ABSTRACT

This study examined the impact of small and medium enterprises on the economic development of Nigeria. The
study set out to among other things ascertain the roles of small and medium enterprise on the economic development
of Nigeria and identify the problem affecting the growth of SMEs in Nigeria. The study also reviewed relevant
literature to ascertain the state of current knowledge in the areas of small and medium scale enterprises and
economic development. To provide a theoretical base, the study was anchored on Firm Size-Based Theory of
Innovation Pattern in Entrepreneurship Study. In order to achieve the stated objectives of the study, secondary time
series data were obtained from publications of the Central Bank of Nigeria (CBN). The data collected were fitted to
a simple linear regression model specified for the study, and employing the technique of ordinary least square
(OLS), the model was estimated. The data obtained were also applied to test the stated hypotheses. Subsequently,
the results from the regression analysis are presented and interpreted. From the interpretation of results, we found
that there is a positive relationship between economic development (proxied by GDP) and small and medium scale
enterprises (proxied by manufacturing value added by SMEs (SMV)). Also, the test of hypothesis confirmed that
there is a significant relationship between Small and Medium scale Enterprises and economic development. Thus,
we concluded that the SMEs sector is a fundamental and critical sector that can immensely contribute to the
development of the Nigerian economy. Finally, we recommended that the government should offer incentives that
foster rapid growth and development of the SMEs sector.

