4 7.6 1.9 15.4 4.3

Utilities 6.7 0.6 4.2 --- 9.0 3.5 3.4 1.3 4.4 1.2

Fuel 8.3 ---- 12.6 1.1 9.0 0.6 4.2 0.6 5.7 0.6

Transportation 3.9 1.1 5.3 1.1 10.8 1.8 41.1 2.3 31.5 2.0

Other 31.1 7.3 23.2 6.3 24.0 5.4 27.4 10.0 27.3 9.0

TOTAL

100.0

100.0

100.0

100.0

100.0

Source: Phase II Survey Data, 1979

*Since proprietors could respond to more than one problem area, the totals for percentage of
proprietors in these columns add up to more than 100% of the proprietors.

-

3.1. Ranking of Major Constraints

The major problems as perceived by the entrepreneurs, ranked for the

first as well as for the top three positions of importance, are shown in

Table 8. The entry "other" refers to problems such as lack of adequate

working space, lack of technical advice, labor problems, etc.

3.1.1. Most Important Problem

Inadequate demand for their product was perceived by 38% of the

entrepreneurs as the most important problem facing them. This problem and

lack of finance represent the major constraints affecting production for

three-quarters of the entrepreneurs. Less than 10% of the entrepreneurs

named any other single problem as important.

At the disaggregated level, inadequate demand and finance remain the

major problems, but others emerge and the relative importance of individual

problems changes. Finance is dominant in Kingston with over one-half of

the respondents naming it as the most important problem. Insufficient

demand and spare parts/equipment follow, named by 14.5% and 12.3% respectively

of the respondents. The difference in the relative importance of demand

and finance nationally, as compared to the situation in Kingston, is

striking. While nationally the two problems are ranked almost equally, in

Kingston, finance is ranked over demand as the single most important

problem by four times as many respondents (54% to 14%).

In the Major and Rural Towns, finance is regarded by most respondents

as the single most important problem. But the dominance of finance as a

problem, evident in Kingston, does not occur in these locations because

inadequate demand, raw materials, spare parts and equipment are also

important. The E.D.'s represent the only location where respondents rank

demand ahead of finance as the single most important problem. But even here

nearly one-third of the proprietors view finance as the single most important

problem.

Locational disaggregation indicates that in Kingston and the E.D.'s
raw materials are not important. However, inadequate demand is an important

problem in the E.D.'s. While it is a major problem in the other three

locations, in none of them is it ranked as the major problem by more than

20%, and in each of them at least twice as many respondents viewed finance

as the major problem compared to demand. In the E.D.'s, however, one and

one-half times the number of those who mentioned finance say lack of demand

is the major problem they are facing. Hence the question of markets arises

as a serious factor affecting production in the E.D.'s.

3.1.2. Three Most Important Problems

As can be seen from Table 8, demand, finance, and transportation are

perceived by the small scale proprietors as the three major problems affecting

business. Both demand and finance are listed by over two-thirds of those

interviewed as one of their three major problems (66.7% and 70.2% respectively).

These percentages are not surprising since the two problems were ranked

highest when entrepreneurs were asked to list their most important problem.

Transportation as a problem displays strange characteristics in that

while nationally only an insignificant percentage (2%) regard it as the

major problem, nearly one-third of the respondents view it as one of the

three most important problems. This means that while only a small percentage

both nationally and in each location see it as the major problem, an

important proportion perceive it to be the second or third most important

constraint.

The importance of transportation nationally derives mainly from its

ranking in the Rural E.D.'s, where over 40% of the entrepreneurs perceive it

as one of their three most important problems. The combination of demand and

transportation, listed by 78% and 41% of the entrepreneurs respectively,

suggests that in the Rural E.D.'s there is great concern about (a) the

existence of a market for products, (b) the cost of transportating raw materials

from outside of the immediate vicinity, and (c) the problem of transporting

finished products to the market. Obviously the problem mentioned in (c) could

influence the perception of inadequate demand as a constraint to production.

Shortages of raw materials and spare parts/machinery are also important

in all the locations except the E.D.'s. In these locations both are con-

sidered as a problem by about one-third of the proprietors. Lack of

spare parts and shortage of machinery at reasonable prices is more serious

than lack of raw materials in these locations; close to 40% of the proprietors

in Kingston, for instance, put it among the top three. However, at the time

the survey was carried out, the raw material constraint had not reached the

critical stage experienced a year or so later.

3.2. Demand-Related Problems

One way to ascertain whether demand shortages actually exist is to look

at two rough indicators of capacity levels. Present production levels could

be compared with what the business could (desires to) produce, with or without

machines, under normal working hours. Table 9 gives this information, which

is labelled as enterprise capacity. Typical business sales' levels in the

recent past are also an indicator. Table 10 presents this information (note

that "last year's" sales are expected to be lower than the typical recent

past). For each type of location specified in Table 9, the enterprise capacity

is higher than what is called "machine" capacity, -- the fixed capital capacity

utilization for those enterprises with a machine or machines. The difference

Table 9

Percentage Distribution for Production Levels and for Enterprise and Machinery Capacities

Location

Major Rural
Kingston Towns TownsE.D.s Jamaica

1. Percentage of Proprietors 64.0 70.1 40.7 55.9 56.4
Reporting Excess Capacity
2. Percentage of Enterprise 55.4 59.0 62.5 66.6 65.4
Capacity Level Utilized*
3. Percentage of Machinery 48.0 59.3 48.8 53.2 52.5
Capacity Level Utilized*
4. Percentage of Proprietors
Who Plan to Increase
Production:
a. Out of all Proprietors 71.7 35.7 55.2 29.1 37.3
Their Production Level
Last Year:
i. Increased 32.1 40.9 35.2 24.7 27.5
ii. Constant 38.2 29.5 23.1 50.6 45.3
iii. Decreased 29.8 29.5 41.8 24.7 27.2
b. Out of only Those with 87.7 38.2 75.0 32.2 43.5
Excess Capacity

Source: Phase II Survey Data (1979) except entry 3 which came from Fisseha's (1981) study

*For a description of these terms see page 31

may not be that significant, however, when the "normal" machine capacity

underutilization is account for.1

The E.D.'s show the highest percentage for enterprise capacity utilized,

yet at the same time show the largest proportion of enterprises with demand

problems. This may be explained by the fact that many of the proprietors in

the rural areas (such as those involved in craft work) especially those that

own no machines or buy very few of their raw materials, find problems related

to spare parts, raw materials and import licenses less critical compared with

the other problems discussed previously. Therefore, given the same income

levels, an equal drop in demand would be considered relatively more serious

by proprietors in the E.D.'s than by those in the other locations. The effect

would then be a higher percentage of the proprietors in the E.D.'s mentioning

demand as the most serious problem. Furthermore, the variation in enterprise

composition may be a source of variation in demand. For example, enterprises

producing craft work (mainly for the tourist industry) account for 37% of the

enterprises in the E.D.'s; the corresponding figure for each of the other

locations is less than 16%. While this does not mean that the fall in

product demand is not a serious problem in the E.D.'s, particularly since

relatively more people there reported a decline in last year's production, it

does give a hint as to why the level of enterprise capacity utilized there is

67%, which is higher than the 55%, 59%, and 62% for Kingston, the Major

Towns, and the Rural Towns respectively.

10It is possible that the enterprise capacity utilization may have been
overestimated since the enterprises were visited during or just following the
Christmas season, during which demand peaks for many enterprise types; the
"machine" capacity utilization information was done a year later in April.
Firms usually have excess capacity (the difference between the desired
and the actual) built into their production system (Gold, 1979 and Winston,
1974). Gold estimates this to be 15% to 20% (p. 76) for the United States.
Winston, quoting Murray Foss, says that manufacturing capital stock in the
United States has been idle more than 75% of the time; 90% of such excess
capacity was intended ex ante (pp. 1301 and 1311).

Table 10

Classification of Proprietors by Direction of Last Year's Production Volume
Change and Source of Chief Competition
(Percentage)

Location
Production Volume Change:
Source of Competition Kinstn Major Rural s amai
Kingston n E.D.'s Jamaica
Towns Towns

1. Increased Production 26.8 26.8 26.5 12.5 16.4
Source of Competition:
a. Small Manufacturer 64.6 53.9 59.1 63.6 62.8
b. Large Manufacturer 10.4 42.3 18.2 6.1 9.9
c. No Competition 27.1 19.2 25.0 30.3 28.8

2. Constant Production 37.4 34.0 24.7 29.7 30.2
Source of Competition:
a. Small Manufacturer 59.7 60.6 61.0 65.4 64.0
b. Large Manufacturer 4.5 27.3 7.3 5.1 6.5
c. No Competition 35.8 18.2 29.3 33.3 32.4

3. Decreased Production 35.8 39.2 48.8 57.8 53.1
Source of Competition:
a. Small Manufacturer 59.4 42.1 61.7 84.2 76.4
b. Large Manufacturer 3.2 39.5 19.8 3.9 7.3
c. No Competition 35.9 23.7 22.2 12.5 17.0

Totals for Volume Change 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data, 1979

NOTE: Since a proprietor could have more than one source of competition, the percentages of
all the sources add up to slightly more than 100.

