The Role Of Small And Medium Enterprises In Boosting Foreign Investment

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The Role Of Small And Medium Enterprises In Boosting Foreign Investment


Abstract


The issue of Foreign Direct Investment (FDI) has been an age long issue for quite some decades especially in Small and Medium Enterprises (SMEs) in Enugu state, Nigeria. However, little or no attention has been given to the importance of foreign direct investment to the development of SMEs in the state. SMEs are the major drivers of employment in Enugu state and Nigeria at large, because statistics has it that 60% of Nigeria’s workforce comes through small and medium scale enterprises. Despite the significance attached to inflow of foreign direct investment and the development of small and medium scale enterprises as essential driving forces for economic growth, the extent to which SMEs have developed in response to this inflow has remained an issue of concern, given Nigeria’s poor economic predicament. Thus, this study investigates whether FDI undermines SMEs development in Enugu state, Nigeria. A survey research design was adopted for this study. The study utilized Marxian Political Economy Theory to unearth the philosophical underpinning behind the government’s role as an instrument in undermining the development of SMEs. The data collected from the questionnaire instrument were analyzed using chi square, as well as percentages and frequencies. The research findings show that Foreign Direct Investment undermined the development of Small and Medium Enterprises in Enugu state. The study recommends that the state government should formulate policies aimed at promoting the interests of the SMEs. However, while it is important for government to woo foreign investors into a state, it should not be at the detriment of the local businesses such as the SMEs. Thus, the economic policies of the state should be geared towards maintaining a balance between the growth of SMEs and the activities of foreign investors.


Table of Content


  • Title page
  • Declaration
  • Certification
  • Dedication
  • Acknowledgment
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of problem
  • 1.3 Objective of the study
  • 1.4 Research questions
  • 1.5 Research hypotheses
  • 1.6 Significance of the study
  • 1. 7 Scope and limitation of the study
  • 1.8 Definition of terms

Chapter Two:

Review of Related Literature

  • 2.0 Introduction
  • 2.1 Concept of foreign direct investment
  • 2.1.1 The Origin and Development of FDI in Nigeria
  • 2.1.2 Sources and destination of FDI
  • 2.1.3 Industrial patterns in inward FDI
  • 2.1.4 The impact of FDI on output growth
  • 2.1.5 The potential of green FDI
  • 2.1.6 The determinant of the greening effect of FDI
  • 2.1.7 Foreign direct investment’s implications for the environment and climate goals
  • 2.1.8 Understanding the contributions of FDI to the environment
  • 2.2 Concept of small and medium enterprises (SMEs)
  • 2.3 Role of the SMEs subsector in the economy
  • 2.4 Significance of the SMEs subsector in the Nigerian economy
  • 2.5 Contributes in local and regional development
  • 2.6 Performance factors for small and medium scale enterprises
  • 2.7 Challenges of Small and Medium Enterprises (SMEs)
  • 2.8 Foreign Direct Investment in Nigeria
  • 2.9 Summary of gap in literature

Chapter Three:

Research Methodology

  • 3.0 Theoretical framework
  • 3.1 Research deign
  • 3.2 Method of data collection
  • 3.3 Population of the study
  • 3.4 Sample and sampling procedure
  • 3.5 Instrument for data collection
  • 3.6 Validation of the research instrument
  • 3.7 Method of data analysis

Chapter Four:

Data Presentation, Analysis and Interpretation of Data

  • 4.0 Introductions
  • 4.1 Presentation and Data analysis

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.0 Introduction
  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography
  • Appendix
  • Questionnaire

Chapter One


Introduction

1.1 Background to the Study

The growth of Foreign Direct Investment (FDI) in the Least Developed Countries including African countries has been extremely rapid in recent decades, mostly in countries which have a bigger market size and natural resources. Lagos is undoubtedly the commercial centre of Nigeria with many companies now moving their bases to Lagos particularly to Eti Osa Local Government Area because of the availability of Land and a very conducive environment. However, Micro, Small and Medium Enterprises have a central place in the economic development of any nation. Micro, Small and Medium Enterprises perform an important function in the development of an economy and this cannot be over emphasized. Micro, Small and Medium Enterprises serve as training arena for local skills and entrepreneurs, and could become channels for mobilizing local savings, ensuring a more equitable distribution of income and reducing the migration of manpower from the rural to urban areas. The reduction of rural-urban migration is desirable and where the MSMEs are given the required support, this will lead to development of the rural areas in the long-run.

