Small Industry in Developing Countries

Small Industry in Developing Countries Reading Answers contains 14 questions, and it is a topic belonging to the assessment system of IELTS general reading test. Small Industry in Developing Countries Reading Answers have to be answered within 20 minutes. In this IELTS reading section, there are questions like Do the following statements agree with the passage? Complete the summary using a list of words, Choose the correct letter. Also, Small Industry in Developing Countries Reading Answers contains all the information about the pivotal role of small industries in employment and regional development in developing countries. To practice reading papers like that, the candidates can refer to IELTS Reading Practice test.

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Topic:

The role of small industries in the development process has been the subject of a large number of studies over the past 30 years. Although large industry has absorbed huge shares of total investment, it still accounts for small shares of industrial employment in all but a few countries now in advanced stages of industrialization. It is also concentrated in metropolitan areas. In contrast, household (or 'cottage') industries and small workshops and factories account for appreciably larger shares of recorded industrial employment, are more labour-intensive in aggregate, and more widely dispersed in provincial towns and cities. Case histories of medium and larger-sized firms have also suggested that much of the growth of employment in large industry is due to the expansion of previously small firms through the size distribution. For these and other reasons, it is argued that a shift of investment towards small industry would both improve earnings opportunities for a larger share of the labour force and encourage regional industrial development. In a large measure, these arguments have been accepted and, in most developing countries, governments have introduced special programmes of support, for example, in the form of small industry finance, extension and advisory services, infrastructure, and programmes for the training of managers and workers. When considered in terms of the contribution to employment and earnings, the continuing interest in small industries in developing countries, among those concerned with development policy, seems justified. Indeed, the issues ahead no longer relate to the 'significance' of small industries but to the effects of various policies and programmes upon them. Over long periods of the industrialization process, employment in household manufacturing, and in small workshops and factories, far outweighs that which is (or could be) provided by large industry, notwithstanding the huge concentration of investment and of supporting services on the latter over the past twenty to thirty years.

Turning to programmes of support for small industries, several issues arise. The most general one, concerns the shortage of ex post evaluations of the many programmes that have been undertaken in developing countries. Even particular aspects of these programmes, such as the provision of training and advisory services, vary greatly in approach between one country and another, and it is obvious that there would be much to be learned from a comparison of the experiences of different countries. With respect to small industry finance, several parallels with the findings of those who have studied agricultural credit were noted. Principally, the much discussed risks of the owners of small industries defaulting on loans are often proving to be real. In fact, the default rates are high enough in some programmes to raise the most fundamental questions about the economic desirability of the continuance of those programmes as they are presently designed. Concessionary finance, for example, has been the general rule, attracting - and for the most part going to - influential borrowers of good standing. Since these borrowers are, in theory, low risk, it is hard to avoid the conclusions that concessionary finance, with its attendant administrative controls, invites loose banking practices and aggravates the risks. Hence the commonplace argument for cost and risk-reflecting interest rates exists.

While higher interest rates than now prevail would be desirable, however, we have argued that this alone would not secure an efficient f low of institutional finance to potentially low-risk borrowers currently denied access to it. Risk-reflecting interest rates would be far higher than is commonly supposed until the financial institutions are fully adapted to the task of lending to large numbers of small borrowers; even if they were politically tolerable, which is unlikely to be the case, they would probably extinguish the market, and impose a significant external cost on potentially low-risk borrowers. Further, the lack of an accounting base in the large majority of small firms in developing countries, the absence of legally acceptable documentation of assets held, the underdevelopment of insurance markets and of legal procedures for handling foreclosures and maintaining repayment discipline, all argue against simple appeals for 'commercial' rates of interest as the sole element of financial policies. As long as such problems remain significant the conclusion is unavoidable that a transformation of the financial institutions' policies will not take place - except over an exceedingly long period - without risk guarantee programmes and the involvement of the public banks. It is nevertheless clear that the financing programmes would function better if they were accompanied by a relaxation of administrative controls on interest rate policies and on the borrowings and lendings of financial intermediaries.

Under these circumstances the interest rates would rise to levels that would roughly reflect the costs of raising resources and lending to low-risk borrowers.