3.2.1. Level of Demand

In the Phase II Survey, proprietors were asked to comment on their

volume of sales during the previous 12 months. Slightly over one-half felt

that sales had decreased during that period while 47% responded that sales

had either held constant or had increased. Of this percentage, the majority

felt that sales had remained constant (see Table 10).

This somewhat pessimistic view of sales levels was influenced mainly

by the situation in Rural E.D.'s, where 58% of the proprietors felt that

sales had decreased as opposed to just 12% who had perceived an increase in

sales. The view that sales had decreased complements the perception in the

Rural E.D.'s that demand is the major problem of the enterprises there.

In each of the other locations, proprietors responded that levels of

production had either increased or remained constant -- 64% in Kingston,

61% in the Major Towns and 51% in the Rural Towns. In each of these

locations, roughly the same percentage (27%) perceived an increase in

production during the previous twelve months. However, nearly half the

respondents in the Rural Towns perceived a decrease in production levels,

compared with 36% and 39% for Kingston and the Major Towns respectively.

Table 10 also shows the nature and level of competition with respect

to the level or status of production achieved over the last 12 months.

Except in the E.D.'s, all locations show that higher competition from small

manufacturers did not seem to adversely affect a proprietor's production

level. For example, among those who reported production increases over the

last 12 months in Kingston, close to two-thirds of them stated that other

small manufacturers were their chief competitors in the market; but for

those who reported a decrease in production, about 59% of them reported

the same kind of competition. There seems to be a relationship, however,

between the source of competition and level of production in the E.D.'s.

For those reporting an increase in production (12%) about 64% of them

mentioned other small proprietors as competitors, while the corresponding

percentage for those reporting a decrease (57.8%) is about 84%.

This general pattern within locations is exactly the same among those

proprietors who reported no competition at all. In other words, except for the

E.D.'s, the percentage of proprietors who reported no serious competition from

anybody seems insensitive to the level of production. In the E.D.'s, however,

the level of production was directly related to the level of competition.
Without making more locational identification of the sources of competition,

it is not possible to state conclusively the reason for this pattern. However,

a possible answer is that relatively bigger SSE proprietors have started to

sell their products in the Rural E.D.'s. A second possibility is that with

increased economic difficulties the number of SSE's has grown, either in the

E.D.'s themselves or elsewhere in the country, and this has resulted in a more

competitive market and reduced sales for many of the producers. Finally, the

most likely explanation is that with a general economic squeeze on and the

tourist industry down, there could be reduced demand for craft work, the main

product of rural enterprises; indeed, 80% of the craft enterprises said their

production was low last year.

If demand is as crucial a problem in the E.D.'s as the cumulative

discussions seem to indicate, then proprietors' planned production levels

for the immediate future should also shed some light on this issue. This

is clearly the case, as can be seen from Table 9, which shows that

although they were operating at an average of 53% machine capacity and

56% of them reported one-third excess enterprise capacity, only one-third

of the proprietors in the E.D.'s had any plans to increase production for

the next 12 months. In Kingston, on the other hand, while excess enterprise

capacity is higher, the people seem to be more optimistic in that close

to 88% of those with excess capacity had plans to increase production.

The size of the average percentage of underutilization rises as one

moves to the more urban areas -- a picture which parallels the level of

mechanization among enterprises in the SSE sector. Thus, as to the question

of why more urban enterprises tend to have higher average excess capacity,

one needs to note that the faster prices of capital goods rise and the more

restrictions are imposed on their availability, the greater the temptation

becomes to over capitalize as a security for the future.

Finally, it is interesting to note from Table 9 that next year's planned

production does not seem to be affected by last year's realized production.

For example, an equal percentage, both from those who had a decrease and from

those who had an increase in production (about 27%), said they have plans to

increase production for next year. Since a large percentage of their sales

volume is generated from custom made products (e.g., in wearing apparel,

woodwork, repair works, etc.), it is possible that for many proprietors of

the very small enterprises, this plan could mean a wish to increase sales or the

desire to work harder rather than the presence of a concrete plan of action.

3.2.2. Market Outlets and Policies

With respect to market outlets and marketing policies, we will look

at two important aspects of marketing which directly affect the demand

for products and services provided by the SSE sector. First we will

look at the various purchasers who generate demand for SSE outputs. This

will be followed by a brief discussion of the marketing policies followed

under the various demand situations in the four locations.

Nationally, over 87% of sales from the small enterprises were made

directly to individuals, with distributors accounting for 12% (see Table 11).

This national pattern reflects the general situation in each location, except

in the case of the small towns, where almost all sales are made directly to

individuals and the importance of distributors declines. Distributors account

for 4% of the sales of entrepreneurs in Rural Towns compared to 15% in Kingston

and the Major Towns and 12% in the Rural E.D.'s.

In all cases, neither the Government nor the export sector is important.

The Government's most important contribution is that it purchases 4% of the

sales of the producers in small towns. It should be noted, however, that

the level of sales to the export sector (either direct export or through

tourism) is underestimated in that products from certain enterprises such

as craft work are sold to small "distributors" (or individuals), who in

turn sell them to tourists.

Table 11 does not give any indication of why the E.D.'s should have

more demand shortages than the other locations; the main purchasers in all

the locations are individual consumers, followed by distributors. A reference

to the last four tables of the appendices in the Phase I report shows, however,

a unique situation in that craft enterprises in the E.D.'s account for 37% of

the manufacturing enterprises whereas the corresponding figures for Kingston,

the Major Towns and the Smaller Towns are only 6%, 16% and 3% respectively.

Relating this to the fact that the number of tourists coming into the country

has been declining between 1974 and 1979, it is possible to conclude that

this may have contributed to the low demand levels in the E.D.'s (and the

Major Towns, too).

Another important topic directly related to the problem of demand

shortages is marketing or pricing policies of small scale enterprises. All

things being equal, the bigger the fall in demand, the higher the credit or

price reductions that would be given by enterprises. To some extent this is

Table 11

Percentage Shares of Sales Among Market Outlets

Location
Market Outlets
Major Rural
Kingston o l E.D.'s Jamaica
Towns Towns

Sales to Individuals 83.2 79.6 94.6 87.2 86.9

Sales to Distributors 14.6 15.1 3.8 11.9 11.7

Sales to Government 1.9 4.3 1.6 0.6 1.1

Sales to Exporters 0.3 1.0 ---- 0.3 0.3

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data, 1979

shown to be the case for all locations except the E.D.'s (see Tables 8

and 12). However, there is a limit as to how much prices can vary in

custom made production. Once prices are established, they become common

knowledge and tend to remain stable; if they were to be lowered, it would

not be easy to raise them again.

Table 12 shows the extension of sales credit and discounts by proprietors

to their customers. The entrepreneurs were asked what types of credit terms

they extended to their customers. It will be recalled that nationally 87%

of sales are made to individuals, so the credit terms offered reflect each

entrepreneur's perception of what is necessary to retain his clientele and

what his own cash flow constraints may be.

Slightly over one-third of the proprietors said that they do extend

sales credit for a limited period (see Table 12). About 19% of these said

the credit is for a month or less while 6% said there was usually no specific

time period established for which credit could be outstanding; much would

depend on the customer, his purchase value and the liquidity condition of

the proprietor. The major portion of the credit extended (close to 30%)

is for less than three months. About one-tenth of the businesses do not give

credit but make discounts when necessary. However, more than one-half of

the proprietors neither give credit nor extend discounts.

When disaggregated, the data indicate that the percentage of those who

give credit for up to 30 days is quite significant; Kingston, the Major Towns

and the Rural Towns account for 31%, 35% and 29% respectively of the total

number of proprietors providing such credit. In fact, in the Major Towns

this form of transaction accounted for a larger percentage of sales than did

cash transactions. Also of note was that cash discounts in the Major Towns

account for one-fifth of all transactions.

Table 12
Main Transaction Types by Location
(Percentage of Proprietors)

Location
Sales Transaction Type Majr ral
Kingston Towns Towns E.D.'s Jamaica
Towns Towns

Cash 52.8 33.3 32.9 57.2* 53.1

Cash discount 6.1 19.8 6.0 10.6 10.2

30 days or less credit 30.6 35.4 29.3 14.0 18.8

31-60 days credit 3.9 2.1 12.6 4.5 5.0

61-90 days credit 3.3 2.1 9.0 3.8 4.1

91 days or more credit 2.2 3.1 1.8 3.6 3.1

No specifications 1.1 4.2 8.4 6.3 5.7

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data, 1979

*The high cash sales in the E.Ds. are indicative of the fact that the enterprise mix there is
highly biased towards craft work, in which case products are not sold to local consumers but
to tourists through market intermediaries (see page 40).

The percentage of proprietors who sell cash (57%) may seem unexpectedly

high for the E.D.'s. However, one must realize that the "distributors" of

the craft products are individual intermediaries who sell them to retailers

or tourists; they are not the same as the local customers of a tailor or

shoemaker.

3.2.3. Sources of Competition

Nationally, the large majority (70%) of small scale manufacturers

perceived other small manufacturers as their chief competitors (see Table 13).

Surprisingly, nearly a quarter of all small scale manufacturers perceived

themselves as having no competition. Nationally, the question of whether

imported goods constituted competition did not arise at all.

