Promotion Of Small Scale Enterprises And Their Contribution To The Economic Growth Of Nigeria

Project and Seminar Material for Business Administration and Management BAM

Abstract

The study critically examined the contributions of small and medium scale enterprises to the economic growth of Nigeria and how SMEs can be promoted. Since SMEs are the backbone of the economy, it is essential to adequately promote and sustain their activities in-order to enjoy a developed and stabilized economy.

Concerning methodology, the researcher used both primary and secondary sources of data for the study. Primary source of data formed the basis for data analysis as questionnaires were issued to officials of Small and Medium Scale Development Agency of Nigeria (SMEDAN). Chi-square at a significance level of 0.05 was also used to test hypothesis developed for the study.

Findings from the study revealed that in actual fact, SMEs contribute tremendously to the growth of the economy via increase in Gross Domestic Product (GDP). The production of goods and services, creation of jobs, innovation of newer products and revenue generation abilities of SMES have helped the economy of Nigeria since Nigeria gained her independence in 1960. The government should minimize tax burdens imposed on SMEs and provide adequate power supply to create enabling environment for SMEs to survive and be adequately promoted.

Chapter One

Introduction

1.1 Background of the Study

The production of goods and services in the most efficient manner has continued to be the only viable and reliable option for development, growth and survival of any economy. SMEs have been fully recognized by government and development experts as the main engine of economic growth and a major factor by extension in promoting the realization of the financial systems strategy 2020. This is because the development of this sub-sector is an essential element in the growth strategy, not only in contributing to improved standard of living; they also bring substantial local capital formation and achieve high level of productivity and capacity.

From a planning stand point, SMEs are increasingly recognized as the principal catalysts for achieving equitable and sustainable industrial diversification and dispersal and in most countries SMEs account for well over half of the total share of employment, sales and value added (Udechukwu, 2003). This is not surprising because the industrial sector in Nigeria has no significant record of meaningful contribution to economic development since independence in 1960 because it has not experienced any notable growth, traceable to indigenous industrial entrepreneurship (Adewale, 2007). The Nigerian economy, since the early seventies, has been dependent on oil products. As a result of the enormity of revenue generated from oil, very little attention has been paid to proper development of the industrial sector. The reason for the lacklustre performance of the industrial sector is mostly associated with the poor attention paid to the promotion and development of the small and medium scale sub-sector, which is accepted worldwide to be the engine of economic growth and the basic foundation for the industrialization process of any nation that desires to experience solid development. This is more so because entrepreneurship development is a critical aspect of skills development and keystone for economic revival and growth.

Furthermore, the vital role of small and medium scale enterprise (SMEs) as the only authentic foundation for accelerated industrialization, growth and development, as witnessed in all the Newly Industrialized Countries of South East Asia, referred to as Asian Tigers, is recognized for its accelerative effect in achieving macro-economic objectives such as full employment, income distribution, development of local technology and stimulation of indigenous entrepreneurship, mitigation of rural-urban migration, support and linkage of the entire industrial sector by training of semi-skilled and non-skilled manpower as well as the manufacturing and supply of spare parts and raw materials to large scale industries.

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. He 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 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. While it is an established fact that Small and Medium Scale Enterprises face financial challenges, no research has been conducted to investigate the effect the financial problem on their contribution to economic development. Asaolu et al (2005) and many other authors and researchers have 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. Therefore, this study seeks to evaluate the promotion of Small and Medium Scale Enterprises (SMEs) in Nigeria and their contribution to economic growth.

1.3 Objectives of the Study

The main purpose of this study is to identify and consequently analyze the most effective and efficient way through which Small and Medium Scale Enterprises could be financed and promoted.
In view of the above, the researcher intends to find out the following:

The role played by government towards promotion and development of Small and Medium scale Enterprises (SMEs).

To examine the contribution of Small and Medium scale Enterprises (SMEs) to the economy of Nigeria.
To identify the financial constraints confronting the promotion of Small and Medium scale Enterprises (SMEs).
To find suitable strategies that will improve the development, growth and survival of Small and Medium scale Enterprises (SMEs).

1.4 Research Questions

The study would examine the following questions:

What is the trend of financial support given to SMEs in Nigeria?
What impact do Small and Medium Scale Enterprises make to Nigeria’s economic growth?
What contribution has the financial system made to the growth of SMEs in Nigeria?
How could the growth of Small and Medium Scale Enterprises be enhanced in Nigeria?

1.5 Hypothesis of the Study

Ho: The activities of Small and medium scale enterprises have not contributed to the economic growth of Nigeria.
Hi: The activities of Small and Medium scale Enterprises have contributed to the economic growth of Nigeria.
Ho: Small and Medium scale enterprises are not adequately promoted by the government of Nigeria.
Hi: Small and Medium scale enterprises are adequately promoted by the government.
Ho: SMEDAN officials have not effectively and efficiently promoted SMEs in Nigeria
Hi: SMEDAN officials have effectively and efficiently promoted SMEs in Nigeria.

1.6 Significance of the Study

Small and Medium scale Enterprises (SMEs) in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance, failing which under-investment in long term capabilities (training and R&D) may result, (Oyelaran-Oyeyinka, 2003).

