THE IMPACT OF GOVERNMENT FUNDING ON THE PROMOTION AND DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
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THE IMPACT OF
GOVERNMENT FUNDING ON THE PROMOTION AND DEVELOPMENT OF SMALL AND MEDIUM SCALE
ENTERPRISES IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The production of goods and services in the most efficient
manner has continued to be the only viable and reliable option for development,
growth and survival of any economy. SMEs have been fully recognized by
government and development experts as the main engine of economic growth and a
major factor by extension in promoting the realization of the financial systems
strategy 2020.
This is because the development of this sub-sector is an
essential element in the growth strategy, not only in contributing to improved
standard of living; they also bring substantial local capital formation and achieve
high level of productivity and capacity.
From a planning stand point, SMEs are increasingly recognized
as the principal catalysts for achieving equitable and sustainable industrial
diversification and dispersal and in most countries SMEs account for well over
half of the total share of employment, sales and value added (Udechukwu, 2003).
This is not surprising because the industrial sector in Nigeria has no
significant record of meaningful contribution to economic development since
independence in 1960 because it has not experienced any notable growth,
traceable to indigenous industrial entrepreneurship (Adewale, 2007). The
Nigerian economy, since the early seventies, has been dependent on oil
products. As a result of the enormity of revenue generated from oil, very
little attention has been paid to proper development of the industrial sector.
The reason for the lacklustre performance of the industrial sector is mostly
associated with the poor attention paid to the promotion and development of the
small and medium scale sub-sector, which is accepted worldwide to be the engine
of economic growth and the basic foundation for the industrialization process
of any nation that desires to experience solid development. This is more so
because entrepreneurship development is a critical aspect of skills development
and keystone for economic revival and growth.
Furthermore, the vital role of small and medium scale
enterprise (SMEs) as the only authentic foundation for accelerated
industrialization, growth and development, as witnessed in all the Newly
Industrialized Countries of South East Asia, referred to as Asian Tigers, is
recognized for its accelerative effect in achieving macro-economic objectives
such as full employment, income distribution, development of local technology
and stimulation of indigenous entrepreneurship, mitigation of rural-urban
migration, support and linkage of the entire industrial sector by training of
semi-skilled and non-skilled manpower as well as the manufacturing and supply
of spare parts and raw materials to large scale industries.
1.2 STATEMENT OF THE PROBLEM
Several studies have identified financial constraint as the
major obstacle to Small and Medium Scale Enterprises Development in developing
countries including Nigeria. For instance, Adelaja (2003) argued that the
access to institutional finance has always constituted a pandemic problem for
SME development in Nigeria. He recalled that in the past, a number of schemes
have been put in place to provide special credit lines/windows for SMEs but
this achieved very limited impact.
The primary focus of this study emanates from the fact that
small scale enterprises owners do not have sufficient finance to carry on their
due to the low saving culture of the people in this part of the world. The
reason for this is not far fetch: low level of income basically. While it is an
established fact that Small and Medium Scale Enterprises face financial
challenges, no research has been conducted to investigate the effect the
financial problem on their contribution to economic development. Asaolu et al
(2005) and many other authors and researchers have deduced that the financial
challenges mar the developmental role of Small and Medium Scale Enterprises.
But this may not be true especially in the case of Nigeria where the informal
sector, which is constituted largely by the Small and Medium Scale Enterprises
play a very important role in the development of the nation’s economy.
Therefore, this study seeks to evaluate the impact of government funding in the
promotion and development of Small and Medium Scale Enterprises (SMEs) in
Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to critically examine the
impact of government funding on the promotion and development of SMEs in Nigeria.
Specific objectives of the study are:
1. To appraise
financial challenges of Small and Medium Scale Enterprises in Nigeria.
2. To appraise the
effectiveness of various SME agencies set up by the federal government to
promote activities of SMEs in Nigeria.
3. To examine the
impact of government funding on Small and medium scale enterprises in Nigeria.
4. To recommend
various strategies that can be adopted by the government to promote and develop
SMEs effectively.
1.4 RESEARCH QUESTIONS
In-order to achieve the objectives of the study, the
following research questions will guide the study:
1. What financial
challenges are faced by Small and Medium Scale Enterprises in Nigeria?
2. How effective are
various SME agencies set up by the federal government to promote activities of
SMEs in Nigeria?
3. What impact
government funding had on Small and medium scale enterprises in Nigeria?
4. What strategies can
be adopted by the government to promote and develop SMEs effectively?
