Sample Economics Research Paper on The Role of Small and Medium Scale Enterprises (SMEs) as Trigger for Economic Development in Nigeria

The Role of Small and Medium Scale Enterprises (SMEs) as Trigger for Economic Development in Nigeria

Abstract

This research was undertaken to investigate the aspects that contribute to the failure of Small and Medium-scale Enterprises (SMEs) in the Nigerian economy. The study was as a result of the significant role that Nigeria plays in the economic development of the African nations. To effectively address this topic, a deep analysis of the nature of pursuance of the entrepreneurs in the nation together with the Nigerian population was scrutinized. In this investigation, data was collected from primary and secondary means. In addition, direct personal interviews as well as self-administered questionnaires were undertaken in the primary sources. Secondary data was also gathered from literary studies. The research also incorporated a quantitative and qualitative data employment with an aim of providing an all-inclusive interpretation on the relations between the pursuance and continued existence of SMEs in Nigeria. According to the research, it was proven that the majority of the Nigerian population, encompassing entrepreneurs, included inactive and estranged supporters or pursuers of small and medium entrepreneurs. Furthermore, it was also ascertained that there was a close association between an individual style of pursuance and the resultant failure or success at any SME endeavored. This research offered an understanding for the macroeconomic experts and entrepreneurs in the nation’s economy to appreciate their distinct responsibilities in relation to the continued existence of SMEs and their role in the economic development of the nation.

Keywords: SMEs, Nigeria, entrepreneurial, economic growth, pursuance.

The Role of Small and Medium Scale Enterprises (SMEs) as Trigger for Economic Development in Nigeria

Introduction

            The role of Small and Medium Scale Enterprises (SMEs) in any nation is crucial for economic development. Many nations have set up strategies to give these enterprises an amplified policy attention particularly in the developing nations because of several failures from large-scale investments. The great influence of SMEs is felt in different forms, for instance, effective utilization of raw materials, creation of job opportunities, enhancement of rural development, growth of entrepreneurship and balance of development in a nation among others. Currently, the growth of SMEs among nations, both developed and developing nations depends on the vitality, risk taking and creativity of the SMEs and their role in enhancing economic growth. Generally, small and medium scale enterprises play a significant role in the economic development and growth of nations across the globe.

            The United States is one of the nations across the globe that underwent a great economic growth during the new millennium to record breaking levels as a result of the growth and development of SMEs. This has enabled the US to become one of the most prosperous countries in the world with an economic growth of approximately 4.0 percent annually. During this period, the U.S was able to create averagely 20.7 million employment opportunities in the private sector in addition to an upsurge of about $6,000 in the average family revenues. Furthermore, the Clinton-Gore regime in the 1990s also saw a provision of overwhelming economic pointers, for instance, the lowest inflation rates that had ever been witnessed. The nation also saw the peak of home ownership score in the American history during this period. The unemployment rates in the nation were at the lowest level ever to have been experienced for close to 30 years, being at around 4.7 percent by 2000. In analyzing these inspiring figures, it is apparent that the populace in the U.S was generally wealthier and comfortable, more financially poised, and more competitive at the international level (The White House). During this period, it was evident that a noteworthy degree of non-governmental intrusion, particularly in the private sector, existed. Nonetheless, a higher degree of the nation’s economic opulence was ascribed to the economic stratagem that was instigated and applied during this period. Fundamentally, the U.S. economic policies’ strategies that were established during the prospering period concentrated on the creation of employment opportunities as well as reviving the private sector. Consequently, the private sectors started experiencing massive business profits, thereby intensifying their operations within the United States and across borders, which created more employment opportunities. Accordingly, it is apparent that the rapid explosion of small businesses in the United States during that time was the major trigger in driving the United States’ economy to its present spot as the leading economy globally. The nation has maintained this trend since then and over 5 million new trades are opened annually by different people (Scarborough, 2014). It is evident that the witnessed drive in the thriving U.S. economy is attributed to the growth and power of small businesses or enterprises. SMEs utmost benefit is the employment opportunities established in the nation’s economy.

