THE INFLUENCE OF SMALL AND MEDIUM SCALE ENTERPRISE AND ECONOMIC DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY: Small and medium enterprises in Nigeria can be defined according to asset base and number of staff employed. The criteria are an asset base between N5 million and N500 million, and a staff strength between 20 and 300 employees.
The development of Small and Medium Enterprises (SMEs) via effective financing options have stem debate and growing interest among researchers, policy makers and entrepreneurs, recognizing the immense contribution of the subsector to economic growth. Small and Medium Scale Enterprises (SMEs) constitute the driving force of such industrial growth and development. This is basically due to their great potential in ensuring diversification and expansion of industrial production as well as the attainment of the basic objectives of development. SMEs utilize local raw materials and technology thereby aiding the realization of the goal of self-reliance. Also, governments at various levels (local, state and federal levels) have in one way or the other focused on the performance of Small and Medium Scale Enterprises for economic gains. While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives in order to enhance the socio-economic development of the economy like alleviating poverty, employment generation, enhance human development, and improve social welfare of the people.
Empirical evidences have shown that prior to the late 19th century, cottage industries, and mostly small and medium scale businesses controlled the economy of world giants like Europe and America. The industrial revolution changed the status quo and introduced mass production. The Small and Medium Scale Enterprises (SMEs) development facilitates the mobilization of human and capital resources towards economic development, in general, and the rural sector, in particular. They have been identified as a vehicle for employment generation and providing opportunities for entrepreneurial sourcing, training, development and empowerment.
Developing nations such as Nigeria characterized as low income earners by the World Bank, value small and medium scale enterprises (SMEs) for several reasons. Viewed in static terms, the main argument is that SMEs, on average achieve decent levels of productivity especially of capital and factors taken together (that is, total productivity factor) while also generating relatively large amount of socio-economic development. In dynamic terms, the SMEs sector is viewed as being populated by firms most of which have considerable growth potential. SMEs in developing countries achieve productivity increases to a great extent simply by borrowing from the shelf of technologies available in the world (Christopoulos and Tsionas, 2004).
However, there is no denying the fact that the sector is a sine qua non in ensuring the attainment of the goals of the federal government’s (Pakistan Journal of Business and Economic Review Vol. 2, Number 1 2011).
SMEs are critical agent of economic transformation as they account for more than 50 percent of GDP of developing economies, are main source of innovation and technological development, source of supply of both human capital and raw materials to larger businesses and main source of entrepreneurship and enterprise Sanusi (2003) and PECC (2003).  Each of these roles are critical for the economic growth and development of a country, Schumpeter,(1973), Van-Den-Berg (2001),  Garba (2002) yet there is just scanty evidence that SMEs have had any direct impact on development of any nation Franck and Huyghebaert (2008 ).
What distinguish, small and medium scale enterprises (SMEs) from the larger enterprises are the high entry and exit rates and their flexibility relative to the latter. SMEs are highly valued, especially in developing economies, for many reasons. One of such is that SMEs achieve decent levels of productivity especially of capital and all factors taken together than large firms (Christopoulos & Tsionas, 2004). The abundance of capital and the range of technologies available in the world expand, SMEs need productivity increases through adequate financing if they are to maintain or increase their contribution to overall socio-economic development in developing countries like Nigeria. However, this signifies the importance of capital and its cost of sourcing for SMEs development, among other factors like infrastructure and enabling environment, cheap source of funds, availability of production equipment, efficient manpower, disciplined management and availability of markets (both local and international) that enhance their operations in ensuring sustainable socio-economic development. Nevertheless, set of factors hinders the performance of SMEs for maximum contribution to the economy. In this regard, we can identify ten key factors and variables that have been have been branded to influence SMEs’ failure in Nigeria. These include disasters, competition, infrastructure, taxes, accounting, management, marketing, economic condition, planning and finance. In Nigeria, poor economic conditions, which also implies poor finance and inadequate infrastructure, have been identified as the most crucial factors (Ihua, 2009). This position is corroborated by other studies which identified financial support as one of the main factors responsible for small business failures in Nigeria (Abereijo & Fayomi, 2005; Okpara & Pamela, 2007).
The case study of this research work is Y2K Pub in Asaba, Delta state, Nigeria. Y2K pub which is a medium scale business and would be used as a benchmark for all Small and Medium scale Enterprises in Nigeria.

