The Role of Small and Medium-Scale Businesses as Means of Economic Development

The Role of Small and Medium-Scale Businesses as Means of Economic Development

Chapter One

Objectives of the Study

The broad objective of this study is to assess the Impact of small and Medium Enterprise (SMEs) In Nigeria and its Impact on economic development.

The specific objectives are:

To examine the role of the increasing impact of entrepreneurship growth in Nigerian economy.
Examine whether entrepreneurship development positively promote the economic growth rate of the Nigerian economy.
To determine the causal relationship between Small and Scale industries (SMEs) and economic development.

CHAPTER TWO

LITERATURE REVIEW

Conceptual Issues

Structure and Characteristics of SMEs in Nigeria

An independent survey carried out by Evbuomwan, Ikpefan and Okoye (2016) revealed the following salient information on the structure and characteristics of SMEs in Nigeria.

Gender: Most of the operators in the SME sector are men as they constitute about 65% of the total workforce. This has implication for the business climate in Nigeria in view of the fact that women constitute about 55% of Nigeria’s population.

Gender Classification of SMEs

Type of business enterprise: About 7% of the total SME workforce are engaged in the agriculture/agro-processing sector, 42.9% are in the manufacturing sector, 16.9% are in the services sector, while 2.6% are in the construction sector. This sectored distribution of business enterprises confirms that SMEs are dominant in the real sector of the Nigerian economy.

Business classification of SMEs

Size of enterprise: The National Policy on SMEs (SMEDAN, 2007) was used to classify SMEs in the course of the survey. More than half of the respondents (53.5%) were in the micro-enterprise category (having less than 10 workers). This was followed by those in the small-scale category (29.6%), employing 10 to 49 workers. The medium enterprise category constituted 14.1% (employing 50 to 199 workers). The least were those in the large scale category (2.8%), employing 200 workers and above. This result further validates previous studies that SMEs dominates Nigeria’s economic landscape (CBN, 2004, SMEDAN, 2007, Ojo, 2010).

CHAPTER THREE

RESEARCH METHODOLOGY

Methodology

In the course of this study, the Ground Theory Approach by Glaser & Straus (1968) will be adopted. The school of thought in favor of this approach opines that the knowledge sought in any research is grounded in the data the researcher is able to collect, and as such, the findings of a research emerge from the analysis of the results achieved.

This section therefore, provides information on the research methods of this thesis. The survey research design has been chosen to examine the impact of small and Medium Enterprise (SMEs) in Nigeria and its impact on economic development. The sampling technique has been described followed by the instruments for data collection and its validation. Methods for data analysis and model specification are also presented.

Model Specification

It is my belief that Micro, Small and Medium Scale Enterprise have the ability to bring about economic development, which will in turn lead to development.

However, an increase in the amount of SMEs can become a problem due to their failure to comply with the rules guiding business operation in Nigeria. As a result of low manpower on the path of law enforcement agencies, they in turn aren’t well-equipped to ensure best practices are duly followed.

Be that as it may, we can state that gross domestic product (GDP), inflation rate (IR) and unemployment rate (UR) are functionally related with global entrepreneurship index (GEI).

CHAPTER FOUR

ANALYSIS

Summary of Result

GEI = b₀ + b₁GDP + b₂UR + b₃IR + et

GEI = -9.66 + 0.13 + 0.38 – 0.19 + et

The coefficient of GDP is 0.13 suggesting that an increase in GEI for Nigeria which translates into increase in ease of doing business; business friendly environment leads to an increase in GDP by $0.13 billion on the average. The coefficient of UR is 0.38 suggesting that an increase in GEI for Nigeria which translates into increase in ease of doing business leads to an increase in unemployment rate by 0.38% on the average. The coefficient of IR is -0.19 suggesting that an increase in GEI for Nigeria which translates into increase in ease of doing business leads to a decrease in inflation rate by 0.19% on the average.

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

This chapter provides an overview of the research findings. The implications and consequences of the research results are presented, followed by an evaluation of the overall research process, and a brief discussion of the limitations of the study and policy implications

Research Findings

The success of Micro, Small and Medium Scale Enterprise (SMEs) in the developing world context is and will continue to be one of the most critical methods of moving nations forward in terms of unemployment, economic participation and rectifying an unequal and unjust society.

In terms of relevance in economic development; development process, SMEs made sizable contributions to the sustained increases in gross domestic product, reduction in the inflation and unemployment rate. It becomes important to understand the relationship between the daily increase in the rate of Micro, Small and Medium scale Enterprises and its impact on economic development. While past research has created a starting point for this understanding, additional research is needed to clearly outline for students, researchers and policy makers the relationships between multiple SMEs and Nigeria’s economic development.

In the course of the research, the importance of the role of the entrepreneur has been shown to be an independent entity that has a significant role to play in job creation and economic sustainability. It is for this reason that we maintain a distinction between the entrepreneurial innovation of a small or start-up firm, and the innovative activities of existing, especially dominant, players in the market.

