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Chapter one


1.2 Background to the Study

The importance of small and medium-sized businesses in Nigeria’s economic growth cannot be overstated, since entrepreneurship is a critical accelerator for the country’s overall economy.

Small and medium-sized enterprises (SMEs) have and continue to play important roles in the growth, development, and industrialization of many economies across the world.

In Nigeria, SMEs have performed below expectations due to a variety of issues ranging from SMEs’ attitudes and habits to environmental conditions, government instability, and frequent policy changes and somersaults (Suleiman, 2005).

According to Obadan (1997), the top ten problem areas for SMEs in Nigeria, in decreasing order of intensity, are management, access to finance, infrastructure, government policy inconsistencies and bureaucracy, environmental factors, multiple taxes and levies, access to modern technology, unfair competition, marketing problems, and the lack of raw materials available locally.

Thus, managerial challenges are the most serious issue confronting SMEs in Nigeria, whereas a lack of raw materials locally is the least serious.

Interest in the role of small and medium-sized firms in development remains at the forefront of policy debates in developing nations (Olorunshola, 2003). The advantages claimed for small scale enterprises are various, including: the encouragement of entrepreneurship;

the greater likelihood that small scale enterprises will use labor-intensive technologies and thus have an immediate impact on employment generation; they can usually be established quickly and put into operation to produce quick returns;

small scale enterprise development can encourage the process of both inter- and intra-regional decentralisation; and More broadly, the growth of small and medium-sized businesses is viewed as hastening the fulfilment of larger economic and socioeconomic goals, such as poverty alleviation.

Finance has been identified as a vital component in the development of small and medium-sized industries. Previous research has emphasised small businesses’ limited access to financial resources when compared to large organisations, as well as the implications for their growth and development (Uduchukwu, 2003).

Small businesses typically incur higher transaction costs when getting financing than large businesses (Olorunshola, 2003). Poor management and accounting practices have limited small businesses’ ability to raise capital.

Information asymmetries linked with financing to small-scale borrowers have hampered the flow of capital to small businesses. Despite these claims, some research demonstrate that a high percentage of small businesses fail for non-financial reasons.

1.2 Statement of Problems

The problem statement in this study investigation is to assess the obstacles faced by small and medium-sized businesses in Nigeria and their impact on economic growth. In general, many good company concepts have been destroyed in Nigeria due to a lack of development in entrepreneurship and small business.

Market Trends: Identifying and addressing market gaps is a big growth factor. Nigerian SMEs’ ability to discover market gaps has long been questioned.

Furthermore, it is a method of finding a gap in these industries’ correct assessment of market potential and dynamics, which is required for a proper value proposition and will assist them in avoiding poor investment decisions.

Failure to plan for future market trends, a lack of resourceful research, and other areas where small-scale businesses lag behind in production.

A lack of proper expertise may cause a business manager to miss out on a potential business opportunity, as well as the possibility to tap into other fields or markets to increase profits.

Political instability discourages investors from investing in the economy, and even if they do, they may decide to exit owing to the current unfavourable economic climate.

Inadequate managerial skills: Due to a shortage of cash or a complete ignorance of technical changes, entrepreneurs tend to purchase outmoded and inefficient equipment from the outset, resulting in reduced production and poor product quality.

It all has a major impact on product output and market acceptance. The main ones include insufficient infrastructure (roads, water, power, etc.), insecurity of life and property, and inconsistent monetary, fiscal, and industrial policies.

Limited market access, many taxes and levies, a lack of current technology for processing and reserving items, legislative reversals, capacity constraints, data insufficiencies, a difficult operating environment, a fragile ownership basis, and a fragile capital foundation.

While some of the issues that SMEs confront are caused by the operating environment (government regulations, globalisation effects, financial institutions, local government policies, attitude towards work), others are driven by the fundamental characteristics of the SMEs themselves.


The study’s primary goal is to examine the issues confronting small and medium-sized businesses in Nigeria and their impact on economic growth.

In doing so, the researcher seeks to provide detailed information and analysis on the operations and activities of Eugene De Rose Industry and Vono Product Plc. In light of the preceding, the researcher seeks to find out the following:

(i) Evaluate the contribution of small and medium-sized firms to Nigeria’s economic growth.

(ii) Examine the manner of operation of the firms in terms of economic growth.

(iii) Identify the primary restrictions impeding the enterprise’s operations.

(iv) To give suggestions on how to improve the performance of small and medium-sized enterprises.


This study is guided by the following research questions:

(i) How effectively have small and medium-sized firms contributed to the growth of the Nigerian economy?

(ii) What is the mode of operations used by the firms.

(iii) What are the key obstacles to the activities of Nigeria’s small and medium-sized enterprises?

(iv) How can the performance of small and medium-sized firms be improved?

1.5 Statement of Hypothesis

The hypothesis that will be examined throughout the investigation is as follows:

Ho: There is no significant association between SMEs and Nigeria’s economic growth.

Hi: There is a considerable association between SMEs and Nigeria’s economic growth.

1.6 Significance of the Study

The purpose of this study is to illustrate that small and medium-sized businesses play an important part in the growth of the Nigerian economy and the success of organisations. Apart from small and medium businesses, has an impact on organisational success.

According to Hoselitz (2002), firms’ perceived self-efficiency has been shown to influence their business strategy and performance. It also led to the formation of new national organisations.

Vital decision-making organisations are totally dependent on the various behaviours of the entrepreneurs in such organisations. It also influences and determines how the organisational goals are achieved. In conclusion, the performance of small and medium-sized enterprises determines a country’s growth rate.

1.7 Scope of the Study

The study’s scope includes the issues faced by small and medium-sized businesses and Nigeria’s economic growth, with Eugene De Rose Industry and Vono Products Plc as case studies. However, the employees of both organisations would be covered. The scope would also include the period 1999-2010.

1.8 Limitations of the Study

This study, like any other research project, will be constrained by time, which is the biggest adversary of the human race. As a result, it will be impossible to do extensive research on the subject. It also results in an insufficiently deep investigation of the topic.

Finance; due to the capital outlay required for any research and the limited supply of cash, this is also a limitation.

Material availability; it is well acknowledged that the availability of secondary data is critical to most research projects. Because such materials are insufficient for this investigation, I must rely on existing literature from the libraries I visited.

Other noted restrictions include financial participation, market trends, political instability, respondents’ inaccessibility, a lack of basic statistics, and so on.

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