Full Project – ROLES OF SMALL AND MEDIUM SCALE ENTERPRISES IN THE DEVELOPMENT OF A COUNTRY
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
SMEs have been discovered to be a key driver for a country’s economic growth (Schmiemann, 2009) hence; SMEs cannot be overlooked in the economic development of any country. Downing (1991) argues that SMEs are seen as the main source of economic growth and a major factor in promoting private sector development and partnership in developed and developing countries. SMEs help to create employment and are often seen as very important for the growth and innovation of dynamic economies Goldstein (2001) Therefore, economic growth and development in Nigeria can be achieved through the emergence of strong SMEs which will later grow to become major players in the developing economy. SMEs help to diversify economic activities that have significant contributions to imports and exports, they are flexible and can adapt quickly to changing market demands. Thus, SMEs contribute more and more to the national and international economies of the world.
The contributions of SME’s to Nigeria’s economy are not contestable as about 10% of the total manufacturing output and 70% of the industrial employment are by SMEs (Aremu and Adeyemi, 2011). Through the utilization of local resources, SME’s promote industrial and economic development and are responsible for the production of intermediate goods and the transformation of rural technology (Aremu and Adeyemi, 2011). Nigerian SMEs not only provide employment and income for majority of its citizens but are also recognized as the breeding ground for domestic entrepreneurial capabilities, technical skills, technological innovativeness and managerial competencies for private sector development (Adelaja, 2002).
The assistance of SMEs to any economy are obvious, as SMEs are known to contribute to the development of several economies in terms of output of goods and services and creation of jobs at relatively low capital cost (Adelaja, 2002). SMEs also improve forward and backward linkages between economically, socially and geographically diverse sectors of many economies. Thus, the development of SMEs is an essential element in the growth strategy of many economies including Nigeria.
1.2 STATEMENT OF THE PROBLEM
Nigeria is a country with numerous business and investment potentials due to the abundant vibrant and dynamic human and natural resources it possesses. As good as the foregoing sounds, Nigeria continues to experience its share of social, economic and political upheavals which have often stunted its growth and development into the regional economic power that it strives to attain. Nigeria has a relative high rate of violent crimes (Ariyo, 2008). The fact is that Nigeria is becoming hostile to investment due to lack of steady and sustainable power supply/energy crises. In spite of the various attempts aim at reviving this sector, firms depending on generators for their operation whose cost of buying fuel and maintenance are high, thereby increasing the cost of operation in Nigeria. Besides, high and multiple levies and taxations being paid by these companies and energy crises have combined to make the cost of doing business in Nigeria to be very exorbitant as the industries, factories and closed shops have relocated to a friendlier economic environment, workers were laid off and prospects of recruiting new ones were dashed. All these exacerbated the crisis of youth unemployment in the labour market (Adeloye, 2010; Onifade, 2011). Therefore this research work intends to investigate the role of entrepreneurship development in unemployment reduction in Nigeria.
In another study carried out at the macroeconomic level by Agumagu (2006), it was identified that small and medium enterprise experience difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide equity capital, the conditions are always dreadful. All these result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it.
Accordingly, Osotimehin, Akinlabi and Olajide (2012) noted that the problems that emanated from poor financing of SMEs include: Lack of competent management which is the consequence of inability of owners to employ the services of experts; Use of obsolete equipment and methods of production because of the owner’s inability to access new technology; Excessive competition which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry; The high cost of available raw materials affects the prices of good food. This only has adverse effect on the turnover of the enterprise but also on the profitability; The availability of infrastructural facilities is grossly inadequate in the areas of access roads, electricity, water supply, etc. and Multiplicity of policies and regulatory measures such as removal of fuel subsidy, taxes, several charges on loans. Despite the catalogue of challenges identified by previous research, SMEs remain key drivers and enablers of economic growth and development. However, there seems to be a dearth of literature that seeks to explain the role of SMEs at the micro economic level and at regional level in the country, considering the geographical and socioeconomic peculiarities of these regions. This study therefore compliments previous research in closing up the literature gap by investigating the roles of small and medium scale enterprises in the development of a country.
1.3 OBJECTIVES OF THE STUDY
This study intends to achieve the following objectives:
- To assess the role of small scale industries in unemployment reduction in Nigeria.
