ROLE OF SMALL AND MEDIUM SCALE ENTERPRISES IN ECONOMIC DEVELOPMENT OF NIGERIA
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ROLE OF SMALL AND MEDIUM SCALE ENTERPRISES IN ECONOMIC DEVELOPMENT OF NIGERIA
Chapter one
INTRODUCTION
Background to the Study
Small and medium-sized enterprises (SMEs) are widely recognised around the world as the primary drivers of economic development and progress.
This is because these enterprises have great potential for employment generation, economic empowerment, poverty alleviation, improvement of standard of living, substantial local capital formation, achievement of high levels of productivity and capacity, means of achieving equitable and sustainable industrial diversification and dispersal, appreciable contribution to GDP, increase harnessing of local raw materials, and technological and export diversification. (Ekpo 2000; Essien 2006; Butt, Hunjra, & Rehman 2010; Akpakpan 2012).
Not only do they provide employment and income for the majority of the population, but they have also been identified as an important breeding and nurturing ground for domestic entrepreneurial talents, technical skills, technological innovation, and managerial competences for private sector development. (Derinola 2008; Ojo 2010; Olorunshola 2014).
According to Onuoha (2008), Etim (2010), and Kishore (2010), SMEs make up the vast majority of enterprises in practically every country in the world and hold great promise for the development and transformation of our economy in terms of domestic capital generation and industrialization.
The functions of SMEs in economic growth and development in both developed and developing economies have sparked widespread interest (Ariyo, 1990; Kozak, 2007; Ojeka and Mukoro, 201 1).
In many industrialised countries, more than 98% of all enterprises are SMEs (Uwonda et al, 2013); 80% of the total industrial labour force in Japan, 50% in Germany, and 46% in the United States work in smaller organisations (Udechukwu, 2014).
In the United States, SMEs employed around 25 million people in 2004, accounting for nearly 39% of national income (Whah, 2006). Micro, small, and medium-sized businesses (MSMEs) provided about 85% of new jobs in Europe between 2002 and 2010.
In Indonesia, India, and Thailand, SMEs contribute over 40% of GDP and account for a large portion of industrial production and exports (Kozak, 2007; Ishore, 2010).
In general, SMEs are the driving force behind any country’s economic development. This is because they create employment opportunities for teeming youths and self-reliance for owner managers, contribute to the gross domestic product (GDP) through their outputs (production of goods and services), promote development and instill the entrepreneurial spirit, and improve the populace’s living standards through poverty alleviation.
Ndiyo (2008) states that in order for development to be sustainable, several requirements must be met. These include continuous capacity of the various development institutions to bring about growth in the economic, social, and political sectors; a continuous quantitative rise in Gross Domestic Product (GDP);
a continuous structural transformation of the economy, political capacity to implement development programmes; high rates of social and ideological transformation; and radical changes in institutional, social, administrative, and economic structures to be able to As a result, SMEs are the driving force behind long-term economic growth.
Economic development is the ongoing deliberate work of policymakers and communities to raise the standard of living. That is, policy oriented at the economic and social well-being of individuals.
The mechanism by which a country’s actual per capita GDP grows over time as per capita productivity rises. SMEs play a critical role in this area.
In recent years, SMEs have played an increasingly important role in developing economies. According to studies, developing countries, including Nigeria, are increasingly interested in promoting SMEs for three reasons:
the failure of previous industrial policies to generate efficient self-sustaining growth; an increased emphasis on self-reliance in development; and recognition that a dynamic and growing SMEs sector can contribute significantly to a wide range of development objectives (Sanni, 2009; Uwonda, 2013).
Olorunshola (2014) defined these development objectives as efficient and effective resource use, mobilisation of domestic savings for investments, job creation, indigenous entrepreneurship and technology development, and income distribution, among others.
In order to achieve these goals, the Nigerian government has stayed committed to the expansion and development of the country’s SMEs (Etim, 2010). This approach has been reflected in a series of monetary, fiscal, and industrial policy measures designed to provide suitable financing and incentives for the subsector.
Other government schemes and institutions that support SMEs include the Small and Medium Enterprises Equity Investment Scheme (SMEEIS), the National Enterprise Development Programme (NEDEP), Micro Finance Banks
the Small and Medium-Scale Enterprises Development Agency of Nigeria (SMEDAN), and Youth Enterprise with Innovation in Nigeria (YOUWIN).
