CHAPTER ONE

INTRODUCTION

• Background of the Study

Small and Medium Scale Enterprises (SMEs) have been acknowledged the world over as the driver of economic development and growth.  This is because these enterprises have great potential for employment generation, economic empowerment, poverty alleviation, improvement of standard of living, substantial local capital formation, achievement of high levels of productivity and capacity, means of achieving equitable and sustainable industrial diversification and dispersal, appreciable contribution to gross domestic product, increase harnessing of local raw materials and technological and export diversification.  (Ekpo, 2000; Essien, 2006; Butt,  Hunjra and Rehman, 2010; Akpakpan, 2012).  Not only do they provide employment and income for the bulk of the population, they have been recognized as critical breeding and nurturing ground for domestic entrepreneurial capacities, technical skills, technological innovativeness and managerial competencies for private sector development. (Derinola, 2008; Ojo, 2010; Olorunshola; 2014).

According to Onuoha, (2008), Etim, (2010); Kishore (2010), SMEs form the great majority of businesses in almost all countries in the world and hold the promise for the development and transformation of our economic in terms of domestic capital formation and industrialization. The roles of SMEs in economic growth and development of both the developed and developing economies have therefore attracted considerable interest globally (Ariyo, 1990; Kozak, 2007; Ojeka and Mukoro, 201 1). In many developed countries, more than ninety-eight percent of all enterprises belong to the SMEs sector (Uwonda et al, 2013); eighty percent  of the total industrial labour force in Japan, fifty percent in Germany and forty six percent in USA are employed in smaller firms (Udechukwu, 2014). In the USA, SMEs employed about 25 million people in 2004, and contributes nearly thirty nine percent to the national income (Whah, 2006). In Europe, almost eighty five percent of new jobs from 2002 to 2010 were created by micro, small and medium enterprises MSMEs) (Uwonda et al 2013). In Indonesia, India and Thailand, SMEs contribute almost 40 percent of Gross Domestic product and account for major share of industrial production and export (Kozak, 2007; Ishore, 2010).

Generally, therefore, SME’s are the pivot for achieving economic development of any nation. This is because, they create employment opportunities for teeming youths and self reliance for owner managers, contribute to gross domestic product (GDP) through their outputs (production of goods and services), development and inculcating entrepreneurial spirit, as well as better living standard of the populace through poverty alleviation. According to Ndiyo (2008), for development to be sustainable, certain conditions must be met. These include continuous capacity of the various development institutions to bring about growth both in the economic, social and political sectors; a continuous quantitative rise in Gross Domestic Product (GDP); a continuous structural transformation of the economy, political capacity to implement development programmes; high rates of social and ideological transformation and radical changes in institutional, social, administrative, and economic structures to be able to cope with new competition. SMEs are therefore, the engine and lubricant for achieving sustainable economic development.

Economic development is the sustained concerted actions of policy makers and communities that promote the standard of living. That is, policy aimed at economic and social well-being of people. The process whereby a country’s real per capital gross national product of income increases over a sustained period of time through continuing increases in per capital productivity. SMEs play a vital role in this regard.

The role of SMEs in the developing economies has also assumed a major significance in recent years. Studies have indicated that developing countries including Nigeria, show increased interest in the promotion of SMEs due to three main reasons: the failure of past industrial policies to generate efficient self- sustaining growth; increased emphasis on self-reliant approach to development and the recognition that dynamic and growing SMEs sector can contribute substantially to a wide range of development objectives (Sanni, 2009; Uwonda, 2013). Olorunshola (2014), went on to define these development objectives as efficient and effective use of resources, mobilization of domestic savings for investments, employment creation, development of indigenous entrepreneurship and technology as well as income distribution, among others. In order to ensure the realization of these objectives, the Nigerian government has remained committed to the growth and development of SMEs in the country (Etim, 2010). This stance has been successively reflected in various monetary, fiscal and industrial policy measures employed to provide appropriate financing and incentives for the sub sector. Other forms of government schemes and institution in support of SMEs, including the small and medium Enterprises Equity Investment Scheme (SMEEIS), National Enterprise Development Programme (NEDEP), Micro Finance Banks, Small and Medium-Scale Enterprises Development Agency of Nigeria (SMEDAN) and Youth Enterprise with innovation in Nigeria (YOUWIN).

