1

THE CONTRIBUTION OF SMALL AND MEDIUM SCALE ENTERPRISES TO THE

GROWTH OF RIVERS’ STATE ECONOMY: A CASE STUDY OF GOKANA LOCAL
GOVERNMENT AREA OF RIVER’S STATE.

WRITTEN BY

GIOBARI GIFT DEEBOM

MATRIC. NUMBER 11/101124062

ABSTRACT

This findings examined the contributions of Small and Medium Scale Enterprises (SMEs) to the
growth of River’s state economy, with particular reference to Gokana LGA. A total population of
300 respondents was sampled using a simple random technique. Data for this study were
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collected using a well-structured questionnaire. Data collected were analyzed using descriptive
statistics such as simple tables and percentages, while hypotheses formulated were tested using
the Chi-square statistics. The results from the analysis showed that small and medium scale
enterprises (SMEs) have contributed significantly to economic development Gokana LGA of
River’s State. Specifically, the result showed that SMEs have contributed significantly to
employment generation. The results also showed that SMEs have contributed to entrepreneurial
development in Gokana LGA. Lastly, the result showed that SMEs have contributed to poverty
alleviation in Gokana LGA of River’s State. Based on the results obtained, the study
recommended that there is need to increases provision of financial incentives to SMEs to enable
them to expand their scale of operation and contribute more to employment generation. Also,
there is need to organize regular training on business management and development to be
conducted for SMEs operators. Such training will further raise their skills and entrepreneurial
development.

TABLE OF CONTENT
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1.1 BACKGROUND OF THE STUDY

1.2 STATEMENT OF THE PROBLEM
1.3 RESEARCH QUESTIONS
1.4 OBJECTIVE OF THE STUDY
1.5 RESEARCH HYPOTHESIS
1.6 SIGNIFICANCE OF THE STUDY
1.7 SCOPE OF THE STUDY
1.8 DEFINITION OF TERMS

CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1 CONTRIBUTIONS OF SMALL AND MEDIUM SCALE ENTERPRISES ON

ECONOMIC DEVELOPMENT

2.2 EMPIRICAL LITERATURE

2.3 THEORETICAL FRAMEWORK

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

3.2 RESEARCH AREA

3.3 POPULATION OF THE STUDY

3.4 SAMPLE OF THE STUDY

3.5 SAMPLING PROCEDURE

3.6 INSTRUMENTATION

3.6.1 VALIDATION OF THE INSTRUMENT

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3.6.2 RELIABILITY OF THE INSTRUMENT

3.7 TECHNIQUES OF DATA ANALYSIS

3.8 LIMITATION OF THE STUDY

3.9 DECISION RULE

CHAPTER FOUR

4.1 PRESENTATION AND ANALYSIS OF RESULT

4.2 TEST OF HYPOTHESIS

CHAPTER FIVE

5.1 SUMMARY OF MAJOR FINDINGS

5.2 POLICY RECOMMENDATION AND AREA FOR FUTURE FINDINGS

5.3 CONCLUSION

5.4 REFERENCES

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The role of Small- and Medium scale Enterprises (SMEs) in River’s State

economic development has attracted much attention in recent years. Some believed

that they have played a more important role in Rivers than that in elsewhere, and
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that their relative importance meant that River’s economic growth path has been

close to that of free-market capitalism. The fact that Rivers’ state has fared much

better than her neighboring state’s financial crisis has made this view ever more

popular. It is further argued that the abundance of SMEs made River’s economy

more flexible and hence more resilient to crisis. Some revisionists, of course, have

raised doubt about this claim.

Universally, small and medium scale enterprises (SMEs) have been

identified as vital component in achieving industrial and economic development.

This is so because the development of small and medium scale enterprises (SMEs)

sub-sector has been widely agreed to be a catalyst for speeding up the rate of

economic growth and development of an economy. According to Udechukwu

(2003), small and medium scale enterprises (SMEs) have been fully recognized by

governments and development experts as the main engine of economic growth and

a major factor in promoting private sector development and partnership.

Furthermore, SMEs not only contribute significantly to improved living standards,

they also bring about substantial local capital formation and achieve high levels of

productivity and capability. From a planning stand point, SMEs are increasingly

recognized as the principal means for achieving equitable and sustainable

industrial diversification and dispersal; and in most countries SMEs account for

well over half of the total share of employment, sales, value addition in industries,
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wealth creation, and poverty alleviation (Udechukwu, 2003; Hanguin and

Morrison, 2007; Ongori, 2010).

