The impact of small scale industries on economic development in nigeria economy from 2010 to 2020
ABSTRACT
The study carried out an empirical analysis of the impact of small scale enterprise (SME) in Nigeria on economic development from 2010 to 2020. Variables such as Global Entrepreneurship Index (GEI), Gross Domestic Product (GDP), Unemployment Rate (UR) and Inflation Rate (IR) were used to determine the impact of the growth of SMEs and Its Impact on Nigeria’s Economic development. The study analyzed entrepreneurship from the cradle of civilization to 2017. However, due to unavailability of statistical data for GEI, the regression analysis only covered Year 2000 to 2017. Year 2000 because it is believed that enabling business policies were only provided after Nigeria started a new democratic dispensation in 1999.
The hypotheses tested showed a positive relationship between GEI and GDP, and GEI and UR. This implies that entrepreneurship has a positive impact on Nigeria’s economy; it leads to economic development and development as a result of increase in GDP.
However, a positive relationship between GEI and UR means the more efficient and productive the SME sector, the higher the rate of unemployment. This is confirmed by the fact that despite the increase in the amount of SMEs to over 30 Million and its employment capacity of over 50 Million, there is still an increase in the rate of unemployment in Nigeria. It is believed that this is as a result of an ever increasing number of graduates which is believed to be above 500,000.
As expected, there is a negative relationship between growth of the Micro, Small and Medium scale sector and inflation rate. This is a good fit as general availability of products as a result of multiplicity of SMEs is expected to reduce the general price level of goods and lead to sufficiency.
Using Global Entrepreneurship Index (GEI) as a proxy for entrepreneurship and Gross Domestic Product (GDP), Unemployment Rate (UR) and Inflation Rate (IR) as proxies for economic development, the findings showed that a causal relationship exists between GDP and GEI, IR and GEI, GDP and UR; GDP and IR.
The study therefore recommends amongst others that the Nigerian 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. Irrespective of the sector, inefficiency will have a negative toll on economic development. Training facilities should be provided by relevant agencies to increase the efficiency of the SME labor force. Special schemes should be introduced to encourage female entrepreneurs and provision of basic amenities such as road and electricity and an affordable transportation facility will be helpful.
CHAPTER ONE
INTRODUCTION
1.1 Background of The Study
The production of goods and services in the most efficient manner has continued to be the only viable and reliable option for development, growth and survival of any economy. SMEs have been fully recognized by government and development experts as the main engine of economic development and a major factor by extension in promoting the realization of the financial systems strategy 2020. This is because the development of this sub-sector is an essential element in the growth strategy, not only in contributing to improved standard of living; they also bring substantial local capital formation and achieve high level of productivity and capacity.
From a planning stand point, SMEs are increasingly recognized as the principal catalysts for achieving equitable and sustainable industrial diversification and dispersal and in most countries SMEs account for well over half of the total share of employment, sales and value added (Udechukwu, 2003). This is not surprising because the industrial sector in Nigeria has no significant record of meaningful contribution to economic development since independence in 1960 because it has not experienced any notable growth, traceable to indigenous industrial entrepreneurship (Adewale, 2007).
The Nigerian economy, since the early seventies, has been dependent on oil products. As a result of the enormity of revenue generated from oil, very little attention has been paid to proper development of the industrial sector. The reason for the lacklustre performance of the industrial sector is mostly associated with the poor attention paid to the promotion and development of the small and medium scale sub-sector, which is accepted worldwide to be the engine of economic development and the basic foundation for the industrialization process of any nation that desires to experience solid development. This is more so because entrepreneurship development is a critical aspect of skills development and keystone for economic revival and growth.
Furthermore, the vital role of small and medium scale enterprise (SMEs) as the only authentic foundation for accelerated industrialization, growth and development, as witnessed in all the Newly Industrialized Countries of South East Asia, referred to as Asian Tigers, is recognized for its accelerative effect in achieving macro-economic objectives such as full employment, income distribution, development of local technology and stimulation of indigenous entrepreneurship, mitigation of rural-urban migration, support and linkage of the entire industrial sector by training of semi-skilled and non-skilled manpower as well as the manufacturing and supply of spare parts and raw materials to large scale industries.
