Effects of Quotas on Importing and Exporting Countrys Trade

Effects of Quotas on Importing and Exporting Countrys Trade LITERATURE REVIEW This chapter starts with a theoretical framework. It discusses what quotas are followed by the models showing the effects of quotas on importing and exporting countrys trade. A large body of literature attempts to predict the likely impact of removal of quotas on textiles and clothing. The results of these studies are included in this chapter. 3.1 Theoretical Framework There are many forms of protection in world trade. They include tariffs and non-tariff barriers. Tariffs, which are taxes on imports of products into a country or region, are amongst the oldest form of government intervention in economic activity. They are implemented because they provide revenue for the government and protect the domestic industry from foreign competition. Non-tariff barriers include voluntary export restraints, technical barriers to trade, and import quotas. The effects of all these tariff and non-tariff barriers on importing and exporting countries are almost identical. Quotas restrict the imports of specified products by setting a maximum quantity or value of goods authorized for import. Different types of quotas exist, such as global quotas, bilateral quotas, seasonal quotas, quotas linked to export performance, quotas linked to the purchase of local goods, quotas for sensitive product categories, and quotas for political reasons. In this context, quotas refer to the limits placed on the quantity of different categories of clothing (e.g. knitted T-shirts, sweaters, gloves) and textiles (e.g. knitted fabric, acrylic yarn, cotton fabric) that can be exported to the US, Canada and the European Union (EU). Under the ATC system, garment and textile-producing countries were assigned a maximum quantity that they could legally export to the US, Canada and the EU during a particular time frame. The quotas set by the ATC differed by country and per product. The allocation of quotas was generally based on historical export levels (Appelbaum, 2004). The quotas operated under the Agreement on Textiles and Clothing were originally introduced under the MFA. The main purpose of these quotas was that they were imposed only by specific countries, on exports from specific countries. Another purpose was that the importing countries allowed exporting countries to allocate the quotas. Quotas effects are not easy to understand since they are very complex and require a global perspective to be taken. To a better understanding of the effects of quotas on both importing and exporting countries can be gained from the use of, diagrammatic models. The first diagram model used here shows the effects of quotas on importing countries. Importing countries imposed quotas as a device for restricting imports than tariffs. This is because they are more predictable. They ensure that imports cannot exceed a certain amount, whereas, with a tariff, the precise effect on the volume of imports is uncertain, depending on the slope of the demand and supply curves. When the quota imposed the price of the product became OP* from OP. Sd + quota is the domestic supply curve with the quota added. Demand of the product falls to OQ3 because of the high price and domestic supply increases to OQ2. Imports, also falls, because of the quota constrained at Q2Q3 = WV. In case of importing country profit goes to the person who imported the product at the price OP and sell it on OP*, not to the government (area C in Diagram). If government auctions the quotas than importers have to buy a licence of the quotas to import the products, than the profit will go to the government. The main advantage of the quota is that domestic production increases because the imports decrease, however, consumption of the product also decreases. However, in some respects quotas are more damaging than tariffs for the importing country. Like quotas allocated on the basis of share of the importer in the market and once allocated, it is difficult for more efficient importers to import more if their quota has been already used up. To understand their effects on exporting countries it is important to distinguish between the prices of restricted and unrestricted markets. A simple diagram model can be used to present the basic economic implications of the MFA quotas for exporters (Figure 3.2). As in Kathuria, Martin and Bhardwaj (2001), the diagram is kept simple by basing it on the Armington Assumption, which states that the products produced by this group of exporters are not the same as the products of other countries. This assumption allows well-defined import demand curves to be drawn for quota-restricted products in the restricted country (DR) and in the unrestricted country (DU). The point where these two demand curves meet horizontally gives the global demand (DT) for the products of the restricted countries. In the absence of any quotas, as in figure 3.2, the price will be the same in restricted and unrestricted countries. In the unrestricted equilibrium represented in figure 3.2 the same price applies in both the restricted and unrestricted countries, because the restriction comes in figure 3.3. When quotas are introduced in restricted markets the quantity exported to those markets declines as shown in figure 3.3. The price received for exports to restricted markets increases from (PW) to (PR), because of the restrictions and the price received for exports to unrestricted markets declines from (PW) to (PU). The overall demand curve of country (DT) becomes steeper and less elastic. Because the original price of the output falls, the volume of output automatically declines. Whether static welfare increases or decreases depends on whether the net gain from quota rents in restricted export markets compared with the situation in figure 3.2, represented by the crosshatched area in figure 3.3 outweighs the losses in the vertically shaded area in figure 3.3. However, the overall effect of the ATC quotas on a countrys economy cannot be determined simply by the economic effects shown in figure 3.3, although it does provide a basis for evaluating the partial effects of quotas on all restricted markets. This model is thus inadequate for evaluating the overall impact of the quotas on a country because it does not take into account the effect of restrictions on other exporting countries. When restrictions applied to competing countries clearly increase the demand for exports from the country of interest, whether these restrictions are beneficial or not for any given country depends upon the importing countries, and on the relative magnitude of exports from each country. To predict the reallocation of textile and clothing production among developing countries, a simple Ricardian analysis suggests that a country will produce and export goods in which it has a comparative advantage. A country has a comparative advantage in producing a good if the opportunity cost of producing that good relative to other goods is lower in that country than in other countries. This depends on the factor endowments of each country and factor requirement characteristics of the produced good. The textile and clothing industries are labour intensive, and the basic input is cotton. Thus, according to the Ricardian model, it is expected that countries with larger labour forces and higher production of cotton will benefit most from ATC expiration, as it will facilitate an increase in their production and exports of textiles and clothing. The abolition of quotas in January 2005 eliminated some, but not all of the distortions affecting global trade in textiles and clothing. While the quotas have been abolished, tariffs on textiles and clothing remain, frequently at very high levels. Furthermore, some of Pakistans competitors now benefit from preferential access to industrial country markets, either under preference schemes such as the EUs Everything But Arms (EBA), or through preferences provided under regional arrangements. Unlike tariffs or export taxes, export quotas are nontransparent in their effects on trade. An analysis of the trade competitiveness situation shows that the phasing out of quotas implies significant changes in the worldwide trade structure, leading to strong output and employment shifts in and between countries. 