            SMEs high contribution to the growth of the U.S. economy is a confirmed facet since 99.7 percent of all businesses in the U.S. are small businesses, which offer up to 70 percent of the new employment opportunities (Longley, 2014). In this research, small and medium scale enterprises or businesses refer to business entities that encompass 500 or fewer employees. Remarkably, this approach of economic stratagem has been imitated by other flourishing economies, conspicuously Germany and China. In Germany, small and mid-sized businesses, commonly referred to as Mittelstand, offer a backbone to the nation’s economy with approximately 70 percent in the private sector economy alongside a higher percentage of the country’s exports (Blackstone & Fuhrmans, 2011). Similarly, the introduction of the open-door policy in China between 1978 and 1999 established about 10 million small new trades. These SMEs play a significant role in generating national income and job creation in the highly populated nation that broke away from the traditional way of relying on centralized economy (Anderson, Li, Harrison & Robson, 2003). Therefore, small and medium scale enterprises play a significant role in the growth and development of the nation’s economy.

The Research Problem

            As one of the MINT nations, Nigeria has coldly incorporated the notion of SMEs in its economy. Other MINT nations like Malaysia, Indonesia and Turkey have a prospect of becoming promising economies. Nigeria is apparently the largest and the strongest economy in the West-African Sub-Saharan region. The nation boasts of a population of approximately 160 million people besides being Africa’s largest oil reserve. Furthermore, the Nigerian government obtains close to 80 percent of its income from oil production. A higher amount of Nigeria’s export revenues emanates from oil and gas sector (The Heritage Foundation, 2014). Therefore, this means that the Nigerian economy extensively rely on gas and oil. The nation is also enjoying a massive cache of other natural resources, such as limestone, lead, tin, iron-ore, and coal.

            Nigeria has a Gross Domestic Product of about $450.5 billion, making it the third richest nation in Africa after Egypt and South-Africa. Nonetheless, the nation has one of highest unemployment rate that is continuing to increase over the years, resulting in underperformance of the economy (Dugguh, 2014). This unwavering pattern implies that regardless of the fact that the nation enjoys revenues from natural resources, it cannot provide cost-effective employment opportunities for the majority of its population. This troublesome trend is attributed to the lack of government support for strategies and policies in the macroeconomic sector. For instance, this is manifested in the nation’s poor road network and shortage of power supply in most regions of the country. Therefore, the owners of the existent small and medium scale enterprises find it hard to meaningfully grow, expand, and provide significant contribution to the nation’s economy, particularly in the creation of employment opportunities as well as sales. This situation also makes it hard for the possible entrants to penetrate into the SMEs sector of the economy as a result of the prevailing obstructions and challenges they go through. For this reason, it is evident that Nigerian government has not yet realized the impact of SMEs to its economy and therefore does not aggressively intend to enhance the SMEs as a trigger for national economic development.

Literature Review

            As a result of the premeditated position and potentials that Nigeria holds across the globe and in the African continent, there is a massive attention and criticism on its aptitude to deliver the prospects of full-bodied economy to its citizens. The nation has certainly received numerous disparagement from a number of scholars. According to different researches that have been conducted, it is evident that SMEs form the backbone of the economic growth for any nation across the world because of their sustainable employment opportunities and poverty reduction as seen in the U.S. and other developed nations like Germany and Japan. Nonetheless, since Nigeria has entirely depended on oil and gas production and exports, it has drastically failed to address and protect the growth and interest of SMEs, which are important in steering its economy. Consequently, there are higher chances of a SMEs failing or not growing in the nation immediately they are established as compared to other MINT nations, thereby hampering economic development (Dugguh, 2014; Ogbimi, 2011). According to Dugguh (2014), the burden of the Structural Adjustment Program (SAP) imposed by the International Monetary Fund (IMF), which did not have subsequent fiscal policies to support their sustainability is attributed to the devastating intellectual poverty that has covered the minds of the majority of the nation’s citizens. A large number of the population has been affected by poverty, which is an enemy of national economic development since dead minds do not think or engage in any form of in entrepreneurship (Dugguh, 2014; Ogbim, 2011).

