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 (2016). The data were collected for a period of thirty one years (1986-2016). The Ordinary Least Square Regression Technique was employed in the analysis of the data. It was found that small and medium scale enterprises has significant impact on economic growth in Nigeria also commercial bank loan has significant impact on SME. It is recommended that, The Nigerian government should organize a national enterprise forum, which would focus on the contributions of SMEs in national development objective.Commercial banks should be strongly encouraged to assist small and medium scale enterprises by providing cheap sources of finance and making their requirements for soft loan to be easier and more reasonable. CHAPTER ONE INTRODUCTION 1.1 Background of the Study The small and medium scale enterprises (SMEs) have been generally acknowledged as the bedrock of the industrial development of any country. Apart from the numerous goods and services, they provide a veritable means of large scale employment as they are usually labour intensive. (Yerima,2010). In developing countries, Nigeria have since the 1980‟s shown increased interest in the financing and promoting of Small and Medium scale Enterprises from three main reasons. According to Owuallah, (2014), these reasons are: i. Transformation of traditional or indigenous industry ii. ii. Increase in job creation. iii. iii. Redistribution of wealth and income. They also provide training grounds, for entrepreneur even as they generally rely more on the use of local materials. Osaba, (2008) says that, the distribution of goods has continued to be the only viable and reliable option for development, growth and survival of any economy. The work explores the role and contribution, constraints and prospects of the SMEs as they contribute to the growth and development of the Nigerian economy. The pursuit of economic development has been a major goal of many developing nations of the world.Developing countries are confronted with several problems such as 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 indices used as a measurement of economic development. This is often depicted by income per capital, equitable distribution of income, the welfare and quality of life enjoyed by the citizens 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 industrial sector is 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 businessescontrolled the economy of Europe. The Industrial Revolution changed the status quo and introduced massproduction (Thomas, 2011). The twin oil shocks during the 1970s undermined the mass production model, whichtriggered the unexpected reappraisal of the role and importance of small and medium sized enterprises in theglobal economy (Wendrell, 2003). In Nigeria, the introduction of SME can be traced back to the year 1945 whenthe essential paper No. 24 of 1945 on “A Ten year plan of development and welfare of Nigeria 1946 waspresented”. Small and Medium scale Enterprise was considered an all time necessity at the beginning; which hasgained prominence today and is expected to increase its importance in the future (Basil, 2015). The contributions which small and medium scale enterprises make to the economic growth process have been well documented (Mambula, 2012). Small and medium scale enterprises (SMEs) generate more direct job per naira of investment than do larger enterprises. They serve as a training ground for developing technical and entrepreneurial skills and by virtue of their greater use of indigenous technological capabilities, they promote local inter-sectoral linkages and contribute to the dynamism and competitiveness of the economy. Prior to the 1970s, the small and medium scale enterprises (SMEs) belonged to the past but this view has since changed because the contributions of SMEs to industrial and economic growth of countries have been recognized internationally (Nnanna, 2001). Since Nigeria’s independence in 1960, Nigeria’s national development plans (1962-1985, 1986-1990, 1991-2000, 2001-2010) had laid emphasis on the strategies of government led industrialization through the development of local manufacturing industries. This was in recognition of the important role the small and medium scale enterprises play in industrial strategic plans of the government and the overall growth of the economy. Despite the expected role of SMEs to economic growth, the contributions of SMEs to the Nigerian economy appear to be insignificant. While SMEs employed about 70 percent of industrial labour force, it only accounted for 10 – 15 percent of total industrial output with a capacity utilization of slightly above 30 percent, which is a reflection of low productivity of SMEs. SMEs are broadly defined as businesses with turnover of less than N100MM per annum and/ or less than 300 employees. Studies by the IFC show that approximately 96% of Nigerian businesses are SMEs compared to 53% in the US and 65% in Europe. SMEs represent about 90% of the manufacturing/industrial sector in terms of number of enterprises, they contribute approx. 1% of GDP compared to 40% in Asian countries and 50% in the US or Europe. In Nigeria, SMEs are distributed by clusters within regions. The 2012 Enterprise Baseline Survey revealed that there are 17million SMEs in Nigeria, employing 32.41 million persons and makes a contribution of about 46.54 percent to the nation’s Gross Domestic Product in nominal terms. Characteristics of SMEs in Nigeria A major characteristic of Nigeria’s SMEs relates to ownership structure or base, which largely revolves around a key man or family. Hence, a preponderance of the SMEs is either sole proprietorships or partnerships. Even where the registration status is thus that of a limited liability company, the true ownership structure is that of a one-man, family or partnership business. Other common features of Nigeria’s SMEs include the following among others. 