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

Small and Medium Enterprises (SMEs) have assumed a central place in development policy in the contemporary
world as nations attempt to nurture them as away to grapple with epileptic growth, unemployment and poverty in the
era of new liberal economic management (Brown, 2003).
A lot has been said and written about SMEs the world over. It has also formed a subject of discussion in so many
seminars and workshop both locally and internationally. In the same token, government at various levels (locally
and federal) have in on e way or the other focused on the small and medium enterprises, while some government
have formulated policies aimed at facilitating and empowering the growth and development and performance of the
SMEs others had focused on assisting the SMEs to grow through soft loans and other fiscal incentive.
SMEs represent a veritable vehicle for the achievement of National economic objectives of employment generation
and poverty reduction at a low investment cost as well as the development of the entrepreneur’s capabilities
including indigenous technology.
Small and medium enterprises (SMEs) occupy a place of pride on virtually every country or state because of their
significant roles in developing and growing various economies. SMEs have aptly been referred to as the engine of
growth and catalyst for socio-economic transformation of any country. Other intrinsic benefit of vibrant SMEs
includes access to infrastructural facilities occasioned by the existence of such SMEs in their surrounding, the
stimulation of economic activities such as supplies of various items and distributive trades for items produced and
needed by SMEs, stemming from rural urban Immigration, enhancement of standard of living of the employee of the
SMEs and their as well who are directly or indirectly associated with them.
In Nigeria, successive administration over the years accepted the need for government to provide an enabling
environment supportive of the development of small –scale enterprises given its role in economic growth and
industrialization in both developed and developing economics.
Accordingly, government has taken a number of fundamental and deliberate initiatives to promote the development
of the private sector and in particular the small scale and medium enterprise for instance, government has come up
with an economics policy such as National Empowerment Development Strategy (NEEDS) is geared towards
stability and growth and development.
The Nigerian Investment Promotion Commission (NIPC) was restricted and re-engineered to be more pro-private
sector drawn, indeed; equally important is the establishment of the small and medium scale enterprises developing
agency of Nigeria (SMEDAN) in 2003 which is expected to policy direction to the sector.
In United States of America (USA), small scale enterprises contributed significantly to her transition from the
industrial age to her post industrial information technology era.
In other countries, small scale enterprises have provided the mechanism for stimulating National entrepreneurship,
increasing employment opportunities per unit capital and aiding the development of the local technology (World
Bank 2005). Due to the wide dispersal of small scale enterprises nationwide, they serve as a check of measuring
against rural-urban drift and contribution to more equitable distribution of income among individual states and
region. I
n addition, small medium enterprises help to mobilize savings of investment and promote the use of local raw
material as well as strengthening the linkage of industrial sector with either sectors of Nigerian economic through
the production of raw material, spare and machinery.
1.2Statement of the Problem
Given the structure of the industrial sector, it is clear that small and medium enterprises held greatest prospect for
income generation and employment for the majority of Nigerians. Government concern with the development of
SMEs was prompted by the critical role they played more so, the failures of either developmental policies (such as
import substitution and industrialization) to booster the country to the required level; of advancement, forced
government to re-focus its policies to look inward. Meanwhile, government involvement in this sector is mainly in
terms of favorable policy formulation and establishment of support institutions.
In spite of government concerned attempt and effort, the sub-sector hasn’t actually developed, to meet the emerging
challenge from the economy, as it is expected to foster industrial development in the country mainly due to the
inability of the local entrepreneurs to take advantage of the opportunities provided and some other inherent problem
of the macroeconomic environment of the recent past. These study therefore aim at providing answers to the
following research questions:
a. What is the small and median enterprise (SMEs)?
b. What are the contributions of (SMEs) to the growth of Nigeria economy?
c. What are the major constraint affecting (SMEs) in Nigeria?
d. In what way can we improve the performance of small and medium enterprises to contribute significantly to the
economic growth of Nigeria?
1.3 Objectives of the Study
The main objective of this study is to examine the impact of small and medium enterprises on the economic
development of Nigeria. Specifically the study will assess the following:
a. Evaluate the roles of small and medium enterprise on the economic development of Nigeria.
b. Identify the problem affecting the growth of SMEs in Nigeria.
c. Proffer solution to the problem identified.
1.4Research Hypothesis
The hypothesis supporting the theoretical posture of this work is based on null (HO) hypothesis and alternative
hypothesis (H1).
HO:Small and medium scale enterprises are not significant in development of Nigerian economy.
1.5Significance of the Study
The significant of the study is obvious. First and foremost, this work will avail policy makers the opportunity to
have access to the relevant information concerning small and medium enterprises in Nigeria with a view to
formulating policies that will enhance the effective performance of the sector.
Secondly, potential investors particularly foreign one will get to know about the investment environment in Nigerian
through this research work. Thirdly, members of the public will benefit tremendously from the work because this
work will enable them to know much about problem, prospect and opportunities available in this sector.
Fourthly, student of economics and other related discipline, lectures in economic department and other professionals
will also benefit from the work as it will serve as a reference material for them.
More importantly, this research work serves as a researchers’ contribution to the body of knowledge in this area.
1.6Scope and Limitations of the Study
The work is limited to the impact of small and medium enterprises (SMEs) on the economic development of Nigeria
and the period of study chosen or covered is (2000-2012). Financial and time constraints are some of the problem
the researcher encountered and did not allow for the quick completion of the study.
The study used some data that are provisional, i.e. there is the tendency for these data to change when the
substantive ones are ready. Besides, the latter years 2013/2014 are not covered due to non availability of data.
Also, a study of this magnitude should have been undertaken for a considerable length of time, but the duration and
inadequate funds could not permit that. This also serves as a limitation of this study.
Nevertheless, efforts were made to reduce the effects of these limitations to the barest minimum. For example, only
data from official sources are obtained. Also, advanced statistical techniques are used to analyze the data.
1.7Outline of the Study
The report of this study is represented in five chapters. The first deals mainly with the introduction which includes
background of the study; objectives of the study, statement of the problem, and significance of the study, scope and
limitation of the study, and the plan of the study.
Chapter two deals with Literature review. This includes Conceptual Review, Empirical Review and Theoretical
Review on SMEs.
Chapter three deals with the research methodology, under which the model specification, the sources and type of
data are discussed.
Chapter four deal the presentation of result, and interpretation of results.
Chapter five deals with the summary, conclusion and recommendations.

