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ABSTRACT

The study examined the relationship between economic data usage and the performance of SMEs in Nigeria. More precisely, the study sought to assess the influence of selected macroeconomic indicators such as exchange rate, inflation rate, inflation rate, employment rate, gross fixed capital formation, domestic credit to private sector and economic growth rate on SMEs performance in Nigeria between 2001 and 2015. The study adopted the Ordinary Least Square technique via the multivariate regression analysis to estimate the model. Findings from the study revealed that exchange rate, employment rate, gross fixed capital formation and economic growth rate positively but insignificantly contributed to the performance of SMEs in Nigeria. It was found that domestic credit to private sector positively and significantly contributed to the performance of SMEs and inflation rate and interest rate hampers on SMEs performance in Nigeria. To this end, the study advises that government and monetary authorities should formulate fiscal and monetary policies that will be friendly to the business environment.

CHAPTER ONE

INTRODUCTION

Small and medium-sized enterprises (SMEs) are businesses whose size of workforce is below certain limits set by global or national trading arm of a country. The abbreviation “SME” is used in the parlance of reputable international institutions such as European Union (EU), International Monetary Fund (IMF), United Nations (UN), Economic Community of West African States (ECOWAS), African Development Bank (AfDB), United Nations Conference on Trade and Development (UNCTAD), World Trade Organization (WTO) amongst others. Small and Medium scale enterprises has proliferated more than large and multinational firms and, consequently, employ much more people (Wikipedia Encyclopedia).

The Central Bank of Nigeria describes small and medium enterprises in Nigeria based on some factors such as size of asset and size of workforce. According to the CBN, a small and medium enterprise is the one with an asset size of less or equal to 5 million naira and possess a workforce size of at most 100 (CBN, 2009). Small and medium scale enterprises contribute tremendously to the growth of economies, especially in developing countries. They are thus engine and catalyst of sustainable and inclusive growth. SMEs are drivers of innovation and competition in key sectors of the economy, serves as source of employment creation, promotes technological and industrial advancement, strengthens the use of local resources and technologies, propels the level of capacity utilization  etc. (Fabayo, 2009; Adisa, etal, 2014). Furthermore, they are labour intensive, capital saving and capable of creating plenteous new jobs to the teeming population of the country. The operations and activities of SMEs are fundamental to the citizenry’s level of living standards and accelerate the pace of economic growth process of the nation. Even, Fabayo (2009) adduces that large scale industries need SMEs to thrive. Thus, SMEs are agent of positive change, reduces absolute and relative poverty, creates jobs prospects and adds to national productivity.

Since the adoption of the economic reform programme in 1986, there has been a has been an awareness of the need for a decisive shift from grandiose, capital intensive and large scale industrial projects based on import substitution to small scale industries with immense potentials for developing domestic linkages for sustainable industrial development. Apart from SMEs potential for self-reliant industrialization using local raw materials, they are in a better position to boost employment, guarantee even distribution of industrial development and facilitate the growth of non-oil exports. Fissaeha (1991), states that SMEs employ 22% of the adult population in developing countries while Fabayo (1989) observed that small firms are major source of employment opportunities for a wide cross-section of the workforce: the young, old part-time workers and the cyclically unemployed. Kombo, et al (2011), submitted that “SMEs have contributed greatly to the growth of Kenyan economy, accounting for 12-14% of GDP, through creating employment opportunities, training entrepreneurs, generating income and providing a source of livelihood for the majority of low income households in the country”.

Hence, promotion of such enterprises in developing economies like Nigeria will bring about great distribution of income and wealth, economic self-dependence, entrepreneurial development and a host of other positive economic uplifting factors (Aremu 2004).  SMEs are veritable engines for attainment of national objective in terms of employment generation at low investment cost, development of entrepreneurial capabilities and indigenous technology. They reduce the flow of people from rural to urban areas and can easily be established with minimal skill. They also contribute substantially to the country’s gross domestic product, export earnings and development of employment opportunities. 

Despite the bright prospects of SMEs as highlighted above, SMEs in Nigeria have been bedeviled with series of challenges such as inadequate financing, excessive taxation, technical and managerial deficiencies, lack of sound business management, harsh economic environment and lack of functional infrastructures.  Thus, they have been unable to contribute significantly to growth process of the Nigerian economy. Successive governments have implemented various development plans, programs and strategies to enhance the effective functioning of SMEs in Nigeria, but none have succeeded in achieving its targeted objectives of improving SMEs.