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THE IMPACT
OF SMALL AND MEDIUM SCALE ENTERPRISES ON ECONOMIC GROWTH IN NIGERIA 1982 - 2012
ABSTRACT
This
research work is on the impact of small and medium scale enterprises on
economic growth in Nigeria. The main objective of this study is to empirically
examine the impact of small and medium scale enterprises on economic growth in
Nigeria. This research work made use of secondary data which were obtained from
the Central bank of Nigeria Statistical Bulletin (2012). The data were
collected for a period of thirty one years (i.e. 1982-2012). The Ordinary Least
Square Regression Technique was employed in the analysis of the data. It was
found among other things that Based on the empirical analysis, it is concluded
that small and medium scale enterprises has significant relationship with economic
growth in Nigeria.SME developments cuts across sectors, involves multiple
stakeholders and necessitate concerted action by the public and private
sectors, therefore, SME development should be mainstreamed into the national
development framework. Building up markets institution should be accompanied by
capacity building of appropriate institutional structures. It is recommended
that, the Federal government shouldenact favourable fiscal and monetary
policies that will encourage foreign investors that want to invest in the
economy,also government should ensure that the productiveness in the domestic
sector of the economy is increased as this would encourage infant industries to
produce capital goods for exportation.
CHAPTER ONE
INTRODUCTION
The role of
Small and Medium-Scale Enterprises (SMEs) in the national economy cannot be
underestimated. 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. The impact
of SMEs is felt in the following ways: Greater utilization of local raw
materials, employment generation, encouragement of rural development,
development of entrepreneurship, mobilization 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 critical important role is played by the
small and medium enterprises. Small and medium scale enterprises advocates
firstly, its endurance competition and entrepreneurship promotion and hence
have external benefits on economic 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,financial market and other institutions, direct
government financial support to SMEs can boost economic growth and
development.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 tool, by promoting SMEs,individual countries
and the international community at large can make progress towards the main
goal of halfing poverty level by year 2020 i.e. to reduce poverty by half and
becoming among 20 largest World Economies (Nigeria Vision 20:20).
Entrepreneurial development is therefore important in the Nigerian economy
which is characterized by the following heavy dependence on oil, low
agricultural production, and 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 paper seeks to investigate small and medium enterprises as
a veritable tool in economic growth.
1.1
BACKGROUND OF THE STUDY
In recent
times, the fortune of small and medium scale Industries attracted the attention
of government world-wide and thus has been the focus of general interest and
research, especially in developing countries due to the importance of small
scale and medium scale Industries. Their importance cannot be over emphasized
as they constitute a whole virile vehicle for the generation of vast production
of outputs and job creation. They also act as catalyst for restructuring and
diversifying the productive base of an economy and for the Industrial
economytake-off and growth of such an economy. The small and medium scale
Industries are seen to hold the key to future expansion of the Industrial
sector.
In Nigeria,
evidence has shown that in 1986, small scale and medium scale Industries
accounted for 70% of all firms, employing millions of Nigerians (First Bank of
Nigeria report, 1987). By the end of 1979, over 80% of all establishments
licensed under the factory act were small and medium scale Industries (Onwuala,
1987). This made the importance of this economic unit to be unelectable.
Small and
medium scale industries in its widest sense implies the urgent response to the
challenges of developing countries, of which Nigeria is not an exception. Small
and medium scale Industries should be established with due regards to the
importance of available local raw materials in its environs because the
challenges facing them are enormous. The importance of small and medium scale
Industries to the economic growth of any country, whether developing or
developed, have been widely acknowledged and acclaimed. They are considered as
stimulants to private ownership and entrepreneurial skills development
employment generation, promotion of industrial dispersal and rural- urban
migration.
Clive
Carpenter (2001), said that across the world, small businesses are crucial for
economic growth, poverty alleviation and wealth creation. According to
Uayatudeen (2001),across the world, small businesses have such a crucial role
to play in the development of an economy and that cannot be ignored. Most firms
and small and medium scale Industries are compared with companies that
economists usually study,but economists have concentrated on large scale
Industries. The leading textbooks in economics have little discussions on small
and medium scale businesses or
entrepreneurs. The contributions of small and medium scale Industries on the
Nigerian economy are as follows: creation of wealth, poverty eradication and
employment generation as encapsulated in the national economic empowerment
development strategies (NEEDS)
However small
and medium scale Industries are bedeviled by numerous challenges which have
hampered its development and growth and also its contribution to national
development.
1.2
STATEMENT OF THE PROBLEM
Several studies have identified
financial constraint as the major obstacle to Small and Medium Scale
Enterprises Development in developing countries including Nigeria. For
instance, Adelaja (2003) argued that the access to institutional finance has
always constituted a pandemic problem for SME development in Nigeria. She
recalled that in the past, a number of schemes have been put in place to
provide special credit lines/windows for SMEs but this achieved very limited
impact.
