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.
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
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
Hi: Government Agencies set-up to
promote and develop SMEs have been effective in the discharge of their duties.
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
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
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.
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.
DEFINITION OF TERMS
Oxford Learner’s Dictionary defines business as a commercial activity, a means
of live hood, a trade, profession, occupation, etc.
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.
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
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".
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.
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.
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
(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.
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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