In the words of Levitsky (1996) and Zecchini (1997) small enterprise development is portrayed as one of the most successful economic development trajectories in the post- communist economies of central and Eastern Europe. According to Milford (2000), while quoting from World bank (2000), enormous store has been placed on its presumed capacity to address extreme poverty, create desperately needed jobs, halt the ongoing de-industrialization process and curtail any further ethnic unrest associated with bleak economic prospects and social collapse.
Nigeria seeks to be counted among the worlds 20 largest economies by 2020 and this to many is not practical. The goal of this research work is to determine using primary and secondary data, the role of small and medium scale enterprises (SMEs) so far in the economic growth of Nigeria. This would enable one to make deductions and suggestions on how to make use of SMEs at the local scale to engender economic development.
What constitute a small and medium scale enterprise varies especially from country to country. For example, according to the newly enacted Indian Micro, Small and Medium Enterprises Development Act 2006, enterprises are classified into Micro, Small and Medium according to the following criteria:
|Type of enterprise||Engaged in manufacture or
production of goods
|Engaged in providing or rendering of services|
|Investment in plant and
|Investment in equipment|
|Micro enterprise||Does not exceed 25 Lakh rupees||Does not exceed 10 Lakh
|Small enterprise||More than 25 Lakh rupees, but
does not exceed 5 Crore rupees
|More than 10 Lakh rupees, but does not exceed 2 Crore rupees|
|Medium enterprise||More than 5 Crore rupees but
does not exceed 10 Crore rupees
|More than 2 Crore rupees but does not exceed 5 Crore rupees|
Table 1: The Indian working group on science and technology for Small- and medium-scale enterprises, 2007-2011
In Taiwan, enterprises in the manufacturing, construction and mining and quarrying sectors that have paid-in capital of less than NT$80 million or fewer than 200 regular employees are classed as SMEs. For other industries, those enterprises that had annual operating revenue of less than NT$100 million in the previous year or that have fewer than 50 regular employees are classed as SMEs (White paper on SMEs in Taiwan, 2008).
In the United States of America, enterprises in the manufacturing sectors with fewer than 500 regular employees or wholesaling and retailing sectors with fewer than 100 regular employees and an average annual operating revenue of less than US$6 million are classified as SMEs. For the services and construction sector, they may have an average annual income of less than US$6 million and less than US$28.5 million respectively to be classified as SMEs (White paper on SMEs in Taiwan, 2007). In the United Kingdom the classification is based on staff strength. They classify businesses with less than 250 regular employees as SMEs (UK: Department of Trade and Industry)
1.1 Context and Motivation
Over the years, having worked for different successful companies in Nigeria which are considered small players in the industry, I have developed a keen interest in understanding how these small businesses actually affect our economy. The growth of SMEs have been said to combine the strategies of poverty alleviation and industrialization into a unique package that is beneficial not only to entrepreneurs but to the country at large.
Therefore SME can be seen as a tool for both national development and personal growth. As a person who would love to become an entrepreneur in future, I believe that the knowledge gained from this research would not only help me better understand the status of SMEs in Nigeria but would also equip me in strategizing when I intend to start up.
1.2 Research Focus
This research intends to validate the link between the monetary value of SME output and economic growth in the Nigeria context. The statistical definition of SMEs varies by country, and is usually based on the number of employees, capital, or the value of assets and sales volume (Kanamori et al., 2006). According to Schaper (2000), SMEs account for over 95% of private sector firms in most industrialized economies. The importance of SMEs in driving economic growth is again emphasized in the case of communist East and Central European countries that allowed limited forms of officially-sanctioned SME development as a way of ameliorating poor economic performance and lifting living standards (Patterson, 1993). According to Rowen et al., (1998) the rapidity of industrial development success achieved in the last thirty years in East Asian economies have been staggering and this is attributed to SMEs.
This may be the same in developing countries of Africa, such as Nigeria but the degree of impact on economic growth needs to be properly documented and investigated using local case studies. This study seeks to gather data from all relevant sources on the extent to which SMEs have affects the Nigerian economy. The core will be investigating the impact of SME in Nigerias economic growth. The research outcome may either validate it as a viable economic tool in the Nigerian circumstance or nullify the belief that it drives the countrys economic growth. Information gathered from primary sources will answer questions on the size of typical SMEs, ownership patterns, approximated value of assets as well as level of assimilation of information technology.
In Nigeria, Lagos is considered the commercial nerve centre because of its strategic location, peculiar demographics and contribution to the national GDP. A number of SME villages have been established in the state to serve as both models for subsequent SMEs and actual drivers of the economy. One of such is the Matori SME village and the adjourning Ladipo spare parts market in Oshodi Local government area of the state. The Matori SME village has been in existence for over 20 years, supporting a number of successful businesses which are also important in generating employment opportunities for the teeming workforce of Matori. Using the age of this market which was set up to promote SMEs, the choice was made to use it as a location for the present study.
1.3 Scope of Thesis
This thesis would investigate the answers for the following questions.
- Has the presence of Matori SME village brought economic growth and infrastructural development to Matori community?
- Is doing business at SME level profitable in Matori community?
- Are SMEs significant employers of labor in this community?
- Is the Profitability of SME business in this community independent of the nature of goods and services on sale?
- Has the profitability of small businesses in Matori led to increased presence of banks and financial institutions and subsequent increase in SME loans and incentives by the Banks?
- Is the presence of Matori SME village directly linked with increased number of IT based business in the Matori community?
- Is there need for the government to encourage and develop more opportunities for SME level business elsewhere in Lagos State?
- Do my findings support the existing theory in the field?
1.4 Outline of the thesis
This thesis is sectioned into five chapters as shown in Figure 1 below. Chapter one introduces to us the trends in Nigerian economy since independence. Chapter two provides extensive literature on small business from global to the Nigerian economy, their form of organization and current status. Chapter three contains details of the study location, research methodology and findings. Chapter four contains my recommendations and concluding remarks.