At the disaggregated level the response showed interesting variations,

with Kingston and the Rural E.D.'s displaying a greater similarity than

usual. In Kingston, three-fifths of the enterprises identified similar

size manufacturers as the chief competitors and over one-third felt that

they had no real competition. In the Rural E.D.'s, three-quarters identified

other small manufacturers as their chief rival and one-fifth felt that they

had no rivals at all. In both Kingston and the Rural E.D.'s neither local

manufacturers nor "other" sources were discerned as competitors.

The views of small scale producers in the Major and the Rural Towns are

somewhat different, with close to one-third in the former locations regarding

large local manufacturers as their chief competitors. Only in the Major Towns

do less than one-half of the producers identify other small manufacturers as

their chief competitors, although with 47%, other small manufacturers are

still by far the most important source of competition within this stratum.

In the Rural Towns, 60% of the producers view their fellow small manufacturers

as their chief rival, while just over a quarter feel that they have no

Table 13

Main Source of Competition by Location
(Percentage of Proprietors)

Location
Source of Competition Major Rural
Kingston T o s E.D.'s Jamaica
Towns Towns

Small manufacturer 60.6 47.2 59.5 75.2 70.3

Large manufacturer 4.4 30.3 14.1 3.4 6.1

Other (imported goods, etc.) 1.7 ---- 0.6 0.4 1.0

None 33.3 22.5 25.8 21.0 23.1

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data, 1979

competition. The Major Towns stand out because nearly one-third of the

proprietors perceive large manufacturers as their chief source of competition.

The relatively high percentage, 23% nationally of small manufacturers at

each location who perceived of themselves as having no competition is revealing.

It means that for this group, expansion of production should not be constrained

by a fear of competition from any source. Rather, other factors will have to

be considered in evaluating the potential for expansion by these businesses.

A substantial number of proprietors both in the Major Towns and the

small towns consider large manufacturers as a source of serious competition.

A closer look at the data reveals that most of these proprietors are in

enterprises where competition from larger ones would be expected. Such

enterprises are bakeries, brick or tile making, printing, woodwork and photo

studios. Their larger counterparts have a nationwide network of sales

systems which allow them to compete effectively with local producers. In

the tourist resort areas, even tailors and dressmakers feel this kind of

competition.

IV. PROBLEMS RELATED TO CAPITAL CONSTRAINTS

4.1. Initial Capital

Two types of capital are identified here for a small scale enterprise:

capital required to initially launch the business, and capital subsequently

required to maintain current levels of business activities or to allow for

expansion. Information on the former is provided in Tables 14 to 17. The

latter type is discussed within the context of proprietors' attempts to

obtain credits and trade discounts.

4.1.1. Size of Initial Capital

Initial investment requirements may vary due to factors such as enter-

prise type, location, business size and future production plans. Our data

show that the average initial investment for all small manufacturing enter-

prises in Jamaica was about J$1410 (see Table 17). Great variations exist,

however, among the different locations and among the enterprise groups

within locations. Additional intragroup variations can be expected to

occur because of differences in enterprise type, age of proprietor and/or

business and the initial size of the work force.

The variations are large, for instance, when the different locations

are compared. The overall investment level ranges from J$5628 for the Major

Towns to only J$ 403 in the E.D.'s. The fact that the amount of the initial

investment is directly related to the level of urbanization is not unexpected.

Small scale enterprises in the less urban or more rural areas are smaller in

size, use less machinery and are dominated by enterprises (such as straw work)

Table 14

Average Initial Investment (Jamaican $)* Among

Enterprise Groups

Location Average
Age of
Enterprise Groups Major Rural Enterprise
Kinston Towns Towns Groups*

Foods $10,125 $25,218 $29,614 $ 210 $ 5,580 7.7

Wearing apparel 1,926 1,369 556 318 608 11.0

Craft 371 2,467 420 123 320 16.2

Woodwork 2,712 6,521 3,558 1,643 2,240 7.6

Metal works 9,386 9,382 1,868 1,600 3,086 9.5

Repair works 3,567 2,754 2,920 2,250 2,509 5.6

Other manufacturing 16,489 9,537 7,473 1,603 4,509 8.8

OVERALL $ 3,762 $ 5,628 $ 3,393 $ 403 $ 1,410 12.6

Locational Average Age

8.3

9.0

14.6

12.6

Source: Phase II Survey Data, 1979

*U.S. $1.00 = Jamaican $1.78 currently

**We do not have the necessary capital price indices to adjust for inflation. We hope the indicated
enterprise group and locational average ages will give a rough idea of investment level variations
among enterprises and between locations.

that require no major capital investment. The figure J$5628 for the Major

Towns is substantially higher than that for Kingston or the smaller towns.

This may be partially explained by the fact that one Major Town, Montego

Bay, is a regional capital and as such may have fewer very large enterprises

(like those in Kingston) but relatively more enterprises (as in wood work)

which fall in the upper range of our SSE size definition (e.g. see Tables 6

and 7 for work force size). And another Major Town, Spanish Town, is an

industrial suburb, very close to Kingston and hence it attracts businesses

which are much larger than the average size in our SSE. For example,

enterprises like tile, brick, and blockmaking, sawmills, and ice manufacturing

tend to be located close to the main market and where factory space is

cheap and ample. Thus, the above two towns would effectively raise the

average initial investment in the Major Towns.

When enterprise groups are compared, the locational differences follow

the general pattern already discussed. In the urban areas (other than

Kingston), food production (processing) is the most expensive venture to

start, followed by the categories labelled "other manufacturing" (which

is the most expensive in Kingston) and metal works. Food processing in

rural areas consists mainly of the production of bammies and condiments in

small quantities.11 The data indicate that craft production in Major Towns

is substantially higher than in other locations, which can be explained by

the fact that Montego Bay is a tourist center where a great number of

wood carving, straw, basket and garment works are located. Becuase of the

large turnover of products, (at least during the tourist season) and the need

to stock up products, a fair amount of investment is required to start these

businesses.

For a complete description of the enterprise groups, see Davies,
et al., 1979, p. 14.

Table 15

Average Investment By Enterprise Type for

Each Location (Jamaican $)

Location
Enterprises*
KgoMajor Rural
Kingston Towns E.D.'s Jamaica
Towns Towns
Type Number**

Tailors 109 $ 792 $ 676 $ 680 $ 361 $ 465

Dressmakers 107 1,097 596 330 249 305

Woodwork 59 3,940 7,982 5,154 1,742 3,146

Garages 65 3,530 2,615 3,177 2,600 3,016

Shoemaking 68 2,670 3,243 343 302 816

Craft/Wood Carving 140 429 2,469 420 116 120

Metal Works*** 26 10,708 10,557 2,628 1,050 4,785

Source: Phase II Survey Data, 1979

*See Table 5 and its footnote for the average age and relative importance of these enterprises.

**Number of enterprises in the sample.

***Includes general metal work, welding, and blacksmithing.

It is essential to point out that even disaggregation at the enterprise

group level masks great individual differences. The number of enterprises

that invested as much as the national average is small. For example, a

close look at the data reveals that more than 75% of all firms initially

invested only J$500 or less, and that more than 90% of them invested J$1000

or less.

Among the various types of enterprises, metal works, woodworking, and

garages seem to be relatively expensive to start (see Table 15). At the

opposite end are crafts and dressmaking. Of course, the level of investment

is directly related to production techniques: the higher the level of

mechanization required, the bigger the initial investment must be.

4.1.2. Composition of Initial Capital

In order to identify critical investment needs, it is very useful to

know the different uses to which the initial investment is applied. Table 16

provides this information. The average initial investment on enterprises for

each location is divided among five major investment items, for each investment

item in each location, two percentage values are shown. The first provides

the average percentage share over all enterprises and the second gives

percentage share for only those enterprises that actually invested in the

specific item listed.

The difference between the two percentages in columns 1 and 2 has very

important implications. For example, while the overall percentage share of

machinery/tools in Jamaica was about 34%, when only those firms that actually

invested on this item are considered, the share almost doubles to 63%. The
'12
picture is similar for buildings and other items investment shares. The

12 The main items in the Other Items category are transaction costs and
in a few cases "goodwill" payments. SSE in the urban areas tend to proportionally
spend more on these. In any case the value for goodwill payment is less than
0.2%.

Table 16

Breakdown of Initial Investment Levels: Average Share in Percentage for Different Uses

Location
Major Rural
Investment Category Kingston Major Rura TE.D.'s Jamaica
Towns Towns

1* 2* 1* 2* 1* 2* 1* 2* 1* 2*

Machinery/Tools 46.2 54.8 36.1 54.4 45.9 60.0 30.6 65.4 34.3 62.9

Working Capital 32.9 34.5 25.5 26.8 24.5 25.5 33.3 33.4 32.0 32.4

Furniture/Office*** 8.0 24.8 18.1 29.3 18.3 31.5 29.0 38.4 24.7 35.5
Equipment

Buildings 9.2 24.8 8.6 28.7 8.9 37.6 4.0 51.9 5.3 45.8

Other Items 3.7 33.5 11.5 21.5 2.4 21.5 3.1 22.0 3.7 23.4

TOTAL, All Enterprises 100.0 ** 100.0 ** 100.0 ** 100.0 ** 100.0 **

Source: Phase II Survey Data (1979)

*Column 1 values are averages over all enterprises and
enterprises that did invest on a given investment iten

Column 2 values are averages over only those

**These columns add up to more than 100 since average percentage shares are relatively high as a result
of excluding those proprietors who made 0% investment on the relevant category.

