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THE ROLE OF SMALL AND MEDIUM SCALE ENTERPRISES (SMES) IN AN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO 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, (2014), 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-

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