            Furthermore, it is also apparent that there is an increasing school of thought that points out several challenges associated with sociological and resource-based theories of entrepreneurship as a barrier to the successful growth and development of SMEs in Nigeria. It is proven that the resource-founded theory accentuates access to an effective combination of human resources, social capitals, and financial backing. Furthermore, the sociological philosophy scrutinizes the influence of the society on the existence of SMEs. The societal influence encompasses the challenges modeled by the country’s politics, legislation, consumers, personnel, and rivalry (Efi & Akpan, 2012). These different opinions have been, to a larger extend, used to evaluate the prediction of the SMEs by the nation’s government. Nonetheless, with regards to all the studies that have been conducted, there seems to be a general agreement that the failure of SMEs in the nation begins immediately after their startup. According to Scarborough (33), this form of failure is below the acknowledged global rate of 65 percent in the initial three years. Consequently, the unfortunate performance of the SMEs has led to stagnated economic development.

            However, some deficiencies have been acknowledged in the literature review. For instance, despite the fact that the studies have noteworthy points in their findings, no single study has focused on the failure of the impending entrepreneurs who are planning to venture into the SMEs sector despite these challenges. The passive culture of the populations and lack of government support to the growth and development of SMEs are yet to be ascertained. In most instances, it is apparent that one might be forced to think that there is a belief of strong culture of easy-going approach in the majority of the populations in the nation, hoping that the government will always provide for their needs or employment opportunities. No research has been undertaken to address the role of the citizens who are supposed to be entrepreneurs and are not enjoying the benefits of SMEs. It is not clear whether the role of citizens in triggering SMEs as a catalyst for the nation’s economic development can cause transformation.

Significance of the Study

            There is inadequate information on the function and importance of SMEs among the third world nations, thus posing a major challenge to their economy. It is evident that the nations have a major role to play in sensitizing the citizens and offering fundamental aid and a supporting environment to allow the startup and growth of entrepreneurs. Nevertheless, the citizens also have an important role of understanding the effect of their joint actions in supporting the national economic development. In Nigeria, businesspersons or potential entrepreneurs are yet to understood the fact that owning a business is not only a personal achievement of venture but also an important rudiment for the economy and other people through creation of job opportunities. Furthermore, the poor state of affairs in the nation makes the situation worse as a result of the citizens not being able to have visionary leadership to steer them to constructive economic empowerment. Therefore, despite the fact leadership has drastically contributed to the stunted growth of SMEs, the biggest problem is lack of pursuance by the population.

            This research evaluated how the SMEs function in Nigeria with an intention of ascertaining the reasons for their failure and impact on the economic development. This provided an avenue of looking into different faults of government in enhancing SMEs as a trigger for economic development. Consequently, the purpose of this research was to establish a connection between the incapability of citizens to initiate their entrepreneurial competence or poor pursuance and the ineffectiveness of the government to provide an enabling environment for the success of SMEs in Nigeria, thus affecting the economic development. In this research, it was ascertained that all the factors are not mutually exclusive.

Research Questions

            The important research questions were selected to prudently address a wider latitude of the study in the field of SMEs in the Nigerian context in relation to economic development. This was predominantly essential given the fact that the nation’s population is composed of a diverse society. The questions below required to be answered.

  1. What are the demographics of the personages who get involved into SMEs?
  2. Is there any provision for a formal source of information on the market for probable entrepreneurs?
  3. How have the populations tried to alleviate the challenges of SMEs growth in Nigeria?
  4. Has the element of poor pursuance enhanced the failure of SMEs in Nigeria and the economy?