In Nigeria, Small and Medium Scale Enterprises have played a great role. It

has been a significant provider of employment for the greater proportion of the

population. About 70 percentage of Nigerian engage in SMEs (Olaitan, 2006; Oni

et al, 2012). Available statistics has also shown that small and Medium Enterprises

in Nigeria account for over 75% of employment in the country (SMEDAN, 2006).

In terms of enterprise creation, available fact has shown that SMEs in Nigeria

currently constitute about 87 percent of total business enterprises in the country; a

proportion which is a par with those of most of the developed economies (Vision

2020 National Technical Working Group, 2009). It is both an instrument of poverty

alleviation and curbing social ills associated with unemployment in the economy

(Ndiaye, 2005). It provides the raw materials needed by the manufacturing sector

hence vehicle for industrialization. Its role in the local supply of raw materials has

twin positive effects of cost–saving to the manufacturing firms as well as

moderation of tendency of balance of payment deficit. From the foregoing, it is

logical to conclude that SMEs contributes tremendously to the growth of the

economy (Oni et al., 2012).

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This study is therefore conducted to examine the contributions of small and

medium scale enterprises to the growth of Gokana Local government area of

River’s state.

1.2 STATEMENT OF THE PROBLEM

The growth of every economy springs up from the pervasiveness of her SMEs. Apart from

providing employment to majority of the people, particularly in the urban and sub-urban centers,

they also engaged in the production of intermediate products for use in large scale enterprises;

contribute to strengthening industrial linkages; contributing substantially to national output;

transformation of indigenous technology; promotion of even development and reduction of

income disparities; increase in revenue base of government, etc.

Despite these laudable contributions of the SMEs, the sector is faced with protracted

problems ranging from shortage of skill man power lack of finance, poor managerial ability, poor

institutional framework inadequate infrastructural facilities, policy inconsistency, lack of

political will, continued import dependency, lack of technological development to poor research

and development (R & D) planning among others. Other problems limiting the growth of the

small and medium scale enterprises (SMEs) development included poor implementation of

policies; poor management practices; low entrepreneurial skills; restricted market access and

poor and decaying infrastructures such as shortage of power supply, deteriorating transport

system, lack of water supply etc. The problem of power instability is even more serious in

Nigeria. The poor performance of the power sector on the other hand can be attributed to the

following: poor funding of the sector; lack of political will to really solve the problem of power

outages; corruption in the system; vandalism of electricity equipment’s, lack of co-ordination

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between planning authority and the electricity generation authority, etc. These and many others

have culminated in the poor performance of the small and medium scale enterprises in Nigeria.

Given these inadequacies, it is debatable whether the development of the SMEs has

contributed positively to economic development in Calabar metropolis of Cross River State.

1.3 RESEARCH QUESTIONS

This study seeks to give answers to the following questions.

i. Do SMEs contribute to employment generation in Gokana local Government Area?

ii. Do SMEs in Rivers State’s promote entrepreneurial development in Gokana local

Government Area?

iii. Do SMEs contribute to poverty alleviation?

1.4 OBJECTIVE OF THE STUDY

The broad objective of this study is to examine the role of small and medium scale enterprises to

economic growth and development in Gokana local Government Area of Rivers’ State.

The specific objectives of this study include:

i. To examine the contributions of SMEs to employment generation in Gokana local

Government Area.

ii. To assess the effect of SMEs in the promotion of entrepreneurial development in Gokana

local Government Area.

iii. To investigate the contribution of SMEs to poverty alleviation in Gokana local

Government Area.
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1.5 RESEARCH HYPOTHESES

i. H0: Small and Medium Scale Enterprises do not contribute significantly to employment

generation in Gokana local Government Area.

ii. H0: Small and Medium Scale Enterprises has not contributed significantly to the

promotion of entrepreneurial development in Gokana local Government Area.

iii. H0: Small and Medium Scale Enterprises has not contributed to poverty alleviation in

Gokana local Government Area.

1.6 SIGNIFICANCE OF THE STUDY

The significance of this study cannot be over emphasized. Firstly, it will bring to the fore

the importance of SMEs in Nigeria as well as their constraints. Such a discussion will provide

the needed input for government, the central bank, policy makers and other analysts in tackling

the problems in the sub-sector, by offering possible solutions through appropriate policies on

how best to restructure the sector for maximum performance.

