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ABSTRACT

The contribution of Small and Medium Scale Enterprises (SMEs) has been recognized as main sustenance of the economy because of their capacity in enhancing the economy output and enhance human welfare. On this basis, this paper assesses the contribution of small and medium scale enterprises to the economic development of Nigeria. Multiple regression analysis was employed to determine the significant contribution of SMEs to the economic development of Nigeria. The R-squared value (coefficient of determination) indicates that SMEs contribute up to 98.2 percent to the economic growth and development of Nigeria. The result of the regression analysis reveals that capital investment, Labor force, and investment in SMEs have a significant effect on economic growth and development. Hence it was concluded that long run relationship exist between performance of SMEs and economic development. The relationship between these variables were also tested using pearson correlation which also reveals same finding. Based on the findings of this study, it is recommended that Government should provide more capital funding to the young ones who present viable business ideas in order to reduce the rate of unemployment in Nigeria. Also the government should also provide enabling environment in terms of constant power supply to encourage SMEs in Nigeria. The Central Bank of Nigeria (CBN) and other financial institutions should embark on extensive sensitization of entrepreneurs on the operations of the banks and high interests which deter people with genuine business ideas should be reduced to a bearable level so as to make borrowing cheaper.

CHAPTER ONE

1.1     Introduction

The pursuit of economic development has been a major goal of many developing nations of the world. Developing countries are confronted with several problems such as high rate of poverty and unemployment which have continued to hinder the attainment of socio-economic development. For any nation to attain development, industrialization, gainful and meaningful employment are important indices used as a measurement of economic development. This is often depicted by income per capital, equitable distribution of income, the welfare and quality of life enjoyed by the citizen of that nation. Small and Medium Scale Enterprise (SME) has proved to be a major tool adopted by the developed nations to attain socio- economic development. In recent time, small scale industrial sector is considered to be the backbone of modern day economy. Historical facts show that prior to the late 19th century, cottage industries, and mostly small and medium scale businesses controlled the economy of Europe. The Industrial Revolution changed the status quo and introduced mass production (Thomas, 2001). The twin oil shocks during the 1970s undermined the mass production model, which triggered the unexpected reappraisal of the role and importance of small and medium sized enterprises in the global economy (Wendrell, 2003). In Nigeria, the introduction of SME can be traced back to the year 1945 when the essential paper No. 24 of 1945 on “A Ten year plan of development and welfare of Nigeria 1946 was presented”. Small and Medium scale Enterprise was considered an all-time necessity at the beginning; which has gained prominence today and is expected to increase its importance in the future (Basil, 2005). In a developing country like Nigeria, the importance of SMEs in the process of social economic development cannot be overlooked. The importance of SMEs in the development of the country has been summarized in Nigeria third national development plan 1975-1980 as the generation of employment opportunities, stimulation of indigenous entrepreneurship, facilitation of effective mobilization of local resources including capital and skill as well as reduction in regional disparities (Rahanaty, 2009).

Moreover, in a country like Nigeria with an adverse Balance of payment situation, the growing contribution of the SMEs in Nigeria’s export portfolio goes a long way in generating foreign exchange and smoothening out the adverse balanced of payment situation. This is important to the economy in that large percentage of their production inputs are sourced locally thus, reducing the pressure on the limited foreign exchange earnings and helping to eliminate some of the deficit in the balance of payment. According to Ikherehon (2002), SMEs constitute the very basis of the national economy in terms of development of local technology, stimulation of indigenous entrepreneurship, mobilization and utilization of domestic savings, employment creation, structural balancing of large and small industry sectors in both rural and urban areas, supply of high quality intermediate products thereby strengthening the international competitiveness of manufacturer’s goods, stimulate technological development and innovations, provide the capacity to expand export possibility and substitute import effectively. Discovery has also shown that the expected role contribution by the large scale enterprise to the economy in terms of improvement in the GDP, employment generation, increasing local value added, technological development among others are been resolved by SMEs (Nwoye, 2010).

Small and medium scale enterprises play important roles in the economic growth and development of any economy (Ariyo, 2005). They may look small or inconsequential but are actually the foundation of any economically stable nation. The potential benefits of SMEs to any economy include contribution to the economy in terms of output of goods and services; creation of jobs at relatively low capital cost; provision of a vehicle for reducing income disparities; development of a pool of skilled and semi-skilled workers as a basis for future industrial expansion, among others.  According to the World Business Council for Sustainable Development (WBCSD, 2004) in Organization for Economic Cooperation and Development (OECD) economies, Small, Medium Enterprises and Micro enterprises account for over 95% of firms, 60-70% of employment, 55% of GDP and generate the lion share of new jobs. In developing countries, more than 90% of all firms outside the agricultural sector are SMEs and microenterprises, generating a significant portion of Gross Domestic Product (GDP). Morocco is cited as an example; with 93% of industrial firms as SMEs and account for 38% of production, 33% of investment, 30% of exports and 46% of employment.