1) Labour–intensive production processes 2) Concentration of management on the key man 3) Limited access to long term funds 4) High cost of funds as a result of high interest rates and bank charges 5) High mortality rate especially within their first two years 6) Over-dependence on imported raw materials and spare parts 7) Poor inter and intra-sectoral linkages – hence they hardly enjoyeconomies of scale benefits 8) Poor managerial skills due to their inability to pay for skilled labour 9) Poor product quality output 10) Absence of Research and Development 11) Little or no training and development for their staff 12) Low entrepreneurial skills, inadequate educational or technical background 13) Lack of adequate financial record keeping 14) Poor Capital structure, i.e. low capitalisation 15) Poor management of financial resources and inability to distinguishbetween personal and business finance 16) High production costs due to inadequate infrastructure and wastages. 17) Use of rather outdated and inefficient technology especially as it relates toprocessing, preservation and storage. 18) Lack of access to international market 19) Lack of succession plan Challenges of the SMEs Most SMEs die within their first five years of existence. Another smallerpercentage goes into extinction between the sixth and tenth year thus onlyabout five to ten percent of young companies survive, thrive and grow tomaturity. Many factors have been identified as to the possible causes or contributingfactors to the premature death of SMEs. Key among this include insufficient capital, inadequate market research, over-concentration on one or twomarkets for finished products, lack of succession plan, inexperience, lack of proper records or lack of any records at all,inability to separate business and family or personal finances, lack of businessstrategy, inability to distinguish between revenue and profit, inability to procurethe right plant and machinery, inability to engage or employ the right caliber staff, cut-throat competition, lack of official patronage of locallyproduced goods and services, dumping of foreign goods and overconcentrationof decision making on one (key) person, usually the owner. Otherchallenges which SMEs face in Nigeria include irregular power supply and otherinfrastructural inadequacies (water, roads etc) unfavorable fiscal policies,multiple taxes, levies and rates, fuel crises or shortages, policy inconsistencies,reversals and shocks, uneasy access to funding, poor policy implementation,restricted market access, raw materials sourcing problems, competition withcheaper imported products, problems of inter-sectoral linkages given that mostlarge scale firms source some of their raw material outside instead of subcontracting to SMEs, insecurity of people and property, fragile ownership base,lack of requisite skill and experience, thin management, unfavorable monetarypolicies, lack of entrepreneurial spirit, poor capital structuring as well as poormanagement of financial, human and other resources. Their characteristics and the attendant challenges notwithstanding, it is the consensus that SMEs, which globally are regarded as the strategic andessential fulcrum for any nation’s economic development and growth, haveperformed rather poorly in Nigeria. The reason for this all-important sector’sdismal performance have been varied and convoluted depending on who iscommenting or whose view is being sought in various governments’ budget, with the imperativeness of SMEs as the bulwark foremployment generation, poverty reduction and technological developmentbeing highlighted. While many attribute the relatively poor performance ofSMEs in Nigeria when compared with the significant roles which SMEs haveplayed in developed economies such as the United Kingdom, Germany and theUnited States and even developing countries of the world like India to theChallenges outlined above, some others hinge the reasons on the fair share of neglect on the sector by the government. This research is intended to critically appraise and analyse the operatingenvironment and circumstances of SMEs in Nigeria with a view to actuallyidentifying why they (SMEs) are not playing the vibrant and vital roles in theNigerian economy as they (SMEs) do in other economies such as India whichhas so many similarities with Nigeria in terms of population and otherdemographic variables. This is even more disturbing if one recalls that Nigeriaremains the largest market in the African continent where investmentopportunities are beckoning to be exploited. 1.2 Statement of 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 includes 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 The questions for which answers are sought from this research are as follows: i. To what extent has SMEs impacted on Nigeria’s economic growth performance ii. The various problems encountered by SMEs in an effort to obtain loans from commercial banks. 1.4 Objectives 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: a. What is the impact of SMEs on Nigeria’s economy b. What are the problems encountered by SMEs while trying to obtain loans from the bank 1.5 Statement of Hypothesis For the purpose of this study, the researcher developed the following hypothesis. Ho1: Small and medium scale enterprises has no significant impact on economic growth in Nigeria Ho2:- Commercial bank credit has no significant impact on SMEs 1.6 Significance of the Study This researcher would be of valuable benefit to both the financial institution and Small and Medium scale Industries in Nigeria, as well as the countries policy makers who have desire to place Nigeria on a sound economic and industrial footing. When this research is concluded, it would have contributed to the study of knowledge already pilling on the issue of constraints on growth of SMEs, which cannot over look an aspiring nation like Nigeria because it would help to evaluate the operations of this vital segment which has 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. 1.7 Scope of the Study This scope of this study in terms of its contents is restricted to the concept of constraints on growth, financing and promoting SMEs in terms of achieving its organizational goals and objectives. The study encompasses the roles and contributions of small and medium scale industries on the Nigerian economy which amounts to over 17million (Enterprise baseline survey 2012).