***There really is not much 'furniture' or 'office equipment' in the rural areas; what is referred to
here are things such as counters, shelves, chairs or stools and other display structures.

implication here, especially for the E.D.'s, is that relatively few enterprises

invest in buildings, machinery/tools and goodwill payments. However, those

that do tend to spend a larger share of their investment on them. Also, firms

might not invest in all of these items simultaneously. While the picture is

somewhat similar in the urban and semi-urban areas, it is much less accentuated.

From such a tabular presentation can be drawn the unique and very important con-

clusion that certain investment items are invariably important across enterprises

and locations. Working capital stands out in this respect, averaging

approximately one-third of the total initial investments nationally. This

proportion holds for Kingston and the Rural E.D.'s while for the Major Rural

Towns it is closer to one-quarter of total initial investment. This fact

should counter the popular tendency to underestimate the need of credit for

working capital uses. In Table 16 the almost surprising coincidence of the

values in Columns 1 and 2 for each location supports this assertion.

The share of furniture/office equipment in the E.D.'s may seem very high

(29%). The explanation lies in the fact that the average investment in the

E.D.'s is low in absolute figures. Therefore, whatever is available is

allocated among tools, furniture and working capital in small shares.

The general picture that emerges is that machinery/tools and working

capital each account nationally for one-third of the initial investment;

another one-fourth goes for furniture and/or office equipment and the

remainder is divided between workshop structure and other expenses.

4.1.3. Sources of Initial Capital

In seeking to understand how small scale enterprises deal with the

problems associated with capital, the entrepreneurs were questioned about

the source of funds they used to start their present businesses. Personal

savings formed the basis of financing in all cases, but this was augmented

by loans from relatives and friends, commercial banks, government organi-
zations13 and others.

Nationally, nine out of ten enterprises were initiated with personal

savings alone, no other source of financing was of importance. Those who

received assistance from relatives and friends accounted for 6%, and

entrepreneurs who were assisted financially by government organizations

represented one-half of one percent of the total (see Table 17). These

findings suggest that since entrepreneurs have relied almost totally on

their own savings -- in most cases limited capital -- to begin businesses,

such constraints may have limited their scope of operations and the level

of technology utilized. Clearly, the length of time a business had been

in operation is an important factor, for most of them were begun when far

less government activity existed in the small scale sector. An examination

of some recent business starts or subsequent expansions would serve to

indicate whether government agencies have altered the general pattern in

investments.

The disaggregated data diverge little from the national picture,

although the role of commercial banks is slightly less important in Kingston

than in other towns. Financing from commercial banks assisted in providing

the initial capital for 6.7%, 11.2%, and 7.8% of businesses in Kingston,

the Major Towns and the Rural Towns respectively. Conversely, personal

13The governmental organizations or agencies referred to here and
subsequently are the Small Business Loan Board (SBLB), the Development
Venture Capital Financing Limited (DVCT), the Small Industries Development
Division (SIDO) and the Small Business Financing Scheme (SBFS). The Small
Enterprises Development Corporation (SEDCO) was formed late in 1977 to
absorb the activities of many of these agencies. In mid-1980, the Small
Industries Finance Company (SIFCO) was formed, combining the DVCT, the SBLB,
and SEDCO.

Table 17

Source of Initial Funding

By Location*

Location
Source I
Source King Major Rural J
Kingston TownsE.D.'s Jamaica
Towns Towns

Personal savings (alone) 84.4 75.5 84.2 92.8 89.9

Personal savings plus 92 7 6
relatives and friends 56 9 57

Personal savings plus .
commercial6.7 11.2 7.8 0.4 2.5
commercial banks

Personal savings plus
government agencies

Personal savings plus 1.0 1.1 1.4 1.4 1.
others

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data (1979)

*Percentage of Proprietors

savings alone, although representing the major initial funding for enterprises

in the Major Towns, is comparatively less important than in Kingston and the

Rural Towns, where it provided over 84% of funding in each. The combination

of these two facts is of interest and once again demonstrates the point which

we have made concerning the nature of the SSE's in the Major Towns. However,

it should also be noted that in these locations nearly one-third of the

enterprises were started two years ago or less. The possibility is strong

that the newer businesses are more likely to deal with financial institutions

to help in establishing operations, although the fact that Government

assisted financing is insignificant, even in these locations, cannot be

escaped.

4.2. Demand for External Credit

To determine the opportunities and perceived needs for additional

financial resources from external sources, proprietors were asked if they

had ever applied for a loan, regardless of source. If so, they were then

asked where they had applied and if they were successful. If they had not

applied, the reason for this was also requested. The information for these

responses is shown in Tables 18 and 20. Those people who actively sought

financial aid were also asked to name the major problems faced, and this

information is shown in Table 21.

4.2.1. Sources of Credit

To determine the perceived need for additional financial resources

from external sources, it is important to distinguish between those who

were deterred from applying and those that did apply. Figures in

Table 20 indicate that about half of the proprietors who did not apply

for credits actually wanted to apply. Thus, when this group is combined

with those who actually applied (Table 19), we estimate that the national

figure for those who perceived a need for external additional finance is

about 58%. The remaining 42% said that they had no need for credit or had

never thought about it.

Table 18 provides two types of information: rates of application and

the rates of success (granted loans) from such applications. Nationally,

just over half of the applications were submitted to various governmental

financial agencies, close to one-fourth were requests to relatives and

friends, while another 12% were submitted to commercial banks. Thus, a

large number of proprietors look to the government for some source of

financial aid; this is especially true among the rural towns and E.D.'s.

At the various locational levels, great differences exist in the overall

rates of application to the different potential sources, with the widest

differences appearing between the other locations and the E.D.'s. In the

former group, nearly 40% of the proprietors applied for credit from various

sources; in the E.D.'s, the percentage drops to 12. Reasons for this

difference are not obvious but, as Table 20 indicates, close to 60% of the

proprietors in the E.D.'s said they did not need credit or had never thought

about it (an additional 16 percent did not know where to apply); the next

highest corresponding figure is found in the Major Towns where 45% of the

proprietors answered similarly.

As for different funding sources, about 40% of the proprietors in

the urban and semi-urban areas (i.e., excluding the E.D.'s) applied to the

commercial banks and about the same percentage applied to government

financial agencies. On the other hand, the rates of applications from

E.D.'s to these same sources were about 1% and 56% respectively. Thus,

a strange pattern emerges: almost no proprietors from the E.D.'s approach

Table 18

Credit Applications and Their Success Rates

Location

Major Rural
Kingston MajoE.D.'s Jamaica
Credit Sources Towns Towns E Jama

S4-,Gove Ur t Ot4- Urn 40.9 22.2 36.2 38.1 404-.6 2i 0 559 38 4- .4 U 34
( f0 : 3 to to L to> < f3 (0 to AS -3 (to CLn3 (a -3 () CL to (0 :3 (a
,L( Ur: 0 ,v UU) r," V U=; L/) W, UQ: W .V) W c U W ,,,

Commercial Banks 39.8 54.3 43.2 48.0 43.5 66.7 1.2 ---- 12.4 15.8

Government Organization 40.9 22.2 36.2 38.1 40.6 25.0 55.9 36.8 51.4 34.0

Relatives and Friends 8.0 85.7 10.3 50.0 11.6 62.5 29.4 60.0 23.9 62.9

Others 11.3 20.0 10.3 66.7 4.3 33.3 2.9 --- 14.0 9.5

All Sources Combined 42.2 39.8 44.9 46.6 37.1 47.8 12.5 38.2 20.4 39.8

Source: Phase II Survey Data (1979)
a/
SThis is the percentage of those who applied from the total number of proprietors in each location.
b/ess rates out of the total applications made
This is success rates out of the total applications made'.

the commercial banks, yet they apply to government agencies by a higher

percentage than do proprietors in the other locations. Another important

potential source of credit for the rural areas (close to 30%) is relatives

and friends; the corresponding figure for the urban and semi-urban areas

is only about 10%. The remaining 10% of the enterprises outside the E.D.'s

apply to other sources, such as credit unions, insurance companies and

retailers; such sources are unimportant in the E.D.'s.

Information from enterprise group loan applications shows that the

bigger the enterprise and the more closely its production and organizational

structure resemble that of a factory, the higher the chances that it will

look to the commercial banks for credit. Wood and metal works, auto repairs

and the other manufacturing enterprises fit this category.14 On the other

hand, small and/or rural enterprises such as those making wearing apparel,

crafts and some woodwork look more to governmental agencies rather than

commercial banks.1

Thus, the general picture that emerges is that enterprises in the E.D.'s

(which are small yet constitute the largest majority) and the smaller ones

in the other locations perceive governmental sources, and to a large extent

relatives and friends, as their chief sources of credit. The enterprises in

urban and semi-urban areas, particularly those which are bigger and well

organized, look mainly to the commercial sources and, to a significant

extent,-to governmental sources.

