Business

Nigerian Journal of Business Education (NIGJBED) Volume 5 No.
2, 2018
THE ROLE OF SMALL AND MEDIUM ENTERPRISES (SMEs)

IN NATIONAL DEVELOPMENT
OGONU, OMONI G. OKEJIM, EVARISTUS M. (Ph.D., FCNA)

Department Of Accounting Education Department of General Studies in Education
Federal College of Education (TECHNICAL), Federal College of Education (TECHNICAL),
Omoku, Rivers State Omoku, Rivers State
omoniogonu@gmail.com okejimem@gmail.com
ABSTRACT
Small and Medium Enterprises can be seen as the fuel and engine of the entrepreneurial spirit and
economic growth/ development of a nation. Hardly can any nation develop devoid of the services and
latent contributions of the SMEs. This paper discussed the roles these SMEs play in the development
of Nigerian economy. The paper looked at the concepts of SMEs and national development,
characteristics of SMEs and indices of national development. The paper also dwelt on the roles of
SMEs being the gamut of the study and observed that SMEs provide an effective means of
stimulating indigenous entrepreneurship, enhancing greater employment opportunities per unit of
capital invested, aiding the development of local technology and so on. Finally, conclusion was
drawn and recommendations made such as government should encourage the establishment and
growth of SMEs in Nigeria by giving them deserved assistance as regards fund raising among
others.
Keywords: SMEs, Economy, Development, Growth.
Introduction
One major characteristic of the Nigerian economic environment is the
dominant influence of Government in the production of goods and services and
employment of labour. For several years, the economy has been heavily driven by
government spending with little private sector entrepreneurship initiative, resulting in
over dependence on the government for labour employment. This largely accounted
for the low-level private sector contribution to overall economic growth (Kanu and
Onwukwe, 2008). The Government collaborating with the private sector can help the
economy to grow thereby improving the standard of life of citizens. A nation cannot
progress with only Government establishment without the efforts of the private sector.
Ogbari (2004) held that the private sector in any economy holds the key to
development and growth because it has the capacity to expand to the point that real
wealth is created and all surplus goods that are produced exported to other lands. The
foundation for achieving this is the establishment and management of Small and
Medium (Scale) Enterprises (SMEs).
The position of SMEs in the society has been identified as one of the most
important catalysts in a nation’s development. In fact, it is the major propeller of
development of any nation. A country that needs fast and rapid development should
not neglect the crucial role of small scale industries in this direction. According to
Umar (2010), tobe a successful participant in today’s globalized system, Nigeria must
evaluate the history and urgently register the lesson and experiences of developed and
economically successful countries of the world, and adopt some or all the processes
involved. Europe was the first continent to discover modern technologies of
Nigerian Journal of Business Education - Volume 5 No.2, 2018 183
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Nigerian Journal of Business Education (NIGJBED) Volume 5 No.2, 2018
sustainable development, and today most ofEuropean countries are members of the
well developed nations of the world. The North Americans later learned and followed
suit with the same results, and today we are witnessing the fast pace of quality
development in several countries classified as “developed”, especially in the South
East Asian continent (Omofonwan, 2012). All these nations made head way through
effective use of small scale industries to kick-start their development programmes. In
these countries, there are strong indigenous manufacturing and commercial base with
high level of skill acquisition. To this, Ogbari (2004) stressed that the backbone of
these nations is small-scale industries on which major foreign firms rely for their
materials and intermediate goals for their production lines.
Concept of Small and Medium Enterprises (SMEs):