3.2 Impact of quota elimination on textiles Textile and clothing trade among World Trade Organization (WTO) members is governed by the Agreement on Textiles and Clothing (ATC), which came into force with the WTO Agreement on 1 January 1995. This agreement means that alongside the progressive application of General Agreement on Tariffs and Trade (GATT) rules, there will be progressive phasing out of quotas in the EU, US and Canada. These quotas were inherited from the Multi-fibre Arrangements (MFA). On 1 January 2005, the ATC expired and all quotas were abolished. This means that all WTO members now have unrestricted access to the European, American and Canadian markets. This has obviously had an impact on major countries/regions concerned. This research addresses the possible impact of quota abolition on Pakistans textile industry. A considerable number of studies have aimed to quantify the economic and trade effects of the ATC phase-out as well as complete textiles and clothing market liberalisation. The majority of studies reviewed were undertaken by universities, economists and international organisations like the World Bank (WB), International Monetary Fund (IMF) and Asian Development Bank (ADB), and in the case of Pakistan, the Export Promotion Bureau (EPB), government organizations, and some institutions. Most of them foresee increases in global welfare as a result of gradual liberalization of the sector with the implementation of the 10-year transitional programme of the WTOs ATC, at the end of which the system of import quotas that has dominated the trade since the early 1960s disappeared. Most of the research covers the global textile industry and the South Asian countries post ATC regime. There is not much research available specifically about Pakistans textile industry in the quota free-regime, the opportunities and challenges Pakistan will face, and whether Pakistan will benefit from this regime or not. This literature review summarises briefly some of the available studies on the impact of the ATC phase-out on the textile and clothing industry. A large body of literature attempts to predict or quantify the likely impact of the removal of quantitative restrictions. Different approaches have been used to address the issue; summary of these studies is given in table 3.1. Diao and Somwaru (2001) estimate that over the 25-year period following the ATC implementation, the annual growth of world textile and clothing trade will be more than 5 per cent than it would be in the absence of the ATC. According to their simulations, this acceleration translates into about $20 billion more trade in the short run (upon implementation) and as much as $200 billion in the long run (25 years). They also predict that, consistent with the trend in the historical data, the world clothing trade will increase twice as fast as the textile trade in the post-quota world. Similar results are reported by Avisse and Fouquin (2001), who found that, as a result of the ATC, the global trade in textiles and clothing will be about 10 per cent and 14 per cent h igher, respectively. Table 3.1 Results of Selected Analytical Studies related to ATC Authors Database Model Characteristics Policy Simulations General Results World Bank (2004) Data collected by authors General equilibrium analyses Quota Removal focus (Pakistan) Overall, the short-run impact of MFA abolition will be positive on the textile sector, negative on clothing. The analysis suggests that Pakistan will benefit substantially from abolition of its own quotas, with the benefits resulting from improved efficiency of resource allocation outweighing the loss of quota rents. Francois and Spinanger (2001) GTAP 4 (Base year 1995) Quota prices for Hong Kong for 1998/99 Standard Static GTAP model Quota removal plus Uruguay Round trade liberalization in the context of Chinas WTO accession. (Focus: Hong Kong) Textile and clothing exports from Asia (especially south Asia) increase substantially. Preferential access to the United States and the EU would be reduced and there would be a shift in demand away from countries like Mexico and Turkey. Terra (2001) GTAP 4 (Base year 1995) Standard Static GTAP model (i) Quota removal and (ii) Quota removal plus tariff reductions (Focus: Latin America) Developing countries subject to the biggest quantitative restrictions would expand their exports at the expense of the importing developed countries, but also of other developing countries which are less restricted (i.e., Latin American countries). Avisse and Fouquin (2001) GTAP 4 (Base year 1995) Standard Static GTAP model Quota removal Output share of Asia increases from 12 percent to 18 percent. Chinas exports would increase by 87 percent, South and Southeast Asias would increase by 36 percent. Latin America and NAFTA would lose 39 percent and 27 percent, respectively. Authors Database Model Characteristics Policy Simulations General Results Diao and Somwaru (2001) GTAP 5 (Base year 1997); Counterfactual analysis using an intertemporal version of GTAP MFA phase-out simulated by improving the efficiency of textile and apparel exports from constrained Countries. Other trade barriers on textile and apparel imports are reduced by 30 to 40 percent in all countries. The annual growth of world textile and apparel trade would be more than 5 percent higher. Market share of developing countries as a whole would increase by 4 percentage points following the ATC. China would gain almost 3 percentage points of the world Textile and apparel market, while other Asian countries would capture more than 2 percent. Non-quota developing countries are predicted to lose about 20 percent of their markets. Matoo, Roy, and Subramanian (2002) Data collected by the authors. Partial Equilibrium. ETEs derived from Kathuria and Bharadwaj (2000). Leontief production. Export elasticities from 1 to 5. Interaction between the ATC and the AGOA rules of origin for Mauritius and Madagascar Under the current AGOA system, the apparel exports of Mauritius and Madagascar would be about 26 percent and 19 percent lower, respectively, following 2005. If AGOAs rules of origin requirement is eliminated, the decline in Mauritiuss exports would be only 18 percent, and Madagascars exports could increase. Lankes (2002) GTAP 5 (Base Year 1997) Standard Static GTAP model Quota removal Total export revenue loss attributed to the MFA quotas estimated to be $22 billion for developing countries and $33 billion for the world as a whole. Source: Commission of the European Communities, 2004 Although the elimination of ATC quotas is predicted to result in an increase in global trade, the impact is likely to differ among countries and regions. For each country, quota elimination represents both an opportunity and a threat. It is an opportunity because markets will no longer be restricted but it will also represent a threat as other suppliers will no longer be restrained and major markets will be open to intense competition. For instance, Lankes (2002) argues that the ATC may lead to a reallocation of production to the detriment of developing-country exporters that have been â€Å"effectively protected† from more competitive suppliers by the quota system. A World Bank (2004) study provides an analysis of potential gains and losses for Pakistan from abolishing the quota system. The study shows that whether Pakistan will be better or worse off depends on the extent to which exports from Pakistan are restricted relative to exports from other suppliers; the strength of the competitive relationship between suppliers; and the extent of complementarities associated with global production sharing, particularly the benefits from increased demand for textiles and clothing as inputs. The general results of the study are, overall, that the short-run impact of ATC abolition will be positive on the textile sector, and negative on clothing. The analysis suggests that Pakistan will benefit substantially from the abolition of its own quotas, with the benefits resulting from improved efficiency of resource allocation outweighing the loss of quota rents. The implications