CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF STUDY

The development of any country on how far its income generating sectors can increase its capacity and its contributions to the generate output can only be answered through the industrial sector which seems to be the most dynamic sector from the economist point of view because of its ability to increase capacity almost to an infinite position and also because of its outputs usually a total creation of value. Therefore most countries focus on the growth and development of their industries to enhance fast economic development (Udeh, 2004).

Although, development of large scale industries, large manufacturing outfits and big conglomerates may be contributing immensely to the industrialization and growth of the economy, small and medium scale enterprises play he most paramount role in essence, the national development is a function of small scale industries performance. in the past few decades, small and medium scale enterprises (SMES) have played important roles in the development economics and proved to be one of the most visible sectors with economic growth potential (Shenton, 2001)

The successes recorded by these countries were because of serious consideration of the future rewards from sustained investment in this sectors. Due to their sizes and scope of operations these enterprises requires relatively small capital investment to start, there by offering a relatively high labour to capital ration. They also demand low technology and management skill, which are readily available within the society.

The extent to which the opportunities offered by SMEs are exploited and their contribution maximized enabling environment created through the provisions of pre-requist infrastructural facilities. These include good road networks, telecommunication, adequate and efficient power supply ports etc. and the introduction and pursuit of policies such as concessionary financing that encourage and strengthen the growth of SMEs. Small scale industries have such a crucial role to play in the development of an economy that they cannot be ignored.

In fact small and medium scale enterprises development should form one of the country’s development objectives. They can serve as sources of inputs for the multinationals there by replacing existing foreign source. They are also training grounds for local skill and entrepreneurs, could become channels for mobilizing local, savings and ensuring a more equitable distribution of manpower from the rural to urban areas (Udeh, 2004).

Across the word, SMEs, are crucial for economic growth, poverty alleviation, wealth acration and the promotion of more pluralistic societies.

Additionally and as expected, all the above vision and importance of SMEs cannot be fully realize and achieved without the financial institution. The expectation of the banking industry in the development and performance of small and medium scale sectors to enable entrepreneur in the sector acquires tested and modern knowledge necessary and not only that, but for research purpose.

The success of SMEs sectors will, therefore, depends on the co-operation and inter-relationship between the two sectors of the economy.

Without doubt, it is generally recognized development this act as catalysts in any development country’s quest to join the league of advanced and industrialized nations. The ability of small scale enterprises to initiate a nation to the vanguard of industrialization is proved by the fact that it was the major instrument of development of the Asian tigers (Singapore, south Korea, Taiwan, China, Malaysia, the Philippines and Indonesia) and their ability to hawness the potentials of their small and medium scale enterprises, put them on the right footing in their pursuit of a self reliant industry and a developed economy.

Today, SMEs, represent about 90 percent of the industrial sector in terms of number of enterprises (FOS, 1998), however, they contribute a meager 2 percent of GDP. This is insignificance when compared to countries like Indonesia, Thailand and India where SMEs contribute almost 40 percent of GDP, whilst SMEs are an important part country, of the business scenery in any country; they are faced with significant challengers that compromise their ability to function and to contribute optimally to the economy.

1.2   Statement of the Problem

The Nigeria economy has been progressing as expected, the unemployment rate is so high that it is believed that 3 out of 5 graduates are likely to be jobless in the first 5 years of their graduation, inflation is galloping as prices double almost daily, poverty rate reached a chronic state where countries in the world and general welfare is dilapidating, mortality rate is increasing across the year basically due, to poor infrastructure and social amenities. To slove these problems, there is a need to investigate which sector has the highest potential to contribute positively to the economy, and most importantly to the grassroots.

Although, theory may back enormous contributions of small and medium scale enterprises to economic development, there is need to investigate if that is the case in Nigeria. It is obvious that if the available SMEs, in Nigeria were not faced with certain problems of infrastructure, funding, raw material sourcing, foreign dumping amongst other.

