IMPACT OF SMALL AND MEDIUM SCALE ENTERPRISES IN ECONOMICS DEVELOPMENT IN NIGERIA

Abstract

Small and Medium Scale Enterprises (SMEs) has proved to be a major intervention in resolving the problems of poverty and unemployment in most developing countries. This study examines the impact of SMEs on Economic Development in Nigeria. A survey research design was adopted to obtain data from 160 respondents comprising of traders, artisans, production factories and other small and medium enterprises which were selected by the researcher.

CHAPTER ONE

                                Introduction

1.1 Background of the study

The quest for economic development has been the major objective of developing nations all over the world. Developing countries encounter several problems ranging from high rate of poverty and unemployment which have continued to hinder the attainment of socio-economic development. For any nation to attain development, industrialization, gainful and meaningful employment are important yard stick used as a measurement of economic development. This is often depicted by per capital income, equitable distribution of income, the welfare and quality of life enjoyed by the citizen of that nation. Small and Medium Scale Enterprise (SME) has proved to be a major tool adopted by the developed nations to attain socio- economic development. In recent time, small scale industries are considered to be the backbone of modern day economy. Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium scale businesses controlled the economy of Europe.

The Industrial Revolution changed the status quo and introduced mass production (Thomas, 2001). The twin oil shocks during the 1970s undermined the mass production model, which triggered the unexpected reappraisal of the role and importance of small and medium sized enterprises in the global economy (Wendrell, 2003). In Nigeria, the introduction of SME can be traced back to the year 1945 when the essential paper No. 24 of 1945 on “A Ten year plan of development and welfare of Nigeria 1946 was presented”. Small and Medium scale Enterprise was considered an all time necessity at the beginning; which has gained prominence today and is expected to increase its importance in the future (Basil, 2005). Nigeria as a country has put in place policies and established Enterprise and Economic Development Agencies to encourage promote and coordinate investment activities in the country with a view to stimulating economic growth. This is because the dynamic role of small and medium enterprises as engine of growth in developing countries has been recognized. As observed by Cook and Nixson (2001), the development of small and medium enterprises (SME’s) should be seen as attempts towards the achievement of a wider economic and socio-economic objective, including poverty alleviation. As stated by Kuteyi (2013), small and medium Enterprise drives their country’s development as they create employment and contribute to the gross domestic product (GDP). In the opinion of Ariyo, (2008); Ayozie and Latinwo (2010) and Muntala et al (2012), there is the greater likelihood that SMEs will utilize labour-intensive technologies thereby reducing unemployment particularly in developing countries and thus have an immediate impact on employment generation. Small and Medium Enterprises are expected to facilitate the growth and development of human and capital resources towards general economic development and the rural sector in particular. In view of these expected roles from SMEs, the Nigerian government had in the past devised policies and incentives for the development of small and medium scale Enterprises. Such efforts according to Adebusuyi (1997), could be classified broadly into three, namely:

• Incentives (fiscal and export),
• Tariff regimes, and
• Financial support and technical assistance program.

The fiscal incentives include tax relief for small enterprises during the first six years of operation, granting of pioneer status for a period of five years with a possible extension of two years for enterprises located in economically disadvantaged areas, and provision of relief for investment in infrastructure capital allowances, and minimal local raw material utilization income of 20 percent. Export incentives include the introduction of import duty draw back, export credit and insurance schemes, etc. To protect SMEs from dumping, the government adopted the use of high tariff rates to discourage importation of some of the industrial goods that could be produced domestically, and in some cases, complete ban on a variety of industrial and agricultural products. To provide funds to small and medium scale enterprises by way of commercial loans, the Bank of Industry (BOI) and the Nigerian Agricultural Cooperative and Rural Development Bank (NACRAB) were established. Also established were National Economic agencies to provide loan scheme for SMEs. In spite of all these efforts by the government, both at federal, state, and local government levels, to ensure the growth of SMEs in Nigeria, people such as Abereijo et al have identified key factors which they claimed were responsible for their perceived failure of SMEs in Nigeria. Against the backdrop of the interest and belief in the SMEs as a catalyst towards the industrialization and economic growth of Nigeria, this study is aimed at determining the quantitative impact of SMEs in Nigeria’s economic growth performance.     One of such developmental strategies is the industrial development and expansion of Small and Medium Scale Enterprises (SMEs). Past and the present governments has stressed on the importance and contributions of SMEs in attaining economic development in the country. In this present administration, several meetings have been held with the Nigeria Association of Small and Medium Enterprises (NASMEs), in order to promote the micro, small and medium enterprises in the country. Nevertheless, despite the efforts and contributions of past and present government towards promoting SMEs in the country, the contribution of this sector to the economy still remain relatively small in terms of its impact on Gross Domestic Product (GDP), unemployment and poverty reduction. The rate of unemployment in the country is still high and majority of the populace still live below poverty. Ekezie (1995), Bacdom (2004), Iromaka (2006), Aremu, (2010) among others attributed the lack of credit as one the major constraint to the realization of the benefits of SME. In the light of the above, this research attempt to examine the impact of SMEs on the economic development of Nigeria.