Age differences do not seem to influence loan application rates. For

example, 20% of those 30 years old or younger applied for a loan, while

14Their rates of application to the commercial banks were 38%, 30%,
39% and 23% respectively as compared with applications rates of 8%, 25%,
25%, and 5% respectively to the governmental agencies.

15Their respective rates of applications were 60%, 96%, and 45% to the
former as compared with 17%, 2%, and 26% to the commercial banks.

about 22% of those in the 31-40 year age category and 19% of those above

40 years of age requested such loans. This general pattern holds within

each age category of each location.

The type of ownership under which an enterprise is organized may have

an influence on whether or not a loan is requested. Although the number of

enterprises with non-sole proprietorship amounts to less than 6% in Jamaica

(see Table 3), and thus contributes relatively little to the overall picture,

the rate of application rises rapidly as one moves from sole proprietorship

to partnership and then to limited liability companies (see Table 19). The

rate of application in the latter group is about 91% or almost 3 times that

found for sole proprietors (28%) and about twice that for partnerships (52%).

The rate of application for cooperatives is only 17%.

Education has a very strong influence on the rate of application. At

the national level, about 18% of those who had some primary education applied

for loans. This percentage jumps to 27% and 42% respectively for those who

had secondary and tertiary educations. Except for the Major Towns, the

pattern is similar, and the percentage jumps even higher as one moves to the

more urban areas. In Kingston, the percentages for the three levels of

education (primary, secondary, and tertiary) are 37, 48, and 89 respectively;

the corresponding figures for the Rural Towns are 31, 48, and 71; and for the

E.D.'s, 11, 20, and 33. The main reason for such differences and patterns

may be the level of general awareness of loan availability among the proprietors.

The rates at which applications were successful are shown also in Table 18.

At the national level, about two of every five applications are successful.

Generally, enterprises in the E.D.'s are less successful than their counterparts

in the other locations.

Table 19

Distribution of Application Rates by Ownership Types Among Locations*

Location
Ownership Types Major Rural
Kingston Towns Towns

Sole Proprietorship 34.8 42.7 35.6 12.0 27.6

Cooperative ---- ---- ---- 50.0 16.7

Partnership 55.0 53.8 53.8 25.0 52.0

Limited 87.5 100.0 100.0 --- 90.9

Over All Ownership Types 42.2 44.9 37.1 12.5 20.4

Source: Phase II Survey Data, 1979

*Percent of proprietors in each ownership form making applications in each location.

When the volume of loans involved is not considered, proprietors

seeking credit from relatives and friends have the highest success rate

at 63%. The high figure is commonly attributed to the fact that relatives

or friends know the applicant well and want to help. This high rate of

success is common in all the locations. Proprietors seeking loans from

governmental agencies rank second in their success rate at 34%. However,

because they account for half of the total loan applications compared with

about 1/4 for relatives and friends, they play the most important role at

the national level.

Overall, commercial banks are the most important sources in all the

locations outside the E.D.'s. Not only are their success rates higher

there (57%), but relatively more people apply to them for loans. But

commercial banks show a very bad record in the E.D.'s, with very few

proprietors applying to them for loans and even fewer succeeding in getting

credit. Thus, the two most important sources of credit for those in the

E.D.'s are governmental agencies and relatives and friends.

Finally there is the category labelled "other" in Table 18. It

includes credit sources from credit unions, insurance companies and retailers

(merchants). At the national level about one-half of the applications in

this category succeed.

The data show that the government plays a very important role in

providing credit to the small rural enterprises as well as to most of the

small urban ones. Yet because information about applicants is gathered at

relatively higher cost by government financial agencies, and because

paperwork for small loans is more expensive, public institutions may not

be as efficient in extending credit as commercial banks and the informal

sector. Such observations should not discourage public credit officials

nor preclude efficient administration of public credit funds, but simply

serve as a reminder that at least some overhead costs may have to be

absorbed.

In most cases, little information is available to determine the full

costs to both borrower and lender of loans given by relatives and friends.

Hence not much can be done other than to make information about other

potential credit sources more accessible to proprietors so that they can

make more informed decisions.

At the enterprise group level, those organized on factory-type bases

have the lowest failure rates (usually less than 10%) in their formal

loan applications. These include food processing, metal works, and

bigger auto repair services. However, the failure rates in wearing apparel

and woodwork enterprises are of the order of 75% and 50% respectively. For

the craft enterprise group, the numbers that applied and succeeded were much

too negligible for comparison.

The Phase II questionnaire did not inquire about the amount of the

loan, how it was used, the interest rate charged, nor the payment schedule.

However, answers to managerial questions raised in subsequent interviews

with the proprietors (Fisseha, 1981) indicate that loan amount ranges from

J$500 to J$65,000, with average and modal values in the neighborhood of

J$7,000 and J$2,500 respectively. Loans were granted primarily for the

purchases of raw materials and machinery. Value-wise, more than 2/3 of

the credit was likely used for the purchase of raw materials by large

enterprise types such as garment production, woodworking, metal working,

and shoemaking.

The interest rate has risen considerably, from about 7% in 1975 to

anywhere from 13 18% by 1980. The governmental agencies were charging

much lower rates than the commercial banks (SEDCO charged about 11%).

However, not many proprietors seemed aware of the amount they might

ultimately be paying for interest.

The period for which the loan is granted varies from one year to 15

years; the most common was 3 to 4 years. Although it is not known exactly

how many proprietors paid up at the end of the loan period, indications are

that a very large number of them have their debts in arrears -- see the

conclusion and summary section.

4.2.2. Reasons for Not Applying for Credit

As Table 18 shows, about one-fifth of the proprietors did apply for

some kind of loan. Thus, for the country as a whole, close to 80% did not

apply for a loan for various reasons, as shown in Table 20. The main

reason for not applying was "never bothered" or "never seriously thought

about it," which accounted at the national level for about 1/3 of all the

non-applying proprietors. Another 15% said they did not know where to

apply -- an answer which presumably considers only formal credit applications.

A substantial percentage, close to 20%, said they had no need for credit.

If the reason "never bothered" could also be broadly interpreted as lack of

perceived need for credit, then the number of proprietors who possibly

saw no need for credit could be slightly more than one-half.

The remaining 1/3 saw the need to improve the business through external

credit. However, due to a number of perceived problems, they did not apply.

The major deterring factors for this group were collateral requirements,16

16This problem is mentioned at the national level by about 1/3 of
the proprietors who wanted to apply for a loan (and knew where to apply)
but did not do so due to the reasons given in Table 20. We will also
see later, in Table 21, that 40% of those proprietors who applied said
they experienced some problems in the process because of the collateral
problem.

Table 20

Reasons for Not Applying for Credit (Percentages of

Proprietors)

Location
Reasons
Major Rural
Kingston Major Rural E.D.'s Jamaica
Towns Towns

Never Bothered 20.6 16.7 14.6 39.6 33.6

No Need for Credit 18.6 27.8 19.4 18.7 19.3

No Knowledge of Source 5.2 3.7 23.3 16.5 14.9

Collateral Problems 15.5 13.0 11.7 8.7 10.1

Afraid of Financial Risk 19.6 11.0 12.6 5.2 8.1

Low Demand 16.5 13.0 10.7 4.8 7.3

Expensive Process 1.0 7.4 1.9 ---- 0.7

Other Reasons 3.0 7.4 5.8 6.5 6.0

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data (1979)

fear of financial risk or debt, and the low market demand for their products.

Very few people mentioned high interest rate as being a deterrent. In fact,

the "expensive process" was mentioned by less than 1% of the proprietors

and of the 6% remaining, an overwhelming majority said they did not apply

because they thought their loan requests would never be granted.

At the locational level, there are some interesting differences. For

example, lack of knowledge about where to apply is a very important reason

in the Rural Towns and the E.D.'s, which account for more than 80% of all

the SSE manufacturing enterprises in Jamaica. The proportion of people

in the E.D.'s who never thought about applying is relatively large; part

of the explanation could be that this reason is not clearly distinguishable

in some proprietors' minds from having no knowledge of where to apply. The

remaining major reasons (collateral problems, financial risk and low demand)

become more important as one examines data from the more urban areas.

The problem of collateral, for example, is mentioned by about 16% of

the proprietors in Kingston but only 9% in the E.D.'s. As can be seen in

Table 21, collateral is perceived as a very important problem also for those

people who applied for a loan. In fact, close to 14% of all the proprietors,

both those that applied and those that did not apply, perceived collateral

to be a major problem. There may be two aspects to this problem: applicants

do not have the necessary assets for collateral or they are unwilling to

submit their assets as collateral.

4.3. Problems in the Credit Market

The perceived problems faced by proprietors who did not apply for

loans are displayed in Table 20. Table 21 shows the problems encountered

by those proprietors who applied for credit. The combined results from

Table 21

Propietors Experiencing Various Credit Problems in Each Locality
(Percentage of Proprietors)

Location
Problem Areas for Loan
Applicants Kingston Major Rural E.D.'s Jamaica
Kingston Towns TownsJamaica
Towns Towns

Collateral 45.8 26.2 26.2 26.7 29.1

Profit Viability Doubted 5.6 4.8 6.6 16.7 13.7

Lack of Contact 4.2 7.1 4.9 10.0 8.6

Loan Granted too Small 2.8 7.1 3.3 10.0 8.3

Time Consuming Process 9.7 11.9 4.9 6.7 7.2

Others 2.7 4.8 11.5 6.6 6.4

No Problem 29.2 38.1 42.6 23.3 26.7

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data (1979)

these two groups should indicate the overall picture of the perceived

problems associated with applying for and obtaining credit.

