Challenges and Opportunities of Small and Medium Enterprises (SMEs) Operations in Afghanistan

Abstract

Small and Medium Enterprises (SMEs) as engine of growth, plays a crucial economic role in many developing countries. In Afghanistan, for example the SME sector has contributed over 50 percent of Gross Domestic Products (GDP) and employ more than one – third of labor force but despite their significant and positive impact, SMEs are facing tough challenge of surviving in today’s globalized era. Statistic indicates that eighty percent of SMEs fail within first five years of operations. This study tends to focus on how SMEs in Afghanistan have been experiencing deterioration in their operations. These challenges are determined by both macroeconomic stability and a business-friendly environment. This study employed simple random sampling to collect data from 120 Small and Medium Enterprises (SMEs) using survey questionnaires. The data is being analyzed descriptively and presented through figures, tables, frequencies and tables. The findings indicate that SMEs operations has been hampered by the following challenges; political and security instability, asymmetric information, unfair competition and marketing, complicated border and administrative procedures, insufficient and poor infrastructure, inadequate government policies, lack of conducive national business environment, lack of access to financial resources, lack of skilled labors and lack of innovation and technology. Following are the strategies for having well-functioning of SMEs; effective government policies, availability of quality infrastructure, conducive national business environment, political and security stability, competition law and enforcement, and access to credit and other financial resources. The conclusion suggests that inclusive and predictable policies will encourage SMEs to promote its competitiveness in domestic markets as well as connecting businesses to international markets.