The term Small and Medium Enterprises (SMEs) is a confusing concept in the
sense that there has not been a general consensus on what constitutes Small and
Medium Enterprises. It means different things to different people because the word
“small” in this context is not quantified. By this, its definition varies from one person
to another and from one country to the other. However, all the definitions tend to
address a common understanding. Nwaogwugwu and Ugiagbe (2008) stated that no
matter the kind of definition given for small-scale business, the criteria are usually:
a. Size of paid employees
b. Size of capital invested including money, excluding the value of land
c. Sales turnover usually annually
d. Employment of machine power extended to power driven engines and use
e. Combination of any of the above
In Kenya, the term is known as Micro, Small and Medium-sized Enterprises
(MSME).According to their definition, Micro Enterprises are those who have 1 – 10
employees, Small – 10 – 50 and Medium 50 – 100 employees.
In South Africa,their national Small Business Amendment Act 26 of 2003 defined
Micro and SmallEnterprises from different sector perspectives, varying from
manufacturing to retail sectors.For them, micro businesses are those with five or
fewer employees and a turnover of up to R100,000 ZAR; very small businesses
employ between 6 and 20 staff while small business employ 21 – 50 staff with
turnover ranging fromR1m in the Agric sector to R13m in the catering,
Accommodation and other Trade sectors, with the manufacturing sector commanding
a maximum turnover of R32.Their medium sized businesses are those who employ
between 100 – 200 employees with a maximum turnover varying from R5m in the
Agricultural Sector, R51m in the Manufacturing and R64m in the Wholesale Trade,
Commercial Agents and Allied Services Sector.In United Kingdom, a company is
regarded as being an SME if it has a turnover of less than £25m, employing fewer
than 250 people, with a gross asset of less than £12.5m.In Canada, it is defined as one
with fewer than 100 paid employees and a medium-sized business as one with at least
100 and fewer than 500 employees.
In Nigeria, the Central Bank of Nigeria (CBN) in Aginah, Oguguo and
Nwokocha (2013) defined SMEs based on the asset base and number of staff
employed.The criteria are on asset base equal to or less than N5m, and staff strength
equal to or less than 100 employees. The Federal Government Small Scale
IndustryDevelopment Plan of 1980 defined a small scale business in Nigeria as any
manufacturing process or service industry, with a capital not exceeding N150,000.00
in manufacturing and equipment alone.The small-scale industries division of the
Federal Ministry of Commerce and Industry (FMCI) in Nwaogwugwu and Ugiagbe
(2008) defined small-scale industries as establishments with capital investment
totaling N250,000 and staffed with between 50 and 150 employees. This definition
like many others, took cognizance of the size of capital invested and numbers of
employees.
Aginah, Oguguo and Nwokocha (2013) highlighted the following as

characteristics of a small scale business.
a) The number of people/person employed. It is usually a small business, because
small number of people are employed.
b) Low annual business turnover, because initial capital is low, then annual
turnover will also be low.
c) Local operations for most small firms, the area of operation is local. The
employees live in the community in which the business is located.
d) The sales volume is minimal
e) Financial strength is relatively minimal
f) Managers are independent, and they are responsible only to themselves.
g) The managers are usually the owners of the businesses.
h) The owners actually participate in all aspects of the management (i.e. the
management of the enterprise is personalized).
i) They have relatively small market when compared with other industries.
j) The capital is mainly supplied by an individual or small group or
individuals/persons or shareholders.
k) They usually have one, but may have several shop locations all in the same city
or metropolitan areas.
Another characteristic of SMEs is that they are Business which are not likely to
undertake research and development (R&D) due to their low capital outlay.
Concept of National Development

Development is a process of increase in value, size, number or worth.
Ogbondah (2003) stated that development is a process of enabling people to
accomplish things that they could not do before. Development has to do with
realization of some potentials and the maximum utilization of those potentials for the
betterment of man and his environment. National development can be seen as a
situation where a country increases in value by possessing all that it takes to make life
better.
Ogbondah (2003) stressed that national development is primarily the totality
of a nation’s growth vis-à-vis growth in the national income and the material well-
being of the people. But Iziren (1975) described national development as
urbanization, socio-cultural transformation, mass literacy, vertical and horizontal
mobility, employment opportunities and the emergence of specialized and

independent occupational roles. Ojedapo and Ogonu (2010) believed that national
development embraces a number of subjects such as social, economic, cultural,
military, scientific, technological and political fields. National development according
to Anyasodo (2010) is the positive growth of the frontiers of the nation in the
achievement of the nation towards attainment of new heights in various areas
including modern technology, health services, improved educational facilities,
modern military equipment and security.
The term National Development (ND) is very comprehensive. It includes all
aspect of the life of an individual and the nation. It is holistic in approach. It is a
process of reconstruction and development in various dimensions of a nation and
development of individuals in it. It includes full growth and expansion of the nation’s
industries, agriculture, and education, social, religious and cultural institutions.
National development can be referred to as the ability of a country to improve the
social welfare of the people, for example, providing social amenities like quality
education, potable water, transportation, infrastructure, medical care, and full
employment. In fact, it implies development of a nation as a whole.It can be defined
as the all round and balanced development of different aspects and facets of the nation
such as political, economic, social, cultural, scientific and technological. This
definition is as diagrammatized below.
Facets of National Development
The Indices of National Development:

