1.1 BACKGROUND OF STUDY
development of any country on how far its income generating sectors can
increase its capacity and its contributions to the generate output can only be
answered through the industrial sector which seems to be the most dynamic
sector from the economist point of view because of its ability to increase
capacity almost to an infinite position and also because of its outputs usually
a total creation of value. Therefore most countries focus on the growth and
development of their industries to enhance fast economic development (Udeh,
development of large scale industries, large manufacturing outfits and big
conglomerates may be contributing immensely to the industrialization and growth
of the economy, small and medium scale enterprises play he most paramount role
in essence, the national development is a function of small scale industries
performance. in the past few decades, small and medium scale enterprises (SMES)
have played important roles in the development economics and proved to be one
of the most visible sectors with economic growth potential (Shenton, 2001)
successes recorded by these countries were because of serious consideration of
the future rewards from sustained investment in this sectors. Due to their
sizes and scope of operations these enterprises requires relatively small
capital investment to start, there by offering a relatively high labour to
capital ration. They also demand low technology and management skill, which are
readily available within the society.
extent to which the opportunities offered by SMEs are exploited and their
contribution maximized enabling environment created through the provisions of
pre-requist infrastructural facilities. These include good road networks,
telecommunication, adequate and efficient power supply ports etc. and the
introduction and pursuit of policies such as concessionary financing that
encourage and strengthen the growth of SMEs. Small scale industries have such a
crucial role to play in the development of an economy that they cannot be
fact small and medium scale enterprises development should form one of the
country’s development objectives. They can serve as sources of inputs for the
multinationals there by replacing existing foreign source. They are also
training grounds for local skill and entrepreneurs, could become channels for
mobilizing local, savings and ensuring a more equitable distribution of
manpower from the rural to urban areas (Udeh, 2004).
the word, SMEs, are crucial for economic growth, poverty alleviation, wealth
acration and the promotion of more pluralistic societies.
and as expected, all the above vision and importance of SMEs cannot be fully
realize and achieved without the financial institution. The expectation of the
banking industry in the development and performance of small and medium scale
sectors to enable entrepreneur in the sector acquires tested and modern
knowledge necessary and not only that, but for research purpose.
success of SMEs sectors will, therefore, depends on the co-operation and
inter-relationship between the two sectors of the economy.
doubt, it is generally recognized development this act as catalysts in any
development country’s quest to join the league of advanced and industrialized
nations. The ability of small scale enterprises to initiate a nation to the
vanguard of industrialization is proved by the fact that it was the major
instrument of development of the Asian tigers (Singapore, south Korea, Taiwan,
China, Malaysia, the Philippines and Indonesia) and their ability to hawness
the potentials of their small and medium scale enterprises, put them on the
right footing in their pursuit of a self reliant industry and a developed
SMEs, represent about 90 percent of the industrial sector in terms of number of
enterprises (FOS, 1998), however, they contribute a meager 2 percent of GDP.
This is insignificance when compared to countries like Indonesia, Thailand and
India where SMEs contribute almost 40 percent of GDP, whilst SMEs are an
important part country, of the business scenery in any country; they are faced
with significant challengers that compromise their ability to function and to
contribute optimally to the economy.
1.2 Statement of the Problem
Nigeria economy has been progressing as expected, the unemployment rate is so
high that it is believed that 3 out of 5 graduates are likely to be jobless in
the first 5 years of their graduation, inflation is galloping as prices double
almost daily, poverty rate reached a chronic state where countries in the world
and general welfare is dilapidating, mortality rate is increasing across the
year basically due, to poor infrastructure and social amenities. To slove these
problems, there is a need to investigate which sector has the highest potential
to contribute positively to the economy, and most importantly to the
theory may back enormous contributions of small and medium scale enterprises to
economic development, there is need to investigate if that is the case in
Nigeria. It is obvious that if the available SMEs, in Nigeria were not faced
with certain problems of infrastructure, funding, raw material sourcing,
foreign dumping amongst other.
is however, in the light of the above problems that this research study is
initiated to investigate the problems, the extent of their hindrance to growth
of the sector and their possible solution.
1.3 Research Questions
the completion of this research work the following question must have been
what extent does the small and medium scale enterprise in Nigeria contribute to
national output and economic development in general?
what extent has the SME’s, being able to alleviate the unemployment problem in
SMEs in Nigeria really consume more of domestic inputs as against imported raw
role does commercial bank performance in improving the performance of SMEs
towards economic development?