for the clothing sector could be serious, however if no action is taken to improve productivity, output could decline by over 15 per cent, and exports by a quarter. Overall, Pakistans real income may decline by perhaps 0.4 per cent, and real wages could decline slightly if no action is taken to improve productivity. The degree of a quotas restrictiveness can thus serve as a useful, if imprecise means of broadly predicting the likely impact of its removal. Being able to determine which countries are quota constrained and which are not is useful in understanding how particular countries will fare following quota elimination. In the existing literature, the degree of restrictiveness of an MFA quota is often measured in terms of its â€Å"export tax equivalent† (ETE). ATC quotas are administered by exporting countries and impose a cost on exporting firms that is exactly analogous to an export tax. In order to export, a firm in a quota-constrained country has to obtain or purchase a quota (or an export licence). The more restrictive a quotas is, the higher the tax will be. ETEs are obviously zero for non-restrained products or countries. Flanagan (2003) points out that although as many as 73 countries are included in the quota system, some do not fully utilize their quotas. Elimination of an unfilled or non-binding quota has little effect on a countrys ability to export because it could have continued to export to the quota limit in any case. Many estimates of ETEs exist, and they vary for different countries and time frames. Francois and Spinanger (1999) estimate that Hong Kong clothing exporters face an implicit export tax of up to 10 per cent for goods intended for the U.S. market and 5 per cent for the European Union (EU) market. Kathuria and Bhradwaj (1998) report that in 1996, Indian exporters to the United States paid an ETE of 39 per cent (cotton based) and 16 per cent (synthetics), versus 17 per cent (cotton based) and 23 per cent (synthetics) in the EU market. In USITC, the import-weighted ETEs for US imports were estimated to be about 21 per cent for clothing, and those for non-clothing, textile categories were around 1 per cent. In general, the literature reveals that Asian countries are relatively more constrained than other regions. Flanagan (2003) categorizes countries into groups depending on how â€Å"quota constrained† they are in terms of the number of product categories where quotas seriously limit demand. In the group of â€Å"Countries seriously held back, almost across the board, by quotas† were Bangladesh, China, Hong Kong, India, Indonesia, Pakistan, Philippines, Korea, Sri Lanka and Thailand. At the other end of the spectrum, countries such as Nepal, Oman, Qatar and the United Arab Emirates (UAE) are categorized as â€Å"Countries whose quotas have been a valuable tool, now threatened†. According to Flanagan, China, India and Indonesia have shown the most consistent and widespread near-saturation of quotas for yarn, fabric and garments. Many analysts predict that the market shares of quota-constrained suppliers will increase markedly following 2005. Terra (2001) predicts that clothing production of the restrained exporters, as a whole, will increase by almost 20 per cent, and their textile production will increase by almost 6 per cent. Meanwhile, Terra estimates that the market shares of non-quota constrained suppliers (e.g. Mexico and African countries) will shrink. She predicts a fall in the exports of Latin American countries, which will be displaced by the big exporters subject to restrictions. Mercosur and Chile are predicted to reduce their exports of clothing significantly and their exports of textiles moderately. Avisse and Fouquin (2001) estimate that Asian clothing exports will rise by 54 per cent and their share of the world market will increase to 60 per cent, from 40 percent in 1995. Chinese clothing exports, in particular, will rise by 87 per cent, and their share of world clothing exports will rise by more than 10 percentage points. Both South Asias and Southeast Asias clothing exports will also experience substantial gains, increasing by 36 per cent, combined. On the other hand, Latin American clothing exports are predicted to decrease by 39 per cent. Avisse and Fouquin estimate that Chinese production will rise by 70 per cent, and that of other Asian countries, by 26 per cent. Within a broadly unchanged level of global output, Asias share will rise from 12 per cent to 18 per cent. North American production of clothing 14 will decline by 19 per cent and European production will drop by 11 per cent according to estimates. Diao and Somwaru (2001) provide similar estimates. According to their dynamic model, world market share of developing countries as a whole will increase by 4 percentage points following the ATC. China is predicted to gain almost 3 percentage points of the world textile and clothing market, and other Asian countries to capture more than 2 percentage points. Current non-quota holding developing countries are predicted to lose about 20 per cent of their markets (equivalent to 2.3 percentage points of total world textile and clothing markets) to the restrained ones. In addition to the costs of quotas themselves, the nature or quality of the quota administration system can also restrict an individual countrys exports, and lead to quota â€Å"underfill†. Whalley (1999) points out that many developing countries have built costly domestic administrative structures around the internal allocation of quotas. Krishna and Tan (1998) present empirical evidence that the costs of the export licence system within the restrained countries are significant and that both the licence cost and hidden administrative costs are added to the price of the product prior to entering the foreign market.

Macbeth As A Tragedy According To Aristotles Definition :: essays research papers

While the genre of some works of literature can be debated, Macbeth written by William Shakespeare seems to fit into a perfect mold. Aristotle’s definition of a tragedy, combining seven elements that he believes make the genre of a work a tragedy, is that mold. Displaying all seven aspects, Macbeth fits the definition precisely. Key elements in the play substantiate the fact that Macbeth is a serious story, the first elements of Aristotle’s definition. From the first lines of the play, the mood is set featuring witches whom speak of witchcraft, potions and apparitions. Not only do the three witches aid in making this a serious story but also, they appealed to Elizabethans whom at the time believed in such supernatural phenomena. War for centuries has represented killing and feuding, thus, the war taking place between Scotland and Norway provided a dark component. The Thane of Cawdor’s rapidly approaching execution due to his deceiving the king also plays a role in this grim work. Murder throughout all of Macbeth is an essential aspect when dealing with the seriousness of the play. From the beginning, Lady Macbeth urges Macbeth to do anything to overthrow King Duncan, whom is the king of Scotland, the role Macbeth desperately yearns for. During the excursion to become king, Macbeth successfully murders King Duncan, Macduff’s wife and children, and with the help of a group of murderers Banquo; a brave general who will inherit the Scottish throne. Through the whole play, while such dank occurrences are used to create deep mood, Shakespeare also uses strong language and words. Such as when Lady Macbeth calls upon the gods to make her man-like so she will have the fortitude to kill King Duncan herself in this quote, â€Å"Come you spirits that tend on mortal thoughts, unsex me here†¦ Make my blood thick†¦ Come, thick night, and pall thee in the dunest smoke of hell, that my keen knife see not the wound it makes, nor heaven peep through the blanket of the dark.† This type of language provokes thoughts of death, blood and darkness though the imagery such dank words create. The play also follows through with its theme of blood by in the end of the play, having both of its lead characters die. Lady Macbeth, distraught by guilt over the bloodshed, commits su icide while Macbeth is murdered and beheaded by Macduff, a Scottish noblemen.