Development is critical and essential to the sustenance and growth of any nation.
A country is classified as developed when it is able to provide qualitative life for her
citizenry. National development is indicated by the following indices:
 Gross Domestic Product (GDP)
 Gross National Product (GNP)
 Gross National Product (GNP) per capita income
 Birth and Death rates
 The Human Development Index (HDI)
 Infant Mortality Rate
 Literacy rate
 Life expectancy

The HDI composed of three indicators. Life expectancy, education (i.e. adult
literacy shown by combined secondary and tertiary school enrolment) and real GDP
per capita. According to Chiedu (2009), development of the nation encapsulates such
parameters as:
a. Development through a planned national economy
iIncrease in agricultural production through application of modern technical
know-how
b. Harnessing industrial production
c. Development of human resources
d. Application of science and technology in production sector
e. Provision of mass education
f. Provision of various facilities to meet the needs and aspirations of
disadvantaged, deprived and poorest of the poor segment population.
The Role of Small Scale Businesses in the Development of Nigerian Economy

SMEs are very important to the growth and development of any nation.In the
developed countries, SMEs are recognized as the main engine for growth and
development because of their significant contributions to economic growth and
development.It is not in doubt that most of the developed countries enjoying a
growing and booming economy attribute most of their achievements to a flourishing
SMEs sector.Due to their numerous numbers, size and nature of operations, the role of
SMEs in promoting indigenous sources of growth and strengthening the infrastructure
for accelerated economic expansion and development has been recognized. Therefore,
SMEs play the following roles in the development of Nigerian nation among others;
a. Employment Generation: “What are the jobs of the future, and where that
come from will” is often the question addressed. The short answer is that no one
knows, but it is certain that small companies and innovation will play a key role
(Nicolescu, 2001). Majority of employment opportunities of any country is in
the area of small and medium enterprises especially in the aspect of middle and
low manpower. An essential attribute of SMEs consists in the fact that they
constitute an important source of jobs. The promotion of SMEs is seen as a
major tool for boosting employment as they employ a larger number of people
per unit of investment capital than the large-scale capital- intensive enterprises.
The costs associated with the creation of jobs in SMEs are reduced when
compared to the ones involved in the creation of jobs in big companies. The
politicians in Latin America, after focusing, for years, on massive investments
and courting multinational companies, began realizing that the SMEs are real
sources of job opportunities (Almeida, 2014). No wonder, Caner (2015) asserted
that SMEs create many jobs. Ugiagbe, Nwaogwugwu and Obuseh (2008),
stressed that it was not a misnomer to emphasis the saying that the small and
medium scale enterprises generate more employment opportunities than large
businesses. They buttressed this by saying that because of the proliferation of
small and medium scale enterprises, they were more able to generate 95% of
employments, while 5% were employed by large scale enterprises. Supporting
the role of SMEs in job creation, Aginah, Oguguo and Nwokocha (2013) stated
that a lot of small retail shops, cottages, restaurants, poultry farms, and
telecommunications/telephone shops have been established and managed
profitably by Nigerians who would have been unemployed till date. The
entrepreneurs have in turn provided jobs for other Nigerians who serve as
supportstafffor them.SMEs generate new employment opportunities and also
serve as the building blocks of the largest corporations in developed
countries.Eru (2014) held that small businesses help to stimulate economic
growth by providing employment opportunities to people who may not be
employable by larger corporations.
b. Production of Entrepreneurs thereby encouraging self-reliance: Through
SMEs, many entrepreneurs (both Local, National and International) have
emerged. Aginah et al (2013) opined that SMEs encourage self employment for
many youths both in the rural and urban areas. They further stressed that the
spirit of successful entrepreneurship has taken over the mind of Nigerians, who
believe in themselves and in the goal of self employment, instead of relying on
government jobs. SMEs tend to attract talents who invent new products or
implement new solutions for existing ideas.
Through SMEs, many successful entrepreneurs have been produced,
who have established their own businesses, ran and managed them successfully.
In this direction, one should not forget people like Dangote, Mike Adenuga, Orji
Kanu and a host of others, and all started from small scale before attaining the
height they are today.
c. Training Ground for Large Scale Business: Small scale businesses serve as a
training ground for the large scale businesses. Their school/training ground
provides the opportunity for the acquisition of skills for large number of
workers. In this respect, they are involved in the establishment of manpower
development support schemes for training and retraining of entrepreneurs and
business promoters. Aginah et al (2013) believed that through the establishment
of manpower development support schemes, and their involvement in the
training and retraining of entrepreneurs, small scale industries have provided a
pool of potential entrepreneurs and business people who are well equipped to
start and successfully manage industries whether small or large, not only in
Nigeria, but overseas.
d. Rural Development: The establishment and operations of SMEs in the rural
areas, has given most of Nigerian communities a face–lift. SMEs have
stimulated rural development and the achievement of a meaningful level of
broad economic, social and political development. Their presenceattracted the
provision of such social amenities like good access road, pipe borne water,
electricity, health care centres, adequate communication facilities such as
telephones and internets to the rural areas. According to Ugiagbe et al (2008),
this would not have been that rapid if not for the small and medium scale
enterprises cited in these areas.Eru(2014) opined that small businesses
contribute to local economies by bringing growth and innovation to the
community in which the businesses are established.