1.2 Statement of The Problem
Several studies have identified financial constraint as the major obstacle to Small and Medium Scale Enterprises Development in developing countries including Nigeria. For instance, Adelaja (2003) argued that the access to institutional finance has always constituted a pandemic problem for SME development in Nigeria. He recalled that in the past, a number of schemes have been put in place to provide special credit lines/windows for SMEs but this achieved very limited impact.
The primary focus of this study emanates from the fact that small scale industry owners do not have sufficient finance to carry on their due to the low saving culture of the people in this part of the world. The reason for this is not far fetch: low level of income basically. While it is an established fact that Small and Medium Scale Enterprises face financial challenges, no research has been conducted to investigate the effect the financial problem on their contribution to economic development. Asaolu et al (2005) and many other authors and researchers have deduced that the financial challenges mar the developmental role of Small and Medium Scale Enterprises. But this may not be true especially in the case of Nigeria where the informal sector, which is constituted largely by the Small and Medium Scale Enterprises play a very important role in the development of the nation’s economy. Therefore, this study seeks to evaluate the promotion of Small and Medium Scale Enterprises (SMEs) in Nigeria and their contribution to economic development.
1.3 Research Objectives
The broad objective of this study is to assess the Promotion of small scale enterprise (SMEs) In Nigeria and its contribution to 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 development rate of the Nigerian economy.
- To determine the causal relationship between Small scale industry (SMEs) and economic development.
1.4 Research Questions
All researches are inherently immersed in various forms of questions that need to be answered. Among such questions are:
- To what extent is the causal relationship between entrepreneurship and economic development?
- How enacted policies helping to create an enabling environment for entrepreneurs in Nigeria?
- To what extent is the impact of SMEs on Nigeria’s economic development?
1.5 Research Hypotheses:
The research hypotheses which are presented in null form at 5% critical level are as follows:
Ho1: Entrepreneurship growth (development) does not promote economic advancement.
Ho2: There is no causal relationship between entrepreneurship and economic development in Nigeria.
Ho3: Nigerian laws and policies are not effective to help encourage entrepreneurship in Nigeria.
1.6 Significance of The Study
Small and Medium scale Enterprises (SMEs) in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance, failing which under-investment in long term capabilities (training and R&D) may result, (Oyelaran-Oyeyinka, 2003).
Besides finance, there are critical elements (including: knowledge, skills and experience of staff; capacity and quality of internal facilities; information and knowledge of market; intellectual and managerial leadership; external infrastructure and the incentive system at the micro and macro levels) that lacking within technology support institutions themselves.
These undermine the effectiveness of their support to Small and Medium scale Enterprises (SMEs). This study is significant because it would help to evaluate the operations of a vital segment of the industrial sector – Small and Medium Scale Enterprises (SMEs), which have been identified as having very high potential in promoting economic development and development (Oni and Daniya, 2012). The evaluation shall be done with special focus on their financing thereby adding to the existing literature on the subject matter.
1.7 Scope of The Study
This research work focuses on the promotion of Small and Medium Scale Enterprises (SMEs) in Nigeria paying special attention to the impact the government of Nigeria has on the development of Small and Medium Scale Enterprises from 2010 to 2020. The research intends to study the essential problems encountered by Small and Medium Scale Enterprises and suggest ways by which they can be adequately and efficiently financed.
Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies such as the National Bureau of Statistics (NBS) and Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) etc.
1.8 Limitations of The Study
The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
1.9 Definition of Terms
Business: The Oxford Learner’s Dictionary defines business as a commercial activity, a means of live hood, a trade, profession, occupation, etc.
Capital: capital can be defined s man-made productive asset that are set aside for the production of other assets. In other restricted cases, it is defined as money set aside to start business.
Economic development: it can define as the process whereby a country’s real per capital gross national product of income increases over a sustained period of time through continuing increases i.e. per capital productivity.
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