Table 21 shows that for all locations and enterprises combined, a

little over one-quarter said they faced no problems when applying for a

loan. Although the situation will vary by enterprise type, size and location,

it is quite interesting that close to three-quarters said they encountered

some problems when they applied for credit. The percentage of people who

said they had no problems is consistently higher for those who applied to

the commercial banks rather than governmental agencies. For example, the

percentage of people who applied to commercial banks and had no problems was

48% in Kingston, 71% in the Major Towns and 58% in the Rural Towns; the

corresponding locational percentages for those who applied to the governmental

agencies were 19%, 17% and 21%. This is not unexpected however, as the
governmental agencies tend to cater to the less viable or smaller enterprises

and those who apply to them may include those who think they have no chance

of success in obtaining a loan from the commercial banks.

4.3.1. Collateral or Security Problem

The largest percentage of complaints is accounted for by the collateral

requirement, with the problem being more serious in Kingston where one-half

of the applicants expressed this complaint than in the other locations, where

roughly one-quarter of the applicants expressed such complaints. Collateral

is also a more serious problem among people who apply to governmental agencies

rather than commercial banks. Almost no applications were made to the

commercial banks from the E.D.'s; therefore, considering only the remaining

locations, about 45% of those who applied to the government agencies mentioned

collateral as a problem compared with 30% of those who applied to the

commercial banks. Even in the E.D.'s, about 27% of those applying to the

governmental agencies said it was the most serious problem. Thus, when all

SSE's in all locations are combined, about 14% mentioned collateral require-

ments as the most serious problem.

4.3.2. Size Limitation

Nearly 14% of the proprietors who applied said that creditors doubted

the viability of the enterprise, allegedly because of the small size of the

business; as a result their loan applications were turned down. This problem

becomes greater, as expected, as one moves progressively from urban to more

rural areas. For example, close to 17% of the proprietors in the E.D.'s

think this is a major problem as opposed to a maximum of 7% in the other

locations.

4.3.3. Transaction Costs and Other Problems

The amount of time spent in trying to secure a loan and the frequency

of loan officers failing to honor appointments, or just the difficulty of

contacting them, were two other major problems mentioned. Loan transaction

costs are even higher for proprietors who must travel long distances to

apply for credit. The costs are even greater for those small proprietors

who usually apply to governmental credit agencies, none of which have

branches outside Kingston.

The other problems mentioned as important by the remaining proprietors

included inability of some enterprise types to quality for a (presumably

government) loan, high interest rates, disagreement among business co-owners,

etc. But these problems comprised a very small percentage of all problems --

less than 1%. As concerns high interest rates, it appears that the
small proprietors, particularly those in the countryside, are not fully

aware of the costs related to the interest payments. Fisseha (1981) found

that some proprietors did not quite realize the effect that the interest

rate would have on their overall credit costs. Once interest rates were

calculated for applicants, using their desired credit needs and payment

rates, they were surprised to learn that interest would be so high. As

a result, some proprietors said they were no longer interested in applying

for credit.

It is important to note the complexity of the collateral issue, both

from the creditor's point of view and from that of the applicant. To a

banker, the availability of assets for collateral is primarily a sign that

his future loan investment is likely to be secure and also that the potential

debtor has the ability to work hard and accumulate some wealth -- as indi-

cated by the past performance of the applicant. Especially when those

requesting loans are highly mobile, the need for a secure loan is, of

course, the most overriding reason for the collateral requirement.

From the applicant's point of view, there are several reasons why he

doesn't want to commit his assets as collateral: he may be too advanced

in age and doesn't want to risk his lifelong savings; he may want to take

chances with someone else's resources but not his own; or there may be

other parties who have ownership interest in his assets and he thus needs

their full consent.

V. PROBLEMS OF RAW MATERIALS AND PRODUCTION TECHNIQUES

5.1. Raw Material Constraints

About one-fourth of the proprietors placed the problem of raw materials

among the top three; about 8% considered it as the most serious one (see

Table 8), thus making it third in the category of single most serious

problems. Obviously, however, the raw material problem is closely connected

to other problems such as the working capital, the availability of transpor-

tation and the demand situation.

The importance of raw materials varies among locations and enterprise

types. For example, the rural areas consider raw materials less of a

problem than the other locations, primarily because enterprises in the

E.D.'s are dominated by craft and other enterprises for which the main
raw materials are locally produced.

The differences among enterprise types are not great (see Table 22).

At the national level, while only 5% of the proprietors in straw work con-
sidered raw materials among the top three problems, in every other enterprise

raw material problems were ranked among the top three by at least one-quarter

to one-third of the proprietors. The situation is even more serious among

upholsterers, shoemakers, tailors and the larger woodwork enterprises, all

of which depend on imported material for at least one key ingredient in

their input mix.

The survey did not include questions related to the proportion of imports
in the input mix, for it was recognized that proprietors may have difficulty

in distinguishing between imported and non-imported inputs. Yet it would not be

Table 22

Percentage of Proprietors (by Enterprise Type) Who Consider
Raw Materials Among the Top Three Problems

Location
Enterprise Types Major Rural
Kingston Towns Towns E.D.'s Jamaica
Towns Towns

Tailors 26.5 38.5 38.5 35.5 34.9

Dressmakers 14.3 30.0 17.2 28.3 27.0

Shoemakers 50.0 55.6 41.7 31.3 36.5

Woodwork 19.0 36.4 30.8 28.6 27.5

Auto Repair 18.8 22.2 20.0 40.0 26.6

Metal Work 23.1 30.8 30.8 --- 29.6

Straw Work ---- ---- ---- 5.4 5.4

Upholstery 40.0 100.0 14.3 100.0 59.4

Wood Carving 16.7 28.6 50.0 33.3 30.6

Source: Phase II Survey Data, 1979

difficult, in general, to identify essential input mixes without asking

the proprietors. Enterprises such as tailoring, dressmaking, garages,

metal working, upholstering and part of the shoe industry use mainly

imported materials. On the other hand, craft industries (which account

for close to 30% of the manufacturing sector) and a proportion of the

wood business use mostly indigenous raw materials. Aside from these major

enterprises, others such as bakeries depend totally on imported raw materials

and as a result were hard pressed during the 1979-80 period.

5.2. Production Techniques and Problems

Detailed analyses of factor intensity, productivity and alternative

production techniques cannot be treated in this report; this data will be

forthcoming in our Phase III survey. Additional information that would be

useful in investigating production techniques might include case studies

on the physical layout of the plant and its effect on time and motion-

related efficiency. Given the available data, problems related to machinery

and sources of power will be emphasized here.

5.2.1. Production Line

Specialization in its strictest sense does not exist in the small scale

manufacturing sector in Jamaica. Many proprietors produce a diversity of

products and also repair old ones. Occasionally some may even carry a

retail store on the side. For example, a person who repairs household

appliances may also sell new ones; a person who operates a metal work

enterprise may produce furniture, construction materials, and car body

pieces, and even manage a repair service as well. Similarly, a worker in

leather produces bags, sandals, belts, boots, and saddle straps and also

repairs many items. Repair services may arise in part because proprietors

face a low level of demand for a given new product, and in part because

they are attempting to make more efficient use of scraps or test new

products.

5.2.2. Mechanization

It is commonly accepted that small scale manufacturing enterprises

are labor intensive. Data are presented in Davies et al. (1979) concerning

the kinds of machinery used in the SSE's and their relationship to the

work force.

Table 8 of this report shows that problems related to the high cost or

unavailability of new machinery and spare parts comprise the fourth most

crucial problem nationally. Except for the E.D.'s, most proprietors in the

remaining locations rank the problem in third place. The question becomes

more serious as one moves to the urban areas, reflecting the intensity of

mechanization. The most crucial problem becomes the unavailability of

machinery spare parts. The demand for new machines is not as serious as

the demand for spare parts. Some of the demand for spare parts comes from

using machines which are very old or inefficient by present standards.

5.2.3. Sources of Power

Forty percent of the small scale manufacturing enterprises questioned

used only manual power in the production process. Electricity from the

Jamaica Public Service Company (JPS) was the next most important power

sources, providing power for just under 30% of the enterprises, followed

by wood, which was the power sources for one-quarter of the enterprises.

The general picture is shown in Table 23.

The data, when disaggregated spatially, provide very interesting

variations in the pattern of power sources used. In Kingston, electricity

Table 23

Percentage of Enterprises Using Various Power Sources

in Each Location

Location
Power Source
Major Rural
Power SourceE.D.'s Jamaica
KingstoTowns Towns Jamaica

Electricity 81.1 55.8 52.4 14.7 29.0

Electricity and Gas --- 6.3 4.3 0.8 4.3

Kerosene and/or Diesel 0.6 ---- 3.0 3.7 2.8

Wood --- 4.2 1.2 33.2 24.4

Others 6.1 8.4 3.1 1.2 2.7

Manual 12.2 25.3 36.0 46.4 39.8

TOTALS 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey Data, 1979

provides power for over 80% of enterprises, "manual" or "other" account

for just under one-fifth of the power used, and wood is not used. Wood

is also of limited significance in both the Major and the Rural Towns,

where electricity accounts for just about 60% of the power used. The

categories "manual" and "other" account for 40% and 46% in the Major and

Rural Towns respectively.