Effect of Internal Controls on Financial Performance Essay

Over the past decade, Africa and other developing regions have been in the midst of tremendous changes. Market liberalization and governmental decentralization policies have interfaced with globalization and urbanization trends to dramatically transform social, political, economic and cultural lives. In this context of rapid change, SME operations can no longer remain behind serving only to meet sustenance income for their owners. SMEs engagements have to become a dynamic and integral part of the market economy. The identification of factors that determine new venture performance such as survival, growth or profitability has been one of the most central fields of entrepreneurship research (Sarasvathy, 2004). A multitude of research papers has focused on exploring various variables and their impact on performance (Bamford et al., 2004). However, in order to be able to analyze and model the performance of new ventures and SMEs, the complexity and dynamism they are facing as well as the fact that they may not be a homogenous group but significantly different in regard to many characteristics (Gartner et al., 1989) have to be taken into account. In line with the above, there have been challenging debates all over the world on the role played by Small and Medium Enterprises (SMEs) towards economic development. Therefore, a vast literature on the growth and performance of SMEs has been developed over the years. Small and Medium Enterprises (SMEs) have had a privileged treatment in the development literature, particularly over the last two decades. Hardly any arguments are put forward against SMEs, even if development policies do not necessarily favour them and economic programs, voluntarily or not, often continue to result in large capital investment. Arguments for SMEs come from almost all corners of the development literature programs, particularly in the less developed countries (LDCs), tend to emphasise the role of SMEs, even if practical results differ from the rhetoric. (Carlos Nuno Castel-Branco. May, 2003) Therefore, SMEs seem to be an accepted wisdom within the development debate. It is believed that growth in SMEs should have a positive effect on the living conditions of the people, their income level, housing, utilities. Castel-Branco (2003), in a study, revealed that this is not always true because areas where SMEs are performing so well attracts public attention and many competitors begin to troop into the area. This subsequently leads to over congestion with its associated problems of which accommodation is not an exception. The structure of SMEs in Ghana as perhaps one of the main engines of growth can be viewed as rural and urban enterprises. For urban enterprises, they can either be planned or unplanned. The planned-urban enterprises are characterized by paid employees with registered offices whereas unplanned-urban enterprises are mostly confined to the home, open space, temporal wooden structures, and employment therein is family or apprentices oriented. In the recent pursuit of economic progress, Ghana as a developing country has generally come to recognize that the SME sector may well be the main driving force for growth, due to its entrepreneurial resources and employment opportunities. Nevertheless, the existing attempts to explore empirically the roles played by SME in the economic development of a nation are still somewhat ambiguous. This can be attributed, more or less, to the fact that when examining economic progress per se, economists have tended to ignore the industrial structure of the economy and the impact this can have on such development. The ambiguity of the role of SMEs has therefore necessitated the need for a study to be conducted to access the actual impact of the proliferation of SMEs on the inhabitants of the Medina community. 1.2 Problem Statement The small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty (Wolfenson, 2001). The dynamic role of small and medium enterprises (SMEs) in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognized. The growth of small scale businesses in Ghana so rapid, that it is now seen as a daily affair. Many Potential owners of SMEs move to areas where the feel they can succeed to set them up there. More so, many factors may contribute to the movement of people to settle at certain geographical areas. It is believed that the factors that influence migration include the need for peaceful and violent free environment, the need for fertile business locations, the desire for privacy, government policy and a host of others. Specifically, with reference to the above, the Medina municipality of the Greater Accra region has experienced a noticeable growth and increase in the number movements into the area and for that matter SMEs increase in the last few years. It is important to mention that some research studies have been conducted to determine the real impact of migrations on host societies. In line with the above, this study sorts to assess the nature of SMEs in Medina with respect to the involvement of men and women, the main sources funds for them, the main objectives and challenges faced by SMEs in Medina, reasons the explosion of SMEs in Medina and the scio-economic impacts of this growth of SMEs in Medina. 1.3 Objectives: 1.3.1 Main Objective The main objective of this study is to assess the general impact of the plorefication of SMEs in Medina on the Medina municipality of the Greater Accra region. 1.3.2 Specific Objectives 1. To assess the nature and forms of SMEs in Medina and the relative involvement of women and men. 2. To identify the main objectives and challenges of SMEs in Medina and to rank them in order of importance. 3. Assess the main sources of capital for SMEs in Medina. 4. To assess the status of SMEs in Medina with regard to business registration, savings, record keeping and business account holding. 5. To determine the factors that account for the emergence of small scale businesses in the Medina community 6. To assess the socio-economic impacts of the growth of SMEs in Medina 1.4 Research Questions The study shall provide answers to the following research questions: 1. What is the nature of SME operation in Medina and the relative involvement of women and men? 2. What are the main objectives and challenges of SMEs in Medina and which are ranked more importance? 3. What are the main sources of capital for SMEs in Medina? 4. What are the status of SMEs in Medina with regard to business registration, savings, record keeping and business account holding? 5. What factors have accounted for the emergence of small scale businesses in the Medina community? 6. What are the socio-economic impacts of the growth of SMEs in Medina? 1.5 Justification of the Study It is difficult to analyze the performance, nature of operation and behavior of the SME sector in Ghana due to the lack of comprehensive data on them and their activities. The sector is not classified into sub-sectors and the last industrial survey was conducted in 1995 but covered only medium and large-scale industries. In respect of this, the justification of this study rests on the fact that, study will help provide information on the nature of SMEs in Medina with respect to the involvement of men and women, the main sources funds for them, the main objectives and challenges faced by SMEs in Medina, reasons the explosion of SMEs in Medina and the socio-economic impacts of this growth of SMEs in Medina. Furthermore, the study while provide vital information policy makers of the Medina municipality and all other stakeholders of the Medina community. Finally the study while produce information to will add on to existing literature for further studies in this area. 1.6 Scope and Limitations of the Study Due to time and resource constrains, this study is restricted particularly to the Medina community. The study focuses on the factors that account for the growth of SMEs in Medina and the socio-economic impacts of this change on the people of Medina among others. The study is limited in scope because it fails to cover the entire population of Ghana. The findings of this study may therefore lack generalizability as far as other communities in Ghana are concern. 1.7 Organization of the Study Chapter 1 deals with the background of the study, the problem statement, objectives of the study, justification of the study and organization of the study. Chapter 2 reviews both theoretical and empirical literatures on SMEs in general, in Ghana among others. Chapter 3 introduces the study area and describes the methodologies used to analyze the problems stated. It includes the methods used for data collection, and procedure for data analysis. Chapter 4 is devoted to presentation and discussion of results. Summary statistics of the variables used in the study are presented and discussed. Chapter 5 winds up this study drawing conclusions, their policy implications. Suggestions for future research based on the findings are made. CHAPTER TWO 2.0 LITERATURE REVIEW 2.1 Introduction This chapter reviews works on small and medium enterprises in the world, Africa and Ghana. The state of SMEs in Ghana is reviewed here. Also, Works on performance and determinants of performance of SMEs are captured. Furthermore, a section of this chapter assesses the various methods of measuring performance of SMEs which while help open up the understanding of the state of SMEs in Medina. Finally, this chapter closes with some migration theories to help facilitate the comprehension of the factors that actually account for human migration, in this case migration to Medina. 