The presence of SMEs in the rural areas has also helped in the reduction
of mass exodus / migration of the rural dwellers to the urban cities. By this,
SMEs have become an effective means of mitigating rural - urban
migration and resource utilization.
e. Industrialization: The role of small scale industries in the development of
indigenous technology cannot be undermined. SMEs have been described as
catalysts for growth and development of any nation. The report of the observer
“Small and Medium Enterprises in Europe 2003” claimed that SMEs serve as
engine of the economic growth. It is based on this that Ugiagbe et al (2008) put
forward that the establishment of small and medium scale enterprises in any
nation facilitates the growth and development of that country, because, it is
believed that this type of business is the engine room of development.
According to Almeida (2004) the specialists agree that the social networks,
formal and informal, are vital to the innovation process in SMEs. Ayozie (2001)
specifically mentioned the role of SMEs in the accelerated industrial
development by enlarging the supply of entrepreneurs and the enlarging of small
and medium enterprise sector, which offers better potentials for employment
generation and wider dispersal of industrial ownership. They facilitate balanced
industrial development in that only such small scale ventures can easily be
established in many rural areas. Therefore, any country that wants to have a
rapid industrial growth should encourage SMEs. By this, it is evidenced that
SMEs have been the backbone, driving force and engine to the economic growth
and industrial development.
f. Mobilization of saving/ Utilization of Idle Resources: The SMEs operating in
the country have the capability of mobilizing domestic savings and absorb the
local resources which would have been lying idle. Aginah et al (2013) held that
SMEs contribution to the mobilization of domestic savings and utilization of
local resources is also a noticeable factor. Ugiagbe et al (2008) corroborated that
the small businesses are suitable for mobilizing savings for production purposes,
which may not be readily available and they are still able to use-up the
resources/raw materials that would have been lying idle.The large scale
businesses also often benefit from SMEs within the same locality, as many large
scale businesses depend on small businesses for the completion of various
business functions through outsourcing.
g. Source of Raw Materials: SMEs help to link other sectors of the economy
especially through the supply of raw materials to the manufacturing sector. For
example, those into agriculture like farmers, fishermen, horticulturists sell their
produce to those in manufacturing / production industries. Aginah et al (2013)
confirmed that they serve as good agents for disposal of industrial products and
some services and have contributed immensely to the production of raw
materials in the form of semi-processed good for use by bigger industries.
Furthermore, the SMEs contribute to the strengthening of linkages by producing
intermediate products for use in the large scale enterprises as the fuel and engine
of entrepreneurial spirit and economic growth of a nation.

