CHAPTER ONE
1.0
INTRODUCTION
In all economies but more in developing and
transition economies, there is now a consensus among state policy makers,
development economists as well as international development partners that small
and medium enterprises [SMEs] are a potent driving force for their industrial
growth and indeed, overall economic development. The smallest in this group of
enterprises – micro
enterprises, are also touted as a veritable tool for attaining
one of the eight millennium development goals of eradicating extreme poverty in
the latter. Poverty is caused by inadequate incomes and incomes result from
employment which SMEs are widely known to provide. Evidences abound that in
regions or economies where enterprises have been actively promoted and
encouraged, their poverty rates have declined. This is especially true of Asia
whereas in sub-Saharan Africa, more and more people have sunk deep into
poverty. India, for instance, illustrates a model of bottom-up, demand driven,
grass root-led economy depending much on local entrepreneurial energy and less
on foreign direct investment. Her economic growth projected to be among the
fastest in region is expected to be achieved via a young confident population
as it releases its creative entrepreneurial energies. It is thus believed that
India through its young population has great raw potential for high economic
growth. Nigeria shares much in common with India in that, they being endowed
with a young vibrant population. However, this will only become a reality if
the necessary imperatives are in place to actively and consciously promote
youth entrepreneurship using SMEs as the appropriate vehicles. Youth
entrepreneurship has become more imperative now than ever before considering
the high rate of youth unemployment situation in Nigeria. The consequences of
youth unemployment are too grave to be toyed with. Recent experiences in
Nigeria with youth restiveness in the Niger Delta region and youth gang clashes
in Lagos and other cities are largely the bye-product of unemployment. Other
consequences of society at large include high rate of juvenile delinquency,
involvement in violent crimes such as armed robbery and political thugery of
the kinds witnessed during the nation’s nascent democratic experience apart
from falling easy prey as couriers for drug traffickers and as victims of human
traffickers.
As Turnham [2017] has cautioned the issue of
employment should be moved to the top of policy agenda in order to avoid what
Shinder [2017] describes as a “waiting time bob” – the alarming rate of youth
unemployment in development economies. The efficacy of using the promotion of
SMEs to tackle unemployment is well known [Owualah, 2014]. Furthermore, Owualah
and Obokoh, [2007] are of the opinion that embedding enterprise in educational
institutions in the Niger Delta region of Nigeria could provide a progression
from awareness raising, aspirational to hands-on activities to develop
entrepreneurship and entrepreneurial skills that culminate in a desire to own
and run business after graduation by the region’s youths. Thus enterprise
promotion could be used to change a culture that appears presently to be
hostile to the notion of being an entrepreneur in place of a hostage-taker or
gangster. Definitely, Nigeria’s vision of being counted among the first twenty
economies in the world by 2020 cannot be attained in a socio-economic milieu of
hunger, poverty and unemployment among a large segment of its population. This
study therefore attempts to review the contributions of SMEs to employment
creation but most importantly to national development and the rationale for the
growing emphasis on them as accelerators of this development. It further
examines the imperatives for the development of SMEs as well as the approaches
to tackling their problems with a view to preparing them to complement the
efforts in other sectors towards the attainment of the Vision 2020.
1.1 BACKGROUND TO THE STUDY
The dynamic role of small and medium
enterprises as engine of growth in developing countries has been recognized. As
observed by Cook and Nixson (2011), the development of small and medium
enterprises (SME’s) should be seen as attempts towards the achievement of a
wider economic and socio-economic objective, including poverty alleviation. As
stated by Kuteyi (2013), small and medium Enterprise drives their country’s
development as they create employment and contribute to the gross domestic
product (GDP). In the opinion of Ariyo, (2008); Ayozie and Latinwo (2010) and
Muntala et al (2012), there is the greater likelihood that SMEs will utilize
labour-intensive technologies thereby reducing unemployment particularly in
developing countries like Nigeria and thus have an immediate impact on
employment generation. Small and Medium Enterprises are expected to facilitate
the growth and development of human and capital resources towards general
economic development and the rural sector in particular. In view of these
expected roles from SMEs, the Nigerian government had in the past devised
policies and incentives for the development of small and medium scale
Enterprises. Such efforts, according to
Adebusuyi (2010), could be classified broadly into three, namely (i) Incentives
(fiscal and export), (ii) Tariff regimes, and (iii) Financial support and
technical assistance program.