1.2 STATEMENT OF THE PROBLEM
Nigeria is currently witnessing an alarming rate of unemployment rate is growing tin geometric progression. The economy is also increasingly finding it difficult to cope as Nigerian economy is waning. A lot of experts have called for the creation of an enabling environment for small –scale enterprise to thrive. They cited Asian “Tigers” such as Malaysia, China, Sought Korea, Indonesia, Singapore and Thailand where both the government and individuals knowing the importance of small scale industrial development join forces together in fostering effective and sustainable small scale enterprises in their countries. Evidence also abound that in the above mentioned places, a lot is being done to empower the growth of this sub sector of the economy. The role small scale industries in the development of indigenous technology can not therefore be over emphasized. This study therefore seeks to examine the influence of SMEs and economic development in Nigeria using Y2K Pub in Asaba, Delta state, Nigeria, as a case study.

1.3 OBJECTIVES OF THE STUDY
This study hopes to achieve the following objectives:
1. To ascertain the role of SMEs and managerial capacity in the economic development in Nigeria.

2. To identify the factors affecting SMEs and managerial capacity in contributing to the economic development of Nigeria.
3. To evaluate the extent to which SMEs and managerial capacity have contributed to the economic development of Nigeria.
4. To identify problems or constraints that militates against the growth and development of SMEs in Nigeria.

1.4 RESEARCH QUESTION
1. What is the role of SMEs in the economic development of Nigeria?
2. What are the factors affecting SMEs and managerial capacity in contributing to the economic development of Nigeria?
3. To what extent has SMEs contributed to the economic development of Nigeria?

1.5 SCOPE OF THE STUDY
This study covers the SMEs and managers in the private sector of the economy in Nigeria. This study is delimited to Y2K Pub in Asaba, Delta state, Nigeria. Y2K pub which is a medium scale business and would be used as a benchmark for all Small and Medium scale Enterprises in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY
The significance of this study is to the influence of SMEs and economic development in Nigeria using Y2K Pub in Asaba, Delta state, Nigeria, as a case study. The work will further expose the researcher, government and the general public to problems militating against SMEs development thereby affecting economic development in Delta State, and in Nigeria in general and possible ways to ameliorate these problems.
The information generated by this study would help the government carry out a more purposeful and result oriented planning on the development of SMEs in the nation in general with a view to enhancing its contribution towards improving the Nigerian economy.
The postulation and generalization of this study can lead other researcher’s with a view of getting more literature on the influence of SMEs and economic development in Nigeria

1.7 HYPOTHESIS
Ho: There is no significant relationship between SMEs and economic development in Nigeria
Hi: There is significant relationship between SMEs and economic development in Nigeria

1.8 LIMITATION OF THE STUDY
In the course of the study, the researcher encountered a lot of problems. The problem encountered in the course of this study was time. This resulted from the nature of the semester, being short and full of academic and social activities, it was not an easy task combining classroom activities with going to field to collect materials for the research.
Secondly, the attitude of the respondents towards the researcher was also a problem. Many of the respondents were unwilling to cooperate with the researcher.
Finally, getting the material for the research was also a problem because it was not an easy task getting materials for the research. Thus, the researcher spent a lot of money going from one library to another collecting materials for the research, and this further worsen the limited financial state of the research as a student.

1.9 OPERATIONAL DEFINITION OF TERMS
This is done for clearer understanding of this project, some of the key terms used are defined below in order to bring out their operational meanings in the context in which they are used.
ENTREPRENEURSHIP: Entrepreneurship is the process of starting a business or other organization. The entrepreneur develops a business model, acquires the human and other required resources, and is fully responsible for its success or failure
ECONOMIC DEVELOPMENT: Economic development is the sustained, concerted actions of policy makers and communities that promote the standard of living and economic health of a specific area. Economic development can also be referred to as the quantitative and qualitative changes in the economy.
CAPITAL: form of wealth capable of being employed in the production of more wealth
SMEs: are businesses whose personnel numbers fall below certain limits.
ORGANIZATION: This is an entity that is made up of various departments coming together to achieve a common goal. It is a structured process in which people interact for objectives.

Small Scale Enterprise: - The definition of small scale enterprise varies with people and countries such that it is better defined based on the characteristics. In the Nigerian context, small scale enterprise is any processing, serving or manufacturing industry with an investment in machinery and equipment above N500,000 [Waboi, 1987].

According to the centre for management development in a policy proposal to Federal Government in 1982, A small scale enterprise is a manufacturing, processing or service enterprise involved in a factory or production type operation employing up to 50 full time employees, investment in plant machinery are utilized in its operation.

Management: - According to Akpala [1990. pg 3] Management is the process of combing and utilizing an organization input [men, materials and money] by planning, organizing, directing and controlling for the purpose of producing output [goods and services].

Entrepreneur: - According to Hagen, an entrepreneur is an individual who conceives the idea of business, design the organization of the firm, accumulates capital, recruits labour, establishes relations with supplies, customers and the government and converts the conception into a functioning organization business.