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).
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 cited several reasons including; access to finance, infrastructural limitations, entrepreneurial competence of owner-managers and the impact of multiple tax. Foremost of these barriers are inadequate finance and lack of infrastructures. (Kessides, 2008) identifies the importance of infrastructures in the process of economic growth.
Interestingly, the Honorary 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, unfavorable business environment and poor access to information about sources of raw materials and market network. Interest in the development of small and medium sized enterprises (SMEs) and their contribution to the development process continue to be in the forefront of policy debates in developing countries. The advantages claimed for SMEs are various including; the encouragement of entrepreneurship, the greater likelihood that SMEs will utilize labor intensive technologies thus have an immediate effect on the promotion of business activities. Sani (2010) believes that indices of micro-economic infrastructural amenities 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 (Kessides, 2008; Mandel, 2008; Akinwale, 2010).
1.2 STATEMENT OF THE PROBLEM
Infrastructures are basic essential services that should be put in place to enable development to occur. Social and economic activities can be facilitated and accelerated by the presence of infrastructures. It takes little analysis to see that infrastructures play a major role in the economy of a country whether developing or developed. The need for good infrastructure is of great importance to businesses and their owners all over the world and over various sectors of the economy(Adeola, 2005; Agba et al, 2010; Adenipekun, 2013). But unfortunately, the provision of infrastructures to meet the demand of businesses and hence, positively affect the performance of their operation is still in low demand in some parts of the country. It is widely believed that the key to business survival is knowledge. Any who has broken into the business scene recently and has been successful has only been able to do that due to his education and experience. Sound business education will help a business owner to develop his ability to tailor his messages to different types of audiences (communication). Sales skills are also a specialized subset of communications; a business education helps to develop effective sales methods that suit his field of business. Through education prospective business owners will have progressively more challenging educational activities that will enable them to develop the insight needed to discover and create businesses and manage the businesses. Therefore, many start-up businesses have collapsed completely due to the lack of education which makes it difficult for the owner to interact well with customers and develop new strategies at tackling competition. Also in the business world of today, Power/Electricity is very important to the effective performance and continued operation of SMEs. Many businesses have moved from Nigeria to other countries due to the continued drop in electricity supply. Lack of power/electricity infrastructures negatively affects the productivity and profitability of manufacturing SMEs (Adelakan, 2005; Akinwale, 2010; Doe & Asamoah, 2014). The poor quality of electricity supplies in the country is perceived by SMEs to impact their operations negatively.
The provision of infrastructure services to meet the demands of businesses-both small and medium scale, is one of the major challenges of economic development in Nigeria. The provision of economic and social infrastructure can expand the productive capacity of the Nigerian economy by creating enabling environments for small and medium scale businesses in an economy, thereby encouraging economic development.
This is not always the case as small businesses in Nigeria suffer from bad roads to constant power outages. A study conducted by Ogbonnaya (2010) demonstrated empirically that no matter how novel the policies or incentives to drive the industrial sector are, if the infrastructural problems are not fixed, the policy objective of accelerating the growth of the industrial sector may not be realized.
The significance of infrastructure in the process of economic growth has long been established. Infrastructure has been seen as the basic requirement for business establishment and survival. The costs of acquiring infrastructures are significantly enormous for SMEs to bear and therefore, government intervention is inevitable. However, the depth of impact, the degree of impact or relationship coefficient has not been established particularly in respect of Abuja. This makes this paper distinguishable.