The study will equally contribute to the already existing literature on the role of small and

medium scale enterprises on economic development. Lastly, the findings of this study will serve

as a reference material for subsequent investigation in this area.

1.7 SCOPE OF THE STUDY

The study will concentrate its investigation on the Nigerian economy by examining the

contribution of small and medium scale enterprises (SMEs) on economic development.

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Specifically, the study will concentrates its analysis in selected small and medium scale

enterprises in Gokana local Government Area and use the results to make generalization on the

contribution of small and medium scale enterprises to economic development for the whole

country. The study shall cover the period of one month by repeated visits to the selected

enterprises to take responses on the subject matter.

1.8 DEFINITION OF TERMS

i. Micro Enterprise: A firm, whose total cost including working capital but excluding cost of

land is not more than ten million naira (N10,000,000) and/or with a labour size of not more than

thirty (30) full-time workers and/or a turnover of less than two million naira (N2,000,000) only.

ii. Small Enterprise: An enterprise whose total cost including working capital but excluding

cost of land is between ten million naira (N10,000,000) and one hundred million naira

(N100,000,000) and/or a workforce between eleven (11) and seventy (70) full-time staff and/or

with a turnover of not more than ten million naira (N10,000,000) in a year.

iii. Medium Enterprise: A company with total cost including working capital but excluding cost

of land of more than one hundred million naira (N100,000,000) but less than three hundred

million naira (N300,000,000) and/or a staff strength of between seventy-one (71) and two

hundred (200) full-time workers and/or with an annual turnover of not more than twenty million

naira (N20,000,000) only.

Microfinance: Microfinance denotes the provision of financial services adapted to the needs of

low income people such as micro-entrepreneurs, especially the provision of small loans,

acceptance of small savings deposits and simple payment services needed by micro-

entrepreneurs and other poor people.

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Large Enterprise: Any enterprise whose total cost including working capital but excluding cost

of land is above three hundred million naira (N300,000,000) and/or a labour force of over two

hundred (200) workers and/or an annual turnover of more than twenty million naira

(N20,000,000) only.

Economic Development: This is economic growth accompanied by structural, social, and

cultural change in an economy.

1.8 ORGANIZATION OF THE STUDY

The study is segmented into five chapters. Chapter one is the introduction, which also set a tone

for the general background of the study. Chapter two presents the review of past and related

literature on the subject matter and the theoretical framework of the study. Chapter three presents

the research methodology and model Specification. Presentation and analysis of empirical results

is the focus of chapter four, while chapter five concludes the research work.

CHAPTER TWO

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1 LITERATURE REVIEW

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2.1.1 CONTRIBUTION OF SMALL AND MEDIUM SCALE ENTERPRISES IN

ECONOMIC DEVELOPMENT

The contribution of the small and medium scale industries (SMIs) in promoting economic

development are well documented in the literature in Nigeria (Odubanjo and Onwuemere, 2000;

Udechukwu, 2003; Anyawu, 2003; Olorunshola, 2003; Salami, 2003; Onugu, 2005; 2000;

Ogundele 2006; Ayinde and Olawale, 2011 among others). According to these studies, SMEs can

promote economic development in the following ways:

Transformation of Indigenous Technology

Historical evidence indicates that most of today’s giant corporations began as very small firms.

These include Guinness of Dublin and Philips international of the Netherlands; as well as Sonny

and Honda of Japan. Developing countries can learn from the experience of these giants and

create conducive environment that will enable small and medium enterprises to adapt imported

technologies, modernize their process and grow to become large corporation (Salami, 2003).

SMEs also serve as veritable means of mobilization and utilization of domestic savings as well

as increased efficiency through cost reduction and greater flexibility. They have been very

prominent in the manufacture of bakery products, leather manufactures, furniture, textiles and

products required for the construction industry. The SMEs in Nigeria have expanded following

the adoption of the Structural Adjustment Program (SAP) to fill the supply gap in industrial

consumer goods created by the difficulties faced by large scale firms which have not easily

adapted to the policy changes of SAP.

