CHAPTER 1

RESEARCH BACKGROUND

The contribution of Small and Medium Enterprises (SMEs) around the globe is unquestionable and especially in developing countries, where development in this sector is seen as a key strategy for economic growth, job generation and poverty reduction. In light of the significant contribution of SMEs to the global economy, and to Mauritius in particular, the researcher would like to explore and describe the financial knowledge which manufacturing SMEs in Mauritius use to measure their financial performance.

In Mauritius SME has been redefined, where previously the volume of investment in equipment which was one million up to Rs 10 million which was taken into account, is now classified as a small enterprises and with less than 50 and 200 employees for small and medium scale respectively.

According to SMEDA Act 2009 in Mauritius, an “enterprise” means any form of trade or manufacture, craft by hand or foot, cultivation of fruits, vegetables or flowers, livestock breeding, or activity approved as such by the Authority. A small enterprise is an enterprise having an annual turnover of not more than Rs 10 million while a medium enterprise is an enterprise having an annual turnover of more than Rs 10 million but not more than Rs 50 million.

Small and medium sized firms dominate both developed and developing economies in terms of employment and number of companies, yet their full potential remains untapped. These trends need to be changed. The ability of smaller firms to create jobs is clearly a major attraction for governments in the short term. SMEs must be encouraged and supported to flourish. This is important so that economic objectives (economic growth and development, favorable balance of trade and payment and employment) and social objectives (poverty alleviation and improving standards of living) can be realized. Mauritius must respond to the needs of SMEs as they form an important component of the economy.