2.2 Definitions and Concepts of SMEs There is no single, uniformly acceptable, definition of a small firm (Storey, 1994). Firms differ in their levels of capitalization, sales and employment. Hence, definitions that employ measures of size (number of employees, turnover, profitability, net worth, etc.) when applied to one sector could lead to all firms being classified as small, while the same size definition when applied to a different sector could lead to a different result. The first attempt to overcome this definition problem was by the Bolton Committee (1971) when they formulated an â€Å"economic† and a â€Å"statistical† definition. Under the economic definition, a firm is regarded as small if it meets the following three criteria: i. It has a relatively small share of their market place; ii. It is managed by owners or part owners in a personalized way, and not through the medium of a formalized management structure; iii. It is independent, in the sense of not forming part of a large enterprise. The Committee also devised a â€Å"statistical† definition to be used in three main areas: a. Quantifying the size of the small firm sector and its contribution to GDP, employment, exports, etc.; b. Comparing the extent to which the small firm sector’s economic contribution has changed over time; c. Applying the statistical definition in a cross-country comparison of the small firms’ economic contribution. Thus, the Bolton Committee employed different definitions of the small firm to different sectors. 2.2.1 Criticism of the Bolton Committee’s â€Å"Economic† Definition of SMEs A number of weaknesses were identified with the Bolton Committee’s â€Å"economic† and `statistical’ definitions. First, the economic definition which states that a small business is managed by its owners or part owners in a personalized way, and not through the medium of a formal management structure, is incompatible with its statistical definition of small manufacturing firms which could have up to 200 employees. As firm size increases, owners no longer make principal decisions but devolve responsibility to a team of managers. For example, it is unlikely for a firm with hundred employees to be managed in a personalized way, suggesting that the `economic’ and `statistical’ definitions are incompatible. Another shortcoming of the Bolton Committee’s economic definition is that it considers small firms to be operating in a perfectly competitive market. However, the idea of perfect competition may not apply here; many small firms occupy `niches’ and provide a highly specialized service or product in a geographically isolated area and do not perceive any clear competition (Wynarczyk et al, 1993; Storey, 1994). Alternatively, Wynarczyk et al (1993) identified the characteristics of the small firm other than size. They argued that there are three ways of differentiating between small and large firms. The small firm has to deal with: (a) Uncertainty associated with being a price taker; (b) Limited customer and product base; (c) Uncertainty associated with greater diversity of objectives as compared with large firms. As Storey (1994) stated, there are three key distinguishing features between large and small firms. Firstly, the greater external uncertainty of the environment in which the small firm operates and the greater internal consistency of its motivations and actions. Secondly, they have a different role in innovation. Small firms are able to produce something marginally different, in terms of product or service, which differs from the standardized product or service provided by large firms. A third area of distinction between small and large firms is the greater likelihood of evolution and change in the smaller firm; small firms that become large undergo a number of stage changes. 2.2.2 Criticism of the Bolton Committee’s â€Å"Statistical† Definition of SMEs (i) No single definition or criteria was used for â€Å"smallness†, (number of employees, turnover, ownership and assets were used instead) (ii) Three different upper limits of turnover were specified for the different sectors and two different upper limits were identified for number of employees. (iii) Comparing monetary units over time requires construction of index numbers to take account of price changes. Moreover, currency fluctuations make international comparison more difficult. (iv) The definition considered the small firm sector to be homogeneous; however, firms may grow from small to medium and in some cases to large. It was against this background that the European Commission (EC) coined the term `Small and Medium Enterprises (SME)’. The SME sector is made up of three components: (i) Firms with 0 to 9 employees – micro enterprises (ii) 10 to 99 employees – small enterprises (iii) 100 to 499 employees – medium enterprises. Thus, the SME sector is comprised of enterprises, which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firm’s upper limit is more appropriate given the increase in productivity over the last two decades (Storey, 1994). Finally, the EC definition did not assume the SME group is homogenous, that is, the definition makes a distinction between micro, small, and medium-sized enterprises. However, the EC definition is too all embracing for a number of countries. Researchers would have to use definitions for small firms that are more appropriate to their particular `target’ group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile unless size is a factor that influences performance. For instance, the relationship between size and performance matters when assessing the impact of a credit programme o n a targeted group (also refer to Storey, 1994). 2.2.3 Alternative Definitions of SMEs World Bank since 1976 – Firms with fixed assets (excluding land) less than US$ 250,000 in value are Small Scale Enterprises. Grindle et al (1988) – Small scale enterprises are firms with less than or equal to 25 permanent members and with fixed assets (excludingland) worth up to US$ 50,000. USAID in the 1990s – Firms with less than 50 employees and at least half the output is sold (also refer to Mead, 1984). UNIDO’s Definition for Developing Countries: Large – firms with 100+ workers Medium – firms with 20 – 99 workers Small – firms with 5 – 19 workers Micro – firms with < 5 workers UNIDO’s Definition for Industrialized Countries: Large – firms with 500+ workers Medium – firms with 100 – 499 workers Small – firms with ≠¤99 workers From the various definitions above, it can be said that there is no unique definition for a small and medium scale enterprise thus, an operational definition is required. 2.2.4 Definitions SMEs in Ghana Small Scale enterprises have been variously defined, but the most commonly used criterion is the number of employees of the enterprise. In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources. As contained in its Industrial Statistics, The Ghana Statistical Service (GSS) considers firms with less than 10 employees as Small Scale Enterprises and their counterparts with more than 10 employees as Medium and Large-Sized Enterprises. Ironically, The GSS in its national accounts considered companies with up to 9 employees as Small and Medium Enterprises (Kayanula and Quartey, 2000). An alternate criterion used in defining small and medium enterprises is the value of fixed assets in the organization. However, the National Board of Small Scale Industries (NBSSI) in Ghana applies both the `fixed asset and number of employees’ criteria. It defines a Small Scale Enterprise as one with not more than 9 workers, has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Cedis (US$ 9506, using 1994 exchange rate) (Kayanula and Quartey, 2000). The Ghana Enterprise Development Commission (GEDC) on the other hand uses a 10 million Cedis upper limit definition for plant and machinery. A point of caution is that the process of valuing fixed assets in itself poses a problem. Secondly, the continuous depreciation in the exchange rate often makes such definitions out-dated (Kayanula and Quartey, 2000). Steel and Webster (1990), Osei et al (1993) in defining Small Scale Enterprises in Ghana used an employment cut off point of 30 employees to indicate Small Scale Enterprises. The latter however dis-aggregated small scale enterprises into 3 categories: (i) micro -employing less than 6 people; (ii) very small, those employing 6-9 people; (iii) small -between 10 and 29 employees. 