AN ASSESSMENT OF THE CONTRIBUTION OF SMALL AND MEDIUM SCALE ENTERPRISES TO ECONOMIC GROWTH OF NIGERIA

AN ASSESSMENT OF THE CONTRIBUTION OF SMALL AND MEDIUM SCALE ENTERPRISES TO ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1          Background of the Study

 Small and medium scale enterprise development has continued to be a popular phrase in the business world. This is because the sector serves as a catalyst for employment generation, national growth, poverty reduction and economic development (Kadiri, 2012). These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants (Taiwo et al, 2012).

The impact of SMEs is felt in the following ways: Greater utilisation of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilisation of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers. The vast majority of developed and developing countries rely on dynamism, resourcefulness and risk tasking of small and medium enterprises to trigger and sustain process of economic growth. In overall economic development, a critically important role is played by the small and medium enterprises. Small and medium enterprises advocates, firstly, it endurance competition and entrepreneurship and hence have external benefits on economy wide efficient, and productivity growth. At this level, perspectives are directed towards government support and involvement in exploiting countries social benefits from greater completion and entrepreneurship. Secondly, proponents of SMEs support frequent claim that SMEs are generally more productive than large firms but financial market and other institutional improvements, direct government financial support to SMEs can boost economic growth and development (Taiwo et al, 2012).

Some argued that SMEs expansion boosts employment more than large firm growth because SMEs are more labour intensive thereby subsidizing SMEs may represent a poverty alleviation tools, by promoting SMEs and individual countries and the international community at large can make progress towards the main goal of halving poverty level by year 2020 i.e to reduce poverty by half and becoming among 20 largest World Economies (Nigeria Vision 20:2020).

Empirical evidences have show that prior to the late 19th century, cottage industries, and mostly small and medium scale businesses controlled the economy of world giants like Europe and America (Akingunola, 2011). The industrial revolution changed the status quo and introduced mass production. The Small and Medium Scale Enterprises (SMEs) development facilitates the mobilization of human and capital resources towards economic development, in general, and the rural sector, in particular. They have been identified as a vehicle for employment generation and providing opportunities for entrepreneurial sourcing, training, development and empowerment (Akingunola, 2011).

Developing nations such as Nigeria characterized as low income earners by the World Bank, value small and medium scale enterprises (SMEs) for several reasons. Viewed in static terms, the main argument is that SMEs, on average achieve decent levels of productivity especially of capital and factors taken together (that is, total productivity factor) while also generating relatively large amount of socio-economic development.

In dynamic terms, the SMEs sector is viewed as being populated by firms most of which have considerable growth potential. SMEs in developing countries achieve productivity increases to a great extent simply by borrowing from the shelf of technologies available in the world (Christopoulos and Tsionas, 2004).

However, there is no denying the fact that the sector is a sine qua non in ensuring the attainment of the goals of the federal government’s National Economic Empowerment Development Strategy (NEEDS) aside from the SMES possessing the potential for stimulating industrial growth, which are mainly poverty reduction, employment generation, wealth creation and value orientation. What distinguish, small and medium scale enterprises (SMES) from the larger enterprises are the high entry and exit rates and their flexibility relative to the latter. SMEs are highly valued, especially in developing economies, for many reasons. One of such is that SMES achieve decent levels of productivity especially of capital and all factors taken together than large firms (Christopoulos & Tsionas, 2004).

As the abundance of capital and the range of technologies available in the world expand, SMEs need productivity increases through adequate financing if they are to maintain or increase their contribution to overall socio-economic development in developing countries like Nigeria. However, this signifies the importance of capital and its cost of sourcing for SMEs development, among other factors like infrastructure and enabling environment, cheap source of funds, availability of production equipment, efficient manpower, disciplined management and availability of markets (both local and international) that enhance their operations in ensuring sustainable socio-economic development.

Although, set of factors hinders the performance of SMEs for maximum contribution to the economy. In this regard, Sangosanya (2010) identified ten key factors and variables have been identified to influence SMES’S failure in Nigeria. These include disasters, competition, infrastructure, taxes, accounting, management, marketing, economic, planning and finance. In Nigeria, poor economic conditions, which also implies poor finance and inadequate infrastructure, have been identified as the most crucial factors (Ihua, 2009). This position is corroborated by other studies which identified financial support as one of the main factors responsible for small business failures in Nigeria (Abereijo & Fayomi, 2005; Okpara & Pamela, 2007).

Entrepreneurial development is important in the Nigeria economy it is characterized by the following; heavy dependence on oil, low agricultural production, high unemployment, low utilization of industrial capacity, high inflation rate, and lack of industrial infrastructural base. These constraints limit the rate of growth of entrepreneurial activities in Nigeria. Hence, this study seeks to investigate Small and Medium Enterprises as a veritable tool in Economic Growth and Development in Nigeria. It is expected that at the end of this research, this study will come up with a set of potential determinates that affect the adoption of SMEs and set of potential supporting activities to influence economic development in Nigeria.

1.2       Statement of the Problem

SMEs are critical agent of economic transformation as they account for more than 50 percent of GDP of developing economies, they are main source of innovation and technological development, source of supply of both human capital and raw materials to larger businesses and main source of entrepreneurship and enterprise, (Sanusi, 2003) and (PECC, 2003) .  Each of these roles are critical for the economic growth and development of a country, (Schumpeter,1973), (Van-Den-Berg, 2001),  (Garba, 2002). However, there is just scanty evidence that SMEs have had any direct impact on development of any nation (Franck and Huyghebaert, 2008 ). The small and medium scale Industries survey conducted in 2005 by the central Bank of Nigeria (CBN) provides some evidence that apart from the acute short of technology, managerial skills, poor management, adverse environment, and change in policy, capital is a source of great concern to the entrepreneur in the sector.

Question has been raised as to why this limited impact of SMEs in spite of their enormous potential to transform an economy? And what can be done to make it a more effective agent of transformation especially in Less Developed economies like Nigeria and enable it play its catalytic role? These are questions this study would attempt to answer.

In the light of the forgoing, this study is initiated to empirically examine the impact of small and medium businesses on economic development of Nigeria.

TOPIC: AN ASSESSMENT OF THE CONTRIBUTION OF SMALL AND MEDIUM SCALE ENTERPRISES TO ECONOMIC GROWTH OF NIGERIA

Chapters: 1 - 5
Delivery: Email

Number of Pages: 65

Price: 3000 NGN

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