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Full Project – ASSESSMENT OF THE IMPACT OF SMALL AND MEDIUM SCALE ENTERPRISES ON THE NIGERIAN ECONOMY

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

For the past decades, small business enterprises in Nigeria were characterized as essentially backward and cog in the wheel of the overall development of the Nigeria economy. As a result of this, there has been a prevalent feeling that such businesses could be assisted only for social reasons, not as a promising opportunity for national development. Obviously, too little attention has been paid to the benefits to be derived from helping small enterprises of modernize and grow. This attitude arose partly amongst both the citizens and government and mainly from the very nature of the small business which made it difficult for its impact to be felt in the economy (Taiwo, 2012).

The mounting poverty level in developing economies is posing significant threat to the very existence and sustainability of the economies. In Nigeria, various economic programmes introduced by various governments in the past have not significantly reduced the level of poverty (Mazzarol, and Thein, 1999). Sequel to this, is the failure of various development programmes to impact on the level of welfare of the citizens in terms of poverty reduction particularly through employment generation. This triggered a new focus on the role and importance of small and medium sized enterprises as a viable channel to attaining economic growth and development (Agumagu, 2006).

Downing (1991) have made many attempts to establish statistical nexus between poverty rates and overall microeconomic performance on the basis of aggregate time series data but there are few studies on the factors that usually influence the capacity of the small firms and most of the factors have not been conclusively determined the factors, which influence their capacity to alleviate poverty.

Small and medium scale enterprises have long believed to be catalysts for economic growth and national development both in developed and developing countries. In Nigeria where private sector is not well developed SME is assumed to play the role of employment generation, facilitator of economic recovery and national development.

Over the years successive governments in Nigeria have recognized the importance and the vital role of the Small and Medium Scale Enterprises (SMEs) in ensuring meaningful and sustainable growth in a developing economy. Emphasis has shifted from large-scale capital intensive enterprises to small and medium scale ones because of their potentials for developing domestic linkages for rapid and sustainable industrial development. Apart from their potential for ensuring self-reliant industrialization, SMEs are also in a better position to boost employment (Goldstein, 2001).

The provision of credit to the grassroots has been a leading component of many of the government programmes (Shulpen and Peter, 2002). The policies lack of access to productive capital to which is one of the main factors that is preventing the populace from breaking away from the “poverty trap”. This trap makes it extremely difficult for the grassroots to overcome poverty without outside intervention. The trap can be viewed in terms of the population’s low capacity to generate income, savings, and investment in the economic environment that offers limited employment opportunities, which thus leave the grassroots in perpetual poverty and deprivation. According to Gottschalk and Danziger (1985) the idea of enabling the poor to have access to loans is based on the virtuous cycle principle: “low income, investment, more income, more credit, more investment, more income”.

1.2 Statement of the Problem

The performance and effectiveness of small scale enterprises as an instrument of economic growth and development in Nigeria has long been under scrutiny. This intense scrutiny has been against the backdrop of the low performance and inefficiency that characterized small and medium scale enterprises particularly in assessing its role on economic growth and development.

Despite government institutional and policies support in enhancing the capacity of small and medium scale enterprises, small and medium scale enterprises has fallen short of expectations. This has generated serious concern and sceptism on whether SME can bring about economic growth and national developments in Nigeria. The concern is even more disturbing when comparing SME in Nigeria with other countries particularly where SME has become harbinger of economic reconstruction and transformation.

Small and medium scale enterprises have performed at very abysmal level. This lo performance has further exacerbated poverty, hunger unemployment and low standard of living of people in a country whose economics is ailing. The problem of small and medium scale enterprises are tied to some economic variables and the challenges that generally characterized the nation’s economy. Some of the challenges and problems include high level of unemployment, high poverty incidence, and low industrialization capacity, lack of finance, inconsistent government policies and inadequate infrastructure and insecurity of the business climate among others.

Again, Entrepreneurs are in business (take risk) because they want to make profit. Where the expected returns from a venture are lower than the opportunity costs, it will act as a disincentive for the entrepreneur. Due to collapsed infrastructural facilities and unbridled corruption, where entrepreneurs have to spend huge sums to provide some basic infrastructure and bribe government officials, it makes the costs of doing business in the country too high with adverse implication for profitability.

1.3 Aim and Objectives of the Study

The main purpose of this research is to examine small scale enterprises on Nigeria Economy. The objectives include to:

Examine the effect of SMEs in the development of Nigeria Economy.
Find the financing opportunities available to SMEs in Nigeria.

iii. Evaluate the challenges faced by SMEs in Nigeria.

Examine the effect of SMEs operation in poverty eradication.

1.4 Research Questions

The following research questions was stated for the study:

Does SMEs have any effect in the development of Nigeria Economy?
What are the financing opportunities available to SMEs in Nigeria?

iii. What are the challenges faced by SMEs in Nigeria?

How effective is SMEs operation in poverty eradication?

1.5 Research Hypotheses

The following hypotheses were developed for the study:

Hypothesis One

H_o: There is no significant relationship between SMEs and poverty eradication in Nigeria

H₁: There is significant relationship between SMEs and poverty eradication in Nigeria.

Hypothesis Two

H_o: There is no positive relationship between SMEs and the development of Nigeria economy.

H₁: There is positive relationship between SMEs and the development of Nigeria economy.

1.6 Significance of the Study

It is hoped that the findings and recommendations of the study will be of great benefit through the following ways:

The study will broaden students understanding about the effect of small and medium scale enterprises (SMEs) on the economy of Nigeria. The study will also be of great benefit to the public by bringing to their awareness about the existence of SMEs and the roles it played in upgrading the society welfare. The study will also help entrepreneur to expound in their views about various business lines, equipping them about how to source for support from financial institutions.

The study is thus important because of its potentiality in the development of the small business sector which has been characterized as the “man carrier of development and the engine of social and economic growth” in Nigeria. The study will also help in identifying why people don’t go into small –scale enterprise despite its numerous advantages. It will also find our problems encountered while running the business. The 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.

1.7 Scope of the Study

The study examines assessment of the Assessment of the impact of small and medium scale enterprises on the Nigerian economy with a view to explore some selected SMEs in Ikeja, Lagos. The study as perceived might face some logistic challenges in term of the time and the costs involved in carrying out the research, but nevertheless, it would endeavor to accomplish its aims and objectives.

1.8 Definition of Terms

The following term used in this study should be taken to mean the following:

Economic Development: it can define as the process whereby a country’s real per capital gross national product of income increases over a sustained period of time through continuing increases i.e. per capital productivity.

Economy: the word is used to mean a particular system of organization for the production, distribution, and consumption of all things people use to achieve a certain standard of living.

Poverty Eradication: Poverty reduction (or poverty alleviation) is any process which seeks to reduce the level of poverty in a community, or amongst a group of people or countries.

Small and Medium Scale Enterprises (SMEs): SMEs are the engine room for the development of any economy because they form the bulk of business activities in a growing economy like that of Nigeria.

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