EFFECT OF SMALL AND MEDIUM ENTERPRISES (SMES) ON ECONOMIC DEVELOPMENT
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EFFECT OF SMALL AND MEDIUM ENTERPRISES (SMES) ON ECONOMIC DEVELOPMENT
Chapter one
INTRODUCTION
1.1 Background of the Study
Efforts by industrialised and developing countries to eliminate poverty and unemployment first concentrated on the establishment of large firms based on the traditional economy of scale. This idea is based on the assumption that “big” is “better” and “small” is “bad” (Lawal, Ajonbadi, & Otokiti, 2014).
Small businesses were viewed as obsolete and associated with technological and economic backwardness. Ironically, practically all small businesses grew into major enterprises (Sundar and Kumar, 2012).
Most multinational corporations, including Phillips International of the Netherlands and Sony of Japan, began as family businesses. In Nigeria, indigenous firms such as Adebowale Electricals, Doyin Groups of Companies, Dangote Groups, Eleganza Nigeria Limited, and JOAS Electrical Industry Limited began as small outfits and eventually expanded into large facilities.
These clearly indicate the critical functions of SMEs in both developed and developing countries, representing a paradigm change in the perceived significance of SMEs in Nigerian industrial and economic growth (Johari, 2012).
Recognising the importance of the SMEs sector, many countries have shown renewed interest in the development of small and medium-sized firms (SMEs) in recent decades.
Several studies have emphasised the importance of SMEs in economic growth (Hu, 2010; Afolabi, 2013; Oyeniran, David, and Ajayi, 2015), referring to them as “the engine of growth” and “catalysts for [the] socioeconomic transformation of any country” (Leegwater & Shaw, 2008).
SMEs represent a means of achieving major macroeconomic objectives such as job creation, increased growth, and poverty reduction at cheap investment costs while also boosting a country’s entrepreneurial talents and indigenous technologies (Adebiyi, 2004).
They help improve regional and sectoral economic balance by allowing industry dispersal between sectors and locales, as well as promoting efficient resource utilisation, which is vital for engineering economic development and growth (Kongolo, 2010).
Ofoegbu, Akanbi, and Joseph (2013) concur that SMEs are the remedy for economic progress in many developing nations, including Nigeria. They believe that focusing on SMEs will help to create jobs, reduce income disparities, increase production of goods and services in the economy
provide a fertile ground for skill development and acquisition, serve as a mechanism for backward integration, and serve as a vehicle for technological innovation and development, particularly in modifying and perfecting emerging technological breakthroughs.
Small and Medium Enterprises (SMEs) have remained a prominent phrase in the business world. This is because the sector acts as a catalyst for job creation, national growth, poverty alleviation, and economic development.
When compared to major industries, especially multinational corporations, SMEs can brag of having the largest employers worldwide (Kadiri, 2012).
Previous research, such as Ogujiuba, Fadila and Stiegher (2013) and Musa and Aisha (2012), agree that SMEs account for well over half of the entire share of employment and value contributed.
Small and medium-sized enterprises (SMEs) are the most practical and real vehicle for self-sustaining industrial development since they have the ability to establish an indigenous firm culture better than any other method.
Small and medium-sized enterprises (SMEs) are the focus of every effective economic restructuring programme that aims to create jobs, alleviate poverty, improve food security, accelerate industrialization, and reverse rural-urban migration.
Unemployment, both among educated and illiterate people, has emerged as one of the most pressing and contentious concerns in contemporary Nigeria. The unemployment situation has shifted from one characterised by protracted periods of unemployment and misemployment to one in which graduates of postsecondary institutions must typically wait a long time before finding their first job – if at all (Hassan, 2013).
Nigeria has one of the world’s highest rates of youth unemployment, at 60-65% (Federal Ministry of Labour and Productivity Report, 2008). Indeed, Nigeria’s labour market is dangerously near to saturation.
As a result, concerned economists and policy analysts are urging the government to create an enabling environment for the operation of the SME sector, which has the potential to create employment opportunities for the teeming unemployed Nigerians who roam the streets in search of non-existent white-collar jobs.
Nigeria’s ambition of being one of the world’s top twenty economies by 2020 cannot be realised in a socioeconomic environment characterised by hunger, poverty, and unemployment among a huge portion of its population.
As a result, this study provides a critical analysis of the impact of small and medium-sized firms (SMEs) on economic development in Lagos State, with a focus on the Oshodi/Isolo Local Government Area.
1.2 Statement of Problem
It is worth noting, however, that the age-long formal education inherited from the imperialists produced graduates with job-seeking mindsets rather than job-creation; thus, they lack entrepreneurial traits such as self-motivation, drive, and innovation required by the world of work and employers of labour (Towobola and Raimi, 2011; Raimi et al., 2011; Simkovic, 2012).
Aladekomo (quoted in Akhuemonkhan, Raimi, and Sofoluwe, 2013) claims:
“The colonial educational policy focused on producing literate nationals to strengthen the colonial administration.” Thus, our few educational institutions remained factories for generating clerks, interpreters, forest guards, and sanitary inspectors, as no unique professional or entrepreneurial skill was foreseen in the educational system.”
Furthermore, since the population grows at a geometric proportion relative to job placement, which grows at an arithmetic progression, it became clear that the nation’s formal education is fueling unemployment, crime, and the cycle of poverty because graduates cannot be absorbed.
It then dawned on the administration that there is an urgent need to address the socioeconomic consequences of inactivity and despondency, with policymakers urging the government to consider entrepreneurship education as a measure for reducing unemployment in Nigeria.
Unemployment, underemployment, and unrestricted rural-urban movement have come to define the Nigerian labour market. This has been exacerbated by an alarming number of joiners as schools, polytechnics, and universities produce leavers in a geometric succession.
This has had an impact on the prevalence of social vices such as robbery, kidnapping, prostitution, human trafficking, child abuse, and unfair labour practices, which are primarily encountered by unemployed youths and add to the complexities of current Nigerian employment dynamics.
According to the National Manpower Board (2009), the Nigerian labour market could only absorb 10% of the roughly 3.8 million people produced by the Nigerian school system each year.
In summary, Nigeria’s employment statistics suggest that unless a concentrated effort is made to address unemployment issues, the situation may worsen. Against this backdrop, this study looks into Small and Medium Enterprises (SMEs).
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