The primary
focus of this study emanates from the fact that small scale enterprises owners
do not have sufficient finance to carry on their business due to the low saving
culture of the people in this part of the world. The reason for this is not far
fetch: low level of income basically.
Adesaolu,Oladoyin
and Oladele (2005) deduced that the financial challenges mar the
developmental role of Small and Medium Scale Enterprises. But this may not be
true especially in the case of Nigeria where the informal sector, which is
constituted largely by the Small and Medium Scale Enterprises play a very
important role in the development of the nation’s economy.
Many
scholars have written widely on entrepreneurship and its potency to generate
employment, thus, underscoring the quintessence, significance and relevance of
this sub-sector in the development of any given economy. The experiences of
developed economies in relation to the roles played by entrepreneurship
buttresses the fact that the importance of entrepreneurship cannot be
overemphasized especially among the developing countries. In order to highlight
its significance in relation to the growth and development of a given economy,
entrepreneurship has been variously referred to as a “source of employment
generation”. This is because entrepreneurial activities have been found to be
capable of making positive impacts on the economy of a nation and the quality
of life of the people (Adejumo, 2000). Studies have established its positive
relationship with stimulation of economic growth; employment generation; and
empowerment of the disadvantaged segment of the population, which include women
and the poor (Oluremi and Gbenga, 2011; Thomas and Mueller, 2000; Reynolds,
1987) and small and medium scale enterprises is all about entrepreneurship
which is a major engine to economic growth. Therefore, this study seeks to
evaluate the promotion of Small and Medium Scale Enterprises (SMEs) in Nigeria
and their catalytic role in economic growth.
1.3 RESEARCH
QUESTIONS
a. Would lack of funding for SMEs by the
banks affect the general financial stability in the economy? Or the provision
of it create the desired foundation necessary for sustainable economic growth
b. To what extent has government policies
been able to improve growth of SMEs in Nigeria
1.4OBJECTIVES
OF THE STUDY
The aim of
this research work is to examine how small and medium scale industries can be a
catalyst for the economic growth of Nigeria. The specific objectives are:
To identify the problems militating against
the development of the SME sector and proffer solutions
To identify the policies put in place by
the Nigerian government in order to promote growth of SMEs in Nigeria.
1.5STATEMENT
OF THE HYPOTHESIS
For the
purpose of this study, the researcher developed the following hypothesis.
Ho: Small and medium scale enterprises has no
significant impact on economic growth in Nigeria.
Hi: Small and medium scale enterprises has
significant impact on economic growth in Nigeria.
1.6SIGNIFICANCE
OF THE STUDY
This study is
significant because it would help to evaluate the operations of a vital segment
of the industrial sector SMEs which have been identified as having high
potential in promoting economic growth(Oni and Daniya, 2012). Also this study
is going to provide useful information on some of the challenges SMEs face in
Nigeria which will be significant to people interested in developing SMEs in
Nigeria
1.7SCOPE AND
LIMITATION OF THE STUDY
The study
encompasses the roles and contributions of small and medium scale industries on
the Nigeria economy from 1982-2012. In writing this project, the researcher
encountered some limitations, which were; lack of information from appropriate
quarters, time constraint, transportation difficulty in terms of traffic
problems, lack of funds, power outrage etc. However, in spite of all odds, I
was able to come out with a standard work. The project contains information
which is reliable and authentic.
1.8DEFINITION
OF TERMS
Economic
Growth: Economic growth is the increase in the amount of the goods and services
produced by an economy over time. It is conventionally measured as the percent
rate of increase in real gross domestic product, or real GDP. Growth is usually
calculated in real terms, i.e. inflation-adjusted terms, in order to obviate
the distorting effect of inflation on the price of the goods produced. In
economics, "economic growth" or "economic growth theory"
typically refers to growth of potential output, i.e., production at "full
employment".
Entrepreneurship:
The willingness and ability of an individual to seek out investment
opportunities in an environment, and be able to establish and run an enterprise
successfully based on the identified opportunities.
SMEs:Small
and medium enterprises or small and medium-sized enterprises (SMEs, small and
medium-sized businesses, SMBs, and variations of these terms) are companies
whose personnel numbers fall below certain limits. The abbreviation
"SME" is used in the European Union and by international
organizations such as the World Bank, the United Nations and the World Trade
Organization (WTO). In their paper Defining SMEs: A Less Imperfect Way of
Defining Small and Medium Enterprises in Developing Countries, Tom Gibson and
H. J. van der Vaartindeed suggest a less imperfect formula:
An SME is a
formal enterprise with annual turnover, in U.S. dollar terms, of between 10 and
1000 times the mean per capita gross national income, at purchasing power
parity, of the country in which it operates
CATALYST:It
is a susbstance that increases the rate of a chemical reaction.Also according
to vocabulary dictionary,it is a person or a substance that causes change
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