It is however, in the light of the above problems that this research study is initiated to investigate the problems, the extent of their hindrance to growth of the sector and their possible solution.

1.3   Research Questions

At the completion of this research work the following question must have been answered.

1.  To what extent does the small and medium scale enterprise in Nigeria contribute to national output and economic development in general?

2.  To what extent has the SME’s, being able to alleviate the unemployment problem in Nigeria?

3.  Does SMEs in Nigeria really consume more of domestic inputs as against imported raw material?

4.  What role does commercial bank performance in improving the performance of SMEs towards economic development?

1.4      Objective of the study

In the light of the important roles performance of the small and medium scale enterprises in the country’s economic development coupled with the roles played by the commercial banks in solving the numerous problems believed to have overwhelmed the SMEs in Nigeria.

The primary focus of this study is aimed at understanding the economy, other objectives include:

1.  To analyze the contribution of the small scale industries to the economic development of Nigeria with reference to employment generation, gross domestic product (GDP), utilization of local raw materials and development of local technology. The study further examined the relationship between domestic input and capacity utilization.

2.  To discuss the performance of the small scale enterprises to the entire industrial sector.

3.  To examine the relative effectiveness of commercial banks on SMEs performance

4.  To identify factors (including financial, commercial, technical, managerial and regulation) that promotes or stunts the effective performance of the small  scale industries

5.  To investigate whether a linkage exits between economic development and the SMEs.

6.  To make recommendation where government policies could draw from and on which possible forecasting on future researches can be based upon.

1.5      Research Hypothesis

The hypotheses for this study will be hypothesis one:

Ho: SMEs contribute nothing to the economic growth and development of Nigeria.

Hi: SMEs contribute to the economic growth and development of Nigeria.

Hypotheses two

Ho: there is no relative effectiveness of commercial banks on SMEs performance

Hi: there is a relative effectiveness of commercial banks on SMEs performance

1.6   Significance of the Study

The study of small and medium scale enterprises as a sub-sector of the industrial sector at large, is very essential and important considering the role being play by the commercial banks and because of the enormous advantages that the economy can gain from the contribution of this sector.

Also, this study is signified on the ground that it will foster the confidence of the investors to focus their attention towards the development of the sector.

In addition it will be an eye opener to both the shareholders and management of organization, the important of this sector towards the important.

Specifically, the importance of studying the performance of the industry making small and medium scale enterprises the basic focus in Nigeria is as a result of the growing awareness of the country’s government on the importance of this sector and the current bid to improve it’s contribution and enhance it’s performance.

Lastly, the research study is signified in that it will contribute to the frontier of knowledge especially in research and development (R&D)and it will be of a reference point to those researchers who may be desiring to carry out a similar research on the topic

1.7      Scope of the Study

The study focuses on the small and medium scale industries in the Nigeria economy, which is used to measure the industrial sector at large. It centers on the evolution and management of the small and medium scale industries performance and the crucial role played by commercial development.

The study will generally cover the roll of commercial banks on the performance of small and medium scale  enterprises.

1.8      Limitation of the Study

The effects of economic bottleneck and social infrastructure on the performance of the small and medium scale industries are identified so as not to underline their real contribution to economy in both economic and industrial development terms.

Since most small scale industries, are owned by private individuals, they usually feel reluctant or refuse to make their data public hence it may be difficult to get a well rounded conclusion.

This research study is also projected to be limited by time and cost constraint.

1.9      Operational Definition of Terms

1.  Small scale enterprises or industries:

Any enterprises with a minimum assets base of N200 million excluding the land and working capital and with the number of staff employed not less than 10 or more than 300 (SMIE 15, 2003).

2.  Commercial banks

Banks are financial firms or division of larger firms that accepted deposit subject to withdrawer on demand and invest part of these deposits in interest bearing loans and investments. They are profit making, banks organized on a joint stock basis, that is the purpose of their establishments to make profits for their owners the shareholders

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