The fiscal incentives include tax relief for small
enterprises during the first six years of operation, granting of pioneer status
for a period of five years with a possible extension of two years for
enterprises located in economically disadvantaged areas, and provision of
relief for investment in infrastructure capital allowances, and minimal local
raw material utilization income of 20 percent. Export incentives include the
introduction of import duty drawback, export credit and insurance schemes, etc.
To protect SMEs from dumping, the government adopted the use of high tariff
rates to discourage importation of some of the industrial goods that could be
produced domestically, and in some cases, complete ban on a variety of
industrial and agricultural products. To provide funds to small and medium
scale enterprises by way of commercial loans, the Bank of Industry (BOI) and
the Nigerian Agricultural Cooperative and Rural Development Bank (NACRAB) were
established. Also established were National Economic agencies to provide loan
scheme for SMEs. In spite of all these efforts by the government, both at
federal, state, and local government levels, to ensure the growth of SMEs in
Nigeria, people such as Abereijo et al have identified key factors which they
claimed were responsible for their perceived failure of SMEs in Nigeria.
Against the backdrop of the interest and belief in the SMEs as a catalyst
towards the industrialization and economic growth of Nigeria, this study is
aimed at determining the quantitative impact of SMEs in Nigeria’s economic
growth performance.
1.2 PURPOSE OBJECTIVE OF THE STUDY
The primary objective of this study was to establish
the impact of small and medium scale enterprises on employment creation and the
role of this on sustainable development of the Nigerian economy. Other
objectives include the following;
1. To
determine how social vices in the Nigerian society could be minimized if not
eradicated using employment generation as a tool.
2. To
emphasize on the need for appropriate policy formulation and implementation in
the favour
of functioning small and medium scale sub-sector.
3. To
extend the focus given to small and medium scale enterprises by the authority
concern so as to occupy rightful position as an agent of economic development.
4. To
re-echo the role of enabling environment on sustainable employment generation.
5. To
enlighten Nigerians on the contribution of small scale industries to the growth
of the economy.
6. To
encourage students to go into small scale industries upon graduation.
7. To
encourage indigenization
of industries.
1.3 STATEMENT OF THE PROBLEM
Small and medium enterprises are mostly managed by
owners and relations. The financing in most cases is normally provided by the
owners. The owners fail to realize the importance of external source of capital
in order to affect expansion of the business. In most cases, the owners are
members of the family and friends. In another development, small scale
industries experiences difficulties in raising equity capital from the finance
houses or individuals. Even when the finance house agrees to provide equity
capital, the conditions are always dreadful. All these result to inadequate
capital available to the sector and thus lead to poor financing. This is the
ban of most cottage industries in Nigeria. About 80% of small and medium
enterprises are stifled because of this problem of poor financing and other
problems associated with it (Chukwuemeka, 2016). The problems that emanated
from poor financing include:
a. Lack
of competent management which is the consequence of inability of owners to
employ the services of experts.
b. Use
of obsolete equipment and methods of production because of owner’s inability to
access to new technology.
c. Excessive
competition which resulted from sales which is a consequence of poor finance to
cope with increased competition in the industry. In spite of the different
measures since 1960 to increase industrialization, small medium enterprises are
still facing hard conditions. This is as a result of some constraint factors.
d. The high cost of available raw materials
affects the prices of goods and services. This only has adverse effect on the
turnover of the enterprise but also on the profitability.
e. The
availability of infrastructural facilities is grossly inadequate in the areas
of access roads, electricity, water supply, etc.)
1.4. 1 RESEARCH QUESTIONS
In the course of the research the following research
questions were answered.
1. Can
sustainable employment generation solve socio-economic problem inherent in
Nigeria national economy?
2. Should
the Nigeria populace especially the youth be encouraged to develop and sustains
entrepreneurial spirit?
3. Can
small and medium scale enterprises contribute to economic development of
Nigeria?
4. Can
the youth contribute to nation building and enhance sustainable development of
the national economy?
5. Does
a relationship exist between employment generation and economic growth and
development?
1.4.2
RESEARCH HYPOTHESES
In
the course of this research effort, the hypotheses stated below will be tested.
HYPOTHESIS
I
H0:
Small and medium scale enterprises does not contribute to Nigerian economic growth and development.
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