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

Project and Seminar Material for Business Administration and Management BAM

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 growth of Nigeria.
To identify the various challenges militating against the promotion of Small and Medium scale Enterprises (SMEs) in Nigeria.
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.

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