CHAPTER TWO:
LITERATURE REVIEW AND THORETICAL FRAMEWORK
2.0 Introduction
This chapter of the study review relevant literature and empirical studies in the area of SMEs and economic
development. Specifically, the review covers the aspects of the concepts of SMEs and development, contributions of
SMEs to economic development as well as theoretical framework.
2.1 Conceptual Review
2.1.1 Concept of Small and Medium scale Enterprises (SMEs)
Small business enterprises have no universal definition. Different countries tend to define them based on the
expected roles they are to play in the economy. Also, different definitions may stem from differences in the level of
economic development. For example, a micro or small firm in the U.S.A. or Japan, given their high levels of capital
intensity and technology, may be regarded as medium or large in Nigeria (Anyanwu, 2001).
Also, functional and behavioural attributes such as employees, assets, and turnover. These functional characteristics
are important to monitor, as they often define the very reasons for which taxpayer money is used to support SME
development (Gibson & van der Vaart, 2008).
According to Berry (1998), small firms are generally defined as firms that employ up to 250 people and have up to
£50 million turnover. The National Council on Industries (NCI) (1996) defines it as the enterprise with total cost
(including working capital but excluding cost of land) not more than N1million,with a labour size of not more than
10 workers.
Sanusi (2001) also described small enterprises as activities apart from trading with asset base not exceeding N200
million, excluding land and working capital with particular emphasis on agro-allied; information technology and
telecommunication, manufacturing, educational establishments, services, tourism and leisure, solid minerals and
construction. The Bankers Committee (2001) shared in Sanusi’s definition, but extended the definition to include
enterprises with staff strength of not less than 10 and not more than 300 workers.
According to CBN (2013), small and medium enterprises (SMEs) are entities with asset base of N5 million and not
more than N500 million (excluding land and buildings) with labour force (employees) of between 11 and 200.
Countries Definitions
European Union
In July 2011, the European Commission said it would open a consultation on the definition of SMEs in 2012. In
Europe, there are three broad parameters which define SMEs:
• micro-entities are companies with up to 10 employees
• Small companies employ up to 50 workers
• Medium-sized enterprises have up to 250 employees.
The European definition of SME follows: The category of micro, small and medium-sized enterprises (SMEs) is
made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50
million euro, and/or an annual balance sheet total not exceeding 43 million euro.
EU member states have had individual definitions of what constitutes an SME. For example, the definition in
Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian
business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy
under a European-labelled programme.
According to German economist Hans-Heinrich Bass, "empirical research on SMEs as well as policies to promote
SMEs have a long tradition in Germany, dating back into the 19th century. Until the mid-20th century most
researchers considered SME as an impediment to further economic development and SME policies were thus
designed in the framework of social policies. Only the ordo-liberal school, the founding fathers of Germany's social
market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems
(mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial
policies to promote SMEs."
India
The Government of India enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
including definitions of micro, small and medium enterprises as follows:
(a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but
does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but
does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building
and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722(E) dated October
5, 2006.
(b) Enterprises engaged in providing services are defined by their level of investment in equipment as follows:
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not
exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not
exceed Rs. 5 crore.
Canada
Industry Canada defines a small business as one with fewer than 100 employees (if the business is a goods-
producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one
with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification,
such as eligibility for subsidies, it is not the tax authority in Canada.
Israel
In Israel, a business is considered small if it has no more than 50 employees. A medium business holds between 51
to 250 workers.
Kenya
In Kenya, the term is SME (for "small, medium and micro enterprises"); elsewhere in Africa, MSME stands for
"micro, small and medium enterprises". Maximum number of employees = 10000 maximum revenue or turnover.
Nigeria
The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and number of
staff employed. The criteria are an asset base between N5 million and N500 million, and a staff strength between 11
and 300 employees.
2.1.2 Concept of Development
Development means different thing to different people. This may be the reason Idode (1989) described development
as a problematic concept. According to him, development has been used in many different ways including political,
economic and social. In other words, development is a construct of many applications.
In a view expressed by Okobiah (1984), development involves a process of economic, political and social change in