h. Development of Local Technology: The small business is able to develop the

local technology by copying foreign technology and adapting to it locally
(Ugiabe et al, 2008). Today many agricultural and other tools are locally
produced such as hoe, cutlass, matchet, shovel and spade. SMEs have become a
base for the development of appropriate technology and a veritable ground for
skilled, unskilled and semi-skilled workers.
i. Less Dependence on Imported Goods: The role of small scale businesses in
the development of Nigeria’s economy has made it very possible for firms to
depend less on imported goods or materials. They often, rather depend on
locally made machinesand local raw materials asinputs. This can be understood
in the work of Oshagbenius (1985) who stated that non dependence of the
economy on imported raw materials has saved the foreign exchange earnings of
the nation. Less dependence on imported goods/materials helps in solving
balance of payment problems which has an attendant blessing of creating an
interest in the promotion of home made products.
j. Income/Revenue Generation: Small scale businesses generate income/revenue
to three distinct bodies of the economy. They generate income in the form of
salary / wages to the employees, profits to the entrepreneur and tax and other
statutory levies to the government. This helps to boost the country’s national
income. In this way small business ventures generate revenues and strengthen
the Nigeria economy. Small industries have a shorter gestation period and as a
result, yield quicker returns on investment (Yewande 1991). Although SMEs
may not generate as much income as large corporations do, but they are critical
components of and major contributions to the strength and growth of local
communities.
Conclusion:
The role of SMEs in the development of Nigeria economy cannot be
underestimated. The extent of growth and development attained by any nation
depends to a very large extent on the viability of the SMEs operations. The SMEs
create employments for the people of the country, provides training ground for
Nigerian entrepreneurs and making acquisition of skills by Nigerian youths and
worker. It is a rural-Urban migration panacea, bringing development and
industrializing the economy. SMEs are a veritable tool to solving balance of payment
problems as a result of less dependence on imported goods. Finally, SMEs contribute
to the linkages by producing raw materials which serves as intermediate products for
use in the large scale industries.
Data from a recent empirical study show that SMEs contribute over 56% of
GDP and over 65% of total employment in low income countries, while they
contribute over 95% of GDP in middle income countries. These also show that the
relative importance of SMEs and the informed sector (shadow economy) are inversely
associated with economic development. In low income countries, especially in the
least developed economies, the contribution of SMEs to employment and GDP is less
than that of the informal sector, where the great majority of the poorest of the poor
make a subsistence level of living.

Recommendations:
The following recommendations are made in the hope that SMEs will continue
to contribute to the growth of the nation.
i. Government should to adequately fund Vocational Technical Education (VTE)
and Entrepreneurship Education in Nigeria, to enable the learners acquire the
required Vocational/Entrepreneurship skills and knowledge needed to run their
own businesses and become self-reliant.
ii. Federal, State and Local Governments should organize seminars, workshops and
conferences on establishment and management of SMEs free of charge to create
awareness and to help SME owners succeed.
iii. Government should revisit tax policies on SMEs by granting them tax freedom
for at least the first five years of operation to enable them stand.
iv. Small scale industries operating in the country should come together as mergers,
pooling their resources together which will enable them withstand competition
and also find it easier to raise money especially from financial institutions.
v. Bank of industries and other financial institutions should improve on their loan
schemes to SMEs by accepting their certificates as collaterals and charging one
digit interest on the loans granted.
vi. Government should encourage establishment and growth of SMEs in Nigeria by
giving than deserved assistance as regardsfund raising, guidance and advisory
services.
vii. Policy thrust to grow successful SMEs has to be given pre-eminence, if long-
term sustainable economic development and transformation of Nigerian
economy is to be realized.

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Ayyagari, Beck & Demirguc-Kint (2003). Low income middle income high income group
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Nigerian Journal of Business Education (NIGJBED) Volume 5 No.

THE ROLE OF SMALL AND MEDIUM ENTERPRISES (SMEs)

OGONU, OMONI G. OKEJIM, EVARISTUS M. (Ph.D., FCNA)

Concept of Small and Medium Enterprises (SMEs):

Aginah, Oguguo and Nwokocha (2013) highlighted the following as

Concept of National Development

mobility, employment opportunities and the emergence of specialized and

Facets of National Development

The Indices of National Development:

Nigerian Journal of Business Education - Volume 5 No.2, 2018 186

The Role of Small Scale Businesses in the Development of Nigerian Economy

Nigerian Journal of Business Education - Volume 5 No.2, 2018 188

Nigerian Journal of Business Education - Volume 5 No.2, 2018 189

h. Development of Local Technology: The small business is able to develop the

Nigerian Journal of Business Education - Volume 5 No.2, 2018 190

Nigerian Journal of Business Education - Volume 5 No.2, 2018 191

Nigerian Journal of Business Education - Volume 5 No.2, 2018 192

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