Hypothesis

            According to this research, poor leadership and lack of pursuance have failed to offer significant ground for the success of SMEs. In this regard, a pursuance model is important to extend the problem from the lack of leadership support to the populations’ lack of motivation in venturing into SMEs. Generally, the model asserts that even though poor leadership and pursuance are complexly tangled, the success of proper leadership in propelling entrepreneurship could lead to a positive pursuance (Graen & Uhl-Bien, 1995).

Methodology

            The objective of this research was to ascertain the fact that lack or pursuance besides poor leadership in Nigeria are the main contributing factors to the failure of SMEs and hence affecting the economic development. To determine this, this study established the degree of participation of the nations’ businesspersons in establishing a substitute atmosphere or pressing the leadership. In offering significant answers to the research questions and propositions, a descriptive research method was adopted besides primary and secondary data. The research data was gathered at different times in the process of conducting the research. Primary data was gathered from primary sources, that is, questionnaires filled by willing and randomly selected participants physically and online to provide quantitative information for the investigation. Nonetheless, as a result of the descriptive features of the predictable results, a qualitative data was also gathered through personal and telephone interview sessions. This was mainly conducted to Nigerian entrepreneurs that have already ventured into business and the persons who have failed to provide a cross-section of the intended population in entrepreneurship. Additionally, secondary data was collected from prevailing literature in the associated fields, which had a bearing on this research. These forms of data collections were also as a result of the elements of speed and expenses. The research was undertaken in Nigeria, city of Abuja. The target population was mainly the entrepreneurs that are registered with the Corporate Affairs Commission (CAC) of Nigeria. This was aimed at encompassing a different grouping of entrepreneurs in the common business sectors of the economy. This is because the entrepreneurs cover a wide range of sectors of the Nigerian economy, for instance, food, manufacturing, services, and construction among others. The research was aimed at taking into account the opinions and reactions from the most popular business sectors. A random sampling method was applied to 577 respondents based on Fowler’s (2013) recommended sampling selection plan.

Results and Findings

            According to the research, it was identified that there is a close association between the pursuance mode of the entrepreneurs in Nigeria and the success of SMEs. After gathering all the data in the investigation, the outcome indicated that 48 percent of participants were inactive pursuers of entrepreneurship, 26 percent were isolated, and the remaining 11 percent were rational fighters. From these findings, it was apparent that there is a connection between the pursuers of the Nigerian entrepreneurs and the existence of SMEs in Nigeria in relation to economic development. The initial proposition strives to ascertain the development in demographics of the people who engage in SMEs. Nonetheless, it was found out that there was no correlation relating to any characteristic. People’s gender, cultural background and education among others had no implication on how they regard the concept of entrepreneurship. In the second question about any formal source of market data or information on the potential investors, it was ascertained that all the data available was controlled by the government. This means that there was no autonomous information to the entrepreneurs to assist them in starting and growing personal businesses to enhance economic development. In the third proposition, the concentration was on any initiatives that the conventional had put in place to alleviate the present challenges related to the growth of SMEs in the nation and economic growth. It was ascertained that most of the populations were dormant, thus making the situation to remain the same and leading to a retarded economic growth.

            Many people have not realized the significance of entrepreneurship apart from personal satisfaction and survival of the entities. This implies that most of the populations have not undertaken serious measures in enhancing the growth and development of the SMEs as a trigger for national economic development. Furthermore, there was no clear understanding about the role of the pursuers in pressing the national leadership to foster the growth of SMEs. In the final finding, it was also discovered that there was a noteworthy relationship between dormant and isolated pursuance and the failure of entrepreneurship in the nation.