CHAPTER ONE
INTRODUCTION
- Introduction
This part of the work serves as the introductory paragraph, thereby connoting the foundation upon which this work is built. Other aspect to be discussed are as follows; background to the study, statement of problem, research objectives, research hypotheses, significance of the study, limitations of the study and operational definition of terms.
- Background to the Study
Entrepreneurship Development in Nigeria – The entrepreneur plays a vital role in the process of economic growth and development. Iwu Eze (1986) in Olorunshola, (2013) in a paper presented in on entrepreneurship development in Nigeria said that an entrepreneur is a contractor, an organizer of an enterprise for the public, a resourceful person with a dream. Entrepreneurs are bold men and women who have initiative and the ability to lead, manage and take the consequences.
They are men of action, risk takers, missionary, creative and highly respected of their ability to effectively and efficiently concubine the functions of management to achieve the goals. He also noted that during the colonial period, only few of Nigerians could boast of personal or family capital to start off any meaningful business and hence the next place of call for business and financial was bank.
According to Ani (1999) in Olorunshola, (2013) said that entrepreneurship started when people produced more products than they needed and as such, had who also these surpluses with others who also wanted to dispose of their surpluses. For instance, if a black smith produced more hoes then he needed, he exchanged the surplus he had with what he specialisation. This process is known as trade by barter before the advent of any form of money. All these have been made to ensure the sustainance and growth of small and medium scale enterprises in the country.
One of the goals of economic development strategies pursued by successive Nigerian Governments has been the reduction of poverty through job creation. Many government policies over the years for the achievement of that objective have been based on the development of indigenous entrepreneurship. Of course, Nigeria is not along in pursuing this strategic option.
The Reagan administration in the USA also pursued similar policies in the 1980s “Reaganomics” as it was dubbed worked on the supply side of the economy. The concept of government policy has been analysed by Dye (1965) who quoted Jones (1977) as cited in Olorunshola, (2013) as a public decision to achieve a purpose.
However, policy only lays down the general directive rather than detailed instructions or strategies on the line of action to follow to achieve the objective. Basically, government policies are formulated by the three arms of government working in concert.
But, policies can be initiated from various institutional sources and from private persons. Ultimately all government policies in Nigeria derive their legitimacy from the constitution (Uchendu, 1989 in Akanle & Ejiofor, 2014).
Dutz, (2000) simply defines government policy as a guiding principle which governs action especially repetitive actions, it is decision as to what should be done and how, when and where. Entrepreneurship on the other hand refers to the activities of the entrepreneur as the initiator, organiser, innovator and risk bearer in production or business, (Vesper 1982 in Akanle & Ejiofor, 2014).
The entrepreneur is the person whose activities create wealth and employment which can be measured either directly or through economic growth rates. Entrepreneurship development (ED) refers to the process of enhancing entrepreneurial skills and knowledge through structured training and institution-building programmes.
Entrepreneurship development aims to enlarge the base of entrepreneurs in order to hasten the pace at which new ventures are created. Entrepreneurship development focuses on the individual who wishes to start or expand a business. Small and medium enterprise (SME) development, on the other hand, focuses on developing the enterprise, whether or not it employs or is led by individuals who can be considered entrepreneurial.
1.2 Statement of the Problem
The Nigerian economy has been characterised with a lot of inefficiencies; public sector dominance, over reliance on oil as the major revenue earner and this has typically affected the country’s course of development.
However, since the mid-1980s, Nigeria has introduced some structural economic reforms, abolished polices and structures which prevented entry into certain industries, and opened up its markets to competition from domestic and foreign entrepreneurs.
The government have also introduced and pursued a number of entrepreneurship encouragement policies aimed at reducing the high rates of unemployment and poverty.
Though, Nigeria is still plagued by many development challenges, “preliminary evidence suggests a favourable response by the private sector to the new entrepreneurial opportunities thus created” (Elkan, 1988 in Akanle & Ejiofor, 2014)).
Nigeria is naturally endowed with entrepreneurship opportunities; however the realisation of the full potential of these opportunities has been dampened by the adoption of inappropriate industrialisation policies at different times.
