The Role of Entrepreneurship in Economic Development Essay Example for Free

The Role of Entrepreneurship in Economic Development Essay European Journal of Business and Managementwww.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.8, 2012 100 and support services to accelerate the development and modernisation of MSMEs, SMEDAN badly needed to have acomprehensive understanding and knowledge of the population of MSMEs in the country, their distribution bysectors such as agriculture, manufacturing, services, trade, construction, mining, technology, etc, and their distribution by rural and urban areas as well as the level of vertical and horizontal linkages within and betweenvarious sectors of industry so as to access the level of industrial integration and the incidence of sub-contracting andits potential in giving a flip to industrial development. The census/survey will also enable SMEDAN to determine and assess the major operating difficulties of MSMEsrelating to both market functions (such as demand-pricing factors, supply factors, raw materials, technologyinfrastructure, etc) and policy environment as it relates to regulatory, incentive and support regimes. The overall benefits of the census/survey would hinge on the expected robust data and information, which SMEDAN wouldemploy as a basis for policy formulation, implementation and intervention, effective developmental planning, vitaladvice on new investments, grow and profitable areas, raw materials availability as well as available technology,available markets, available sources of funds and assistance.The survey exercise is also expected to adequately equip and empower SMEDAN to effectively do the following,inter alia:i. Map out effective strategies for revamping and reforming the MSMEs sub-sector through appropriatelyadvising the government on policy formulation and execution.ii. Recommend the right operators for various incentives and support by government including funding, be itloan, equity and grants.iii. Offer relevant advisory services to state governments on how best to support and invigorate MSMEs in their domains bearing their peculiarities and circumstances in mind.iv. Ide ntify viable projects for both local and foreign investors in order to attract foreign investment.v. Identify viable projects with export potentials and also identify and advise on the appropriate foreignmarkets in order to boost foreign exchange earnings.vi. Identify and assess MSMEs critical requirements in the areas of capacity building, skills gap, knowledge,skills and process and liaise with the relevant institutions and agencies of government like the National PovertyEradication Programme (NAPEP), the Centre for Management Development (CMD), the National Directorate of Employment (NDE), etc.vii. Establish a befitting business support centre for each state in the federation.viii. Facilitate the promotion and government patronage of quality local products of MSMEs for either localconsumption or export or both. 4.1 A COMPARATIVE ANALYSIS BETWEEN INDIA’S SMALL SCALE INDUSTRIES (SSIs) ANDNIGERIA’S SMEs The magnitude of contributions as well as the impact of SSIs on the economic growth and development of India ishighly significant as evidenced by the following figures. The SSIs represent ninety-five percent (95%) of the totalindustrial units in India, contribute forty-five percent (45%) of the total industrial output, account for eighty percent(80%) of all employment in the industrial sector, and contribute thirty-five percent (35%) each of total exports andvalue-added by the entire manufacturing sector respectively in India. Between 1990 and 1991, SSI real growth inIndia recorded between a low of 7.1% in 1993/94 and a high of 11.3% in 1996/97.As a result of commitment and focus on SSIs and driven by their all important role in the economic development, thegovernment of India had as far back as in 1948 put in place, an effective and efficient industrial policy for developing SSIs such that by the year 2000, India had three (3) million SSIs with a production value of US$110billion, export volume of US$ 10billion and staff strength or employment figure of eighteen (18) million. Eventhough SMEs‟ performance in Nigeria shows that technology and fiscal incentives had made little positive impact onthe sub-sector given the obvious lapses in implementation modalities as well as the constraining policy andinfrastructural environment, recent estimates have put the contribution of SMEs to total industrial employment in Nigeria at seventy percent (70%) and to total manufacturing output at 10 – 15 percent. SMEs in Nigeria have beenquite active in promoting the use of local raw materials with many of them also engaged in the processing of localinputs into either intermediate or final products especially agro-allied and solid minerals products. Many SMEs havealso successfully adopted imported plant and machinery for local use and thus positioning themselves as veritable European Journal of Business and Managementwww.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.8, 2012 101 tools for promoting technical expertise and development of indigenous entrepreneurship. The Nigerian SMEs aremostly resource-based and dispersed throughout the country (in urban, suburban and rural areas) and hence have tosome extent, facilitated the opening up of the rural areas, mitigated rural-urban drift, and significantly contributed to poverty alleviation.The following represent a brief comparison between Nigeria‟s SMEs and India‟s SSIs:i. Definition†¢ Nigeria‟s SMEs cover enterprises with total cost of N20million excluding land and total employees of between 10and 300 people†¢ India‟s SSIs are defined as units in the manufacturing, processing or preservation of goods with investment in plantand machinery not exceeding Rupees 10million ($210,000).The difference here hinges on the fact that India has no provision for mediu m scale enterprises; their focus is on thereal sector thus excluding trading and services. (ii) Credit Dispensation:†¢ In Nigeria, there are universal banks, development banks, and other special institutions, which provide credit butnot at subsidized rates.†¢ In India, there is a multi-agency system for credit flows; term loans are provided by term lending institutions andworking capital is provided by commercial banks.