1.5 RESEARCH HYPOTHESES
1. Ho: Government Agencies set-up to promote and develop SMEs
have not been effective in the discharge of their duties.
Hi: Government Agencies set-up to promote and develop SMEs
have been effective in the discharge of their duties.
2. Ho: Government funding
on SMEs does not have a significant impact on the promotion and development of
SMEs in Nigeria.
Hi: Government funding on SMEs has a significant impact on
the promotion and development of SMEs in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
Small and Medium scale Enterprises (SMEs) in Africa rely
largely on own savings, not only to grow but also to innovate, firms often need
real services support and formal finance assistance, failing which
under-investment in long term capabilities (training and R&D) may result,
(Oyelaran-Oyeyinka, 2003). Besides finance, there are critical elements
(including: knowledge, skills and experience of staff; capacity and quality of
internal facilities; information and knowledge of market; intellectual and
managerial leadership; external infrastructure and the incentive system at the
micro and macro levels) that lacking within technology support institutions
themselves. These undermine the effectiveness of their support to Small and
Medium scale Enterprises (SMEs). This study is significant because it would
help to evaluate the operations of a vital segment of the industrial sector –
Small and Medium Scale Enterprises (SMEs) , which have been identified as
having very high potential in promoting economic growth and development (Oni
and Daniya, 2012). The evaluation shall be done with special focus on their
financing thereby adding to the existing literature on the subject matter.
1.7 SCOPE OF THE STUDY
This research work focuses on the impact of government
funding on the promotion and development of Small and Medium Scale Enterprises
(SMEs) in Nigeria paying special attention to the impact the government of
Nigeria has on the development of Small and Medium Scale Enterprises through
the establishment of SMEDAN. The research intends to study the essential
problems encountered by Small and Medium Scale Enterprises and suggest ways by
which they can be adequately and efficiently financed.
Most of the information and data needed for the study would
be gathered from existing literature and from relevant government agencies such
as the National Bureau of Statistics
(NBS) and Small and Medium Enterprise Development Agency of Nigeria (SMEDAN)
etc.
1.8 LIMITATIONS OF THE STUDY
The only limitation faced by the researcher in the course of carrying
out this study was the delay in getting data from the various respondents. Most
respondents were reluctant in filling questionnaires administered to them due
to their busy schedules and nature of their work. The researcher found it
difficult to collect responses from the various respondents, and this almost
hampered the success of this study.
1.9 DEFINITION OF TERMS
Business: The Oxford Learner’s Dictionary defines business as
a commercial activity, a means of live hood, a trade, profession, occupation,
etc.
Capital: capital can be defined s man-made productive asset
that are set aside for the production of other assets. In other restricted
cases, it is defined as money set aside to start business.
Economic Development: it can define as the process whereby a
country’s real per capital gross national product of income increases over a
sustained period of time through continuing increases i.e. per capital
productivity.
Economic Growth: Economic growth is the increase in the
amount of the goods and services produced by an economy over time. It is
conventionally measured as the percent rate of increase in real gross domestic
product, or real GDP. Growth is usually calculated in real terms, i.e.
inflation-adjusted terms, in order to obviate the distorting effect of
inflation on the price of the goods produced. In economics, "economic
growth" or "economic growth theory" typically refers to growth
of potential output, i.e., production at "full employment".
Economy: the word is used to mean a particular system of
organization for the production, distribution, and consumption of all things
people use to achieve a certain standard of living. .
Entrepreneurship: The willing and ability of an individual to
seek out investment opportunities in an environment, and an environment, and be
able to establish and run an enterprise successfully based on the identified
opportunities.
Role: according to Merriam-Webster’ dictionary is defined a
function or part performed especially in a particular operation or process or
major.
SMEs:Small and medium enterprises or small and medium-sized
enterprises (SMEs, small and medium-sized businesses, SMBs, and variations of
these terms) are companies whose personnel numbers fall below certain limits.
The abbreviation "SME" is used in the European Union and by
international organizations such as the World Bank, the United Nations and the
World Trade Organization (WTO). Small enterprises outnumber large companies by
a wide margin and also employ many more people. SMEs are also said to be responsible
for driving innovation and competition in many economic sectors.
SMEDAN: This is The short form for Small and Medium
Enterprises Development Agency of Nigeria. (SMEDAN) was established by the
SMEDAN Act of 2003 to promote the development of the MSME sector of the Nigeria
Economy. The Agency positions itself as a One Stop Shop for MSME Development.
Micro Enterprises are included in the clientele of the Agency since they form
the bedrock for SME's
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