1.2 STATEMENT OF THE PROBLEM

In many societies, small and medium scale enterprises are the engine of growth. Specifically, in countries such as Malaysia, Thailand, China, and India, SMEs have been responsible for more than 70 percent of exports and this is why these countries, according to Duro (2013) have been growing in leaps and bounds. In Nigeria, SMEs are beset with a myriad of challenges which are in no small measure affecting their growth. The most pronounced, however, is access to funds and effective infrastructure to operate, especially electricity. As observed by Sacerdoti (2005), even banks with retained liquidity levels in excess of what is required by law have shown reluctance in extending loans to SMEs, especially on long term basis as they are considered highly vulnerable with high credit risk. Small and medium scale Enterprises do not have the muscle to compete with the multinationals in terms of marketing because of what it takes in real terms to market a product. In addition, the amount one needs to produce in order to engage in profitable marketing to break even is not there for the local manufacturers. SMEs by their very nature are supposed to be the bedrock of the nation’s economy but the operating environment has been very harsh for them to thrive. Currently, most of them can scarcely fund their operations, and the issue of mass or large scale production is ruled out. Some manufacturers have gone under due to unhealthy operating environment occasioned by poor infrastructure, high cost of production, multiple levies and multiplicity of regulatory agencies. In terms of capacity building, very few, of SMEs can afford to attract and retain the right caliber of staff that will take charge of sensitive and high-tech positions in their companies. In view of the problems confronting SMEs in Nigeria alongside the efforts the government has put in to ensure their growth for them to perform effectively the roles expected of them, this paper is aimed at quantitatively investigating the impact of SMEs on Nigeria’s economic growth performance

1.3 OBJECTIVE OF THE STUDY

The broad objective of this study is to analyze the impact of small and medium scale Enterprises in economic development in Nigeria. Specifically, the study shall

1. Determine the impact of SMEs on Nigeria’s economic growth performance.
2. Determine the impact of changes in fiscal and monetary policies on the output of SME’s in Nigeria.

• Examine the relationship between SMEs and economic development

1. Ascertain the role of the SMEs in economic development

1.4 RESEARCH HYPOTHESES

H₀₁: There is no significant impact of SMEs on Nigeria’s economic growth

H₁: There is significant impact of SMEs on Nigeria’s economic growth

H₀₂: There is no significant relationship between SMEs and economic development

H₂: There is significant relationship between SMEs and economic development.

1.5 SIGNIFICANCE OF THE STUDY

This study tries to examine the impact of small and medium scale enterprise SMEs in economic development in Nigeria. The study shall give an insight on how job opportunities can be created and how poverty rate can be drastically reduced in the country. The research work will further provide useful information for policy makers for further development of SMEs through Microfinance activities with the view to enhancing both institutional and policy frame work in the sector. The major value-added of this research work will be the proffering of suggestions that will help policy makers in formulating policies that will help improve the growth of entrepreneurial skills among the citizens of Nigeria

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of this study covers the impact of small and medium scale enterprise in economic development in Nigeria. however the research has some limitation which are:

Availability research materials: materials that the researcher require for the research work  was unavailable for the research work.

Time factor: time was not on the researchers to consult various sectors of the economy to review employees or given out questionnaire to various institutions on the effect of government revenue policies.
As we all know, time is never our friend. The time scheduled for the completion of this research thesis was too short. As a result, generating information/data was strenuous as it coincides with final year examination period, which needed attention.

Finance: this is another barrier that limited the researcher’s work.

1.7 DEFINITION OF TERMS

SMALL AND MEDIUM ENTERPRISE

The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and number of staff employed. The criteria are an asset base equal or less than N5million, and a staff strength equal or less than 100 employees.

ECONOMIC DEVELOPMENT

Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment and environmental issues.

Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out, “economic growth is one aspect of the process of economic development

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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