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Chapter one


1.0 Background of the Study

The expansion of small and medium-sized businesses in any economy is often recognised as a stimulant for the development of the country’s industrial sector. Small and medium-sized businesses play an important role in supporting the social and economic well-being of the nation.

This is because this sub-sector is a practical way to exploit locally accessible resources. It is also a sustainable technique of ensuring food security, creating jobs, increasing people’s earning potential, and setting the groundwork for a long-term development project.

According to Ojodu (2002), in “reinventing Nigeria’s economy,” the encouragement of small-scale businesses is a well-known and much-heralded industrial development approach in both developed and developing countries, as is its potential to improve entrepreneurial and managerial abilities.

In advanced economies such as the United States, Japan, Germany, and the United Kingdom, small and medium-sized firms have been recognised as acceptable production units for the transformation of locally produced agricultural and other products that serve as inputs for large-scale industries.

Development economists believe that labor-intensive industries, such as SMEs, can boost employment, advance development, and achieve development goals such as improved income distribution, the generation and diffusion of technology and industrial skills, increased utilisation of local resources, improved spatial distribution of industrial activities, and a reduction in rural-urban population drift.

In a depressed economy like Nigeria, effective and efficient operation of small and medium-sized firms, as well as the creation of a favourable operating environment, is the only way to achieve industrial development.

In 1979, the Central Bank of Nigeria (CBN) defined small-scale firms as those with an annual revenue of less than five hundred thousand naira (N500,000).

Furthermore, the CBN briefs (2002-2003) edition defines a small and medium industry as any firm with a maximum asset base of two hundred million naira (N200m), excluding land and working capital, and with a staff of at least 10 and no more than 300.

Given the operational effectiveness of Eddision Aluminium Company, an organisation that produces aluminium and other associated components, it is appropriate to do research on the role of small and medium-sized firms (SMEs) in an economy.

It is worth noting that the Federal Government of Nigeria has taken various steps to encourage indigenous entrepreneurship in small and medium-sized firms.


2.6 Statement of the Problem

Small and medium-sized businesses have long been recognised as the foundation of every economy’s industrial sector. However, despite the contributions made by this sector in Nigeria, SMEs continue to confront challenges, as seen by the operations of Eddision Aluminium Company in Apapa.

Oresptu (1985), offering his perspective in a subheading headed “Limitations and shortfalls of small scale businesses in Nigeria,” listed the primary challenges of small-scale industries as financial, organisation, and technological.

The financial problem stems from the inability to raise funds from an organization’s capital market, such as the stock exchange. Borrowing from financial entities like banks is quite tough. This is the grave situation confronting Eddison Aluminium Company, Apapa.

As Samuel Taylor Coleridge stated in an ancient marine rhyme, “water, water everywhere, but not a drop to drink,” this is the case for the majority of small and medium-sized businesses in Nigeria.

Today, there are several banks and financial houses throughout Nigeria’s major cities and commercial hubs, but there is no fund for SMEs.

Furthermore, management issues pose the greatest danger to SMEs such as edition Aluminium Company, Apapa. These issues manifest as bad record-keeping, poor credit management, poor inventory control, poor working capital and raw material budgeting, and poor marketing/scale management.

A small industry cannot afford to hire and/or keep highly skilled staff for a variety of reasons, including financial constraints. This is largely responsible for the industry’s inefficient operations, of which Eddision Aluminium Company is not an exception. The scenario described above impedes the success of Nigerian SMEs.


Why study the role of small and medium-sized enterprises in an economy?

Small and medium-sized firms have been identified as the foundation for achieving increased economic growth and development. The study’s precise goal includes the following:

Ø Assessing the role of SMEs in Nigeria’s economy.

Ø Assess the positive and negative impact of SMEs on the economy.

The purpose of this study is to analyse Eddision Aluminium Company’s impact on the Nigerian manufacturing industry.

Ø To analyse the challenges and opportunities for small and medium-sized businesses in Lagos.

Ø Evaluate government efforts to promote SMEs.

Ø Provide suggestions for improving the fortunes of Nigerian SMEs.

2.8 Statement of Research Questions

· How have SMEs contributed to Nigeria’s economic development?

· What opportunities exist for SMEs in Nigeria?

· How have different levels of governance impacted the country?

· What are the challenges for small and medium-sized businesses in Nigeria?

· What prospects do SMEs have for accomplishing their goals?

2.9 Statement of Research Hypothesis

Ho: Small and medium-sized firms play no significant significance in the Nigerian economy.

H1: Small and medium-sized firms play an important role in the Nigerian economy.

H0: There is no hope for the survival of SMEs in Nigeria.

H1: These are the prospects for the survival of SMEs in Nigeria.

1.6 Significance of the Study

Small and medium-sized enterprises play an important role in the creation of new job opportunities and the development of entrepreneurial skills. The importance of SMEs can never be overstated, particularly in a developing country like Nigeria.

SMEs are largely intended to provide as a source of bright entrepreneurs willing to take risks in the pursuit of innovative ideas or advantageous market development. SME’s create more jobs.

In most developing economies, unemployment poses the greatest impediment to economic progress. As a result, the growth of SMEs and development may be able to combat widespread unemployment in these economies.

Other areas where SMEs play an important role include mobilising local resources, mitigating rural-urban migration, and dispersion of industrial firms. Thus, SMEs will not only support indigenous technology, but also the formation of import substitution businesses.

They are recognised to contribute to the gross domestic product (GDP) and provide a means of livelihood for many inhabitants.

Finally, they are projected to manufacture for export, producing more foreign cash that will boost Nigeria’s balance of payments position.

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