Production of intermediate Goods

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SMIs produce intermediate and final consumption goods needed by larger enterprises and the

economy as a whole. These include raw materials, machinery and equipment, spare parts and

household goods. The deliveries to the large corporations is done through sub-contracting, which

enables smaller enterprise to supply their needs, instead of competing with them in the

production of final consumer goods in which small enterprises are relatively disadvantaged. By

producing intermediate products for use in large-scale enterprises, they contribute to the

strengthening of industrial inter-linkages. The inter-dependence of the sector provides the

backward and forward linkages which an economy needs for self-dependence and sustenance. In

the advanced economies, this symbiotic relationship is so developed that the sectors extensively

depend on each other for survival.

Employment Generation

Globally, employment generation is one of the most important reasons for promoting the

development of SMIs. This is very true for developing countries in which a large proportion of

the labour force is employed in Small and Medium Scale enterprises. In Nigeria, the small and

medium enterprises sub-sector has been expanding, especially since the mid-1980s, following

the prolonged recession in the economy which forced many large enterprises to lay off large

proportions of their workforce. The sector accounts for about 70 per cent of industrial

employment (World Bank, 1995). Also, the agricultural sector, which largely consists of SMEs,

employs over 60 per cent of the nation’s work force.

Utilization of Local Resources

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Small and medium scale industries are known for their creativity in the utilization of local raw

materials that do not require high level technology to process. In Nigeria for instance, SMIs are

concentrated in such enterprises as food processing, textiles, wood works, leather products, soap

and detergent sub-sector that require simple technology and the raw material are in abundance.

Small enterprises also recycle discarded by-products of large firms as primary inputs in their own

production processes.

Promotion of Even Development and Reduction of Income Disparities

The promotion of SMIs development aids the dispersal and diversification of economic

activities, and induces even development in a country or region. This is because SMIs need

relative small seed capital to start operations and their raw materials are widely dispersed in most

countries. In addition, their processing technologies and management styles are simple, making

investment in the sector affordable to the ordinary people in the society

Output Expansion

In many middle-income economies small and medium industries contribute substantially to the

national output. In India for example, the small scale industry sub-sector alone, excluding

medium enterprise, accounted for 40 per cent of total industrial output and 35 per cent of total

exports in 1998 (Salami, 2003). In Nigeria, however, the output of the sector is low. Although the

SME sector as a whole account for about 70 per cent of total industrial employment, its

contribution to manufacturing output is estimated at only 10-15 per cent, indicating very low

large ones in meeting new consumer requirements that utilise local resources (Salami, 2003).

2.1.2 EMPIRICAL LITERATURE

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Empirical studies on the impact of small and medium scale enterprises are relatively

scanty, despite the fact that majority of businesses in developing economies are small and

medium scale businesses. However, in very recent years, several empirical studies have been

conducted to examine the contributions of small and medium scale enterprises (SMEs) to

economic growth and development.

Cravo (2010) analyzed the relationship between small and medium scale enterprises and

regional economic growth for a panel of 508 Brazilian micro-regions for the period 1980–2004.

The study utilized spatial panel econometrics technique in the estimation of the relevant model.

The empirical result of this study showed that the size of the small and medium enterprises sector

is negatively related to the growth of GDP per capita, while the coefficient of human capital in

the SME sector is positive, showing that human capital in SME sector is more important for

economic performance than the size of SME. The study concluded that investment in human

capital is a veritable option to promote regional economic growth than the size of the SME per

se.

Using annual time series data from 2002 to 2009, Akingunola (2011) examined various

financing options to small and medium scale enterprises and their contribution to economic

growth in Nigeria through investment level. The Spearman’s Rho correlation test was utilized in

estimating the relationship between SMEs financing and investment level. The result of the

correlation analysis showed that there is a high positive (0.643) relationship between Small and

Medium Scale Enterprises (SMEs) financing and investment growth level which ultimately

translated to economy’s output growth level. Thus small and medium scale enterprises financing

has contributed significantly to economic growth in Nigeria through investment growth.

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Safiriyu and Njogo (2012) in their study examined the impact of small and medium scale

enterprises in the generation of employment in Lagos state. A total number of 150 small and

medium scale enterprises were sampled, consisting of both manufacturing and services

businesses. Data was collected using a well-structured questionnaire. The relevant data were

analyzed using simple percentages and chi-square analysis. Results obtained showed that small

and medium scale enterprises have significant relationship with sustainable economic

development in Nigeria. The results also showed that the promotion of small and medium scale

enterprises has led to improvement in employment generation. Based on the findings, the study

recommends that appropriate policies should be implemented aimed at promoting

entrepreneurship through small and medium scale enterprises development.

