Relevance of Small and Medium Scale Enterprises as a Catalyst to Economic Growth and Development of Nigeria
Chapter One
Objective of the study
The objective of the study is to ascertain the relevance of small and medium scale enterprises as a catalyst to economic growth and development of Nigeria. The specific objectives are;
- To determine the impact of small and medium scale enterprises
- To examine the effect of small and medium scale enterprises.
CHAPTER TWO
LITERATURE REVIEW
THEORETICAL LITERATURE
Historical facts show that prior to the 19th century, cottage industries, mostly small scale industries controlled the economy of Europe. The industrial revolution changed the status and introduced mass production. The twin oil shocks during the 1970’s undermined the mass production model, which triggered the unexpected reappraisal of the role and importance of small sized industries in the global economy. Findings, by economist over the years show that small firms and entrepreneurship play very significant role in economic growth and development.
The history of indigenous business in Nigeria is same as that of small scale and medium scale. Theoretically, business s we know is said to stem the theory of “Laissez faire” capitalism propounded by Adams Smith in 1776 (John, 1999).
It is an established fact that, the developing nations especially in Africa are faced with the dilemma of choosing appropriate development strategy that could lead to the path of industrialization which would ensure decent living standard in the turning population (Oshinowo, 1997).
The pattern of industrial growth in Nigeria shows that prior to independence, there were little or no manufacturing activities in Nigeria. The predominant economic activity then involved trading imported finished goods both consumer and capital and exportation of primary products mainly agricultural and mineral goods which are locally available in the regions. Some of these exported products includes, cocoa, cotton, coffee, groundnut, coal, timber, gold, and tin.
The post independence era was aimed at industrializing the country by producing what were being exported, thereby conserving foreign exchange. The imported machinery and equipment were financed through the export of domestic raw and semi-processed commodities. The local industries were being protected from foreign competition through high import regimes. Aided by the oil boom of the 1970’s government invested in heavy industries such as iron and steel, machine tools, vehicle assembly plants, fertilizer manufacture sugar mills, refineries and petrochemical industries. In addition, the private sector also advocate import substitution industries to be involved in what was term MIXED ECONOMY.
However, in order to address the apparent dominance of foreign investment in the Nigerian economy, the indigenization policy was introduced through the indigenization decree 1972 and 1977. The policy was intended to give Nigerians greater opportunities to participate effectively in the productive resources sector of the economy
CHALLENGES FACING SMALL AND MEDIUM SCARE INDUSTRIES
The myriad of problems facing the smooth sail of small business in Nigeria have contributed to the said reality of several entrepreneurs closing shows daily. Despite Nigeria’s huge human and natural resources on document, small and medium scale business still lags behind their counterparts in many countries. Also, Nigeria with its huge natural and human resources cannot be compared with the progress of small and medium scale business in countries like: Malaysia, India and South Africa.
Below are the various factors confronting and hindering this progress;
CHAPTER THREE
RESEARCH METHODOLOGY
RESEARCH DESIGN
Here, the multiple regressions will be used to annalyse the impact of small scale industries on the economic growth of Nigeria. The data to be used will be secondary data and all will be from the Central Bank of Nigeria (CBN) bulletin (2010).
METHODOLOGY
The method to be used for this research work is the ordinary least square (OLS) method. This is because OLS has the Best, Linear, Unbiased, Estimator b is Blue, it is linear unbiased and has smallest variance as compared with all other linear unbiased estimators of the true b.
Another reason for the use of OLS is that the computational procedure of OLS is fairly simple as compared with other econometric techniques and the data requirements are not excessive.
Again, the mechanics of the OLS are simple to understand. It is also an essential component of most other econometric techniques. The OLS will be used so as to use figures from several independent variables of the commercial bank loans to small scale, small scale industries output, real interest rate and regress them against economic growth which will be measured with the log Gross Domestic Product (GDP).
MODEL SPECIFICATION
This is the mathematical relationship that exists between the dependent and the independent variables and the model for the parameters of the function.
Model I: This model shall capture objectives one.
The model based on the following functional relationship.
The econometrics form of the model can be stated thus:
Log RGDP = b0 + b1CBLS +REIR Ut
Where Log RGDP = Real Gross Domestic Product at the Current market Price
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
PRESENTATION OF REGRESSION RESULT
TABLE 4.1A
UNIT ROOT TEST
In this study, the augmented Dicrey Fuller (ADF) unit root test was employed to test for the stationary of the model variables. The null hypothesis is that the variable under consideration has a unit root against the alternative that it does not. The decision rule is to reject the null hypothesis if the ADF statistic value exceeds the critical value in absolute term at a chosen level of significant. The result is presented in the table below:
CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND CONCLUSION
SUMMARY
Following the findings, it can be seen that commercial bank loans to small and medium scale industries in Nigeria has come to a point where it will stimulate investment in small and medium scale industries of economic growth. This may be due to the use of collaterals and other requirement by commercial banks for small scale investors to borrow.
A small and medium scale industry has significantly contributed to the real gross domestic product (RGSF) of Nigeria, within the period under study. This has supported the idea that if given adequate support, small scale industries will enhance economic development faster than any other sector of the economy. We also observe that most of the investors in small and medium scale industries rely on borrowing FWM commercial banks and little of their personal savings.
With the outcome, we should reject all hypothesis that small and medium scale industries output in Nigeria has significant impact on the economy. This has also answered the research question whether small and medium scale industries can strive well in Nigeria with commercial banks funding? From our findings, it was observed that if more commercial banks credits are made available to investors in small and medium scale industries, the sector will perform better and thus enhanced the growth of the economy. The research result shows that the real interest rate has a negative and insignificant affect on the real GDP. The finding supports the need to reduce the interest rate in Nigeria in order to encourage investors in large, medium and small scale industries.
The results also show that SMEs has a positive and significant impact on unemployment in Nigeria.
CONCLUSION
The study is carried out using secondary data. Regression analysis is employed to analyse and interpret the data collected for the study. It is found from the study that small and medium scale enterprises contribute positively towards economic growth in Nigeria. Stimulation for exploration of local resources and creation of employment opportunities for the citizens of the country signify their contribution to the economy of Nigeria. It is known to everyone that small and medium scale enterprises predominates the industrial base of the Nigerian economy. This highlights that the country’s industrial sector highly depends on the activities of small and medium scale enterprises.
RECOMMENDATION
- Government should pursue, with vigour, the total deregulation of the financial seeks and fine its monetary policies so as to reduce the rate of interest charge by banks as well as bring about a more realistic exchange rate for naira.
- Government should as a deliberate policy, encourage rural based industrialization whereby investors in different communities should be encourage to establish small and medium scale industries that would be based entirely on local raw materials, including machines and equipments.
- Government should formulate policies that will enhance agricultural development and productivity so that resources can be transferred from this sector to facilitate growth of the non-agricultural sector especially to small and medium scale industries.
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