EVALUATION OF THE ROLE OF SOCIAL AND ECONOMIC INFRASTRUCTURE IN THE PROMOTION OF BUSINESS ACTIVITIES IN NIGERIA (A CASE STUDY OF SOME SELECTED SMES IN ABUJA)
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The focus on economic development has shifted in recent years from public-sector led economic development to
private sector driven economic development. In achieving this, the Small and Medium Enterprise (SME) sector
is usually relied upon because of extant scholarly knowledge of its capacity to contribute to economic
development.
In 2002, the Honourary Presidential Council on Investment (HPACI) SME sector profile reveals that the SMEs
contribute as much as 40% of GDP in developed economies and some developing nations. The report further
shows that SMEs constitute over 90% of firms in Nigeria with a meagre 1% contribution to GDP. This
disproportionate contribution is as a result of factors within the business environments.
Studies have adduced several reasons including access to finance, infrastructural limitations, entrepreneurial
competence of owner-managers and the impact of multiple tax, to explain differences in SMEs contributions to
GDP (Kessides, 1993; Sule, 1980 and Anyanwu, 1994; HPACI, 2002, and Aruwa, 2004). Foremost of these
barriers are inadequate finance and lack of infrastructures. Kessides (1993) recognises the significance of
infrastructure in the process of economic growth.
Interestingly, the Honourary Presidential Council on Investment (HAPCI, 2002), after an in-depth study of the
SME sector, gave the reasons limiting the role of SMEs as the hub of entrepreneurship in Nigeria. Some of the
reasons given were infrastructural limitations, access to finance, access to enterprise support services,
unfavourable business environment and poor access to information about sources of raw materials and market
network. There is a recurrence on the greater impact of limited access to finance, entrepreneurial incompetence
and inadequate infrastructure in the SME literature.
The need to improve SME development in Abuja is particularly timely given the crises and attendant less
propitious economic situation that has bedevilled the capital since the 1980s. This manifested by way of the
deplorable nature of socio-economic infrastructure. This has the effect of imposing heavy cost and of shifting of
resources away from productive private investment since domestic and foreign entrepreneurs would only invest
where infrastructure exists and satisfactory rate of return is assured.
Sani (2001) observes that indices of micro-economic infrastructural facilities are inadequate and the operation of
the functional ones has not been efficient. This indeed has dire consequences for business performance. The
SME sector in Nigeria operates in an environment with very poor infrastructure, which deter prospecting firms
from entry and hinders international competitiveness (Aruwa, 2004)