2.3 Why Small and Medium Scale Enterprises? The choice of small and medium scale enterprises within the industrial sector for this study is based on the following propositions (Kayanula and Quartey, 2000). (a) Large Scale Industry (i) Have not been an engine of growth and a good provider of employment; (ii) Already receive enormous support through general trade, finance, tax policy and direct subsidies; (b) Small and Medium Scale Enterprises (i) Mobilize funds which otherwise would have been idle; (ii) Have been recognized as a seed-bed for indigenous entrepreneurship; (iii) Are labour intensive, employing more labour per unit of capital than large enterprises; (iv) Promote indigenous technological know-how; (vii) Are able to compete (but behind protective barriers); (viii) Use mainly local resources, thus have less foreign exchange requirements; (ix) Cater for the needs of the poor and; (x) Adapt easily to customer requirements (flexible specialization), (Kayanula and Quartey, 2000). 2.4.0 The Role and Characteristics of SMEs 2.4.1 Role of SMEs in Developing Countries Small-scale rural and urban enterprises have been one of the major areas of concern to many policy makers in an attempt to accelerate the rate of growth in low income countries. These enterprises have been recognized as the engines through which the growth objectives of developing countries can be achieved. They are potential sources of employment and income in many developing countries. It is estimated that SMEs employ 22% of the adult population in developing countries (Daniels & Ngwira, 1992; Daniels & Fisseha, 1993; Fisseha, 1992; Fisseha & McPherson, 1991; Gallagher & Robson, 1995). However, some authors have contended that the job creating impact of small scale enterprises is a statistical flaw; it does not take into account offsetting factors that make the net impact more modest (Biggs, Grindle & Snodgrass, 1988). It is argued that increases in employment of Small and Medium Enterprises are not always associated with increases in productivity. Nevertheless, the important role performed by these enterprises cannot be overlooked. Small firms have some advantages over their large-scale competitors. They are able to adapt more easily to market conditions given their broadly skilled technologies. However, narrowing the analysis down to developing countries raises the following puzzle: Do small-scale enterprises have a dynamic economic role? Due to their flexible nature, SMEs are able to withstand adverse economic conditions. They are more labour intensive than larger firms and therefore, have lower capital costs associated with job creation (Anheier & Seibel, 1987; Liedholm & Mead, 1987; Schmitz, 1995). Small-scale enterprises (SSEs) perform useful roles in ensuring income stability, growth and employment. Since SMEs are labour intensive, they are more likely to succeed in smaller urban centres and rural areas, where they can contribute to the more even distribution of economic activity in a region and can help to slow the flow of migration to large cities. Because of their regional dispersion and their labour intensity, it is argued that small-scale production units can promote a more equitable distribution of income than large firms. They also improve the efficiency of domestic markets and make productive use of scarce resources, thus, facilitating long term economic growth. 2.4.2 Characteristics of SMEs in Ghana A distinguishing feature of SMEs from larger firms is that the latter have direct access to international and local capital markets whereas the former are excluded because of the higher intermediation costs of smaller projects. In addition, SMEs face the same fixed cost as Large Scale Enterprises (LSEs) in complying with regulations but have limited capacity to market products abroad. SMEs in Ghana can be categorised into urban and rural enterprises. The former can be sub-divided into `organised’ and `unorganised’ enterprises. The organised ones tend to have paid employees with a registered office whereas the unorganised category is mainly made up of artisans who work in open spaces, temporary wooden structures, or at home and employ little or in some cases no salaried workers. They rely mostly on family members or apprentices. Rural enterprises are largely made up of family groups, individual artisans, women engaged in food production of local crops. The major activities within this sector include:- soap and detergents, fabrics, clothing and tailoring, textile and leather, village blacksmiths, tin-smithing, ceramics, timber and mining, beverages, food processing, bakeries, wood furniture, electronic assembly, agro processing, chemical based products and mechanics ( Liedholm & Mead, 1987; Osei et al, 1993, World Bank, 1992). It is interesting to note that small-scale enterprises make better use of scarce resources than large-scale enterprises. Research in Ghana and many other countries have shown that capital productivity is often higher in SMEs than is the case with LSEs (Steel, 1977). The reason for this is not difficult to see, SMEs are labour intensive with very small amount of capital invested. Thus, they tend to witness high capital productivity, which is an economically sound investment. Thus, it has been argued that promoting the SME sector in developing countries will create more employment opportunities, lead to a more equitable distribution of income, and will ensure increased productivity with better technology (Steel & Webster, 1990). 2.5 SME Approaches There are several approaches or theories to entrepreneurship and small and medium enterprises. For the purpose of this study, the research team will dwell on three major theories. These include: venture opportunity, Agency Theory and Theory of Equity Funds 2.5.1 The Venture Opportunity The venture opportunity school of thought focuses on the opportunity aspect of venture development. The search for idea sources, the development of concepts; and the implementation of venture opportunities are the important interest areas for this school. Creativity and market awareness are viewed as essential. Additionally, according to this school of thought, developing the right idea at the right time for the right market niche is the key to entrepreneurial success. Major proponents include: N Krueger 1993, Long W. & McMullan 1984. Another development from this school of thought is what is described by McMullan (1984) as â€Å"corridor principle’’. This principle outlines that, giving prior attention to new pathways or opportunities as they arise and implementing the necessary steps for action are key factors in business development. The maxim that â€Å"preparation meeting opportunity, equals â€Å"luck† underlines this corridor principle. Proponents of this school of thought believe that proper preparation in the interdisciplinary business segments will enhance the ability to recognise good venture opportunities. Comparing the study with the above theory, the question that arises is: What are the factors or opportunities that have led to the proliferation of small and medium scale enterprises in Medina Township? Is it due to a particular market niche, creativity or market awareness? If so, then what socio-economic impact do they have on the people of Medina Township? 2.5.2 Agency Theory Agency theory deals with the people who own a business enterprise and all others who have interests in it, for example managers, banks, creditors, family members, and employees. The agency theory postulates that the day to day running of a business enterprise is carried out by managers as agents who have been engaged by the owners of the business as principals who are also known as shareholders. The theory is on the notion of the principle of ‘two-sided transactions’ which holds that any financial transactions involves two parties, both acting in their own best interests, but with different expectations. Major proponents of this theory include: Eisenhardt 1989, Emery et al.1991 and JH Davis – 1997. These Proponents of agency theory assume that agents will always have a personal interest which conflicts the interest of the principal. This is usually referred to as the Agency problem. 2.5.3 Theory of Equity Funds Equity is also known as owners’ equity, capital, or net worth. Costand et al (1990) suggests that ‘larger firms will use greater levels of debt financing than small firms. This implies that larger firms will rely relatively less on equity financing than do smaller firms’. According to the pecking order framework, the small enterprises have two problems when it comes to equity funding [McMahon et al. (1993, pp153)]: 1) Small enterprises usually do not have the option of issuing additional equity to the public. 2) Owner-managers are strongly averse to any dilution of their ownership interest and control. This way they are unlike the managers of large concerns who usually have only a limited degree of control and limited, if any, ownership interest, and are therefore prepared to recognize a broader range of funding options. Modern financial management is not the ultimate answer to every whim and caprice. However, it could be argued that there is some food for thought for SMEs concerning every concept. For example Access to Capital is really eye-opener for SMEs in Ghana to carve their way into sustaining their growth. 