a progress direction towards a better social well being for the member of the society. According to Nwana (1998),
development involves harnessing of the resources for the realization of their major objectives, solving their major
problems. This means that, development from the foregoing consists of activities required in improving the attitudes
and potentials of people. Probably, this justifies the view of Boateng (1990), which describes development as the
process aimed at improving the living conditions and circumstances of human beings both directly and indirectly.
Considering the various views, national development encompasses social, economic, cultural and political
development. In other words, the components of national development include social development, economic
development, political development and cultural development.
The term economic development refers to the improvement in the general standard of living of the people of the
society. Falodun, Omogiator and Ezeaku (1997) observed that economic development is the attainment of ideals of
modernization such as the rise in productivity, social and economic equity, improved institution and values. This
means that economic development is concerned with the improvement in the quality of life of the people.
According to Chang (2002a), in the early 1950s, conventional thinking identified development with growth in GDP
or GDP per capita. The earlier literature emphasized economic growth and capital accumulation at a macro level.
The contemporary literature emphasizes economic efficiency and productivity increases at a macro level.
Industrialization has always been seen as an essential attribute of development. The emphasis has simply shifted
from the pace of industrialization to the efficiency of industrialization.
The underlying presumption is that economic growth and economic efficiency are not only necessary but also
sufficient for bringing about an improvement in the living conditions of people (Maddison, 1995).
Development, it was argued, by Sen (1989), must bring about an improvement in the living conditions of people. It
should, therefore, ensure the provision of basic human needs for all—not just food and clothing but also shelter,
healthcare, and education.13 It was stressed that this simple but powerful proposition is often forgotten in the
conventional concerns of economics. Such thinking culminated in writings on, and an index of, human development.
In the late 1990s, Amartya Sen provided the broadest possible conception of development as freedom. A process of
expanding real freedoms that people enjoy for their economic wellbeing, social opportunities and political rights.15
Such freedoms are not just constitutive as the primary ends of development. Such freedoms are also instrumental as
the principal means of attaining development. What is more, there are strong interconnections that link different
freedoms with one another. Political freedoms help promote economic security. Social opportunities facilitate
economic participation (Sen, 1999).
Economic wellbeing supports social facilities and reinforces political rights. In this manner, freedoms of different
kinds strengthen one another. The purpose of development, after all, is to create a milieu that enables people,
ordinary people, to lead a good life. Development must, therefore, provide all men and women the rights, the
opportunities and the capabilities they need to exercise their own choices for a decent life.
The significance of this abstraction about or conceptualization of development is not lost on everyone. But it is the
tangible or the measurable that remains dominant in terms of wide use and popular understanding. Per capita income
is only an arithmetic mean. Social indicators are also statistical averages. And neither captures the wellbeing of the
poor. Even the human development index is not quite an exception. The quantifiable is obviously important. But it
should not shape our thinking about development. In fact, it does. Consequently, the focus is misplaced. It needs to
be corrected. And the correction has several dimensions. It is essential to make a distinction between means and
ends.
2.2 Empirical Review
Contributions of SMEs to Economic Development
Evidence around the world indicates that small business enterprises provide an effective means of stimulating
indigenous entrepreneurship, enhancing greater employment opportunities per unit of capital invested and aiding the
development of local technology (Nnanna, 2003). Meyanathan and Munter (1994) analysed the importance of small
and medium business enterprises in the context of inter firm linkages. The analysis demonstrated how recent
changes in industrial structure are providing opportunities for this type of development in four East Asian countries
– Malaysia, Singapore, Indonesia and Thailand.
In the same vein, Essien (2001) explored the economic potentials of small businesses and found that adequately
financed small firms would enable Nigeria’s industrial sector to face the contemporary challenges of globalization,
economic restructuring and poverty eradication. He enumerated the contributions of small business firms in different
economies – they employ more than 50% of the industrial workforce in Columbia, Kenya, Philippines, Tanzania and
Zambia.
Similarly, they are the real job creators in the European Union, accounting for 99.9% of 11.6 million enterprises,
0.72% of employment of the 80.7 million persons employed by all enterprises, and generate 69.7% of turnover in
the European Union (EU, 2003).
Hung (2003) has shown that small businesses in Taiwan are about 90% of enterprises in the economy and
responsible for 60% of total value of export. Also, 50% of China’s export is derived from small and medium