1.4 Objective of the study
the light of the important roles performance of the small and medium scale
enterprises in the country’s economic development coupled with the roles played
by the commercial banks in solving the numerous problems believed to have
overwhelmed the SMEs in Nigeria.
primary focus of this study is aimed at understanding the economy, other
analyze the contribution of the small scale industries to the economic
development of Nigeria with reference to employment generation, gross domestic
product (GDP), utilization of local raw materials and development of local
technology. The study further examined the relationship between domestic input
and capacity utilization.
discuss the performance of the small scale enterprises to the entire industrial
examine the relative effectiveness of commercial banks on SMEs performance
identify factors (including financial, commercial, technical, managerial and
regulation) that promotes or stunts the effective performance of the small scale industries
investigate whether a linkage exits between economic development and the SMEs.
make recommendation where government policies could draw from and on which
possible forecasting on future researches can be based upon.
1.5 Research Hypothesis
hypotheses for this study will be hypothesis one:
SMEs contribute nothing to the economic growth and development of Nigeria.
SMEs contribute to the economic growth and development of Nigeria.
there is no relative effectiveness of commercial banks on SMEs performance
there is a relative effectiveness of commercial banks on SMEs performance
1.6 Significance of the Study
study of small and medium scale enterprises as a sub-sector of the industrial
sector at large, is very essential and important considering the role being
play by the commercial banks and because of the enormous advantages that the
economy can gain from the contribution of this sector.
this study is signified on the ground that it will foster the confidence of the
investors to focus their attention towards the development of the sector.
addition it will be an eye opener to both the shareholders and management of
organization, the important of this sector towards the important.
the importance of studying the performance of the industry making small and medium
scale enterprises the basic focus in Nigeria is as a result of the growing
awareness of the country’s government on the importance of this sector and the
current bid to improve it’s contribution and enhance it’s performance.
the research study is signified in that it will contribute to the frontier of
knowledge especially in research and development (R&D)and it will be of a
reference point to those researchers who may be desiring to carry out a similar
research on the topic
1.7 Scope of the Study
study focuses on the small and medium scale industries in the Nigeria economy,
which is used to measure the industrial sector at large. It centers on the
evolution and management of the small and medium scale industries performance
and the crucial role played by commercial development.
study will generally cover the roll of commercial banks on the performance of
small and medium scale enterprises.
1.8 Limitation of the Study
effects of economic bottleneck and social infrastructure on the performance of
the small and medium scale industries are identified so as not to underline
their real contribution to economy in both economic and industrial development
most small scale industries, are owned by private individuals, they usually
feel reluctant or refuse to make their data public hence it may be difficult to
get a well rounded conclusion.
research study is also projected to be limited by time and cost constraint.
1.9 Operational Definition of Terms
1. Small scale enterprises or
Any enterprises with a minimum assets
base of N200 million excluding the land and working capital and with the number
of staff employed not less than 10 or more than 300 (SMIE 15, 2003).
2. Commercial banks
Banks are financial firms or division
of larger firms that accepted deposit subject to withdrawer on demand and
invest part of these deposits in interest bearing loans and investments. They
are profit making, banks organized on a joint stock basis, that is the purpose
of their establishments to make profits for their owners the shareholders
banks on like commercial banks are whole banks owned by individuals are grouped
of individuals their customers are mainly corporate bodies and deposits
corporate bodies sums of N50,000 and above, they accept medium and long term
deposits and give medium long term loan and advances.
not a single technique, rather it is the term used for a variety of technique
by which supervisors, peers, sub-ordinates, and the individual employee themselves
rate, rank or describe the employees work effectiveness. It is a process in
which bosses regularly volute and report on the performance attainments,
abilities, potentials, for future development and other qualities of their
development and other qualities of their organization sub-ordinate.
1.10 Organization of the Study
work will be divided into five chapters. Chapter one will contains the
introduction to the study, objectives, research questions, research hypotheses,
significance and limitation of the study. Chapter two will take the literature
review and conceptual frame work. Chapter three will present the research
methodology; chapter four will be concerned with our analysis of data. Chapter
five will elicit the summary of findings, recommendation and conclusion.