This argument is not new. But it is strengthened; it is hoped, by the evidence presented in the text and by reference to recent research on uncertainty in economics. The small industry programmes themselves are also accompanied by administrative controls in many countries, e.g. in terms of the types of firms and assets to be financed. Ostensibly, they were intended to encourage the intermediaries only to finance 'job creating' projects, and have led to, among other things, the much discussed neglect of working capital finance and to the exclusion of firms seeking to raise output without necessarily expanding employment. Again, we have argued that such controls both increase the risks of the programmes and reduce their capacity to improve employment opportunities. It is sometimes argued that if leading sector policies were more appropriately chosen, direct interventions to assist small industries would not be necessary. Under leading sector policies are included tariffs, investment incentives and policies towards agriculture. However, this is a fundamentally wrong way of interpreting the purposes of small industry programmes. Properly considered, these programmes are not intended to be an alternative, but instead to address specific sources of market failure (e.g. in the capital markets) and of inefficiency that would limit the effectiveness of a movement towards more desirable leading sector policies. Equally, it is true that small industries would stand to gain from the long-standing proposals for a reform of these policies - in particular from a more labour demanding structure of industrial incentives and tariffs, and from a more broadly-based growth of agriculture.

For this reason it was concluded that the more efficient (and also the more labour demanding) the leading sector policies, the more efficient the small industry programmes are likely to be.

Questions 27-31

Complete the summary using the list of words, A-L, below.

THE ROLE OF SMALL INDUSTRIES

Despite the attraction of great investment shares, large industry takes up small shares of industrial employment in (27)....

Answer: A. Few

Supporting statement: "it still accounts for small shares of industrial employment in all but a few countries now in advanced stages of industrialization."

Keywords: few countries, small shares, industrial employment

Keyword Location: Paragraph 1, Line 2

Explanation: The statement identifies that only a few countries in advanced stages of industrialization have high employment in large industry, fitting the blank appropriately.

countries. Small industry, in contrast, accounts for larger shares of employment and are widely (28)..

Answer: B. spread

Supporting statement: "and more widely dispersed in provincial towns and cities."

Keywords: widely dispersed, provincial regions

Keyword Location: Paragraph 1, Line 5

Explanation: The phrase “widely dispersed” matches “spread” in meaning and fits the context of describing geographic distribution.

in provincial regions. It therefore both improves (29)...

Answer: G. earnings

Supporting statement: "would both improve earnings opportunities for a larger share of the labour force…"

Keywords: improve, earnings opportunities

Keyword Location: Paragraph 1, Line 6

Explanation: “Earnings” directly fits the context of improving income opportunities for more workers.

opportunities for a larger share of the labour force and promotes regional industrial development. Governments in developing countries introduced special programmes of support, like programmes for the (30).........

Answer: L. training

Supporting statement: "...programmes for the training of managers and workers."

Keywords: training, managers, workers

Keyword Location: Paragraph 1, Line 8

Explanation: "Training" fits the context of government support initiatives for small industries.

of managers and workers. As for these programmes and development policies for the contribution to employment and earnings, the related issues will be no longer concerned with the (31).....

Answer: J. significance

Supporting statement: "the issues ahead no longer relate to the 'significance' of small industries but to the effects of various policies and programmes upon them."

Keywords: no longer relate to, significance, policies

Keyword Location: Paragraph 1, Line 9

Explanation: The statement shifts the focus from proving importance to assessing policy impact, fitting “significance.”

of small industries but the effect of these various policies and programmes.

A. Few

B. spread

C. environment

D. less

E. expenses

F. distribution

G. earnings

H. choose

I. most

J. significance

K. disperse

L. training

Questions 32-36

Do the following statements agree with the information given in Reading Passage 3?

YES if the statement agrees with the information

NO if the statement contradicts the information

NOT GIVEN if there is no information on this

32. Investment and supporting services are enormously concentrated on large industry over the past decades.

Answer: TRUE

Supporting statement: "notwithstanding the huge concentration of investment and of supporting services on the latter [large industry] over the past twenty to thirty years."

Keywords: huge concentration, investment, supporting services, large industry

Keyword Location: Paragraph 1, Last line

Explanation: The statement directly confirms the concentrated investment in large industry over decades.

