THE ROLE OF SMALL AND MEDIUM ENTERPRISES IN BOOSTING FOREIGN INVESTMENT IN LAGOS STATE (A CASE STUDY OF SELECT SMEs IN ETI OSA LGA)
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The growth of Foreign Direct Investment
(FDI) in the Least Developed Countries including African countries has
been extremely rapid in recent decades, mostly in countries which have a
bigger market size and natural resources. Lagos is undoubtedly the
commercial centre of Nigeria with many companies now moving their bases
to Lagos particularly to Eti Osa Local Government Area because of the
availability of Land and a very conducive environment. However, Micro,
Small and Medium Enterprises have a central place in the economic
development of any nation. Micro, Small and Medium Enterprises perform
an important function in the development of an economy and this cannot
be over emphasized. Micro, Small and Medium Enterprises serve as
training arena for local skills and entrepreneurs, and could become
channels for mobilizing local savings, ensuring a more equitable
distribution of income and reducing the migration of manpower from the
rural to urban areas. The reduction of rural-urban migration is
desirable and where the MSMEs are given the required support, this will
lead to development of the rural areas in the long-run.
According to (Cook & Nixson 2000),
interest in the role of small and medium-scale enterprises (SMEs) in the
development process continues to be in the forefront of policy debates
in developing countries. In view of the relevance of SME’s, in 2006 the
government of Taiwan launched a $61 million branding initiative, which
aimed to propel the economy from being production-based to
knowledge-based (Lin 1998; Onuorah 2009; SAN 2006). According to the
report in English language version of the online edition of Electronic
Engineering Times-Asia print magazine, formerly Asian Sources
Electronics Engineer (EE Times Asia) in August 2006, the so-called
"Branding Taiwan Plan" is a seven-year program designed to help
promising small-to-medium enterprises (SMEs) in developing their own
brand, according to the Taiwanese government. This was started with the
view of SMEs capacity to advance the economy most importantly in the
medium term. Small businesses employ 72,000,000 people (Schaper 2002).
More than 90 per cent of the industries in Indonesia, Philippines,
Thailand, Hong Kong, Japan, Korea, India and Sri Lanka are small
enterprises (Cook & Nixson 2000).
Small and Medium Enterprises
plays a vital role in shaping economic and social performance and
prospects of countries around the world, especially those of developing
countries. No country has grown without trade. However, the contribution
of trade to development depends a great deal on the context in which it
works and the objectives it serves. Also, many other developing
countries, particularly the less developed countries, have embarked on
unilateral trade liberalization in recent years, with very limited
results at best in terms of increased growth and development.
The World Bank of recent
have been emphasizing on the importance of SME participation in
International trade. SME's needs to be engaged actively as direct
recipients of international trade projects. Therefore, UK businesses
remain well placed to succeed in Nigeria because of its familiar legal
system, strong ties through the diaspora community, and the perception
that UK brands offer high quality. This study aimed to examine the role
of Small and Medium Enterprises in boosting foreign investment in Eti
Osa Local Government Area of Lagos state, Nigeria.
1.2 Statement of the Problem
Small and Medium Scale Enterprises
(SMEs) have play important roles in the development process in most of
the developed economies, and prove to be one of the most viable sectors
with economic growth potentials. The successes recorded by countries
generally in this sector arise as a result of the high priority
considerations and future rewards from sustained investment in this
sector. The extent to which the opportunities offered by SMEs are
exploited and their contributions maximized in any economy depend on the
enabling environment created through the provision of requisite
infrastructural facilities. These include roads, telecommunications,
Power, Ports, etc and the introduction and pursuit of policies such as
concessionary financing that encourage and strengthen the growth of
SMEs.
However, In Nigeria, the SMEs sector has
not been able to perform the expected vital and vibrant role in
attracting foreign investors to the country. This is because the SMEs
are confronted with several drawbacks and challenges they have to
overcome in order to operate successfully. These obstacles include for
example access to finance, competition, access to market, appropriate
technology and lack of adequate infrastructural facility. These
challenges have hindered SMEs from employing as much as they should, the
SMEs are unable to generate wealth as they should and their
contribution to poverty reduction is also hindered.
1.3 Research Questions
The following are some of the questions which this study intends to answer:
i) what are the
contributions of SMEs to foreign investment in foreign investment in Eti
Osa Local Government Area of Lagos state?
ii) what are the things
that attract foreign investors to have their base at foreign investment
in Eti Osa Local Government Area of Lagos state?
iii) what are the problems facing SMEs in attracting foreign investors to Nigeria?
1.4 Objectives of the Study
The broad objective of this study was to
examine examine the role of Small and Medium Enterprises in boosting
foreign investment in Eti Osa Local Government Area of Lagos state,
Nigeria. The specific objective included:
i) to inquire the
contributions of SMEs to foreign investment in foreign investment in Eti
Osa Local Government Area of Lagos state
ii) to identify the
things that attract foreign investors to have their base at foreign
investment in Eti Osa Local Government Area of Lagos state
iv) to understand the problems facing SMEs in attracting foreign investors to Nigeria?
1.5 Research Hypothesis
The research hypotheses to be tested include:
i) there is no significant relationship between SMEs and foreign investment
ii) there is no
significant correlation between foreign investment and development of
Eti Osa Local Government Area of Lagos state
iii) there is no
significant relationship between SMEs and foreign investment boosting in
Eti Osa Local Government Area of Lagos state
1.6 Significance of the Study
This Study is
significant because the SMEs sector occupies a vital place in the
economic development of the country. If the SMEs sector is well
developed, and is effective and efficient, it creates employment
opportunities, decreases the level of poverty and reduces inequality
among the citizens of the society and also attracts foreign investors
and thereby brings about quick and rapid development of our economy.
Also, This study will benefit the government as it will help to bring
out whether or not SMEs has been able to effectively carry out its
functions or not, and if not the reason (s) will be brought to light and
this will help the policy makers to see how to address the problems
identified.
1.7 Scope of the Study
The study examined the role of Small and
Medium Enterprises in boosting foreign investment in Eti Osa Local
Government Area of Lagos state, Nigeria and it therefore, covered SMEs
in Eti Osa Local Government Area of Lagos.
1.8 Limitation of the study
Time constraint was the major challenge
of this study. The researcher was simultaneously engaged in this study
with other academic work. This consequently cut down on the time devoted
for the research work.
1.9 Definitions of Terms
The following terms were used in the course of this study:
Foreign investment: involves capital flows from one country to another, granting extensive ownership stakes in domestic companies and assets.
Foreign investors: Persons that own business in another country other than their country
SMEs: Small and Medium Scale Enterprises