- To identify the roles of small and medium enterprises in the development of the Nigerian economy.
- To ascertain whether or not government policies have been favourable to the establishment of small scale enterprises.
- To determine whether or not the Nigerian small scale enterprises make use of all the credit facilities available to them and the reasons for the stand they take in relation with their initial capital.
1.4 RESEARCH QUESTIONS
The following research questions were formulated to guide the direction of this research work.
- To what extent does small and medium scale industries development help in unemployment reduction in Nigeria?
- How does the government drive small and medium scale industry to reduce unemployment in Nigeria?
- How do small and medium enterprises contribute to the economic development of Nigeria?
- What is the relationship between unemployment and federal government infrastructural development in Nigeria?
1.5 RESEARCH HYPOTHESIS
This study will test the following hypothesis
Hypothesis one
Ho: There is no significant relationship between small scale industries and unemployment reduction in Nigeria.
Hi: There is a significant relationship between small scale industries and unemployment reduction in Nigeria.
Hypothesis Two
Ho: Government has no key role to play in ensuring that small scale industries help in quelling unemployment.
Hi: Government has a key role to play in ensuring that small scale industries help in quelling unemployment
Hypothesis three
Ho: There is no relationship between unemployment and infrastructural development in Nigeria
Hi: There is relationship between unemployment and infrastructural development in Nigeria
Hypothesis four
Ho: There’s no significant relationship between small scale business and economic growth and development
Hi: There’s a significant relationship between small scale business and economic growth and development.
1.6 SCOPE AND LIMITATION OF THE STUDY
The study examined the role of small and medium scale enterprise in the development of the Nigerian economy. The study is limited to SMEs in Shomolu Local Government Area, Lagos”. A good number of factors made the study difficult. Notably, is the inability of most owners of SME’s to be interviewed and time factor? The time available for the study was so short that the study was done almost in rush. Due to the limited time too, the researcher based his study only on selected small business enterprises within Nigeria. Another problem was combining course work, research work and financial constraints to carry out a full and unbiased study.
1.7 SIGNIFICANCE OF THE STUDY
This study will try to study the role of small and medium enterprises in Nigeria and thus economic growth in Nigeria. This study shall give an insight on how job opportunities can be created and how unemployment rate can be drastically reduced in the country. This study is thus important because of its potentiality in the development of the small business sector which has been characterized as the “main carrier of development and the engine of social and economic growth” in Nigeria. This study will also help in identifying why people don’t go into small scale enterprise despite its numerous advantages. It will also find out problems encountered while running the business. This study will help government identify areas requiring attention, thus stimulating government into proper directing of loans and incentives to improve upon existing ventures. It will also provide useful guide for prospective entrepreneur that wish to choose self-employment as a career. And finally, it will serve as secondary data for subsequent studies by a prospective researcher.
1.8 DEFINITION OF TERMS
- Small scale enterprises: In Nigeria, there have been different definitions of a small scale industry by different institutions. These institutions include the Central Bank of Nigeria (CBN), the Small and Medium Industries Equity Investment Scheme (SMIEIS), the Nigerian Institute for Social and Economic Research (NISER), Federal Ministry of Industry (FMOI), the National Association for Small and Medium Enterprises (NASME), and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). For instance, an SME has been defined by CBN as an outfit with a total capacity outlay (excluding land) of between N2 million and N5 million, while SMIEIS recognizes SME as any industry with a maximum asset base of N200 million, excluding land and working capital, and with the number of staff employed by the enterprises not less than 10 and not more than 300 (Lawal and Ijaiya, 2007).
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- Unemployment: Unemployment refers to a situation where people who are willing and capable of working are unable to find suitable paid employment.
- Economic growth: Economic Growth is an increase in the capacity of an economy to produce goods and services, compared from one period to another. It is a phenomenon of marked productivity and increase in gross domestic product (GDP) of economy overtime.
- Management: – According to Akpala [1990. pg 3] Management is the process of combing and utilizing an organization input [men, materials and money] by planning, organizing, directing and controlling for the purpose of producing output [goods and services].
- Entrepreneur: – According to Hagen, an entrepreneur is an individual who conceives the idea of business, design the organization of the firm, accumulates capital, recruits labour, establishes relations with suppliers, customers and the government and converts the conception into a functioning organization business.
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