Several policy interventions that were aimed at stimulating entrepreneurship development via small and medium scale enterprises promotion, based on technology transfer strategy, have failed to achieve the desired goals as it led to the most indigenous entrepreneurs becoming distribution agents of imported products as opposed to building in-country entrepreneurial capacity for manufacturing, mechanised agriculture and expert services.
- Objectives of the Study
The primary objective of this research work is to examine the effect of government policies on entrepreneurship development.
While the specific objectives of this research work are to:
- ascertain if government policies has significantly impacted on entrepreneurship development in Nigeria.
- evaluate the relationship between government policies and economic growth in Nigeria.
- ascertain the long-run relationship that exists between government policy and entrepreneurship development in Nigeria.
1.4 Research Questions
The questions that will form the basis of this research work include the following;
- What has been the impact of government policies on entrepreneurship development as measured by the rate of growth of the key sectors of the economy?
- Is there any causal or bi-directional relationship between government policies and economic growth in Nigeria?
iii. What is the extent of relationship between government policy and entrepreneurship
development in Nigeria?
1.5 Research Hypothesis
The following hypothesis will guide this research work;
Ho1: Government policies have no significance effect on entrepreneurship development in Nigeria.
Ha1: Government policies have a significant effect on entrepreneurship in Nigeria.
Ho2: There is no significant relationship between government policies and economic growth in Nigeria.
Ha2: There is a significant relationship between government policies and economic growth in Nigeria.
Ho3: There is no long-run relationship between government policies and entrepreneurship development in Nigeria.
Ha3: There is a long-run relationship between government policies and entrepreneurship development in Nigeria.
1.6 Significance of the Study
This research work is aimed at improving government policy through entrepreneurship development. It is also aimed at highlighting the relationship between government policy and entrepreneurship development.
It will also serve as reference document to students, government, and other researchers as an advancement of knowledge in management and other field.
1.7 Limitation of the Study
The researcher encountered the following constraints in the course of this work, data constraint, financial constraint, limited information due to the type of research work and time constraint.
This research work is also limited to the use of secondary data gotten from secondary sources, as such if there are any errors made by those who generated these data; this research work incorporates such errors.
- Time: Time has been a major constraint that has militates against the realisation of the objectives of the research; especially as the researcher had to carry it out in the midst of academic pressure.
- Finance: Finance being the life wire of any business and any research work, has posed a major barrier that has immensely militates against the realisation of researchers objectives. The researcher faced inadequate finance for the acquisition of the necessary stationery for the work.
- Negative attitude of some people interviewed some of the people interviewed were not ready to give out the required informations needed due to the fact that, they think, the researcher wants to know about their privacy, this issue militates against the realisation of researchers objectives.
1.8 Operational Definition of Terms:
For easy and concise understanding of this work, it is necessary that vital terms be defined.
Bi- directional: it is the capability of reaching or functioning in two, usually opposite, direction.
Entrepreneur: An entrepreneur means a person who starts, organise a commercial enterprise especially one having financial risk. An entrepreneur as an individual who has the ability to see and evaluate business opportunities gather the necessary resources to take advantage of them and initiate appropriate action to ensure success and he is a risk taker.
Entrepreneurship Development: this is the coming into existence in society of the class of individuals, who are not limited to pace odds.
Government policy: it is a declaration of a government political activities, plan and intention relating to a concrete cause or, at the assumption of office, on entire legislature session.
Goals: is an observance and measurable and results having one or more objectives to be achieved within a more or less fixed time frame.
Indigenization: it is the mass transfer of ownership and control of economic organisation from foreigners to nationals. It is a situation where a deliberate effort is made with a backup of government regulation to transfer proprietary interest of man.
Infrastructure: refers to the fundamental facilities and systems saving a country city, or area, including the services and facilities necessary for its economy to function.
Management: this is defined as process of combining and utilising of an organisation inputs [men, materials and money] by proper planning organising, directing and controlling for the purpose of producing outputs [good & services] desired by customers to that the organisation economic growth al goals or objective are accomplished.
Planning: planning can be defined as a process in which managers visualize and determine in advance, the objectives of an enterprise or organisation and select future course of action for the accomplishment.
Policies: policies are generally adopted by the board of or senior governance body within the organisation whereas procedure or protocols would be development and adopted by senior executive officers.
Small Scale Business: small scale business are those enterprises that have relatively little capital investment, that produce in small quantities and as a result control a small share of market that employ not more than fifty workers [50] and in which management marketing and entrepreneurship functions are used in the proprietor.
Source of fund: it means any means of gathering money e.g vulture, capital, donations, grants, savings subsidies and taxes.
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