business enterprises.
CBN/FOS/NISER (2001) estimated that small business firms in Nigeria make up 70% of industrial employment as
well as 10% to 15% of manufacturing output. The report of the CBN/FOS/NISER study revealed that a well-
promoted small and medium business enterprise would form a critical segment of the manufacturing sub-sector, a
strategy that could tackle employment and diversify output.
Hoffman et al. (2005) argue that small enterprises in most economies are much greater in number. In many sectors
they are also responsible for driving innovation and competition. Globally SMEs account for 99% of business
numbers and 40% to 50% of GDP. The major advantage of the sector is its employment potential at low capital cost.
As per available statistics, the SMEs sector, he further argues, employs an estimated 31 million persons spread over
12.8 million enterprises in India alone. The labour intensity in the sector considered separately is estimated to be
almost 4 times higher than the large enterprises.
Nnanna (2003) is of the opinion that small and medium business enterprises wide dispersal provides an effective
means of curbing rural – urban drift and resource utilization. He stressed that the production of intermediate
products for use in large business enterprises contribute to the strengthening of industrial linkages, a similar view
held by Meyanathan and Munter. Nnanna further showed that typical small business enterprises have the capacity to
adopt with greater ease to difficult and changing circumstances because of their low capital intensity that allows
product lines and inputs to be changed at relatively low cost, and that SMEs can serve as veritable channels for
mobilizing domestic savings.
Small and medium business enterprises contribute to move equitable income distribution among individuals and
regions. In addition, they can be used to achieve the objectives of the poverty alleviation programme of the
government given that they are highly labour intensive .They also serve as the bedrock of industrial development
and means of large scale employment, provide training ground for entrepreneurs (Anyanwu, 2001).
Ogujiuba et al. (2004) also studied the risk adverse behaviour of banks towards funding small and medium business
enterprises in Nigeria and found that SMEs have the potentials for employment generation and wealth creation. Yet,
the sector has stagnated and remains relatively small for two major reasons. Firstly, the risk-aversion by financial
institutions denies the enterprises sufficient fund and thus stifles their performance, and secondly the dependence of
the enterprises on bank credits makes them even more vulnerable for the simple fact that shocks in the financial
system trigger more aversion and stringent lending rules, a situation that worsens the plight of small business
enterprises.
In a survey of the manufacturing activities in the informal sector in Nigeria, CBN/FOS/NISER (2001) discovered
that the sector is highly labour intensive and being dominated by small size operations. In general, employment size
of between 1 to 5 people was dominant across activity sub-sector. It was also revealed that these enterprises derived
their raw materials and other inputs locally, and besides its employment potentials, the survey reported that the
sector supports profitable returns and acts as means of livelihood to a large population.
FOS (1999) carried out a related survey and reported that employment in small business enterprises accounted for
only 4% aggregate employment in the economy in 1989 alone. Edwardson (1989) was of the opinion that small
firms fit well the objectives of poor countries in that they are labour intensive, increase employment and income,
less capital demanding and are adopted to operate in rural areas. Thus, he recommended them as a base for
development strategies.
It was Akanji (1996) that aptly captured the Nigerian context of small busines enterprises by identifying the
operators as those earning their livelihood by working in small business farming and non-farming activities in town
and rural centres with admirable entrepreneurial energy and striving to break out of poverty. She further explains
that if this entrepreneurial spirit is nurtured, competitive energy would burst forth and standard of living will start to
raise all over again in developing nations.
Adelaja (2006) noted that small and medium business enterprises have enormous economic potentials, but have not
been realized and utilized to stimulate economic empowerment and poverty alleviation. She stresses that a vibrant
SMEs sector would be a panacea towards putting Nigeria in its desired place in the comity of nations. Oboh (2006)
also asserted that SMEs are the bedrock of development in any nation as large businesses grew out of SMEs.
According to him, experiences from industrialized countries attest to the fact that SMEs are precursors to the
development of the industrial sector.
On the contributions of SMEs to economic growth, Onugu (2006) opined that they are the engine of growth and
development. They serve as economic catalyst in the industrialized countries providing 80% of the total industrial
labour in Japan, 50% in Germany and 50% also in the US. NACCIMA (2006) and Olaiya (2006) shared in this
view.
The World Bank (1995) on the other hand reported that SMEs play important roles in the process of shifting started-
led development strategy to market-oriented private sector led approach. In the report, SMEs are said to provide a
means for large share of the workforce, adjusting quickly and growing rapidly in response to new opportunities.
2.3 Government Policies on SMEs in Nigeria