According to (Cook & Nixson 2000), interest in the role of small and medium-scale enterprises (SMEs) in the development process continues to be in the forefront of policy debates in developing countries. In view of the relevance of SME’s, in 2006 the government of Taiwan launched a $61 million branding initiative, which aimed to propel the economy from being production-based to knowledge-based (Lin 1998; Onuorah 2009; SAN 2006). According to the report in English language version of the online edition of Electronic Engineering Times-Asia print magazine, formerly Asian Sources Electronics Engineer (EE Times Asia) in August 2006, the so-called “Branding Taiwan Plan” is a seven-year program designed to help promising small-to-medium enterprises (SMEs) in developing their own brand, according to the Taiwanese government. This was started with the view of SMEs capacity to advance the economy most importantly in the medium term. Small businesses employ 72,000,000 people (Schaper 2002). More than 90 per cent of the industries in Indonesia, Philippines, Thailand, Hong Kong, Japan, Korea, India and Sri Lanka are small enterprises (Cook & Nixson 2000).

Small and Medium Enterprises plays a vital role in shaping economic and social performance and prospects of countries around the world, especially those of developing countries. No country has grown without trade. However, the contribution of trade to development depends a great deal on the context in which it works and the objectives it serves. Also, many other developing countries, particularly the less developed countries, have embarked on unilateral trade liberalization in recent years, with very limited results at best in terms of increased growth and development.

The World Bank of recent have been emphasizing on the importance of SME participation in International trade. SME’s needs to be engaged actively as direct recipients of international trade projects. Therefore, UK businesses remain well placed to succeed in Nigeria because of its familiar legal system, strong ties through the diaspora community, and the perception that UK brands offer high quality. This study aimed to examine the role of Small and Medium Enterprises in boosting foreign investment in Eti Osa Local Government Area of Lagos state, Nigeria.


1.2 Statement of the Problem

Small and Medium Scale Enterprises (SMEs) have play important roles in the development process in most of the developed economies, and prove to be one of the most viable sectors with economic growth potentials. The successes recorded by countries generally in this sector arise as a result of the high priority considerations and future rewards from sustained investment in this sector. The extent to which the opportunities offered by SMEs are exploited and their contributions maximized in any economy depend on the enabling environment created through the provision of requisite infrastructural facilities. These include roads, telecommunications, Power, Ports, etc and the introduction and pursuit of policies such as concessionary financing that encourage and strengthen the growth of SMEs.

However, In Nigeria, the SMEs sector has not been able to perform the expected vital and vibrant role in attracting foreign investors to the country. This is because the SMEs are confronted with several drawbacks and challenges they have to overcome in order to operate successfully. These obstacles include for example access to finance, competition, access to market, appropriate technology and lack of adequate infrastructural facility. These challenges have hindered SMEs from employing as much as they should, the SMEs are unable to generate wealth as they should and their contribution to poverty reduction is also hindered.


1.3 Research Questions

The following are some of the questions which this study intends to answer:

  1. What are the contributions of SMEs to foreign investment in foreign investment in Eti Osa Local Government Area of Lagos state?
  2. What are the things that attract foreign investors to have their base at foreign investment in Eti Osa Local Government Area of Lagos state?
  3. What are the problems facing SMEs in attracting foreign investors to Nigeria?

1.4 Objectives of the Study

The broad objective of this study was to examine examine the role of Small and Medium Enterprises in boosting foreign investment in Eti Osa Local Government Area of Lagos state, Nigeria. The specific objective included:

  1. To inquire the contributions of SMEs to foreign investment in foreign investment in Eti Osa Local Government Area of Lagos state
  2. To identify the things that attract foreign investors to have their base at foreign investment in Eti Osa Local Government Area of Lagos state
  3. To understand the problems facing SMEs in attracting foreign investors to Nigeria?