Muritala, Awolaja and Bako (2012) investigated the impact of small and medium scale

enterprises on economic growth and development in Nigeria, with particular reference to five

local government areas of Ogun state, namely: Ijebu North, Yewa South, Sagamu, Odeda and

Ogun Waterside Local government. Data were collected using a well-structured questionnaire

while descriptive statistics was used for the analysis of data. Findings from this study indicate

that there is significant relationship between Small and Medium Scale Enterprises (SMEs) and

economic growth and development. Based on the above finding, the study recommends that

government should assist prospective entrepreneurs to have easy access to finance and necessary

information relating to business opportunities, modern technology, raw materials, market, plant

and machinery which would lead to reduction in operating cost and hence be more efficient to

meet the market competitions.

Kadiri (2012) examined the contribution of small and medium scale enterprises to

employment generation and reduction of poverty in Nigeria. A sample size of four hundred
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SMEs was chosen using multi-stage sampling technique. Primary source of data was employed

as the main source of data collection. The relevant data collected for the purpose of analysis were

obtained from well-structured questionnaires that were mailed to various respondents. The

estimation technique employed for this study was the Binomial (Binary) Logistic Regression

which involves the application of maximum likelihood estimation after the dependent variable

has been transformed into a logit variable. The empirical result indicate that SMEs were unable

to create more employment opportunities due to inability to acquire sufficient finance and hence

inability to reduce poverty.

Bamidele (2012) examined the contributions of small and medium scale enterprises sub-

sector to the generation of employment opportunities in Amuwo Adofin local government area of

Lagos state. Data for this study were sourced from both primary and secondary sources. The total

number of 50 respondents was sampled in the local government area using both qualitative and

quantitative methods. Data collected were analyzed using descriptive statistic such as

percentages and frequency distribution. The result of this study showed that as a result of an

increase in loans given to the SMEs, have contributed to generating employment opportunities.

This finding was in line those of Osuagwu (2001) and Brumback and Lawyer (1979). The result

also found that even in the absence of loan that staff strength has greatly increased over time.

This means that SMEs has contributed to an increase in employment without loans given to their

owners. Responses from interview also buttressed the fact that there is an increase in

employment generation up to about 35% with the granting of soft loans, which also affected

level of employment and productivity in the economy. The findings of this study also goes to

support the assertion by Carpenter (2006) that about 10% of the total manufacturing output and

70% industrial employment are provided by SMEs.

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Onakoya, Fasanya and Abdulrahman (2013) empirically examined the impact of small

and medium scale financing on economic growth in Nigeria, utilizing quarterly time series data

from 1992 to 2009. The study captures macroeconomic variables such as real gross domestic

product, commercial banks credit to small and medium scale enterprises and interest rate. The

ordinary least squares (OLS) regression technique was employed in the estimation of the final

results, after stationarity tests were conducted using the Augmented Dicky-Fuller and Phillip-

Perron to determine the order of integration. The results of the study show that commercial banks

loans to small and medium scale enterprises and previous value of GDP have positive and

significant impact on economic growth in Nigeria, while interest rate has negative and significant

impact on the growth of RGDP.

Subhan, Mehmood and Sattar (2013) undertook a study into the significance of

innovation in small and medium enterprises and its effect on economic development of Pakistan

from 1980 to 2012. Several variables such as GDP Growth rate, share of Small and Medium

Enterprises in GDP, Patent Application for non-residents, Inflation, High Tech Exports and

Public Expenditure on education as percentage of GDP were captured. To estimate the

parameters, the study employed the Ordinary Least Squares (OLS) regression technique. The

result of the study showed that the impact of share of small and medium enterprises in GDP has

negative and insignificant relationship with economic development in Pakistan. The authors

blamed this negative result on non-documentation of the performance of SMEs in Pakistan. The

result also showed that Patent Application for Nonresident and Trademark Total showed positive

and significant impacts on SME growth as well as for economic development in Pakistan.
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2.2 THEORETICAL FRAMEWORK

This research is guided by the following theories; The Lewis Theory of Development, the

Human Development Theory and the Big Push Theory.

