THE ROLE OF SMALL AND MEDIUM SIZED ENTERPRISES FOR ECONOMIC GROWTH A CASE STUDY OF MATORI LGA IN LAGOS, NIGERIA

ABSTRACT

This study, the role of small and medium sized enterprises for economic growth, was undertaken to find out how SME subsector in Nigeria has performed and its impact on the economic growth of the country.

Small and Medium Scale Enterprises SMEs is accepted globally as a tool for empowering the citizenry and economic growth. It has been associated with the rapid economic growth of countries in Asia and North America. In Nigeria efforts have been made by successive governments to reduce poverty and accelerate economic growth by increasing foreign direct investment, diversifying the economy, enacting policy frameworks which favour small business ownership and sometimes initiating employment and entrepreneurship programmes.

Specifically this study tends to figure out: how profitable SME business is; whether infrastructural development could be attributed to the presence of SMEs; if significant number of people are employed within the SME sector; whether the SME market has attracted banks and financial institutions with increase in loans and incentives; whether there is increase in information Technology related businesses due to presence of SMEs and if there is need for the government to encourage and develop more opportunities for SMEs.

A total of 200 SMEs were randomly selected from Matori, a city in Lagos state Nigeria. A questionnaire was constructed and distributed to the selected SMEs. The responses were collated and analyzed using Statistical Package for Social Sciences SPSS analytical tool.

The study reveals that while SME businesses are profitable problems of policy inconsistency and poor infrastructural development continuously undermine the potentials of the market. Though the presence of SMEs has attracted infrastructural development, such developments in most cases are community effort or privately driven which limits the amount of developments achieved. For example their efforts could be limited to patching and maintaining existing bad road networks but not expanding or creating new road networks.

The study also revealed that financial institutions like banks are attracted to areas where SMEs are established but getting funds through these institutions via loans has not been easy due to high interest rates and harsh conditions like types of collateral to present.

It was also established that SMEs are good employers of labor but not without required support and facilities. SMEs will not engage more people to work for them when their businesses do not thrive. For their businesses to thrive they need government to encourage them and develop more opportunities such opportunities could be in terms of providing infrastructures like stable power supply and good transport networks rails and roads, easy access to finance low interest rates, stable government policies, reducing multiple taxations, ensuring availability and access to modern technology and raw materials locally etc.

The result of the study confirms existing theories in the field which support the belief that SMEs remains a tool for economic growth in Nigeria.

There are enormous potentials and opportunities for SMEs in Nigeria to mature and play the crucial role of economy growth, poverty reduction, employment and wealth creation. This will entail having the government provide required supports and addressing identified problems. While the SMEs also need to change their attitudes relating to entrepreneurship development, government needs to involve the SMEs in policy formulation and execution for maximum effect. There is also need to introduce entrepreneurial studies in our Universities in Nigeria in addition to emphasizing practical and technological studies at all levels of our educational system.

1.INTRODUCTION

In the words of Levitsky 1996 and Zecchini 1997 small enterprise development is portrayed as one of the most successful economic development trajectories in the post communist economies of central and Eastern Europe. According to Milford 2000, while quoting from World bank 2000, enormous store has been placed on its presumed capacity to address extreme poverty, create desperately needed jobs, halt the ongoing deindustrialization process and curtail any further ethnic unrest associated with bleak economic prospects and social collapse.

Nigeria seeks to be counted among the worlds 20 largest economies by 2020 and this to many is not practical. The goal of this research work is to determine using primary and secondary data, the role of small and medium scale enterprises SMEs so far in the economic growth of Nigeria. This would enable one to make deductions and suggestions on how to make use of SMEs at the local scale to engender economic development.

1.1CONTEXT AND MOTIVATION

Over the years, having worked for different successful companies in Nigeria which are considered small players in the industry, I have developed a keen interest in understanding how these small businesses actually affect our economy. The growth of SMEs have been said to combine the strategies of poverty alleviation and industrialization into a unique package that is beneficial not only to entrepreneurs but to the country at large.

Therefore SME can be seen as a tool for both national development and personal growth. As a person who would love to become an entrepreneur in future, I believe that the knowledge gained from this research would not only help me better understand the status of SMEs in Nigeria but would also equip me in strategizing when I intend to start up.

1.2RESEARCH FOCUS

This research intends to validate the link between the monetary value of SME output and economic growth in the Nigeria context. The statistical definition of SMEs varies by country, and is usually based on the number of employees, capital, or the value of assets and sales volume Kanamori et al., 2006. According to Schaper 2000, SMEs account for over 95 of private sector firms in most industrialized economies. The importance of SMEs in driving economic growth is again emphasized in the case of communist East and Central European countries that allowed limited forms of officiallysanctioned SME development as a way of ameliorating poor economic performance and lifting living standards Patterson, 1993. According to Rowen et al., 1998 the rapidity of industrial development success achieved in the last thirty years in East Asian economies have been staggering and this is attributed to SMEs.

This may be the same in developing countries of Africa, such as Nigeria but the degree of impact on economic growth needs to be properly documented and investigated using local case studies. This study seeks to gather data from all relevant sources on the extent to which SMEs have affects the Nigerian economy. The core will be investigating the impact of SME in Nigerias economic growth. The research outcome may either validate it as a viable economic tool in the Nigerian circumstance or nullify the belief that it drives the countrys economic growth. Information gathered from primary sources will answer questions on the size of typical SMEs, ownership patterns, approximated value of assets as well as level of assimilation of information technology.

In Nigeria, Lagos is considered the commercial nerve centre because of its strategic location, peculiar demographics and contribution to the national GDP. A number of SME villages have been established in the state to serve as both models for subsequent SMEs and actual drivers of the economy. One of such is the Matori SME village and the adjourning Ladipo spare parts market in Oshodi Local government area of the state. The Matori SME village has been in existence for over 20 years, supporting a number of successful businesses which are also important in generating employment opportunities for the teeming workforce of Matori. Using the age of this market which was set up to promote SMEs, the choice was made to use it as a location for the present study.

1.3SCOPE OF RESEARCH WORK

This thesis would investigate the answers for the following questions.

1. Has the presence of Matori SME village brought economic growth and infrastructural development to Matori community

2.Is doing business at SME level profitable in Matori community

3.Are SMEs significant employers of labor in this community

4. Is the Profitability of SME business in this community independent of the nature of goods and services on sale

5. Has the profitability of small businesses in Matori led to increased presence of banks and financial institutions and subsequent increase in SME loans and incentives by the Banks.