1.5 Research Hypothesis

The research hypotheses to be tested include:

  1. There is no significant relationship between SMEs and foreign investment
  2. There is no significant correlation between foreign investment and development of Eti Osa Local Government Area of Lagos state
  3. There is no significant relationship between SMEs and foreign investment boosting in Eti Osa Local Government Area of Lagos state

1.6 Significance of the Study

This Study is significant because the SMEs sector occupies a vital place in the economic development of the country. If the SMEs sector is well developed, and is effective and efficient, it creates employment opportunities, decreases the level of poverty and reduces inequality among the citizens of the society and also attracts foreign investors and thereby brings about quick and rapid development of our economy. Also, This study will benefit the government as it will help to bring out whether or not SMEs has been able to effectively carry out its functions or not, and if not the reason (s) will be brought to light and this will help the policy makers to see how to address the problems identified.


1.7 Scope of the Study

The study examined the role of Small and Medium Enterprises in boosting foreign investment in Eti Osa Local Government Area of Lagos state, Nigeria and it therefore, covered SMEs in Eti Osa Local Government Area of Lagos.


1.8 Limitation of the study

Time constraint was the major challenge of this study. The researcher was simultaneously engaged in this study with other academic work. This consequently cut down on the time devoted for the research work.


1.9 Definitions of Terms

The following terms were used in the course of this study:

Foreign investment:

Involves capital flows from one country to another, granting extensive ownership stakes in domestic companies and assets.

Foreign investors:

Persons that own business in another country other than their country

SMEs:

Small and Medium Scale Enterprises


Chapter Five


Summary, Conclusion and Recommendation

5.0 Introduction

It is important to ascertain that the objective of this study was to examine the role of Small and Medium Enterprises in boosting foreign investment. In the preceding chapters, relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of FDI and the development of SMEs in Lagos state.


5.1 Summary

The contributions of SMEs to the growth and development of Lagos state cannot be compared to the influx of FDI in the state, but little consensus have emerged as to whether FDI is boon or bane for a country as a whole. Quite simple, the evidence is as mixed now as it was when Rodrik (1999) wrote the line quoted at the beginning of his study. The findings of the study revealed that foreign direct investment rather undermines the development of SMEs. The state government has however provided an enabling environment for SMEs to thrive through the creation of financial institutions to aid the giving of loan; however, it has not been able to facilitate technological know-how and transfers from FDI to SMEs. It furthermore has not struck a balance between FDI and SMEs to facilitate capital formation and technology transfer from the former to the later, through policy formulations.


5.2 Conclusion

It is crystal clear that FDI on its own has not contributed positively to the development of small and medium scale enterprises in Lagos state, Nigeria through the MNCs. Even though there is a low profit expectation in small and medium scale businesses and perhaps, the Multinational companies (MNCs) are more risk averse. In this respect many local industries specifically, small scale businesses are relegated to the background despite their importance as a catalyst of economic growth. Having said this it is essential to state at this point that safety margin and finance are the major determinants of growth in small scale businesses. However, the MNCs can still be convinced beyond reasonable doubt that small and medium scale businesses are lucrative as the Lagos state government provided and continues to provide an enabling environment for their operation which should be emulated by other state governments as well as Nigeria at large. This includes reorientation of the small and medium scale entrepreneurs in utilizing the loans granted them with the provision of infrastructures. Also, it is important that the power supply should be improved upon as most of the artisans dominate the small and medium scale businesses. In addition the interest rate or cost of loan should be reduced to the barest minimum while also improving the educational status of these entrepreneurs in order to tap the advantage of technological spill over from FDI.


5.3 Recommendations

Based on the findings, it is recommended that the state government should formulate policies aimed at promoting the interests of the SMEs. However, while it is important for government to woo foreign investors into a state, it should not be at the detriment of the local businesses such as the SMEs. Thus, the economic policies of the state should be geared towards maintaining a balance between the growth of SMEs and the activities of foreign investors. The government should formulate policies, which will encourage the reduction of exchange rate in the country in order to improve business activities across the state, and improve the growth of SMEs across the state, as well as encouraging entrepreneurship spirit in state.


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