Besides finance, there are critical elements (including: knowledge, skills and experience of staff; capacity and quality of internal facilities; information and knowledge of market; intellectual and managerial leadership; external infrastructure and the incentive system at the micro and macro levels) that lacking within technology support institutions themselves. These undermine the effectiveness of their support to Small and Medium scale Enterprises (SMEs). This study is significant because it would help to evaluate the operations of a vital segment of the industrial sector – Small and Medium Scale Enterprises (SMEs) , which have been identified as having very high potential in promoting economic growth and development (Oni and Daniya, 2012). The evaluation shall be done with special focus on their financing thereby adding to the existing literature on the subject matter.

1.7 Scope of the Study

This research work focuses on the promotion of Small and Medium Scale Enterprises (SMEs) in Nigeria paying special attention to the impact the government of Nigeria has on the development of Small and Medium Scale Enterprises. The research intends to study the essential problems encountered by Small and Medium Scale Enterprises and suggest ways by which they can be adequately and efficiently financed.

Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies such as the National Bureau of Statistics (NBS) and Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) etc.

1.8 Limitations of the Study

The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.

1.9 Definition of Terms

Business:

The Oxford Learner’s Dictionary defines business as a commercial activity, a means of live hood, a trade, profession, occupation, etc.

Capital:

Capital can be defined s man-made productive asset that are set aside for the production of other assets. In other restricted cases, it is defined as money set aside to start business.

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.

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”.

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. .

Entrepreneurship:

The willing and ability of an individual to seek out investment opportunities in an environment, and an environment, and be able to establish and run an enterprise successfully based on the identified opportunities.
Role: according to Merriam-Webster’ dictionary is defined a function or part performed especially in a particular operation or process or major.

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). Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.

SMEDAN:

This is The short form for Small and Medium Enterprises Development Agency of Nigeria. (SMEDAN) was established by the SMEDAN Act of 2003 to promote the development of the MSME sector of the Nigeria Economy.

The Agency positions itself as a One Stop Shop for MSME Development. Micro Enterprises are included in the clientele of the Agency since they form the bedrock for SME’s

Chapter Five

Findings, Conclusion and Recommendations

5.1 Summary of Findings

The first objective of the study was to find out and examine the contributions of small and medium scale enterprises to the economic growth of Nigeria. Findings from the study revealed that production of goods and services is a major contribution SMEs have on the economy of Nigeria (See Table 6). Production of goods and services is one economic booster, since it increases national income/gross domestic product (GDP) of an economy. The study also revealed that job creation, innovation of products and new technology, revenue generation through tax payment, reduction in crime, balance of payment advantages and bedrock for bigger companies were also major contributions of small and medium scale enterprises to the economic growth of Nigeria (See Table 8).

The challenges encountered by small and medium scale enterprises in Nigeria include poor power supply, poor infrastructural development to enable the efficient and effective production of goods and services, lack of adequate capital, poor management and poor book keeping practices on the part of small and medium scale business operators (See Table 12). These cchallenges have hindered small and medium scale enterprises from maximising profits and surviving. Poor power supply is a major problem facing Nigeria. Without adequate electricity, SMEs in that country will not operate to their maximum capacity as they cannot produce at high cost with generators. This implies that more than 50% of small and medium scale enterprises may likely collapse before their third anniversary due to electricity problems if they cannot beat competitors and produce at a cheaper cost (See Table 11).

Concerning the third objective, the various strategies that will go a long way in promoting and encouraging the activities of SMEs in Nigeria is the elimination of multiple taxation in Nigeria. Policies discouraging multiple taxation on small and medium scale enterprises should be enacted by all tiers of government in Nigeria i.e. the federal, state and local governments of Nigeria. In-order to encourage and promote the activities of SMEs, they should be given the enabling environment to do business since they are the bedrock and backbone of the economy. Revitalisation of the power sector of Nigeria is the quickest way to encourage and promote small and medium scale activities in Nigeria. (See Table 9). If the power sector of Nigeria is revitalised, businesses will produce at a cheaper rate hence they can survive competitions from larger firms.

5.2 Conclusion

The study focused on identifying the various contributions small and medium scale enterprises have on the economic growth of Nigeria as well as suggesting promotional strategies that will benefit SMEs in Nigeria. The researcher developed various objectives that will guide her in achieving the aim of the researcher as well as tested various hypothesis with relation to the objectives and research questions of the study. Hypothesis tested with the chi-square at a 0.05 significance level indicated that small and medium scale enterprises have a positive impact on the economic growth of Nigeria, but they are not adequately encouraged and promoted. All responses gotten were from issued questionnaires to the officials of Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) Lagos Office.

5.3 Recommendations

After analysing the major challenges small and medium enterprises face in Nigeria, the researcher found out that in-adequate business capital and financial grants from the government was a major problem, the researcher came up with the following recommendations to help small businesses access more business credit:

First, small businesses in Nigeria should ensure they have a sound and comprehensive business plan and strategy, in order to easily get the attention of potential lenders and investors. They should either get proper and complete knowledge and skills on writing business plans or get an expert to write it for them. This will go a long way to ease the process of getting a business credit.
Second, the government should promote venture capitalist activities in smaller towns and rural areas. Venture capitalist should be encouraged to set up businesses in Nigeria, to complement the efforts of banks and other financial institutions in the loan giving business.
Third, the government should urge financial institutions to give out more loans and business credit to small businesses. Financial institutions should be made to know that small businesses can be trusted and are capable of repaying loans as other big and medium businesses.
In order to reduce discrimination in business credit distribution to businesses, the government should set up more government organizations specifically meant to grant small business owners loans and financial advice.

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