The Lewis Theory of Development

The Lewis’s two sector model explains the growth of a developing economy in terms of a

labour transition between two sectors, the capitalist sector and the subsistence sector. In the

Lewis two sector model, the underdeveloped economy consist of two sectors: a traditional,

overpopulated rural subsistence sector characterized by zero marginal labour productivity (a

situation that permits Lewis to classify this as surplus labour in the sense that it can be

withdrawn from the agricultural sector without any loss of output) and a high productivity

modern urban industrial sector into which labour from the subsistence sector is gradually

transferred (Lewis 1954).

The Lewis’s two sector model explains the growth of a developing economy in terms of a

labour transition between two sectors, the capitalist sector and the subsistence sector. In the

Lewis model, the underdeveloped economy usually consists of two main sectors:

i. The traditional, overpopulated rural subsistence sector characterized by zero marginal

labour productivity, which is a situation that permits Lewis to classify this as surplus labour in

the sense that it can be withdrawn from the agricultural sector without any loss of output, and
ii. The high-productivity modern urban industrial sector in which labour from the

subsistence sector is gradually transferred to.

According to the theory, surplus labour from traditional agricultural sector is transferred to

the modern industrial sector whose growth over time absorbs the surplus labour, promotes
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industrialization and stimulates sustained development (Lewis 1954; Amaghionyeodiwe and

Udeaja, 2003). The theory makes the following assumptions:

i. That a developing economy has a surplus of unproductive labour in the agricultural

sector.

ii. That these workers are attracted to the growing manufacturing sector where higher wages

are offered.

iii. That the wages in the manufacturing sector are more or less fixed.

iv. That the entrepreneurs in the manufacturing sector make profit because they charge a

price above the fixed wage rate.

v. That these profits will be reinvested in the business in the form of fixed capital.

vi. That an advanced manufacturing sector means that an economy has moved from a

traditional to an industrialized one.

Although the Lewis two-sector development model is simple and is in conformity with the

historical experience of economic growth of the western economies, it has however been

subjected to several criticisms.

1. The Lewis model is criticised for assumption that surplus labour exists in rural areas

while there is full employment in the urban areas. Several researches indicate that the reverse is

more likely true in many Third World countries where there is substantial unemployment in

urban areas with little general surplus labour in rural areas.

2. The model is also criticised for assuming that the rate of labour transfer and employment

creation in the modern sector is proportional to the rate of modern-sector capital accumulation.
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3. Lewis seems to have ignored the need for balanced growth between agriculture and

industry. Given the linkages between agricultural growth and industrial expansion in poor

countries, if a section of the profit made by the capitalists is not devoted to agricultural

development, the process of industrialization would be jeopardized.

4. Similarly, Lewis assumed that the rate of growth in manufacturing would be identical to

that in agriculture, but if industrial development involves more intensive use of capital than

labour, then the flow of labour from agriculture to industry will simply create more

unemployment.

5. The Lewis model also ignored the possible leakages from the economy. The model has

assumed that a capitalist’s marginal propensity to save is close to one, but it is known that a

certain increase in consumption always accompanies an increase in profits, so that the total

increment of savings will be somewhat less than increments in profit.

6. The transfer of unskilled workers from agriculture to industry is regarded as almost

smooth and costless, but this does not occur in practice because industry requires different types

of labour. The problem can be solved by investment in education and skill formation, but the

process is neither smooth nor inexpensive.

In spite of the above criticisms, the model does provide a good general theory on labour

transitioning in developing economies.

Human Development Theory

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Human development theory uses ideas from different origins, such as ecology, sustainable

development, feminism and welfare economics. It wants to avoid normative politics and is

focused on how social capital and instructional capital can be deployed to optimize the overall

value of human capital in an economy. Amartya Sen and Mahbub ul Haq (1990) are the most

well-known human development theorists. The work of Sen is focused on capabilities: what

people can do, and be (Sen, 1989). These capabilities, rather than the income or goods that

people receive determine their wellbeing. This core idea also underlies the construction of the

Human Development Index, a human-focused measure of development pioneered by the UNDP

in its Human Development Reports (see UNDP, 1998). The economic side of Sen's work on

‘’capabilities and functioning’’ (1989) can best be categorized under welfare economics, which

evaluates the effects of economic policies on the well-being of people. Sen wrote the influential

book 'Development as freedom' which added an important ethical side to development

economics.

