The Influence Of Small And Medium Scale Enterprise And Economic Development In Nigeria

Project and Seminar Material for Economics

Project and Seminar Material for Economics

Chapter One


1.1 Background Of Study

Small and medium enterprises in Nigeria can be defined according to asset base and number of staff employed. The criteria are an asset base between N5 million and N500 million, and a staff strength between 20 and 300 employees.
The development of Small and Medium Enterprises (SMEs) via effective financing options have stem debate and growing interest among researchers, policy makers and entrepreneurs, recognizing the immense contribution of the subsector to economic growth. Small and Medium Scale Enterprises (SMEs) constitute the driving force of such industrial growth and development.

This is basically due to their great potential in ensuring diversification and expansion of industrial production as well as the attainment of the basic objectives of development. SMEs utilize local raw materials and technology thereby aiding the realization of the goal of self-reliance. Also, governments at various levels (local, state and federal levels) have in one way or the other focused on the performance of Small and Medium Scale Enterprises for economic gains. While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives in order to enhance the socio-economic development of the economy like alleviating poverty, employment generation, enhance human development, and improve social welfare of the people.

Empirical evidences have shown that prior to the late 19th century, cottage industries, and mostly small and medium scale businesses controlled the economy of world giants like Europe and America. The industrial revolution changed the status quo and introduced mass production. The Small and Medium Scale Enterprises (SMEs) development facilitates the mobilization of human and capital resources towards economic development, in general, and the rural sector, in particular. They have been identified as a vehicle for employment generation and providing opportunities for entrepreneurial sourcing, training, development and empowerment.

Developing nations such as Nigeria characterized as low income earners by the World Bank, value small and medium scale enterprises (SMEs) for several reasons. Viewed in static terms, the main argument is that SMEs, on average achieve decent levels of productivity especially of capital and factors taken together (that is, total productivity factor) while also generating relatively large amount of socio-economic development. In dynamic terms, the SMEs sector is viewed as being populated by firms most of which have considerable growth potential. SMEs in developing countries achieve productivity increases to a great extent simply by borrowing from the shelf of technologies available in the world (Christopoulos and Tsionas, 2004).

However, there is no denying the fact that the sector is a sine qua non in ensuring the attainment of the goals of the federal government’s (Pakistan Journal of Business and Economic Review Vol. 2, Number 1 2011).

SMEs are critical agent of economic transformation as they account for more than 50 percent of GDP of developing economies, are main source of innovation and technological development, source of supply of both human capital and raw materials to larger businesses and main source of entrepreneurship and enterprise Sanusi (2003) and PECC (2003). Each of these roles are critical for the economic growth and development of a country, Schumpeter,(1973), Van-Den-Berg (2001), Garba (2002) yet there is just scanty evidence that SMEs have had any direct impact on development of any nation Franck and Huyghebaert (2008 ).

What distinguish, small and medium scale enterprises (SMEs) from the larger enterprises are the high entry and exit rates and their flexibility relative to the latter. SMEs are highly valued, especially in developing economies, for many reasons. One of such is that SMEs achieve decent levels of productivity especially of capital and all factors taken together than large firms (Christopoulos & Tsionas, 2004). The abundance of capital and the range of technologies available in the world expand, SMEs need productivity increases through adequate financing if they are to maintain or increase their contribution to overall socio-economic development in developing countries like Nigeria.

However, this signifies the importance of capital and its cost of sourcing for SMEs development, among other factors like infrastructure and enabling environment, cheap source of funds, availability of production equipment, efficient manpower, disciplined management and availability of markets (both local and international) that enhance their operations in ensuring sustainable socio-economic development. Nevertheless, set of factors hinders the performance of SMEs for maximum contribution to the economy. In this regard, we can identify ten key factors and variables that have been have been branded to influence SMEs’ failure in Nigeria.

These include disasters, competition, infrastructure, taxes, accounting, management, marketing, economic condition, planning and finance. In Nigeria, poor economic conditions, which also implies poor finance and inadequate infrastructure, have been identified as the most crucial factors (Ihua, 2009). This position is corroborated by other studies which identified financial support as one of the main factors responsible for small business failures in Nigeria (Abereijo & Fayomi, 2005; Okpara & Pamela, 2007).

The case study of this research work is Y2K Pub in Asaba, Delta state, Nigeria. Y2K pub which is a medium scale business and would be used as a benchmark for all Small and Medium scale Enterprises in Nigeria.

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