In the words of Birch (1987), “It may seem odd that the vitality of the economy is maintained through the decline of large firms, but the continual births of new firms usually more than make up for the lost jobs as well as providing the new blood that keeps the economy going.”

The research questions and findings are expected to stimulate further thinking and study by researchers, practitioners, and policy makers concerned about the future of entrepreneurship in rural and urban Nigeria and its impact on economic development and development.

This thesis therefore agrees with other reputable scholars such as Afolabi (2015), Akingunola (2011) and Koster et al (2012) who believe Small and Scale industries (SMEs) are not only capable of creating jobs and increasing employment; hence, reducing the rate of unemployment in Nigeria, but also believe SMEs are capable of accelerating economic development through increased contributions to gross domestic output. Therefore, the SME sector in general is relevant in the growth process of the Nigerian economy.

Policy Implications

The lack of necessary technological appliances slows the growth of this sector. This in turn hamper economic development; vis-a-vis development.
SMEs, most especially, artisans like tailors, metal workers and automobile technicians are believed to be inept because of past and current records of lackadaisical acts of delaying jobs or under-performing. Irrespective of the sector, inefficiency will have a negative toll on economic development.
Also, the full housewife system still encouraged in Northern Nigeria and selected part of Southern Nigeria will possibly have a negative toll on the economy ; as husbands (who are mostly civil servants) are forced to spend all consumption at the expense of investment.
Available data has shown that absence of basic amenities is also hampering the growth of SMEs. An average Nigerian business owner provides all (security inclusive) for his/her business. This will definitely take a negative toll on the business.

Policy Recommendations

Government and other financial institutions should come to the aid of the Micro, Small and Medium Scale sector by providing special loan facilities; which will enable them obtain modern technology.
Training facilities should be arranged by government, SMEDAN and NGOs to increase the efficiency of the SME labor force.
Special schemes should be introduced to encourage female entrepreneurs.
Provision of basic amenities such as road and security and affordable power (electricity) facilities will be helpful.
Creating an enabling environment that lowers the barriers to market entry will certainly spur entrepreneurship. To achieve this objective, entrepreneurship should be integrated into the country’s economic development efforts by: Making entrepreneurship part of the explicit mission of economic development efforts.
Access to reliable and steady sources of funding is essential to entrepreneurial growth and sustainability. By establishing a framework that encourages the funding of new ventures, government can help ensure that solutions that work will sustain and grow their impact. To achieve this objective, government needs not only to invest in diverse sources of risk capital to fund entrepreneurs, but also to provide the fiscal incentives for investors to provide funding by developing a rich base of early-stage capital options to fund entrepreneurs.
Access to up to date and reliable information is a key precursor to lending. Developing the information disclosure regime by adopting clear and simple accounting standards and establishing credit bureaus would go a long way to encouraging lending to SMEs.
African countries like Rwanda and Botswana have experimented with innovative financial instrument. A typical example is warehouse-receipt financing; which is helping to guarantee loans with agricultural stocks in South Africa and Kenya. Also, leasing can reduce risk effectively for credit institutions. Innovative measures can also be put in place to share risk. Credit associations that reduce risk by sharing it are more common Rwanda as they help financial institutions choose to whom to lend, by guaranteeing the technical viability of projects, and sometimes providing guarantees.
Large firms have greater access to finance, they can be encouraged to assist smaller enterprises, particularly their suppliers, access finance. They can also provide other factors of production or guarantee loans made by financial institutions to the SMEs they work with, given that they already have an established relationship with these firms.
In Nigeria, like in many other African countries, there is a gap between the role of micro credit institutions and that of larger financial institutions. This problem can be solved by expanding the scope of micro credit institutions to offer services to small businesses. Many of these institutions have limited funding and since they often rely on deposits that are short term in nature, there are asset and liability matching constraints for them to convert their deposits into longer term loans.

General Recommendations

It’s about time Policy makers, academicians as well financial institutions begin to recognize the essence of entrepreneurship to economic development. A continuous neglect of this golden sector will only continue to hamper growth as it will lead to unemployment and increase inflation rate. Entrepreneurship deserves equal emphasis as is being placed on science and technology; it is the entrepreneur that translates the innovation in science and technology into wealth.

Furthermore, entrepreneurship should be recognized as the most important factor of production, since it is only human that can combine land (raw materials), labor and capital (liquid and physical) to produce wealth.

Aside recognizing the SME sector, efforts should also be made towards the development of personnel (human capital development). Therefore, as the nation exerts efforts to exploit our natural resources, the citizenry should also be educated. Sufficient emphasis should be made to promote entrepreneurship in order to create enterprises, wealth and employment and thus promote positive economic development.