2.2.1 THE BIG PUSH MODEL

This theory was propounded by Paul Rosenstein-Rodan in 1943. It was latter elaborated upon

by Murphy, Shleifer and Robert Vishny in 1989.The model emphasizes that underdeveloped

countries require large amounts of investments to embark on the path of economic development

from their present state of backwardness. This theory proposes that a 'bit by bit' investment

programme will not impact the process of growth as much as is required for developing

countries. The theory therefore advocated the role of the state in making large scale investment

in an economy. The large-scale programme of industrialization advocated by this model requires

huge investments which are beyond the means of the private sector. For this reason, the role of
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the state in this theory is therefore critical for investment in infrastructures such as transport,

electricity (power) and communication.

According to the theory, the reason for government’s investment in infrastructure investment

is necessary for the stimulation of industrialization, since the private sector would not be able to

provide the resources on its own. Even when the private sector had the requisite resources to

invest in such a programme, it would not do so since it is driven by profit motives.

The theory has been criticized in the grounds that:

i. There may be difficulties in execution and implementation due to revision of plans,

delays and deviations from the planned process.

ii. The implementation of industrialization programmes may be constrained by ineffective

disbursement, short-term bottlenecks, macroeconomic problems and volatility, loss of

competitiveness and weakening of institutions.

iii. In a mixed economy, where the private and public sectors co-exist, the environment for

growth may not be a conducive one. Unless there is a complementarity between the

sectors, there is bound to arise competition between them, with the government

departments keeping their plans confidential out of fear of speculative activities by the

private sector.

iv. With its heavy emphasis on industry, the model finds no place for agriculture. This is a

gaping flaw in the theory, as in most underdeveloped countries it is this sector which is

large and has labour surplus.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

The research design used in this study is the survey design. Ndiyo (2005) defined a survey

as a scientific experiment conducted on a large scale on a defined population to determine some

desirable characteristics of a designed population. For the purpose of this study, the sample

survey adopted is aimed at collecting sample from the population in order to examine the role of

small and medium scale enterprises on economic development of Calabar metropolis of Cross

River State.

3.2 RESEARCH AREA

The study area is Gokana Local Government Area. Gokana has an area of 126km2, it is

however divided into 16 towns and are further divided into villages. All sixteen towns have one

common ancestry. The native Gokana week is made up of five days, Maa, Bon, Zua, Sjon,

Koo(pronounced cur). Koo is the official Sabbath or rest day when their indigenes were to stay at

home and not go to farm. The Gokana people have a rich cultural heritage. The main religions

are Christianity and African tradition religions. Although, most of its customs, tradition and

festivals have become extinct due to urbanization and rural-urban migration, some have

survived. Among this is Naa, Bira Dae” festival, celebrated around late March to early April in

honour of the goddess of the night. It lasts for 15 days or three local weeks and during this

period, no woman, child or uninitiated adult male is allowed to go out, except emergency

services such as the police. The Gokana language of the Ogonoid group of the Cross-River

branch of the large Niger-Congo language family is the main spoken language. Weddings, burial
 26

of people who died in old age and the naming of a child are important ceremonies among the

people of Gokana, and they are celebrated in style Gokana Kingdom is headed by a King called

the “Gbere Mene” of Gokana Kingdom.

3.3 POPULATION OF THE STUDY

Research showed that Gokana Local Government Area has a total population of 228,828

at the 2006 census. The required population for this study is taken from sample respondents

taken from the various small and medium scale enterprises in Gokana Local Government Area,

comprising of the sixteen towns in the Local Government. The targeted population for this study

includes small and medium scale enterprises in Gokana Local Government Area.

3.4 SAMPLE OF THE STUDY

The total sample for this study is made up of 300 respondents, which were selected based

on the simple random sampling method used by the researcher. Out of this number, 18

questionnaires were distributed to 12 towns of Gokana, while the remaining 4 towns, 21

questionnaires were distributed across towns of Gokana local government area. The sampled

population included various small and medium scale enterprises located across the sixteen towns

in Gokana, selected by the researcher.

The above sample is a representative of the entire population of small and medium scale

enterprises in Gokana, whose responses are used as a representation of a wider view.

3.5 SAMPLING PROCEDURE

 27

The sampling technique adopted for this study is a stratified/ simple random sampling

technique. In this technique, the study area is sub-divided into Strata and members are selected

which form the variables for the study (Ndiyo, 2005). Here, one first identifies the Strata of

interest and then draws a specified number of subjects from each stratum. For this study, each

town in Gokana represents the strata. In each stratum, a simple random sampling technique is

adopted to select the sample for the study. This is to give the member of the population

independent opportunity to be selected for the study.