Conclusions and Recommendations

            The concept of populations being comfortable in their poor states, particularly among developing nations, has made people to rely on government provision. Most of these populations expect the government to provide for all their needs, particularly employment opportunities. Despite the fact that this facet does not excuse the government of its primary responsibilities, in the context of economic development, the pursuers or populations need to play a significant role in pressing national leaders to create a conducive environment for entrepreneurship. If this does not take place, the failure to thrive through SMEs will prevail.

            According to this research, it was ascertained that the Nigerian economic development has remained stagnant because the nation relies on oil and gas production. With the growing population, this sector alone cannot thrive the national economic development. The entrepreneurs have remained in the traditional, rational surviving, and estranged dormant pursuers of entrepreneurship. This research has also ascertained that there is a noteworthy link between the pursuers or business population model personal gains that determine their motive in venturing into SMEs. Prototypical businesspersons need to be proactive to ensure that they put in place effective strategies to grow and develop SMEs, which is the direct opposite of the dormant businesspersons in the nation.

            As a result of these facets, the research recommended that the national government personnel responsible for macroeconomic aspects need to come up with campaigns to sensitize the populations about their role in the national economic development through SMEs and other personal business venture. Predominantly, there needs to be an understanding among the populations to know that national economic development through employment creation and revenues can be majorly achieved through SMEs. These strategies can be addressed through avenues like advisory efforts using small business advisory departments across the nation. As other nations have evolved, the citizens should be empowered to know that the majority of the economic powers and developments of the nation rest with them and not the government. The government’s main role is to provide a conducive environment.

Limitations of the Study

            This research entailed the significance of SMEs as a trigger in the economic growth and development of the Nigerian economy. In undertaking this research, the researcher encountered several limitations. These included lack of adequate information from different sources, time limit, and transportation issues as a result of heavy traffic in Nigeria cities. Furthermore, the research only focused on one city, thus leaving out an important segment of the rural dwellers who are also significant parties in the growth and development of SMEs. Nonetheless, these limiting factors did not hamper the research.

Recommendation for Future Research

            Future research in this topic areas need to be undertaken within an expansive time frame to ensure that the researcher conducts adequate study without time constraints. Moreover, this will also allow the researcher to overcome other challenges like traffic among others. The research also needs to be spread across the whole nation to get information from different players located in the cities and rural settings. SMEs are supposed to be located all over the nation and concentrating the study in a specific region leaves out substantial amount of information.

References

Anderson, A. R., Li, J. H., Harrison, R., & Robson, P. J. (2003). The increasing role of small business in the Chinese economy. Journal of Small Business Management, Volume 41, Number 3.

Blackstone, B., & Fuhrmans, V. (2011). The engines of growth. Wall Street Journal27.

Dugguh, S. I. (2014). Entrepreneurship and small business: Strategic approach to alleviating poverty and corruption in Nigeria. GSTF Journal on Business Review (GBR)3(1).

Efi, A. E., & Akpan, S. S. (2012). Impediments to entrepreneurship development in the Niger Delta Region of Nigeria. Canadian Social Science,8(6), 102.

Fowler Jr, F. J. (2013). Survey research methods. Sage publications.

Graen, G. B., & Uhl-Bien, M. (1995). Relationship-based approach to leadership: Development of leader-member exchange (LMX) theory of leadership over 25 years: Applying a multi-level multi-domain perspective. The leadership quarterly6(2), 219-247.

Longley, R. (2014 January 14). How small business drives U.S. economy. U.S. Government Info. Retrieved from http://usgovinfo.about.com/od/smallbusiness/a/sbadrives.htm

Ogbimi, F. E. (2001). Structural adjustment is the wrong policy. In African Technology Forum, http://web. mit. edu.

Scarborough, N. M. (2014). Effective small business management: An entrepreneurial approach. Upper Saddle River, N.J: Pearson Prentice Hall.

The Heritage Foundation. 2014 index of economic freedom.

The White House. The Clinton presidency: Historic economic growth. 2013. Retrieved from https://clinton5.nara.gov/textonly/WH/Accomplishments/eightyears-03.html

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