THE IMPACT OF MACROECONOMICS POLICY ON THE GROWTH AND DEVELOPMENT OF SMALL SCALE BUSINESS IN NIGERIA

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CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY

In today’s modern world, Small and Medium scale Enterprises (SMEs) is one of the most authentic drivers of sustainable development, especially in the emerging economies. Historical evidence of SMEs as tool of economic development can be observed in the 19th century Europe, when the continent’s economy is absolutely under the control of cottage industries, most which were actually SMEs (Onwukwe, 2002). The status quo only changed during the industrial revolution and consequent introduction of mass production. But the mass production model was undermined by the twin oil shocks of the 1970s, which prompted an unanticipated reappraisal of the important roles of SMEs in the global economy (Onwukwe, 2002). Most empirical studies conducted over the years revealed that SMEs are crucial for the socio-economic growth and development of every country. For instance, Oboh (2003) observes that the development of SMEs was instrumental to the economic boom of the American nation between the 1970s and 1980s. Similarly, the Indian’s Gross Domestic Product (GDP) witnessed consistent growth and economic transformation in the 20th and 21st century and this development was attributed to the success of the country’s SMEs programme (Oboh, 2003; APEC, 2002).

 

Currently, there are many issues confronting the Nigerian economy and these include abject poverty and unemployment. According to Onwukwe and Ifeanacho (2011), these issues are partly caused by the country’s failure to ensure proper implementation of sustainable development programmes. Obviously, the lack of recognition for such sustainable development programmes, especially those that are capable of enhancing SMEs’ growth, is responsible for the current economic state of our country. The situation is further compounded by the government’s attitude of indifference and apathy, which contributes directly to the current dire situation of the country’s economy. According to Onwukwe (2002), the progressive decline in the average Nigerian’s per-capita income has forced more than 50% of the country’s population to find themselves below poverty line. It is sad to note that despite the 100% increase in Global wealth; almost 50% of the global population still lives on $2 per day (Onwukwe and Ifeanacho, 2011). Of course, Nigeria like most other developing countries falls under this category. Consequently, Nigeria failed to achieve the first target of the Millenium Development Goals (MDGs), which is to ensure a 50% reduction of poverty by 2015.

 

As pointed out by Onwukwe and Ifeanacho (2011), the fight for poverty alleviation in Nigeria and other African’s country is grossly inadequate. According to the authors, despite its abundant natural resources, Nigeria remains in

 

the list of the poorest countries of the world. The 2004 annual report published by the Central Bank of Nigeria revealed a declining performance of the country’s economy. Over the years, the country’s domestic economy witness excessive monetary expansion, which has resulted to high demand pressure on foreign exchange. The next result of this trend is a consistent depreciation of the country’s official currency in all segments of the market. The economy is largely characterized by persistent structural bottleneck, which has in turn frustrated every attempt on quick economic recovery. The country’s economic woe is further compounded by high number of unemployed university graduates. Actually, the country’s depressed economy is largely responsible for such high level of unemployment and poverty in the country. Unfortunately, both poverty and unemployment are major issues that militate against the country’s quest to attain sustainable development, global stability, environmental security and a real global market.

 

Unarguably, economic growth is essential for poverty alleviation. However, in order to obtain the best possible result, it is very imperative for such growth to be highly inclusive and available to majority of the people. One of the most notable ways of accomplishing such objective is by enhancing the sustainability and performance of SMEs and local entrepreneurs. In developing countries, Nigeria inclusive, SMEs form the foundation of economic activity. Thus, they are instrumental in triggering economic growth of any country. Nigerian governments have always recognized the importance of SMEs for economic growth of the country. This explains why new approach to the development of SME began to emerge in the country starting from the mid 1960s.

 

There are specific factors that have triggered increased interest in the development of SMEs. Ekpenyong and Nyong (1992) identified one of such factors as rising concern over low employment elasticity of modern large- scale production. The authors observe that in Nigeria, modern large scale production has failed to accommodate a considerable percentage of the Nigeria growing labour force. Even the introduction of optimal policies has not been able to reverse this trend. The second factor was the widespread recognition of the fact that economic growths were not being fairly distributed. The unequal distribution of such economic growth has always been blamed on the use of large scale, capital-intensive techniques. Additionally, Onwukwe and Ifeanacho (2011) note that the country’s import substitution industrialization strategies have had little impact on sustainable development, as the bigger and multinational corporations are not compatible with the relative factor of endowments for developing countries like Nigeria. The third factor, which has also been supported by empirical studies, is the fact that unemployment is not solely responsible for the poverty as many poor individuals are already employed in various small-scale low productivity activities. Thus, increasing productivity of those that are involved in small-scale production has been identified as one of the effective strategies for achieving poverty alleviation (Ekpenyong & Nyong, 1992).