The E.D.'s display a totally different picture from the urban areas;

wood is the power source for one-third of the establishments and "manual"

for nearly one-half. Therefore, the combination of wood and "manual" provides

the power for four-fifths of the small scale manufacturing enterprises in

the E.D.'s, with electricity, the major power source elsewhere, accounting

for only 15% of establishments in these locations. The large number of

establishments in the E.D.'s influences the distribution of power usage in

that, despite the relative unimportance of electricity as a power source

here, E.D.'s still contain as many establishments using electricity as does
Kingston. The E.D.'s dominate in all other major categories and account

for virtually all establishments using wood.

The fact that less than 30% of all manufacturers utilize power from

the public power supply raises interesting questions about the potential

role of small scale enterprises in the industrial development of the

country. Either the overwhelming majority of small businesses is involved

in production activities which are inherently manual, or these businesses

are utilizing inefficient technologies where more modern ones exist. In

either case, the question of whether the sector should be helped to develop

and expand must be raised and justified vis-a-vis other development priorities.

Several problems must be addressed simultaneously. The first is whether

public power sources should be made available, if this is the constraint. If

so, the next problem concerns the need to train proprietors and workers in

new production techniques, utilizing power machines. Finally, there would

be the question of financing the purchase of these machines -- a process

which must be justified in terms of increased market sources.

Problems related to electricity (and water) were included in the general

problem area labeled "utility" in Table 8. Few of those surveyed regarded

sources of power as a major problem. For those citing it, the main complaint

was that costs were rising fast. Evidence later showed that many of them were

trying to cut electric use. For example, tailors were pedaling their

sewing machines instead of using electricity, and working primarily during

the day in order to reduce electricity consumption at night.

VI. MANAGERIAL CHARACTERISTICS AND PRACTICES

Management capabilities and techniques is a complex topic and our

treatment of it is somewhat cursory. We will first discuss the formal and

informal training background of the proprietor, the level of bookkeeping

and business performance analysis, and information needs and sources; we

will then comment briefly on marketing and personnel management.

6.1. Educational Level

It has been shown that those with higher levels of education are not

necessarily better managers in the SSE sector. Chuta and Liedholm (1979)

found this to be the case in Sierra Leone. But it is true that the ability

to read, write and work out basic mathematical problems enhances one's

potential ability to carry out improved managerial practices.

Information by educational level among the different locations is shown

in Table 24. Almost all of the proprietors had primary or secondary level

education, with about 2% (most of whom are found in the E.D.'s) having no

education and another 2%, mostly outside the E.D.'s, having some post-

secondary education. The data also show that when only those who have

actually finished the highest grade in any level are considered, there is a

big difference between the E.D.'s and the other locations. Only about one-

third of those who are in primary education finished this level in the

E.D.'s as compared with 63% or more for the other locations. Of those who

have actually finished the secondary level, the rate is four times as many

(about 8%) for the other locations as compared with the E.D.'s.

Table 24

Classification of Proprietors by Highest Level of Education Attended
(Percentage)

Population Size Strata
Educational Level* M r
Major Rural
Kingston Towns Towns E.D.'.s Jamaica
Towns Towns

No Education 0.6 1.0 --- 2.7 2.1

Primary 77.2 73.5 70.5 79.2 77.8

Secondary 17.2 25.5 25.3 17.0 18.3

Tertiary 5.0 --- 4.2 1.1 1.8

Totals 100.0 100.0 100.0 100.0 100.0

Source: Phase II Survey, 1979

*Note, at the national level more than one-half of the proprietors (53%) have actually
finished the highest grade in the primary level although they have not attended any
level beyond it. The corresponding figure for those who have finished the highest
grade in the secondary level (but are still classified as attending this level) is 3.2%.

Some proprietors had been trained at agricultural and teacher-training

colleges and others had gone through the University. For those who had at

most only 3 years of education, 4.1% were from Kingston, 5.1% from the

Major Towns, 7.0% were from Rural Towns, and 16.0% were from the E.D.'s.

Hence, education among proprietors rises as one moves to the more urban

areas.

At the individual enterprise level, proprietors in woodworking and

auto repairs show a slight edge in higher achievement over tailors, dress-

makers, showmakers and craft workers. Among the ten or so major enterprise

types, shoemakers have the lowest percentage of proprietors with secondary

education while auto repair people have the highest.

With 96% of them having been through the primary or secondary levels,

SSE proprietors have a higher level of education than the general public,

which has a corresponding figure of 84% (see Department of Statistics,

1978). The difference between the two groups is even greater for those

who have finished secondary level education -- 18% for the SSE proprietors

and 8% for the general public.

6.2. Participation in Seminars and Vocational Training

Nearly two-thirds of the proprietors said that they had some kind of

vocational training (Table 25), a surprisingly high percentage. However,

a large number of the proprietors may have been trained under an apprentice-

ship type of arrangement without pay -- a partial explanation, perhaps, for

the high percentage of persons with vocational training. For example, some

technical high schools in Jamaica have an arrangement with some businesses

whereby students are allowed to work briefly for training before they

graduate.

Table 25

Classification of Proprietors by Participation in Vocational Training and Seminars
(Percentage)

Location
Participation
Kingston Major Rural E.D.'s Jamaica
Towns Towns

1. Vocational Training 79.9 44.9 46.3 64.8 63.9

2. Seminar Attended 14.4 11.2 11.4 6.0 7.9

a. Production Techniques 78.6 81.8 100.0 100.0 96.2

b. Management 17.9 9.1 ---- ---- 2.8

c. Other topics 3.6 9.1 --- ---- 1.0

Source: Phase II Survey Data, 1979

Table 25 shows that nationally, the percentage of proprietors who

attended seminars is about 8%. The level of participation rises as one

moves to the more urban areas. Almost all of the proprietors who attended

seminars did so to learn something about production techniques in

their line of trade. Subjects ranged from learning how a new machine works

to getting information on what one should produce for export. It is

interesting to note that proprietors in the Rural Towns and the E.D.'s

participated in production seminars only, while those in the urban areas

(Kingston and the Major Towns) attended seminars dealing with production,

management, and other topics as well.. Thus, in Kingston more than one-fifth

of the proprietors attended seminars which focused on topics other than

production techniques. Management seminars, for example, included

bookkeeping, personnel management and marketing strategy. The difference

in subject emphasis between the urban and rural locations may be

due to the size differences among enterprises. The bigger the enterprise,

the more important become features other than production techniques.

As the ages of proprietors rise, their level of participation in seminars

falls markedly in the two rural areas (and hence at the national level, too).

Thus, for those 30 years or younger, the levels of participation in the Rural

Towns and E.D.'s were 22.2% and 17.1%, respectively; for those 31 to 40 years

old and for those above 40 years, the corresponding proportions were 4.4% and

7.0% and 10.5% and 2.6% respectively. In the two urban locations, however,

little difference exists, if any at all; the 31 to 40 year age category has

slightly higher rates -- 21.1% for Kingston and 12.9% for the Major Towns.

At the national level, about 17% of those 30 years or younger attended

seminars, while proprietors in the higher age categories participated at

rates of 8.9% and 4.5% respectively.

The data reveal a direct relationship between seminar attendance and

the level of education. For example, outside the E.D.'s the percentage of

proprietors with post-secondary education who have attended seminars is

more than 40%. The relationship is much less marked in the E.D.'s. And

except for the proprietors with secondary education in the Rural Towns,

higher levels of education in all other locations are directly associated

with higher levels of seminar attendance.

At the individual enterprise level, there are some differences. Metal

work proprietors show the highest level of attendance followed by proprietors

in auto repairs, tailoring, woodworking and dressmaking, in that order.

Shoemakers show the poorest attendance.

6.3. Information Needs and Sources

In order to increase proprietors' awareness of improved techniques of

production as well as new business trends, it is useful to know not only

what types of business information proprietors need but also their present

source of this information. Since acquiring information has a cost,

providing it to those who can least afford it has an implication for the

growth and development of the sector.

In the survey, proprietors were asked to indicate the most vital types

of information needed on a continuing basis to run their businesses effectively.

This information is shown in Table 26. While proprietors could mention as

many types of information as they felt were important, most mentioned only

one; the average was less than 1.2 in all the areas.

Proprietors were also asked to indicate their chief source of information;

Table 27 shows the results of this inquiry. Again, the average number of

sources of information per proprietor was less than 1.2.