2.6 Policies for Promoting SMEs in Ghana Small-scale enterprise promotion in Ghana was not impressive in the 1960s. Dr. Nkrumah (President of the First Republic) in his modernization efforts emphasized state participation but did not encourage the domestic indigenous sector. The local entrepreneurship was seen as a potential political threat. To worsen the situation, the deterioration in the Balance of Payments in the 1980s and the overvaluation of the exchange rate led to reduce capacity utilization in the import dependent large-scale sector. Rising inflation and falling real wages also forced many formal sector employees into secondary self-employment in an attempt to earn a decent income. As the economy declined, large-scale manufacturing employment stagnated (Kayanula and Quartey, 2000). According to Steel and Webster (1991), small scale and self-employment grew by 2.9% per annum (ten times as many jobs as large scale employment) but their activities accounted for only a third of the value added. It was in the light of the above that the government of Ghana started promoting small-scale enterprises. They were viewed as the mechanism through which a transition from state-led economy to a private oriented developmental strategy could be achieved. Thus the SME sector’s role was re-defined to include the following (Kayanula and Quartey, 2000): (i) Assisting the state in reducing its involvement in direct production (ii) Absorbing labour from the state sector, given the relatively labour intensive nature of small scale enterprises, and; (iii) Developing indigenous entrepreneurial and managerial skills needed for sustained industrialization. 2.6.1 Government and Institutional Support to SMEs To enable the sector perform its role effectively, the following technical, institutional and financial supports were put in place by government. (i) Government Government, in an attempt to strengthen the response of the private sector to economic reforms undertook a number of measures in 1992. Prominent among them is the setting up of the Private Sector Advisory Group and the abolition of the Manufacturing Industries Act, 1971 (Act 356) that repealed a number of price control laws, and The Investment Code of 1985 (PNDC Law 116), which seeks to promote joint ventures between foreign and local investors. In addition to the above, a Legislative Instrument on Immigrant Quota, which grants automatic immigrant quota for investors, has been enacted. Besides, certain Technology Transfer Regulations have been introduced. Government also provided equipment leasing, an alternative and flexible source of long term financing of plant and equipment for enterprises that cannot afford their own. A Mutual Credit Guarantee Scheme was also set up for entrepreneurs who have inadequate or no collateral and has limited access to bank credit. To complement these efforts, a Rural Finance Project aimed at providing long-term credit to small-scale farmers and artisans was set up. In 1997, government proposed the establishment of an Export Development and Investment Fund (EDIF), operational under the Exim Guarantee Company Scheme of the Bank of Ghana. This was in aid of industrial and export services within the first quarter of 1998. To further improve the industrial sector, according to the 1998 Budget Statement, specific attention was to be given to the following industries for support in accessing the EDIF for rehabilitation and retooling: Textiles/Garments; Wood and Wood Processing; Food and Food Processing and Packaging. It was also highlighted that government would support industries with export potential to overcome any supply-based difficulty by accessing EDIF and rationalize the tariff regime in a bid to improve their export competitiveness. In addition, a special monitoring mechanism has been developed at the Ministry of Trade and Industries. In a bid to improve trade and investment, particularly in the industrial sector, trade and investment facilitating measures were put in place. Visas for all categories of investors and tourists were issued on arrival at the ports of entry while the Customs Excise and Preventive Service at the ports were made proactive, operating 7-days a week. The government continued supporting programmes aimed at skills training, registration and placement of job seekers, training and re-training of redeployees. This resulted in a 5% rise in enrolment in the various training institutes such as The National Vocational and Training Institute (NVTI), Opportunity Industrialization Centres (OIC), etc. As at the end of 1997, 65,830 out of 72,000 redeployees who were re-trained under master craftsmen have been provided with tools and have become self-employed. (ii) Institutions The idea of SME promotion has been in existence since 1970 though very little was done at the time. Key institutions were set up to assist SMEs and prominent among them was The Office of Business Promotion, now the present Ghana Enterprise Development Commission (GEDC). It aims at assisting Ghanaian businessmen to enter into fields where foreigners mainly operated but which became available to Ghanaians after the ‘Alliance Compliance Order’ in 1970. GEDC also had packages for strengthening small-scale industry in general, both technically and financially. The Economic Recovery Programme instituted in 1983 has broadened the institutional support for SMEs. The National Board for Small Scale Industries (NBSSI) has been established within the then Ministry of Industry, Science and Technology now (Ministry of Science and Technology) to address the needs of small businesses. The NBSSI established an Entrepreneurial Development Programme, intended to train and assist persons with entrepreneurial abilities into self-employment. In 1987, the industrial sector also witnessed the coming into operation of the Ghana Appropriate Technology Industrial Service (GRATIS). It was to supervise the operations of Intermediate Technology Transfer Units (ITTUs) in the country. GRATIS aims at upgrading small scale industrial concerns by transferring appropriate technology to small scale and informal industries at the grass root level. ITTUs in the regions are intended to develop the engineering abilities of small scale manufacturing and service industries engaged in vehicle repairs and other related trades. They are also to address the needs of non-engineering industries. So far, 6 ITTUs have been set up in Cape Coast, Ho, Kumasi, Sunyani, Tamale and Tema. (iii) Financial Assistance Access to credit has been one of the main bottlenecks to SME development. Most SMEs lack the necessary collateral to obtain bank loans. To address this issue, the Central Bank of Ghana has established a credit guarantee scheme to underwrite loans made by Commercial Banks to small-scale enterprises. Unfortunately, the scheme did not work out as expected. It was against this background that the Bank of Ghana obtained a US$ 28 million credit from the International Development Association (IDA) of the World Bank for the establishment of a Fund for Small and Medium Enterprises Development (FUSMED). Under the Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD), a revolving fund of US$ 2 million was set aside to assist SMEs. This aspect is too scanty in the midst of the abundant information, especially with reference to Ghana. 2.7 Gender and Small Business Performance Until more recently gender differences in small business performance remained largely unaddressed by social scientists (Greene, Hart, Gatewood, Brush, & Carter, 2003). The majority of studies either disregarded gender as a variable of interest or excluded female subjects from their design (Du Rietz & Henrekson, 2000). However, it is generally accepted that male and female owner-managers behave differently and that these behavioral differences influence their performance (Brush, 1992), but these differences have been recognized but not fully explained (Brush & Hisrich 2000). A comparison of performance of male and female owner-managers in Java, Indonesia showed that female-owned businesses tend to be less oriented towards growth compared to male-owned businesses (Singh, Reynolds, & Muhammad, 2001). Boden & Nucci (2000) investigated start-ups in the retail and service industries and found that the mean survival rate for male owned businesses was four to six percent higher than for female owned businesses. Loscocco, Robinson, Hall & Allen (1991) in their study of small businesses in the New England region of the USA found that both sales volume and income levels were lower for female- than for male-owned businesses. In a longitudinal study of 298 small firms in the United Kingdom (UK), of which 67 were female owned, Johnson & Storey (1994) observed that whilst female owner-managers had more stable enterprises than their male counterparts, on average the sales turnover for female owners were lower than for male owners. Brush (1992) suggests that women perform less on quantitative financial measures such as jobs created, sales turnover and profitability because they pursue intrinsic goals such as independence, and the flexibility to combine family and work commitments rather than financial gain. In contrast to the above findings, Du Rietz and Henrekson (2000) reported that female-owned businesses were just as successful as their male counterparts when size and sector are controlled. In his study of small and medium firms in Australia, Watson (2002), after controlling for the effect of industry sector, age of the business, and the number of days of operation, also reported no significant differences in performance between the male- controlled and female-controlled firms.