(iii) Funding Arrangements:†¢ In Nigeria, no minimum quantum of credits to SMEs is mandatory anymore. In the past, a percentage of totalcredits used to be mandatory for SMEs. However, 10% of banks‟ annual Profit Before Tax (PBT) is mandatory for equity investment in SMEs under the SMIEIS program.†¢ In India, 40% of total advances go to the priority sector, and 60% of net bank credit to the priority sector goes toSSIs.(iv) Management of funds invested in SMEs/SSIs:†¢ In Nigeria, the funds can be managed directly, or through a subsidiary or through a venture capital manager.†¢ In India, the credits to SSIs are driven need-ba sed limits on liberal terms with level and profitability as key factorsand not linked to security or collateral. Flexibility is the watchword with each activity assessed on its own merit.(v) Structure of BusinessesIn Nigeria, an SME must be a limited liability company†¢ In India, an SSI could be a limited liability company, or a partnership or a proprietary firm.(vi) Incentives and support to the SME/SSI sector:†¢ In Nigeria, it is mandatory for banks to set aside 10% of their annual profit before tax in support of SMEs. TheBank of Industry (BOI) is expected to provide credits to SMEs but not on soft lending rates. It is only the NigerianExport Import Bank (NEXIM) that provides soft loans to export oriented SMEs.†¢ In India, the incentive and support schemes available to SSIs are much more elaborate and include official generaland organisational support as well as support by other agencies. The nature and levels of key incentives and supportinclude but are not limited to the following:From the above, one can categorically affirm that the incentives and support given to SSIs by the government of India are quite wholesome and formidable. The package of support and incentives provided by the government of Nigeria can in fact, be said to be insignificant when compared with those of India. It is thus less surprising, thedevelopment gap between the SSIs of India and the Nigerian SME sub-sectors and hence the significant role SSIs are playing in the economic growth and development of India. The continuous reinforcement of incentives and support European Journal of Business and Managementwww.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.8, 2012 102 to SSIs by the government of India underscores the high degree of appreciation of the importance of the SSIsubsector to the future of the Indian economy.In Nigeria, there are relatively few SMEs in the formal sector and many more in the informal sector. TheInternational Labour Organisation (ILO) has attempted to make some estimates of the contributions made to theeconomy by SMEs, including the informal sector, and believes that they account for over 60 percent of economicactivities and over 35 percent of urban employment 4.2 RESEARCH DESIGN The research design approach adopted in this work is the survey research technique. The survey approach appeared best suited for this work since it is not feasible to interview the entire population. Furthermore, in surveys, there arefixed sets of questions, and responses are systematically classified, so that quantitative comparisons can be made.The sources of primary data were through questionnaires that were administered to the SMEs owner-manager andoral interview held with them. Secondary data were gathered from earlier research work and studies that have beendone. METHOD OF DATA ANALYSIS Appropriate descriptive statistical techniques such as frequency distribution and simple percentages were used tocharacterize the responses. The use of percentages analysis enables the figures in the research work which were inabsolute terms to be converted to real terms. The statistical tool facilitated the comparism of figures and standardizesdata, thereby reducing the difficulty of comparing non standardized figures. It uses 100 as its base.An in-depth examination of the responses revealed that SMEs involved in manufacturing/assembling ventures rated poor infrastructure as their greatest challenge. Worst among the infrastructural problems facing the SMEs relates toelectrical energy supply, which is rather hydra-headed. In some cases it is nonexistence in which case theentrepreneur has to provide his own energy supply. In other cases it is either epileptic in supply with incessantoutages with the attendant damages to equipment or the voltage supplied is too low as to support the plant andmachinery in use for the respective operation. The increase in production cost emanating from inadequate electric power supply to SMEs is said to be enormous. These costs relate to loss in output due to down time as a result of power outages, cost of fixing damaged equipment resulting from outages, poor quality of products as a result of bumpy production process, the high cost of fuel to operate own generating plants, costs of maintaining and servicingthese generating sets. Respondents regretted the frustration they encounter daily from power outages adding that the plant and equipment they use, especially the locally fabricated ones, can hardly absorb the shocks they are routinelysubjected to. FINDINGS SMEs have been fully recognized by governments and development experts as the main engine of economic growthand a major factor in promoting private sector development and partnership. The development of the SME sector therefore represents an essential element in the growth strategy of most economies and holds particular significancein the case of Nigeria. SMEs not only contribute significantly to improved living standards, employment generationand poverty reduction but they also bring about substantial domestic or local capital formation and achieve highlevels of productivity and capability. From a planning standpoint, SMEs are increasingly recognized as the principalmeans for achieving equitable and sustainable industrial diversification, growth and dispersal. In most countries,including the developed countries like Japan, USA, UK, etc, SMEs account for well over half of the total share of employment, sales, value added and hence contribution to GDP.A major gap in Nigeria‟s industrial development process in the past years has been the absence of a strong and virileSME sub-sector. With over 120 million people, vast productive and arable farmland, rich variety of mineral depositsand other natural resources, Nigeria should have been a haven for SMEs. Unfortunately, SMEs have not played thesignificant and crucial role they are expected to play in Nigeria‟s economic growth, development andindustrialization.