EFFECT OF SMALL AND MEDIUM ENTERPRISES (SMES) ON ECONOMIC DEVELOPMENT

---

Introduction

1.1 Background Of The Study

Attempts by developed and developing countries to eradicate poverty and unemployment initially focused on the development of large enterprises, based on the traditional economy of scale. This theory is predicted on the assumption that, “big” is “better” while “small is bad”(Lawal, Ajonbadi and Otokiti, 2014). Small enterprises were seen as outdated and synonymous with technological and economic backwardness. Ironically, almost all the businesses that were initially small eventually became large business enterprises (Sundar and Kumar, 2012).

Most of the Multinational Corporations like Phillips International of Netherland, Sony of Japan, among others started as family business ventures. In Nigeria, there are indigenous enterprises such as Adebowale Electricals, Doyin Groups of Companies, Dangote Groups, Eleganza Nigeria Limited, and JOAS Electrical Industry Limited that started as small outfits that later established big plants. These are evidently pointers to the pivotal roles of SMEs in developed and developing countries, which is a paradigm shift on the perceived role of SMEs in industrial and economic development of the Nigerian economy (Johari, 2012).

In acknowledgment of the role played by the SMEs’ sector, the past few decades have witnessed renewed interest in the development of small and medium enterprises (SMEs) in many countries. Various studies have acknowledged the importance of SMEs in economic growth (Hu, 2010; Afolabi, 2013, Oyeniran, David and Ajayi, 2015), referring to them as “the engine of growth” and as “catalysts for [the] socioeconomic transformation of any country” (Leegwater & Shaw, 2008). SMEs represent a means to attain key macroeconomic objectives such as employment generation, increased growth, and poverty reduction at low investment cost while developing a country’s entrepreneurial capabilities and indigenous technology (Adebiyi, 2004). They also improve regional and sectoral economic balance by enabling industrial dispersal across sectors and locations, and generally promote effective resource utilization, which is critical to engineering economic development and growth (Kongolo, 2010).

Ofoegbu, Akanbi and Joseph (2013) agree that SMEs are the panacea for the economic development of many developing countries including Nigeria. They believe that interest on SMEs would contribute to creation of jobs, reduction in income disparity, production of goods and services in the economy, as well as providing a fertile ground for skill development and acquisition, serve as a mechanism for backward integration and a vehicle for technological innovation and development especially in modifying and perfecting emerging technological breakthroughs.

Small and Medium Enterprises (SMEs) has continued to be a popular phrase in the Business world. This is because the sector serves as a catalyst for employment generation, national growth, poverty reduction and economic development. SMEs world over can boast of being the major employers of labour if compared to the major industries including the multinationals (Kadiri, 2012).

Previous studies such as Ogujiuba, Fadila and Stiegher (2013); Musa and Aisha (2012) agree that SMEs account for well over half of the total share of employment and value added SMEs constitute the most viable and veritable vehicle for self -sustaining industrial development, as they possess the capability to grow an indigenous enterprise culture more than any other strategy. SMEs represent the sub sector of special focus in any meaningful economic restructuring program that targets employment generation, poverty alleviation, food security, rapid industrialization and reversing rural urban migration.

Unemployment, both of the educated and the uneducated manpower, has become one of the most topical and thorny issues in contemporary Nigeria. The unemployment situation has changed from previous position marked by prolonged period of unemployment and misemployment, to one in which graduates of tertiary institutions have to normally wait for a long time before getting a first job – if at all (Hassan, 2013). Nigeria has one of the highest levels of youth unemployment in the world with 60-65% (Federal Ministry of Labour and Productivity Report, 2008). Indeed, the labor market in Nigeria is dangerously close to saturation. Thereby giving the government, parents, employers of labour some serious worries as concerned economists and policy analysts today are calling on the government to create enabling environment for the operation of the SME’s sector since it has the potential to create employment opportunities for the teeming unemployed Nigerians that roam the street in searching for inexistent white-collar jobs.

Definitely, Nigeria’s vision of being counted among the first twenty economies in the world by 2020 cannot be attained in a socio-economic milieu of hunger, poverty and unemployment among a large segment of its population. Therefore, this study presents a critical investigation into the effect of small and medium scale enterprises (SMEs) on economic development in Lagos State with a specific reference to Oshodi/Isolo Local Government Area of Lagos State.