In Akwa Ibom State, the government has also embarked on programmes and policies geared towards the development of this sub-sector. These programmes include micro credit scheme, Akwa Ibom State Economic Empowerment and Development Strategy (AK-SEED), co-operative development Credit Scheme among others aimed at developing and enhancing the viability of the SMEs. This study is aimed at evaluating the extent the SMEs  roles in Akwa Ibom State given the lofty support they enjoy from government and donor agencies.

The State is primary civil service driven, but currently the highest oil and gas producing State in Nigeria with heavy reliance on statutory allocation from the Federal Government.  Ekpo (2007) opined that the State has a weak small and medium industrial base as revealed by the near absence of a private sector.  The traditional occupation of Akwa Ibom people are farming, fishing, trading, hunting, word-carving, raffia works, pottery, crafts, creation among others.

• Statement of the Research Problem

Small and medium scale enterprises in Nigeria have been seen as the bridge for the rapid economic development of every nation.  However, it is be observed that inadequate capital and lack of accurate feasibility studies have hindered the operation, initiative and development of small/medium scale enterprise. Despite the efforts of government to give financial assistance to the business owners, delays and dishonesty in paying back the loans hinder the recycling procedures.  According to Onugu (2005), Small and Medium Enterprise (SMEs) in Nigeria have not performed creditably well and this tends to inhibit its contributions to economic growth and development of Nigeria. This situation has been of great concern to the government, citizenry, operators, practitioners and the organized private sector groups. The central bank of Nigeria (CBN) survey in 2005 provides some evidence that apart from the acute shortage of technology, management skills, poor management, adverse operational environment, the sub-sector has had its own fair share of neglect with concomitant unsavory impacts on the economy. The growth and competitiveness of the sub-sector are poor and lagging behind other sectors of the economy (Ojo 2010), with high mortality rate before their fifth (5th )  anniversary (SMEDAN 2008).

Akwa Ibom State is not an exception in this respect. Despite the generally acknowledged crucial role of SMEs in economic development, the sub-sector in the state appears weak. The mortality rate of enterprises is high and the sector represents an insignificant proportion of the economy (AK-SEED 2004; Ekpo, 2005; Akpakpan, 2012; Udoh, 2012). The sector’s contribution to GDP is put at only 4.7 per cent, although it accounts for high percentage of low wage employment (AK-SEED, 2004).

Several studies have identified the role of SMEs in economic growth and development (Fubrang1999; Jaja, 2000; Inyang and Eno, 2009; Olowofeso and Essien, 2012) but no empirical studies have been documented for Akwa Ibom State. This necessitates the purpose of this study to find out the role of SMEs in  Akwa Ibom State.

1.3 Objectives of the Study

The main objective of this study is to investigate the relationship between small and medium scale enterprises (SMEs) and economic development of Akwa Ibom State:  Specifically, the study intends to:

1        examine the relationship between the increase in SMEs and level of unemployment.

2        evaluate the relationship between SMEs and capital formation

3        evaluate the relationship between the SMEs and economic growth.

4        examine the overall contributions of the SMEs to the economic development of the State.

1.4 Research Questions

The study sought answer to the following questions:

1        Do SMEs create employment opportunities?

2        To what extent do the SMEs assist in capital formation?

3        what is the relationship between the SMEs and Economic growth?

4        What is the extent of overall contributions of SMEs to the economic development of the State.

1.5 Research Hypotheses

The following research hypotheses stated in the null form are formulated for the study:

Ho1:   There is no significant relationship between the operations of SMEs and employment creation in Akwa Ibom State.

Ho2:   SMEs does not significantly affect economic growth and development in Akwa Ibom State.

1.6     Scope of the Study

This study limits itself to only SMEs operating in Akwa Ibom State as listed in the 2010 National Micro, small and medium Enterprises (MSME) survey conducted by the SMEDAN, in collaboration with the National Bureau of statistics. Also, the research problem and major research questions involve multiple areas of the roles of SMEs in economic development of economics. However, given information available for research, role of SMEs in this study was limited to four specific areas namely, employment creation, capital formation, linkage between various sectors, and contribution to (in terms productivity). Also, the focal point for data collection was limited to the owner-managers of the SMEs drawn principally within Uyo metropolis, this is because all SME’s have common and unique characteristics to each other.