 

In most parts of the world, exceptional initiatives for the promotion of SMEs have been formulated and consequently implemented. Onwukwe and Ifeanacho (2011) observe that these initiatives, which are applicable in both developed and developing countries, are primarily designed for the reduction of youth unemployment. Many of such initiatives strive to accomplish this important objective through the introduction of relevant training, education and other complementary measures. Additional objectives of such initiatives include promotion of self employment; transformation and development of the rural areas; the need to minimize the national dependence on foreign enterprise and imported goods; the need to diversify the economy; the need to proffer help to the minorities and subsequently establish an enterprise culture (Rao, Wright and Mukherjeo, 1990).

 

The Nigerian government has exhibited great interest in the facilitation of the development of SMEs, which it has always been recognized as being essential in the quest to minimize poverty and unemployment in the country. Consequently, the country has established a number of specialized financial institutions, whose primary objective is to take charge of policy instruments and micro credit, necessary for enhancing the development of small scale enterprises. Examples of such financial institutions include: National Economic and Reconstruction Fund (NERFUND), Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB), National Economic and Reconstruction Fund (NERFUND), and the Microfinance Institutions (MFIs). Furthermore, the government also introduced some policy oriented institutions that are tasked with the provision of technical and financial support for SMEs. Some of these include: Small and Medium Enterprise Equity Investment Scheme (SMEEIS), National Association of Small Scale Industries (NASSI), Entrepreneurship Development Policy (EDP) and Small and Medium Enterprise Development Agency (SMEDA).

Thus, throughout its existence as a sovereign country, Nigeria has formulated a number of policies and frameworks for the facilitation of the performance and subsequent growth of SMEs. Unfortunately, these policies

 

and frameworks appear to have been largely implemented poorly. Without sound policy formulation and implementation, Nigeria will find it extremely difficult to compete at international level and consequently attain the enviable level of leading global economies. This is probably one of the major reasons, why SMEs in the country have failed to have any substantial positive impacts on the sustainable development of the country

We can define Macroeconomics as the economy in terms of the total amount of goods and services produced, total income earned the level of employment of productive resources, and the general behaviour of prices.

It is also the study of economics in terms of the whole systems, especially with reference to general levels of output and income and to the interrelations among sectors within the economy. !

In the field of economics that studies the behaviour of the aggregate economy, Macroeconomics examines economy wide phenomena such as changes in Unemployment, National Income, Rate of Growth, Gross Domestic Product, Inflation and Price Levels.

In order to try to avoid major economics shocks, such as the great depression, governments make adjustments through policy changes which hope will succeed in stabilizing the economy.

 

Government believes that the successes of these adjustments are necessary to maintain stability and continue growth. This economic management is achieved through, two types of strategies monetary fiscal policy.

 

Macroeconomics policy refers to the instruments by which a government tries to regulate or modify the economic affairs of the count in keeping  with certain objectives. In order words, it attempts to assess the behaviour of the economy as a whole and to seek ways in which it aggregate performance might be improved. These are achieved through certain instrument and objectives of macroeconomic policy.

Small scale industries are the most dependable source of growth and sustainers of the National economic development all over the world. The small scale industries are the major employers of labour than the major industries.

The fall scale sector has played a very important role in the socio­economic development of the country during the past 50 years. It has significantly contributed to the overall growth in team of the Gross Domestic Product (GDP), employment generation and exports, The performance of small scale sector, therefore, has a direct impact on the growth of the overall economy.

On realizing the importance of small scale industries, the organized private sector agitates for government promotion of the sector in order to reposition the nation’s economy.

 

Global efforts has been made by the Central Bank, Federal Ministry of Finance and other financial institutions for the need to promote the small scale Industry in Nigeria as a means of economic growth. But a lot of factors have been a barrier to the growing of the small scale industries in Nigeria.

1.2    STATEMENT OF THE PROBLEM

According to Stephen, 1997, to judge government record, we must obviously look at the economic outcome. The problems are not usually present outcomes but the outcome of past regimes. Some questions that will be looked into in this work are:

v To what extent has Nigeria macroeconomic policy and government schemes imparted small scales industry !

v Has it been done outright or rather relegated to insignificance?

 

1.3   OBJECTIVE OF THE STUDY

The rr1ain purpose of this study is to investigate the impact of macroeconomics policy on the growth and development of small scale business in Nigeria.

The specific objectives are

.

  • To review macro-economics policies and programmes of the government toward financing of micro, small and medium enterprises investment in Nigerian
  • To Ascertain the importance of macro-economic policies to SMES investment in Nigeria
  • To find out the problem encountered by SMES financing in Nigeria
  • To find how to access to those policies and programmes

 

1.4    RESEARCH QUESTION

  • What are the macro-economics policies and programmes of the government toward financing of micro, small and medium enterprises investment in Nigerian?
  • What are the importance of macro-economic policies to SMES investment in Nigeria?
  • What are the problem encountered by SMES financing in Nigeria?
  • How do SMES access those policies and programmes?
  • Get Full Work -N4000
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  • This topic contains:
  • Chapter 1-5
  • Abstract
  • References
  • Appendix/If applicable