The Alchemist Themes

Disguised as a fable or a hero’s journey, Paulo Coelhos The Alchemist reflects a pantheistic worldview where all things—from humans to kernels of sand—share the same spiritual essence.   Themes Personal Legend Each individual has a Personal Legend, which, according to the lore of The Alchemist, is the only means by which to achieve a satisfying life. The universe is attuned to that, and it can achieve perfection if all of its creatures strive to achieve their own Personal Legend, which in turn leads to an inner evolution that comes with a higher Personal Legend and an even higher goal. When it comes to alchemy, for example, even metals have their own Personal Legends, which is their turning into gold. The Personal Legend is an individual’s highest calling, which comes at the expense of other things bringing joy. In order to fulfill his own destiny, for example, Santiago has to give up his sheep and put his budding relationship with Fatima on hold. The crystal merchant, having put off his Personal Legend, lives a life of regret, especially because his attitude also caused the universe to not bestow him with any favors.   Close to the concept of Personal Legend is the word maktub, which several characters pronounce. It means â€Å"it is written,† and it is usually spoken when Santiago has taken a significant risk in order to proceed in his quest, which, in turn, reassures him. As Santiago learns, fate actively cooperates with those pursuing their own Personal Legends.   Pantheism In The Alchemist, the Soul of the World represents the unity of nature. As Santiago comes to realize, every natural element, from a grain of sand to a river and all living beings, are connected, and they have to undergo similar processes in a pantheistic worldview, which posits that everything shares the same spiritual essence. Just like a metal has to be purified in order to turn into gold, so does Santiago have to transform into something else in order to achieve the Personal Legend. This is a purification process, with an individual having to tap into the Soul of the World in order to achieve it.   Santiago communicates with nature, and by doing so, he starts understanding the common language of the world, and this serves him well when he has to speak to the Sun when he needs to turn into the wind.   Fear Giving in to fear hinders the fulfillment of one’s own Personal Legend. Santiago himself is not immune to it. He was afraid of letting go of his sheep, of letting the old woman interpret his dream, and of having to let go of his security by departing Tangier to join the caravan.   Both of his mentors, Melchizedek and the alchemist, condemn fear, as it is usually tied to material wealth, which leads people to get distracted from the fulfillment of their own Personal Legends. The crystal merchant is the embodiment of fear. He thinks that his calling is to make a pilgrimage to Mecca, but he never does that, out of fear of the future, and he remains an unhappy individual. Omens and Dreams Throughout the novel, Santiago experiences both dreams and omens. His dreams are a rough form of communication with the Soul of the World and a representation of his Personal Legend. Omens serve as a guidance to fulfill his dreams. Dreams are also a form of clairvoyance. Santiago dreams of fighting hawks, which he relates to the tribal chieftain of the desert, as they indicate an impending assault. Santiago’s propensity for dreams likens him to the biblical figure of Joseph, who, through his prophetic visions, was able to save Egypt. Omens are more instrumental and are usually singular events, seen as a sign that the universe is helping him achieve his Personal Legend. They are also signifiers of Santiago’s personal growth.   Symbols Alchemy Alchemy is the medieval forerunner of modern chemistry; its end goal was to transform base metals into gold and to create a universal elixir. In the novel, alchemy serves as a metaphor of people’s journeys in pursuit of their own Personal Legend. Just like a base metal’s Personal Legend is to turn into gold by ridding itself of impurities, so must people rid themselves of their own impurities to achieve it. In Santiago’s case,  it’s his flock of sheep, which represent material wealth, as well as his budding relationship to Fatima.   Despite the tomes devoted to alchemy, actions are better teachers than written instruction. As we see with the Englishman, book-centric knowledge does not take him very far. The right way is listening to omens and acting accordingly.   The Desert As opposed to Spain, the desert area is quite harsh. Santiago first gets robbed, then has to trek all the way to the oasis, and then is subject to even harsher trials, including becoming the wind and enduring a severe beating, before fulfilling his own Personal Legend. The desert, as a whole, symbolizes the trials that the hero must endure while on his quest. However, the desert is not just a land of trials; it pulses with life underneath its barren appearance, as the Soul of the World makes everything on Earth partake in the same spiritual essence. Sheep Santiago’s sheep represent  shallow material wealth and his mundane existence before he became attuned to his own Personal Legend. While he loves his sheep, he mainly sees them as his material livelihood and belittles their intelligence, asserting that he could kill them one by one without them even noticing. Some characters remain in the â€Å"sheep† stage of their lives. The crystal merchant, for example, , prefers to stay in his everyday life despite having a Personal Legend, which leads to regret. Literary Devices: Biblical Metaphors Despite being an allegorical hero’s journey with a pantheistic worldview, The Alchemist is rife with references to the Bible. Santiago’s name is a reference to the Road of Santiago; Melchizedek, the first mentor figure he encounters, is a biblical figure who helped Abraham. Santiago himself is likened to Joseph for his gift of prophecy. Even the mundane flock of sheep have a biblical connotation, as congregants of a church are usually likened to sheep.