33. All aspects of programmes of support for small industries are almost the same among different developing countries.

Answer: FALSE

Supporting statement: "...such as the provision of training and advisory services, vary greatly in approach between one country and another..."

Keywords: vary greatly, one country to another

Keyword Location: Paragraph 2, Line 2

Explanation: The text states the opposite—that programmes vary significantly among countries.

34. It is often proved true that there are the risks of the owners of small industries defaulting on loans.

Answer: TRUE

Supporting statement: "the much discussed risks of the owners of small industries defaulting on loans are often proving to be real."

Keywords: risks, defaulting, proving to be real

Keyword Location: Paragraph 2, Line 4

Explanation: Confirms that defaulting by small business owners is a real, observed issue.

35. Risk-reflecting interest rates are constantly much lower than commonly supposed.

Answer: FALSE

Supporting statement: "Risk-reflecting interest rates would be far higher than is commonly supposed..."

Keywords: far higher, commonly supposed

Keyword Location: Paragraph 3, Line 2

Explanation: The interest rates are actually higher, not lower, contradicting the statement.

36. The programmes are accompanied by administrative controls in many countries according to the types of firms, quantity of workers and financed assets.

Answer: TRUE

Supporting statement: "...administrative controls in many countries, e.g. in terms of the types of firms and assets to be financed."

Keywords: administrative controls, types of firms, assets

Keyword Location: Paragraph 4, Line 1

Explanation: The text supports that programmes are restricted based on firm types and assets.

Questions 37-40

Choose the correct letter.

37. The most general issue concerned with the programmes of support for small industries refers to

A. insufficient bank loans to small industries.

B. lack of ex post evaluations of the programmes of different developing countries.

C. no provision of advisory services.

D. lack of systematic training of managers and workers.

Answer: B. lack of ex post evaluations of the programmes of different developing countries.

Supporting statement: "The most general one, concerns the shortage of ex post evaluations of the many programmes..."

Keywords: most general issue, shortage, ex post evaluations

Keyword Location: Paragraph 2, Line 1

Explanation: Clearly identifies the biggest concern as lack of evaluations.

38. Which of the following does NOT argue against attracting 'commercial' rates of interests as the only financial policy in developing countries?

A. The lack of accounting in most small firms.

B. The absence of legally acceptable documentation of assets.

C. The lack of sufficient bank loans to small firms.

D. The underdevelopment of insurance markets and of relevant legal procedures.

Answer: C. The lack of sufficient bank loans to small firms.

Supporting statement: The paragraph argues against relying on commercial interest rates due to factors like lack of documentation, accounting, etc., but doesn’t mention loan availability.

Keywords: accounting, documentation, insurance, legal

Keyword Location: Paragraph 3, Line 4

Explanation: Loan availability isn’t listed as an argument against commercial rates.

39. Administrative controls lead to both the increase of the programmes' risks and

A. the rise of financial support from governments.

B. the reduction of developmental motivation of small firms.

C. the improvement of the management of small firms.

D. the decline of their ability to improve employment opportunities.

Answer: D. the decline of their ability to improve employment opportunities.

Supporting statement: "such controls both increase the risks of the programmes and reduce their capacity to improve employment opportunities."

Keywords: increase risks, reduce capacity, employment

Keyword Location: Paragraph 4, Line 5

Explanation: Controls reduce the programme’s ability to promote employment.

40. The writer finally makes the conclusion that

A. the efficiency of the leading sector policies may promote that of the small industry programmes.

B. leading sector policies do not include investment incentives and policies towards agriculture.

C. the appropriate choice of the leading sector policies can make unnecessary direct interventions to help small industries.

D. small industry programmes are not meant to figure out specific reasons for the inefficient movement towards better leading sector policies.

Answer: A. the efficiency of the leading sector policies may promote that of the small industry programmes.

Supporting statement: "the more efficient... leading sector policies, the more efficient the small industry programmes are likely to be."

Keywords: more efficient, leading sector, small industry programmes

Keyword Location: Final paragraph, Last line

Explanation: States a clear causal connection between the two efficiencies.

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