Entrepreneurial activity leads to economic growth and helps to reduce poverty, create a middle class, and foster
stability. It is in the interest of all governments to implement policies to foster entrepreneurship and reap the benefits
of its activity.

Among the most successful strategies for encouraging entrepreneurship and small business are changes in tax
policy, regulatory policy, access to capital, and the legal protection of property rights.

Tax Policy: Governments use taxes to raise money. But taxes increase the cost of the activity taxed, discouraging it
somewhat. Therefore, policymakers need to balance the goals of raising revenue and promoting entrepreneurship.
Corporate tax rate reductions, tax credits for investment or education, and tax deductions for businesses are all
proven methods for encouraging business growth.

Regulatory Policy: "The simpler and more expedited the regulatory process, the greater the likelihood of small
business expansion," says Steve Strauss, a lawyer and author, who specializes in entrepreneurship. Reducing the
cost of compliance with government regulations is also helpful. Governments can, for example, provide one-stop
service centers where entrepreneurs can find assistance and allow electronic filing and storage of forms.

Access to Capital: Starting a business takes money. There are required procedures and fees as well as the initial
costs of the new enterprise itself. Therefore, the most important activity a government can undertake is to assist
potential entrepreneurs with finding money for start-ups. In the Nigeria, SMEDAN, NDE etc helps entrepreneurs get
funds. These are federal agencies whose main function is guaranteeing loans. Banks and other lenders that
participate in their programs often relax strict loan requirements because the government has promised repayment if
the borrower defaults. This policy makes many loans available for risky new businesses. Legal Protection of
Property Rights: Small business can thrive where there is respect for individual property rights and a legal system to
protect those rights. Without property rights, there is little incentive to create or invest.

Creating a Business Culture: Governments can also show that they value private enterprise by making it easier for
individuals to learn business skills and by honoring entrepreneurs and small business owners. Policy makers can:

Offer financial incentives for the creation of business incubators. These usually provide new businesses with an
inexpensive space in which to get started and services - such as a copier and a fax machine - which most new
businesses couldn't otherwise afford. Often business incubators are associated with colleges, and professors offer
their expertise.

Make information available. In Nigeria, for example, the SMEDAN has many offices, making publications widely
accessible.

Enhance the status of entrepreneurs and businessmen in the society. Governments might create local or national
award programs that honor entrepreneurs and call on business leaders to serve on relevant commissions or panels.

2,4 The Challenges for SMEs in Nigeria

The jobs available in comparison to the number of graduates fighting for them are certainly on a parallel level. An
alternative measure SMEs is gradually filling in the jobless spot. Graduates are being encouraged even by the
government to become economically independent. Many have delved into the business terrain, ranging from owning
hair dressing salons/barber shops, beauty/makeover/nails/dance studios to fashion outfits, events planning and a host
of others.
The bane of the problem an entrepreneur has is access to funds which is a critical factor in the birth and growth of
the business. A lot of youths have great ideas to set up wonderful businesses but lack the financial power to execute
such. Contributions from colleagues, relatives, family, and friends are really hard these days to get. Banks are very
un-cooperative, demanding for collaterals, when majority don't have such!. The story is not really quite different
from the microfinance banks, even though theirs have less stringent conditions imposed on borrowers. Although the
government prides itself in a few youth empowerment projects it has executed in other to create jobs for the
unemployed, a lot still has to be done to help young entrepreneurs who might out of frustration, join the "brain drain
move" to seek greener pastures.
Erratic power supply from PHCN (formerly NEPA) has affected young entrepreneurs who have to keep the business
running with fuel on a daily basis. This unprecedented lapse now adds to the expenses incurred which could have
been averted, had the government put the proper machinery in place. Solar power is gradually becoming another
alternative to getting power supply.
High cost of Rent has become another major setback for young entrepreneurs who battle to pay it as charged by
greedy landlords. The landlords arbitrarily increase rent at will as he/she deems fit. Nobody questions them and the
regulatory authorities are not even bothered about it. Office spaces, shops are paid at exorbitant prices, and some
landlords only resort to the law courts when they seek to evict a de-faulting tenant who owes arrears of rent.