---

1.2 Statement Of Problem

It is apt to mention however that, the age-long formal education inherited from the imperialist turned out graduates with job-seeking mind-sets as opposed to job-creation; they thus lack entrepreneurial traits like self-motivation, drive and innovation needed by the world of work and employers of labour (Towobola and Raimi, 2011; Raimi et al., 2011; Simkovic, 2012).

Aladekomo (cited in Akhuemonkhan, Raimi and Sofoluwe, 2013) asserts:

“…The colonial educational policy centered on the production of literate nationals who were required to man positions, which would strengthen the colonial administration. Thus our educational institutions, few as they were remained factories for producing clerks, interpreters, forest guards and sanitary inspectors as no special professional nor entrepreneurial skill was envisaged in the educational system.”

Furthermore, with rising population growing at geometric proportion relative to job placement that is growing at arithmetic progression, it became obvious that the nation’s formal education is fuelling unemployment, crime and cycle of poverty as graduates could not be absorbed. It then dawn on government that there is the dire need to redress the socio-economic implications of idleness and hopelessness with policy observers calling on the government to think on entrepreneurship education as a tool for reducing unemployment in Nigeria.

Unemployment, underemployment and unmitigated rural-urban migration have come to characterize the Nigerian labour market. This has been compounded by frightening number of joiners as schools, polytechnics and universities churn out leavers in a geometric progression. This has impacted on the rate of social vices like robbery, kidnapping, prostitution, human trafficking, child abuse and unfair labour practices experienced mostly by the unemployed youths, which are other noticeable dimensions to the complexities of contemporary Nigerian employment dynamics. According to the National Manpower Board (2009) the Nigeria labour market could barely absorb 10% of the over 3.8 million persons turned out by the Nigeria educational system on a yearly basis. In brief, the employment trends in Nigeria indicate that, without a concerted effort to tackle the problems of unemployment the situation could get worse. It is against this backdrop that this study investigates into Small and Medium Enterprises (SMEs).

Most SMEs in Nigeria die within their first five years of existence, a smaller percentage goes into extinction between the sixth and tenth year while only about five to ten percent survive, thrive and grow to maturity (Aremu and Adeyemi, 2011). Many factors have been identified contributing to this premature death of SMEs. Key among them include: insufficient capital, irregular power supply, infrastructural inadequacies (water, roads etc.), lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of proper records or lack of any records at all, inability to separate business and family or personal finances, lack of business strategy, inability to distinguish between revenue and profit, inability to procure the right plant and machinery, inability to engage or employ the right caliber of staff, cut-throat competition. Hence, this study seeks to examine the effect of small and medium scale enterprises (SMEs) on economic development in Lagos State with a specific reference toOshodi/Isolo Local Government Area of Lagos State.

---

1.3 Objectives Of The Study

The following are the objectives of the study:

1. To examine if there is a significant relationship between Small and Medium Enterprises (SMEs) and employment creation in Lagos State
2. To investigate the effects of the SMEs sector on economic growth in Nigeria
3. To investigate the effect of financing on SMEs growth and development in Lagos State
4. To examine the role of the SMEs sector in improving the standard of living of the citizens.

---

1.4 Research Questions

The study was guided by the following research questions:

1. Is there any significant relationship between Small and Medium Enterprises (SMEs) andemployment creation in Lagos State?
2. What are the effects of the SMEs’ sector on economic growth in Nigeria?
3. Does financing affect the growth and development of SMEs in Lagos State?
4. What are the roles of the SMEs sector in improving the standard of living of Nigerians?

---

1.5 Research Hypotheses

The researcher intends to test the following hypotheses:

1. Ho: SME do not create employment in Nigeria
   Hi: SME creates employment in Nigeria.
2. Ho: There is no relationship between financing of SMEs and its growth in Lagos State
   Hi: There is a relationship between financing of SMEs and its growth in Lagos State

---

1.6 Significance Of The Study

It is anticipated that the analytical, conceptual and empirical studies will benefit entrepreneurs and the general public in their understanding of the significant role of small and medium scale enterprises (SMEs) in poverty reduction, standard of living and employment generation in Lagos state.

The outcome of the study will also be beneficial to university students like students of Lagos State University and scholars in the field of management when doing a likely research. The study would be significant to policy makers such as the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and implementers at large, as they would make use of the findings and recommendations thereof.