It is important to note that government have provided a platform for proper policy coordination and policy stability as there have been several government interventions and programmes aimed at promoting entrepreneurship and fostering Small and Scale industries. A pragmatic and strategic plan on gainfully engaging Nigerian youths is another indispensable solution. Over the years, the promotion of get-rich-quick philosophy by the society, institutions and religious organizations have dampened the spirit of entrepreneurship.

Also, entrepreneurship is not in our school curriculum. Students are only taught theories and no practical. This is a ticking time-bomb waiting to explode as we are training a generation of inexperienced leaders. Government is advised to rejig the curriculum of primary, secondary and tertiary institutions. Some countries have taken this initiative to a higher level by introducing entrepreneurship education at elementary school and encouraging them to be future entrepreneurs when they are of age.

A more sustainable approach to poverty reduction if not elimination is through encouraging youths, particularly those with identified entrepreneurial skills to go into private business particularly in science and technology because these have natural potentials for business development. As a result, there is need for reforms in the educational curriculum to prepare students for self-reliance. Fixing Nigeria’s basic infrastructure can do the magic in reviving entrepreneurship development in Nigeria and promoting the Small and Scale industries sector to facilitate economic development and development.

Consequently, the paper recommends that SMEs should strengthen their capacities, especially within their internal environments, and take advantages of the opportunities in the external environment to enhance their potentials to contribute to employment, domestic product and export commodities.

Finally, SMEs should be more export-oriented as a strategic planning to enable them contribute more to Nigeria’s exports commodities and gain increased access to international markets and global competitiveness.

Conclusion

It can be seen that entrepreneurship entails identifying, utilizing and maximizing profitable business opportunities in a sustainable manner that can foster the economic development and development of a community or nation. Business entrepreneurship usually results in flourishing Small and Scale industries (SMEs) which generates gainful employment, creates wealth and consequently grows the economy. Nevertheless, government policies and the prevailing business environment, particularly the uncontrollable factors can impede the significant impact of entrepreneurship on economic development/development. Although Nigeria has been experiencing a reasonably consistent economic development, the rates of unemployment and inflation have been far greater. This means economic development has not actually been achieved as it were. Because of the lack of data to measure the level of entrepreneurship development in Nigeria, an empirical is often impossible. However, the Global Entrepreneurship Index has breached this gap as it measures entrepreneurship performance viz-a-viz government policies.

The framework and policy for entrepreneurship with consistency is fundamental and enabling infrastructural developments are prerequisites for any impactful entrepreneurship development. Until sufficient jobs are provided and wealth created, entrepreneurship has a long way to go in Nigeria.

In summary;

Entrepreneurship plays a crucial role in the economic development and development of any nation. In order words, there is a veritable link between entrepreneurship development and economic development.
Economic development is a necessary factor to foster economic development of any nation.
Nigeria’s business clime, policies and programmes are quite unstable and discouraging to allow for any significant impact on entrepreneurship development.
The management structure in place will determine whether or not business will succeed or crash at the short or long run.
Availability of finance is still a major issue hampering the growth of SMEs
Contrary to popular opinion, 80% of raw materials used are locally sourced. This business cycle of trade has sustained the Nigerian economy since time immemorial.
An essential requirement to enhance entrepreneurship development in Nigeria would be reviewing the National Policy on Education; while creating a solid National Policy on Entrepreneurship to re-orientate Nigerians.
When entrepreneurship is taken seriously by policy makers and the society, the end result will be wealth creation and poverty reduction as this will gradually reduce unemployment.

REFRENCES

Adoyi, P.O and J.C.O Agbo, (2009). “An Assessment of the contribution of Small Business firms to the development of Benue State”. Journal of Research in National development Vol 7, No 1
Afolabi, A. (2015). “The Role of Entrepreneurship on Economy Growth and Development in Nigeria.” International Journal of Development and Economic Sustainability. Vol.3(2) PP: 49-65. ISSN: 2053-2199 (Print), ISSN: 2053-2202(Online).
Akingunola, R.O (2011).”Small and Meduim scale Enterprises and Economic development in Nigeria: An Assessment of Financing Options”. Pakistan journal of business and economic review Vol 2, No1.
Aluko, M., E. (2013). “Entrepreneurial Capacity Building.” Talk Presented at 2013 SME Summit, Yenagoa.
Aremu, M. A. (2010). “Small and Medium Scale Enterprises as a Means of Employment Generation and Capacity Building in Nigeria”. A Paper Presented at the International Conference on Management and Enterprise Development on “Intellectuals and New Strategies for Sustainability Development of the Third World” Held at Conference Center, University of Ibadan, Ibadan, Nigeria, October 5th – 8th.
Aremu, M. A. & Adeyemi, S. L. (2011). Small and medium scale enterprises as a survival strategy for employment generation in Nigeria. Journal of Sustainable Development 4(1), 200-206.
Asta, L. & Zaneta, S. (2010). Sustainable development decision-making model for small and scale industries. Environmental Research, Engineering and Management. 2(52), 14-24

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