The government of Akwa Ibom State has also launched plans and policies to promote the development of this sub-sector. These schemes, which aim to develop and improve the profitability of SMEs, include the microcredit scheme, the Akwa Ibom State Economic Empowerment and Development Strategy (AK-SEED)
and the co-operative development Credit Scheme. This study aims to assess the extent to which SMEs play a role in Akwa Ibom State, given the high level of support they receive from the government and donor organisations.
The state is primarily civil service-driven, but it is currently Nigeria’s largest oil and gas producer, relying heavily on statutory allocation from the federal government.
According to Ekpo (2007), the State has a weak small and medium industrial base, as evidenced by the near-absence of a private sector. Akwa Ibom people’s traditional occupations include farming, fishing, trading, hunting, word carving, raffia work, ceramics, crafts, and creation, among others.
Statement of Research Problem
Small and medium-sized firms in Nigeria have been viewed as a bridge to any nation’s quick economic development. However, it has been observed that insufficient money and a lack of precise feasibility studies have hampered the operation, initiative, and development of small and medium-sized businesses.
Despite the government’s efforts to provide financial help to business owners, delays and dishonesty in loan repayment impede recycling operations. According to Onugu (2005), small and medium-sized enterprises (SMEs) in Nigeria have performed poorly, limiting their contributions to Nigeria’s economic growth and development.
This situation has caused tremendous worry among the government, citizens, operators, practitioners, and organised private sector groups. The 2005 Central Bank of Nigeria (CBN) survey gives some evidence that, in addition to the acute scarcity of technology, management skills, bad management, and an undesirable operational environment, the sub-sector has suffered from neglect, with negative consequences for the economy.
The sub-sector’s growth and competitiveness are low and lag behind other sectors of the economy (Ojo 2010), and it has a high mortality rate before its fifth (5th) anniversary (SMEDAN 2008).
Akwa Ibom State is not an exception in this regard. Despite the widely acknowledged importance of SMEs in economic development, the state’s sub-sector remains poor.
Enterprises have a high death rate and account for a small part of the economy (AK-SEED 2004; Ekpo, 2005; Akpakpan, 2012; Udoh, 2012). The sector’s contribution to GDP is only 4.7%, although accounting for a large proportion of low-wage employment (AK-SEED, 2004).
Several studies have identified the role of SMEs in economic growth and development (Fubrang 1999; Jaja 2000; Inyang and Eno, 2009; Olowofeso and Essien 2012), but no empirical research have been conducted in Akwa Ibom State. The goal of this study is to determine the role of SMEs in Akwa Ibom State.
1.3 Objectives of the Study
The primary goal of this study is to evaluate the relationship between small and medium-sized enterprises (SMEs) and the economic development of Akwa Ibom State: Specifically, the study aims to:
1. Investigate the association between the increase in SMEs and the level of unemployment.
2. Evaluate the relationship between SMEs and capital formation.
3. Evaluate the relationship between SMEs and economic growth.
4. Examine the total contributions of SMEs to the state’s economic development.
1.4 Research Questions.
The study intended to answer the following questions:
1. Do SMEs generate employment opportunities?
2 To what extent do SMEs contribute to capital formation?
3. What is the relationship between SMEs and economic growth?
4. What is the overall contribution of SMEs to the state’s economic development?
1.5 Research Hypotheses.
The following research hypotheses, given in the null form, are developed for the study:
Ho1: There is no substantial association between the operations of SMEs and job generation in Akwa Ibom State.
Ho2: Small and medium-sized enterprises have little impact on Akwa Ibom State’s economic growth and development.
1.6 Scope of the Study
This study is limited to SMEs operating in Akwa Ibom State, as identified in the 2010 National Micro, Small and Medium Enterprises (MSME) survey done by SMEDAN in partnership with the National Bureau of Statistics.
Furthermore, the research challenge and significant research questions cover a wide range of topics related to SMEs’ involvement in economic development.
However, given the available research data, the significance of SMEs in this study was limited to four specific areas: employment generation, capital formation, linkage between other sectors, and contribution (in terms of productivity).
Furthermore, the target point for data collection was limited to the owner-managers of SMEs recruited mostly from the Uyo city, as all SMEs have common and distinctive characteristics.
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