Table 26

Classification of Proprietors by Expressed Information Needs
(Percentage)

Location
Information Type* M r
Major Rural
Kingston E.D.'s Jamaica
Towns Towns

Product Market 27.6 13.7 25.0 60.7 50.5

Raw Material 37.4 58.9 43.8 29.8 33.7

Financial Aid 11.5 1.1 12.5 6.1 7.1

Production Type or Technique 2.9 4.2 3.1 7.6 6.4

Machinery/Parts 9.2 6.3 8.8 1.1 3.1

Management 5.2 1.1 1.2 3.0 3.0

Other Topics 2.9 3.2 1.2 1.1 1.5

None 19.0 12.6 13.8 6.5 9.1

Source: Phase II Survey Data, 1979

*The average number of information-type needs per proprietor in Kingston, Major Towns, Rural
Towns and the E.D.s were respectively 1.2, 1.0, 1.1 and 1.2.

6.3.1. Information Needs

At the national level, one-half of all proprietors regarded product

market information as the single most important need -- a concern consistent

with the demand constraints faced by the small industrial enterprise sector

(SSE). It was pointed out earlier that close to 40% of the proprietors

pinpointed lack of adequate demand for their products as the single most

critical problem they faced, and two-thirds of them put it among the top

three problems. This problem results primarily, of course, from the declining

real income level of the average Jamaican over the last few years. Thus, as

consumers' purchasing power shrinks, proprietors must spend more time

searching for styles, trends and markets. It is not surprising, therefore,

that the small proprietor's chief source of competition comes from other

small proprietors (see Table 13).

Information concerning lower prices and/or the availability of raw

materials was the second most important need mentioned by one-third of the

proprietors. A distant third was information about financial aid or credit,

followed closely by information about techniques/types of production. Few

proprietors mentioned information about prices, availability of spare parts/

machinery, and management techniques. About 9% of the proprietors stated

that they had no particular or pressing information need.

Some differences exist at the locational level. In the E.D.'s 60% of

the proprietors mentioned that information about demand is the number one

item of importance; the highest corresponding figure in any other locations

is only 28% for Kingston. In locations other than the E.D.'s, information

about raw materials is the most dominant need.

Information about production techniques/types is again more important

in the E.D.'s than in the other locations; yet the reverse is true for

information on machinery and parts availability. The likely explanation is

that as one moves to the most rural areas, production is more labor intensive

and as a result there may be relatively higher percentages of proprietors

who want to know about new techniques of production. In the urban areas,

however, proprietors already know or have access to the new techniques of

production and thus their interest lies in finding ways to obtain and finance

the machines and parts to be used in this technique.

At the enterprise group level, in all the locations except the E.D.'s

it is the search for raw materials and obtaining them at a reasonable price

which is the most important need. This holds for all the groups in Kingston

except crafts and metal works; even in the latter, the problem ranks second.

In the Major Towns it holds for all enterprise groups except food, where

information on techniques of production is the most important need. It

also holds true for all the enterprise groups in the Rural Towns. In the

E.D.'s, however, information about demand or product market is the most

important need for all enterprise groups -- except auto repair and foods

enterprises, which again have the need for information on raw materials

in first place.

The age (business experience) and educational background of the

proprietor appear unrelated to information needs and level of utilization.

Both in the age and education level categories given in Table 1 and 24,

the ranking of information needs remains, for the most part, the same as

that shown in Table 26. Product market information is the number one

need -- with a percentage very close to 50 -- at the national level in

all age and educational level categories. Raw material information is

second in all categories (except at the tertiary educational level) for

both age and education, with a percentage close to 30 -- again as in Table 26.

At the post-secondary or tertiary level of education, production techniques

rank second instead of raw materials, which rank third. The locational

variation in ranking information needs for both product market and raw

materials is almost identical to that shown in Table 26.

Nationally, the relative importance of the information needs listed

in Table 26 is dependent on the prevailing economic situation. If the

economy were on the upswing, it is likely that the search for new production

techniques would dominate product market investigation. But given the

economic constraints that Jamaica now faces, it is inevitable that shrinking

demand and raw material shortages predominate. It would be interesting to

see how information needs on short-term loans, production, and management

techniques would be ranked under less restrictive economic situations.

These variables are important because, for long-term development policies,

they are the variables which are usually given priority attention in the

short run in order to enhance the effectiveness of the small enterprises.

More than anything else, programs incorporating such variables are chosen

because of their cost effectiveness vis-a-vis limited public funds and

the relative ease with which they can be administered.

6.3.2. Information Sources

Table 27 shows proprietors' information sources for the types of

information needed. Less than 15% of the proprietors indicated more than

one chief source for any single need.

Nationally, more than one-third of the proprietors mentioned friends
as a source of vital information; friends were especially important in the

E.D.'s. The second most important source of information was business

people and this source increases in importance as one moves to the less

urban areas. These business people are chiefly other small proprietors.

Classification

Table 27

of Proprietors' Sources
(Percentage)

of Information Received

Location
Information Source Major Rural
Kingston E.D.'s Jamaica
Towns Towns

Friends 25.5 31.4 18.9 42.5 37.6

Other Proprietors1 14.2 15.7 21.0 22.0 20.5

Purchasers2 19.9 8.5 20.3 15.1 15.8

Own Effort 8.5 15.7 37.6 13.5 14.2

Suppliers3 21.2 30.1 13.0 10.6 13.3

Media 23.4 8.5 8.7 9.0 10.8

Government Organizations 2.8 2.4 2.9 2.5 2.6

Source: Phase II Survey Data, 1979

Small (16.6% at the national level) and large business proprietors (3.9%)

2Distributors (3.9%) and individual customers (11.9%)

3Including brochures (8.6%)

(In fact, six times as many proprietors mentioned owners of other small

businesses rather than large businesses as a major source of information.)

The next three major sources of information were customers or distributors,

suppliers and the media. Of these, customers were the most significant

source (16%), followed by suppliers (13%) and the media (11%). Customers

are equally important in all areas. Finally, government agencies or organi-

zations are cited as a source by an insignificant percentage, and about one-

seventh of the respondents said they relied mainly on their own efforts and

experience for whatever information they needed.

In order to understand the roles of the different sources of information,

it is useful to relate different sources to the types of information required.

Table 28 shows this information for Kingston and the E.D.'s, the two locations

of greatest contrast. Friends, for instance, are sources of information for

everything but production techniques in the E.D.'s. In Kingston, they are

important for obtaining information on product market and/or prices, and on

different techniques of production and types of products.

Who are these friends? They may be people working in bigger enterprises

who are willing to share their experience with a small proprietor; they may

be people who make frequent (business) visits to other small or large

enterprises and thus serve as inter-business carriers of information about

sales, trends, styles, and availability of materials. It is very common to

walk into a small enterprise workshop in Jamaica and find people ("friends")

who, without seriously interrupting the owner from his job, are chatting

with him about different topics. In many instances, friends are exchanging

views with an eye to their own vested interests as potential small proprietors.

The source "media" refers to newspapers, radio and television. As

would be expected, this source is much more important in Kingston than in

Table 28

Classification of Proprietors by Type of Information Needed and
Where Information Received -- for Kingston and the E.D.'s
(Percentage)

Sources of Information
Information Type
Other Own Effort Government
Friends Media Customers Suppliers Proprietors wn Effort ganization

1. Product Market
Kingston 39.6 27.1 12.5 20.8 8.3 12.5 ----
E.Ds. 40.9 5.0 10.1 .12.6 23.9 15.1 1.9

2. Raw Materials
Kingston 7.7 18.5 30.8 26.2 12.3 1.5 1.5
E.Ds. 59.0 12.8 15.4 7.7 17.9 9.0 1.3

3. Credit
Kingston 20.0 80.0 ---- 15.0 20.0 5.0 15.0
E.Ds. 56.2 6.2 12.5 37.5 25.0 43.8 18.8

4. Machinery/Parts
Kingston ---- ---- 31.2 25.0 31.2 ---- --
E.Ds. 33.3 ---- 33.3 ---- 33.3 -- --

5. Management
Kingston 22.2 33.3 22.2 11.1 11.1---- --
E.Ds. 62.5 12.5 25.0 ---- 12.5 12.5 ----

6. Production Techniques
Kingston 40.0 60.0 20.0 20.0 20.0 ----
E.Ds. 10.0 ---- 5.0 12.0 5.0 10.0 ----

Source: Phase II Survey Data, 1979

the E.D.'s. Ownership of any type of media is probably limited by one's

income level; however, the practice of sharing use of these services allows

greater access to the source than the rate of ownership indicates. In

Kingston, media sources are important in providing information about

financial aids and production techniques.

Proprietors receive some information from customers, i.e., distributors

and individual purchasers, because the latter.in many instances bring along

their own raw materials, particularly fabrics, and in sub-contract arrangements,

distributors often share with the proprietor their own ideas and information

concerning the types of products produced and the materials used to produce

them.

"Suppliers" refers to those providing or willing to provide materials,

parts and machines -- with or without brochures. The high percentage of

proprietors applying for credit in the E.D.'s is probably due to the fact

that public financial agencies (e.g., SEDCO) advertise themselves through

brochures and radio announcements. Otherwise, proprietors in the E.D.'s

get very little information from suppliers or from the media, as evidenced

by the fact that the E.D.'s consistently show a higher percentage of personal

experience and effort as a main source of business information.

More information sharing appears among small proprietors in the rural

areas than in the urban areas, particularly information concerning availability

(and prices) of machines/parts, credit and product prices. Such sharing of

information is not inconsistent with what was said concerning other small

business proprietors as the main source of competition, since information

sharing takes place primarily among friends.

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