Due to financial constraint, entrepreneurs find it difficult to successfully market and expand their business. Adverts
which are needed to create awareness of services/products, either rendered/sold are virtually impossible to resort to,
as a result of the high cost of publicity pegged down by the media (electronic, print) which happens to be the most
effective way of publicizing one's business within our shores. However, with the internet and use of business/social
networking sites, that might just help with the publicity angle.
Young entrepreneurs have to compete with the already established companies (Blue chip and otherwise) who are
already well known and have funds to woo the public to buy their products. The power of "brand name" certainly
comes into play. These companies have carved niches for themselves which indirectly tilts the buyers choice in their
favour above others even though yours might end up being better.
Some young entrepreneurs to cushion the economic effect have gone into partnership deals with more experienced
business minded men/women. Those who want to watch their business grow have attended various business
seminars, workshops, leadership courses, luncheons, joined social clubs and on line business/social networking
sites.
2.3 Theoretical Framework
This study draws heavily from the Schumpeterian theory of innovation in the study of Entrepreneurship. This theory
is woven around the notion of undertaking a venture, which has an element of risk and requires some creativity or
innovativeness. The main ingredients of entrepreneurship, according to this school are innovation and creativity.
Thus, entrepreneurship is defined within the framework of this approach as the opportunity-seeking style of
management that sparks innovation.
Firm Size-Based Theory of Innovation Pattern.
The firm size-based theory of innovation pattern bases its empirical analysis on the relationship between market
structure variables i.e. firm size, industry concentration, entry and the level of innovation activity.
Proponents of this theory argue that innovative activity in more concentrated industries is rather weak and that small
firms in competitive industries are more innovative. They show that although there may be certain advantages to
firm size in effectively using R & D output, technical change is more efficiently carried out by small-to-medium size
firms (Kamein and Schwartz, 1975). This implies (innovative effort) does not linearly increase with firm size.
One conclusion reached by this theory is that innovation effort increases more than proportionately with firm size up
to a point, but later as the size continues to increase, innovation activity tend either to stay constant or decline.
According to this perspective, innovation intensity varies inversely with firm size and increase with R and D
intensity, though showing diminishing returns. The number of significant inventions per dollar of R&D in certain
industries is may be lower in the largest firms than in small-and-medium-size firms.
It thus implies that larger firms with high market share tend to contribute to major innovations relatively less.
Compared to larger firms, smaller firms appear to be more efficient in utilizing their knowledge base because of
their organizational advantages (Zoltan, 1988).The organizational structure of larger firms with more complex
bureaucracy results in an atmosphere less conducive for the creative contributions of the operating personnel, which
might explain why large firms are not so efficient in reaping the fruits of their R & D activities.
Also, superior technical personnel tend to be attracted to smaller firm in which greater latitude can be afforded them.
Furthermore, as a firm gets larger, it becomes more difficult to locate and solve problems. Finally, it is argued that
small firms are more cost conscious. There is also the possibility that some larger firms may be suppressing some
opportunities of invention and development, whereas smaller firms are not (Zoltan, 1988). Hence, smaller firms
often made very major innovations when larger firms let the opportunity slip by.

Conclusion
It is clear from the study that independent variable impacts positively on the GDP and by extension the growth of
the economy. Therefore, it can be concluded that the positive impact of small and medium scale enterprises on the
GDP can be interpreted to mean that SMEs are fundamental critical sector that can immensely contribute to the
development of the Nigerian economy.
Finally, the result of the test of hypothesis showed that there is a significant relationship GDP and SMV. Therefore,
it is concluded that the growth of the GDP can be enhanced by the performance of SMEs sector via the multiplier
effect.
5.3 Recommendations
The relevant authority should recognize the need for flexibility in the development and deployment of policy
instruments, rather than offer a set of policy prescriptions and principles to guide the development of policies that
encourage small and medium scale enterprises.
More so, SMEs should be integrated into the country’s economic development efforts by making them part of the
explicit mission of the country’s economic development efforts via the creation of support mechanisms for
entrepreneurs through the establishment of economic development programs that target SMEs owners. By
integrating entrepreneurship into the country’s development efforts, government lends credibility and draws
attention to the role of entrepreneurs allowing them to gather the momentum required to enable them actively
participate in the transformation of the economy.
The government should offer incentives that foster the development of SMEs. Numerous examples indicate that
access to reliable and steady sources of funding is essential to entrepreneurial growth and sustainability. By
establishing a framework that encourages the funding of new ventures, government can help ensure that solutions
that work will sustain and grow their impact. To achieve this objective, government needs not only to invest in
diverse sources of risk capital to fund entrepreneurs, but also to provide the fiscal incentives for investors to provide
funding.
Furthermore, the government should develop a rich base of early-stage capital options to fund SMEs by supporting
and giving incentives to angel investors as well as ensure that risk capital is available to the wider society to broaden
and enhance entrepreneurial capacity.
5.4 Implication of Findings
One of the central goals of public policy common among all modern economies is the generation of growth and the
creation of employment. Much of the policy debate to generate growth and jobs has relied on a macro-economic
framework and focused on the traditional macro-economic policy instruments. The findings of the present study
suggest that SMEs sector has the potentials for generating growth and employment in Nigeria. Thus, policies that
generate and promote creation of SMEs are necessary.
Evidence in this study suggests that those firms that operate in the informal sector activities have helped in
contributing to the GDP and per capita income. Policies that encourage more individuals and firms to pursue
entrepreneurial activity are what this study recommends.

5.5 Suggestion for Further Studies

It is suggested that a study to investigate whether or not the various government policies to encourage the growth of
SMEs over the years in Nigeria have yielded fruits should be carried out.
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