Full Project – EFFECTS OF INSECURITIES ON SMALL AND MEDIUM SCALE ENTERPRISE

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CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

Insecurity, in its various forms, has been identified as a significant factor affecting the growth and sustainability of Small and Medium Scale Enterprises (SMEs) in Nigeria. According to a study by Oyewole, Abba, and Moguluwa (2013), insecurity, particularly in the form of political instability and crime, has a direct impact on the performance of SMEs. The study found that insecurity leads to increased operational costs, reduced productivity, and lower profitability for these businesses.

The impact of insecurity on SMEs in Nigeria is further explored in a study by Adebayo and Rasheed (2016). They found that insecurity, particularly in the form of terrorism and kidnapping, has led to a significant reduction in the number of SMEs operating in the country. This is because these forms of insecurity create an unfavorable business environment, leading to increased business failure rates. The study also found that insecurity has led to a decrease in foreign direct investment, further exacerbating the challenges faced by SMEs.

In a similar vein, a study by Okafor and Uzochukwu (2015) found that insecurity has led to a decrease in the level of entrepreneurial activity in Nigeria. The study found that insecurity creates a climate of fear and uncertainty, which discourages individuals from starting new businesses. This has a negative impact on the growth and development of the SME sector in the country.

However, it’s not all doom and gloom. A study by Okeke and Eme (2016) found that some SMEs have been able to adapt and thrive in the face of insecurity. They argue that these businesses have been able to do so by adopting innovative strategies, such as diversifying their operations, investing in security measures, and building strong relationships with their local communities.

Despite these findings, there is still a need for more research on the impact of insecurity on SMEs in Nigeria. As noted by Umar and Hassan (2017), most of the existing studies on this topic have focused on the negative impacts of insecurity, with little attention paid to the strategies that SMEs can adopt to mitigate these impacts. They argue that future research should focus on identifying and promoting these strategies, to help SMEs in Nigeria thrive in the face of insecurity.

Insecurity has a significant impact on the performance and sustainability of SMEs in Nigeria. However, with the right strategies, these businesses can adapt and thrive in the face of these challenges. Future research should focus on identifying and promoting these strategies, to help SMEs in Nigeria overcome the challenges posed by insecurity.

• Statement of the Problem

The problem of insecurity in Nigeria has been a significant concern for small and medium scale enterprises (SMEs). The persistent insecurity issues, ranging from terrorism, kidnapping, armed robbery, and communal clashes, have created an unfavorable business environment for SMEs. These enterprises, which are the backbone of the Nigerian economy, are struggling to survive amidst these challenges. The constant fear of attacks has led to the closure of many businesses, thereby affecting the economic growth of the country (Adejumo, 2013).

The second issue is the impact of insecurity on the cost of doing business. SMEs are forced to spend more on security measures, thereby increasing their operational costs. This additional cost is often passed on to the consumers, leading to increased prices of goods and services. The high cost of doing business has also discouraged potential entrepreneurs from starting businesses, thereby affecting the growth of SMEs in Nigeria (Ogbeide & Elekwa, 2016).

Insecurity has led to a decrease in foreign direct investment (FDI) in Nigeria. The constant insecurity issues have made Nigeria an unattractive destination for foreign investors. This has affected the availability of funds for SMEs, as foreign investors are a significant source of funding for these enterprises. The decrease in FDI has also affected the growth and development of SMEs in Nigeria (Akinwale, 2014).

Furthermore, insecurity has led to a decrease in the productivity of SMEs. The constant fear of attacks has affected the morale of workers, leading to a decrease in their productivity. This has affected the output of SMEs, thereby affecting their profitability and growth (Ogbeide & Elekwa, 2016).

In addition, insecurity has led to a decrease in the availability of raw materials for SMEs. The constant attacks have made it difficult for SMEs to source for raw materials, especially those located in the conflict-prone areas. This has affected the production process of these enterprises, thereby affecting their growth and development (Adejumo, 2013).

