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THE IMPACT OF SMALL AND MEDIUM SCALE ENTERPRISES ON NIGERIA ECONOMY (1992 – 2014)

THE IMPACT OF SMALL AND MEDIUM SCALE ENTERPRISES ON NIGERIA ECONOMY

(1992 – 2014)

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1.1 Background to the study

Small and Medium Enterprises play key roles in transition and developing countries (OECD, 2002). These firms typically account for more than 90% of all firms outside the white-collar jobs sector, constituting a major source of employment and generates significant domestic and export earnings. OECD, (2005) stressed that SME development emerges as a key instrument in poverty reduction efforts, therefore, SME obviously contributes to economic, social development and poverty reduction. World Bank review on small business activities establishes the commitment of the World Bank Group to the development of the SMEs sector as a core element in its strategy to foster economic growth, employment and poverty alleviation (World Bank, 2012). This is because, SMEs constitute the driving force of such industrial growth and development and this is due to their great potentials in ensuring diversification and expansion of industrial production as well as the attainment of the basic objectives of development. Given the great potentials of SMEs to bring about social and economic development, it is of no surprise that the performance and financing of SMEs is of huge concern to the government of different countries in the world (Okpara 2000). SMEs in both developing and developed countries play important roles in the process of industrialization and economic growth, by significantly contributing to employment generation, income generation and catalyzing development in urban and rural areas Hallberg, (2000); Olutunla, (2001); OECD, (2004); Williams, (2006). For instance, statistics shows that Africa and Asia has the majority of their population living in rural areas where SMEs delivers about 20% – 45% of full-time employment and 30% – 50% of rural household income (Haggblade and Liedholm 1991). However, financing SMEs is a major catalyst and a key success factor for the development, growth and sustenance of any economy. Most government and business circles have come to recognize the importance of financing SMEs and have consequently agreed that their growth constitutes one of the corner stone’s of  economic development (Olutunla,2001; OECD, 2004). Despite the numerous factors that challenge the survival and growth of SMEs in both developing and developed countries, finance has been identified as one of the most important factor (UNCTAD, 2001; SBA, 2000). Having access to finance gives SMEs the chance to develop their businesses and to acquire better technologies for production, therefore ensuring their competiveness, however, there is a huge challenge for SMEs globally when it comes to sourcing for initial and expansion capital funds from traditional commercial banks. Abereijo and Fayomi (2005) notes that the majority of commercial bank loans offered to SMEs are often also limited to a period far too short to pay off any sizeable investment. In addition, banks in many developing countries prefer to lend to the government rather than private sector borrowers because the risk involved is lesser and higher returns are offered (Levitsky, 1997). Such apathy for the SMES have crowded out most private sector borrowers and increased the cost of capital for them.

In overall economic development, a critically important role is played by the small and medium enterprises. Small and medium enterprises advocates, firstly, it endurance competition and entrepreneurship and hence have external benefits on economy wide efficient and Productivity growth. At this level, perspectives are directed towards government support and involvement in exploiting countries social benefits from greater completion and entrepreneurship. Secondly, proponents of SME support frequent claim that SMEs are generally more productive than large firms but financial market and other institutional improvements, direct government financial support to SMEs can boost economic growth and development.

Some argued that SMEs expansion boosts employment more than large firm growth because SMEs are more labour intensive thereby subsidizing SMEs may represent a poverty alleviation tools, by promoting SMEs and individual countries and the international community at large can make progress towards the main goal of halving poverty level by year 2020 i.e. to reduce poverty by half and becoming among 20 largest World Economies (Nigeria Vision 20:2020). Entrepreneurial development is therefore important in the Nigeria economy which is characterized by the following heavy dependence on oil, low agricultural production, high unemployment, low utilization of industrial capacity, high inflation rate, and lack of industrial infrastructural base. These constraints limit the rate of growth of entrepreneurial activities in Nigeria. Hence, this research work seeks to investigate Small and Medium Enterprises as a veritable tool in Economic Growth and Development in Nigeria.

 

 

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