THE ROLE OF SMALL SCALE BUSINESS IN NIGERIA ECONOMY (A case study of some selected small scale businesses in Ibadan metropolis)

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In recent years, particularly since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large scale industrial project based on the philosophy of import substitution to micro and small scale enterprises with immense potential for developing domestic linkages for rapid, sustainable industrial development.

Perhaps, no other development strategy has enjoyed as much prominence in Nigeria development plans to the small scale industries (SSIs).

There exist lots of business organizations that are been engaged by individuals, group of people or association: Industries and government with the aim of maximizing profit. These business enterprises range from small to medium and from medium to large scale.

In the Nigeria economy, the small scale enterprise are the most common form of business: the aim of any economy (either industrialized or not) depends largely on how well managed the small scale industries are, for example; if we take a look at the standard practice of small scale industries in economically developed countries like United kingdom, or United state of America, we find they depend largely on the small or medium, industries to reach out to the people.

There is no specific criterion for classifying business enterprises as a small or medium or large globally. In a study carried out by the international labour organization (ILO 2005) over 50 definitions were indentified by 50 deferent countries for small scale industries.

However, in defining small scale industries, references are usually made to quantitative measure such as number of people employed by the enterprise, investment outlay, the annual sales turnover (scales) and asset value of the enterprises or a combination of these measures.

At the moment in Nigeria, following the national council for industries (NCI, 2002), classification of small scale industry fall within the following categories of enterprises, if the enterprise has a capital of between N1.5 million and N50million including working capital but not including the cost of land occupied or if the enterprises has workforce of between 10 – 50 employee.

    Currently in Nigeria, small scale industries represent about 90% of the industrial sector in term of enterprises; they also amount to about 70% of the national industrial development if the threes hold is set at 10 – 70 employee and contributes 10% of the manufacturing sector output and a meager of 1% of gross domestic product; they also contribute significantly to economic development, job creation and sustainable livelihood. Government has stepped up efforts to promote the development of SSIs through increased incentive scheme including enhanced budgetary allocation for technical assistance programmes. Also, new lending schemes and credit institutions such as the National Economic Reconstruction Fund (NERFUND), World Bank-assisted Small- scale Enterprises Loan Scheme (SMES), Nigeria Export and Import Bank (NEXIM), the people’s Bank of Nigeria (PBN) and The Community have established by The federal government for the purpose of assisting The Small Scale Industry (SSIs) to meet their finance needs. There have also been fiscal incentives, grants, bilateral and aids from multilateral agencies as well as specialized institution toward making the small and micro business and apprenticeships schemes vibrant. It’s of great concern that this vital sub – sector has fallen short of expectation. The situation is more disturbing and worrying when compared with what other developing and developed countries have able to achieve with their cottage business coupled with significant to apprentice training and employment generate. It has been shown that there is a high correlation between the degree of poverty, hunger unemployment, and economic well being of the citizens of countries and the degree of vibrancy of the respective countries micro and small scale industry (SSIs). In spite of the fact that, micro and small scale industries (SSIs) have been regarded as for the employment generation and technological development in Nigeria, this subsector is faced with enormous challenges.        


In many developing countries, many small scale businesses have been built slowly over the years. Since the early 1970’s the government of Nigeria has emphasized her interest in the development of small scale business.

The small scale also account for most new urban job and they serve as the next options for most workers that get sacked from the country’s public enterprises.

In Nigeria, the small and medium industries Enterprises Investment Scheme (SMIEIS) defines  SME as any enterprises with a maximum asset based of N200 million excluding land and working capital and with a number of staff employed not less than 10 or more than 300.

Here is a table showing the classification based on employment and asset based.

Table 1: Employment based classification

Organization Macro enterprises NO Small enterprises NO Medium enterprise NO
International finance corporation (ITF) <10 10-15 50-100
Central bank of Nigeria <50 <500
National association of small scale industry (NASSI) <40
Accessture <50 <500

Table 2: Asset- Based (excluding Real Estate) classification

Organization Small enterprises Medium enterprises
IFC $2.5 million
CBN N1.0 million N150 million
NASSI N40 million
Federal Ministry of Industry N50 million N200 million
National Economic Reconstruction Fund (NERFUND)   N10 million

The freedom to start, managing and own business is one of the greatest freedom which are know as a prime motivation for many people and especially entrepreneur.

This is the ban of most cottage industries in Nigeria about 80% of small and medium enterprises are stifled because of this problem of poor financing and other problem association associated with it (chukwuemeka, 2006). The problem that emanated from poor financing includes:

(a) Lack of competent management which is the consequence of inability of           owners to employ the service of experts.

(b) Use of obsolete equipment and methods of production because of owner’s inability to employ and access new technology.

(c) Excessive completion which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry.

Hence, small scale business contribution to the developed countries, but it because that faced a lot of problem associated with a depressed economy like Nigeria.


It would help prospective investors, youth, graduates undergraduate and the government towards the improvement of small scale business enterprises in Nigeria.

This research is also of tremendous significance especially when one realize the contribution of small and medium scale enterprises to the socio-economic development of Nigeria in particular.


The main aim of the study is to understand the insight of role in small scale business. In order to achieve the above, the following objectives were pursued.

  • To create more employment opportunities with less investment.
  • To identify factors that make small sale business to be successful
  • To identify the challenges being faced by small scale enterprises in contributing to the growth of the economy.

The research question for the study is as stated below:

  1. What is the contribution of small scale business to the national economy?
  2. What are the factors that make small scale businesses to be successful?
  3. What are the challenges being faced by small scale businesses in contributing to the growth of the economy.

 1.6      SCOPE OF STUDY

            The scope of the research work on selected small scale businesses within Ibadan Metropolis. Though it cover the development strategies to the national economy of Nigeria. This research work also covers to history and origin or small scale enterprises, examples and its operation. Constraint and management practice employed by the industry.


            For a better understanding of some term in this study this are the definition of some terms in this study this are the definition of some terms.

SMALL SCALE BUSINESS: This is defined as a manufacturing, processing or service industry involved in a factor or production type of operation, it is generally has under 50 employees.

DEVELOPMENT is the act of improving quality of life and making sure everyone has the preference in what life looks like.

BUSINESS: This is contractual relationship between two person, companies or two parties of which it is for the purpose of the purpose of buying and selling.

ECONOMY: This is the inter-relationship of production, trade and money in a country. An economy consists of the production, distribution or trade and consumption of limited goods and services by different agents in a given geographical location.

MANAGEMENT: This is the process by which systematic co-ordinate cooperative human effort.

ENTREPRENEUR: This is a person who organizes, operates and assumes the risk for business venture in order to achieve certain objectives.

He gives order on what should be done in his business and what should not be done.

PROFIT: profit they say is the reward for taking a risk. To go into business is to go into

RISK: for one to succeed from the business is to the primary reason for going into business ownership and operation.


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