CHAPTER ONE

INTRODUCTION

 Background of the Study

The role of Small and Medium-Scale Enterprise (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. The impact of SMEs is felt in the following ways: Greater utilisation of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilisation of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers. The vast majority of developed and developing countries rely on dynamism, resourcefulness and risk tasking of small and medium enterprises to trigger and sustain process of economic growth. 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

There is no specific criterion for classifying business enterprise as a small or medium or large globally. In a study carried out by the international labour organization (ILO 2005) over 50 definitions were identified by 50 deferent countries for small scale industries. However in defining small scale industries, references are usually made to quantitative measures such as number of people employed by the enterprise, investment outlay, the annual sales turnover (sales) and the asset value of the enterprise or a combination of these measures. At the moment in Nigeria, following the national council for industries (NCI, 2002), classification of small scale industry fall within the following categories of enterprise, if the enterprise has a capital of between N1.5 million and N50 million including working capital but not including the cost of land occupied or if the enterprise has workforce of between 10 – 50 employee. Currently in Nigeria, small scale industries represent about 90% of the industrial sector in terms of enterprise; they also amount to about 70% of the national industrial development if the threshold is set at 10 – 70 employee and contributes 10% of the manufacturing sector output and a meager of 1% of gross domestic product; they also contribute significantly to economic development through employment, job creation and sustainable livelihood. (References)Governments have stepped up efforts to promote the development of SSIs through increased incentive schemes including enhanced budgetary allocation for technical assistance programmes. Also, new lending schemes and credit institutions such as New lending schemes and credit institutions such as the National Economic Reconstruction Fund (NERFUND), World Bank-assisted small-scale enterprises loan scheme (SMES), Nigeria Export and Import Bank (NEXIM), the people’s Bank of Nigeria (PBN) and the Community have been established by the federal government for the purpose of assisting the SSIs to meet their finance needs. There have also been fiscal incentives, grants, bilateral and aids from multilateral agencies as well as specialized institutions towards making the small and micro business and apprenticeships schemes vibrant. It’s of great concern that this vital sub- sector has fallen short of expectation. The situation is more disturbing and worrying when compared with what other developing and developed countries have able to achieve with their cottage businesses coupled with significant attention to apprenticeship training and employment generate. It has been shown that there is a high correlation between the degree of poverty, hunger, unemployment, and economic well being of the citizens of countries and the degree of vibrancy of the respective countries micro and small scale industries (SSIs). In spite of the fact that, micro and small scale industries (SSIs) have been regarded as the bulwark for employment generation and technological development in Nigeria, this subsector is faced with enormous challenges.

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 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, 2006). 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 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 constraining factors.

a) The high cost of available raw materials affects the prices of good food. This only has adverse effect on the turnover of the enterprise but also on the profitability.

b) The availability of infrastructural facilities is grossly inadequate in the areas of access roads, electricity, water supply, etc.) Multiplicity of policies and regulatory measures such as removal of fuel subsidy, taxes, several charges on loan.

Objectives of the Study

The main objective of this study is to find out the contribution of  small scale business to economic growth in Nigeria, specifically the study intends to:

1.     To enlighten Nigerians on the contribution of small scale industries to the growth of the economy.

2.     To analyze the effect of small business enterprise to the contribution economy growth and development.

3.     To find out the challenges of small scale industries  Nigeria

4.     To encourage indigenization of industries

Research Question

The following questions are formulated to guide the study

1.     How does small scale industries contributes to the growth of the economy.

2.     Is there any significant effect of small business enterprise to the contribution of economy growth and development

3.     What are the challenges of small scale industries  Nigeria

 Research hypothesis

Ho: there is no significant effect of small business enterprise to the contribution of economy growth and development

Hi: there is significant effect of small business enterprise to the contribution of economy growth and development

 Significance of the Study

This study when completed will be a valuable help to various stakeholders for implementations with the concerned efforts of all and sundry including: governments at all levels, entrepreneurs etc.

Policy makers: It guides them in making policies and regulations that will create enabling environment for SMEs and young entrepreneurs in Nigeria.

Investors/Entrepreneurs: It will enable them to know what