Lastly, the problem of insecurity has led to a decrease in the market size for SMEs. The constant attacks have led to the displacement of people, thereby reducing the market size for these enterprises. This has affected the sales and profitability of SMEs, thereby affecting their growth and development (Akinwale, 2014).

• Aim and Objectives of the Study

The aim of the study is to examine the effects of insecurities on Small and Medium Scale Enterprise. The specific objectives of the study are:

1. To examine the extent to which insecurity affects the growth and development of small and medium scale enterprises in Nigeria.
2. To identify the specific types of insecurities that pose the most significant challenges to these enterprises.
3. To understand the coping mechanisms and strategies that businesses employ to mitigate the effects of insecurity.
4. To assess the role of government policies and interventions in addressing the issue of insecurity and its impact on small and medium scale enterprises.

• Research Questions

The research questions are buttressed below:

1. To what extent does insecurity affect the growth and development of small and medium scale enterprises in Nigeria?
2. What specific types of insecurities pose the most significant challenges to these enterprises?
3. What coping mechanisms and strategies do businesses employ to mitigate the effects of insecurity?
4. How effective are government policies and interventions in addressing the issue of insecurity and its impact on small and medium scale enterprises?

1.5  Research Hypothesis

The hypothetical statement is stated below:

H_o: Insecurity will not affect the growth and development of small and medium scale enterprises in Nigeria.

H₁: Insecurity will affect the growth and development of small and medium scale enterprises in Nigeria.

1.6 Significance of the Study

The study on the effects of insecurities on small and medium scale enterprises (SMEs) in Nigeria holds significant importance for several reasons. Firstly, it provides an in-depth understanding of the extent to which insecurity impacts the growth and development of SMEs. This knowledge is crucial for stakeholders, including business owners, investors, and policymakers, to make informed decisions and strategies.

The study identifies the specific types of insecurities that pose the most significant challenges to these enterprises. This information is vital in tailoring interventions and policies that address these specific insecurities. By doing so, it can help to create a more conducive environment for the growth and development of SMEs.

The study explores the coping mechanisms and strategies that these businesses employ to mitigate the effects of insecurity. This insight can be beneficial for other SMEs facing similar challenges, providing them with practical strategies that they can adopt to navigate the insecurities.

The study assesses the role of government policies and interventions in addressing the issue of insecurity and its impact on SMEs. This assessment can provide valuable feedback on the effectiveness of current policies and interventions, informing future policy development and implementation.

The findings of this study can contribute to the existing body of knowledge on the subject matter. It can provide a basis for further research, particularly in exploring solutions to the problem of insecurity and its impact on SMEs.

Lastly, the study has the potential to stimulate economic growth and development in Nigeria. By addressing the issue of insecurity, it can help to create a more stable and secure environment for SMEs to thrive, contributing to job creation, income generation, and overall economic development.

1.7.  Scope of the Study

The study examines the effects of insecurities on Small and Medium Scale Enterprise. A case study of Dutse, Alhaji Abuja. The study is restricted to Abuja FCT.

1.8. Operational Definition of Terms

Effects: In the context of this study, effects refer to the outcomes or consequences that result from a particular action or situation. In this case, it refers to the impact of insecurities on the operations, growth, and development of small and medium scale enterprises in Nigeria.

Insecurities: Insecurities, in this context, refer to the state of being open to danger or threat; lack of protection. It could be in the form of political instability, economic downturn, crime, or any other factors that create an unsafe or unstable environment for businesses to operate.

Small and Medium Scale Enterprise: Small and Medium Scale Enterprises (SMEs) are independent firms that employ fewer than a given number of employees. This number varies across countries and sometimes within sectors. In Nigeria, the National Policy on Micro, Small and Medium Enterprises (MSMEs) defines a small business as a business with a workforce between 10 and 49 employees and a total cost (including working capital but excluding cost of land) not exceeding N50 million.

Business: A business is an organization or entity that involves in commercial, industrial, or professional activities. It can be a for-profit entity, such as a publicly-traded corporation, or a non-profit organization engaged in business activities, such as an agricultural cooperative.

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