3.6 INSTRUMENTATION

To collect data for this study, a carefully structured questionnaire was designed by the

researcher with the help of the supervisor. The measuring instrument used by the researcher for

this research study is divided into two sections A and B. Section A contains information

regarding respondents’ personal details. Sections B contains information pertaining to our subject

of study based on the hypothesis to be tested.

3.6.1 VALIDATION OF THE INSTRUMENT

The instrument used for data collection was subjected to rigorous scrutiny and was validated

by the researcher’s supervisor. All observations, modifications and corrections given were noted

and effected before embarking on the administration of the instrument.

3.6.2 RELIABILITY OF THE INSTRUMENT

A pilot test exercise was carried out by the researcher on 20 respondents from the sampled

population for the purpose of establishing test-retest reliability. The respondents were asked to

complete the questionnaire and then asked to complete it again after two weeks. The Pearson
 28

Product-Moment Correlation Coefficient was then computed for the two sets of responses for the

reliability of the overall score. The high value of the Pearson Product Moment Correlation

Coefficient of 0.76 indicated that there is a correlation between the two test responses, and hence

the reliability of the instrument.

3.7 PROCEDURE OF DATA COLLECTION

The required data for this study were obtained from the responses on the questionnaire

constructed by the researcher. The questionnaire was distributed personally by the researcher,

assisted by three research assistants. The questionnaires were collected after one week by the

respondent and the responses collated, classified, processed and subsequently analyzed by the

respondent.

3.8 PROCEDURE FOR DATA ANALYSIS

Data collected were first analyzed using descriptive statistics. The aim was to show trend and

comparison of responses by the respondents. Descriptive statistics such as simple frequencies

and percentages were employed in most of the analysis. The data collected were thereafter

subjected to test of hypothesis based on hypothesis by hypothesis testing procedure using the

Chi-Square statistics.
 29

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS OF RESULTS

4.1 Respondents personal characteristics.

4.1.1 Gender composition of the Respondents

Table 4.1 present the respondents by gender, which reflects sex distribution between male and
female respondents.

Table 4.1 Gender composition of the Respondents

Sex No of Respondents Percentage(%)

Male 180 60

Female 120 40

Total 300 100

Source: Field survey 2017

Data as presented in table 4.1 showed that 180 representing 60 percent of total sample were
males, while 120 representing 40n percent of the total respondents were females.

4.1.2 Age composition of the respondents.

Table 4.2 below classified respondents according to their age category.

Table 4.2: Age composition of the Respondents

Age No of respondents Percentage (%)

18-25 50 16.7

26-33 60 20

34-41 100 33.3

42-49 80 26.7

50 and above 10 3.3

Total 300 100

 30

Source: Field survey 2017

Data as presented in table 4.2 showed that 50(16.7%) of total respondents belong to 18-
25 age group; 60(20%) were in the 26-33 age bracket; 100(33.3%) were in the 34-41 age
bracket;80(26.7) were in the 42-49 age bracket; and 10(3.3%) were 50 years and above.

4.1.3 Educational Distribution of the Respondents

Table 4.3 below presents the classification of the respondents according to educational
attainment.

Table 4.3: Classification of the respondents by Educational attainment.

Educational level No of respondents Percentage(%)

FSLS 40 13.3

SSCE 60 20

NCE/OND 70 23.3

BSC/HND/BED 80 26.7

MSC/PHD 50 16.7

Total 300 100

Source: Field survey 2017

Date as reported in table 4.3 showed that 40(13.3%) of the respondents were holders of first
school leaving certificate (FSLS); 60(20%) were holders of SSCE; 70(23.3%) were holders of
NCE/OND; 80(26.7%) were holders of BSC/HND/BED; and 50(16.7%) were holder of
MSC/PHD degree.

4.1.4 Distribution of the Respondents by type of business.

 31

Table 4.4 classified respondents according to type of business.

Type of business No of respondents Percentage(%)

Electronic sales/repairs 15 5

Pure water business 10 3.3

Internet café business 20 6.7

centers

Supermarkets/provisio 20 6.7
n stores

Restaurants/drinking 50 16.7
parlours

Barbing/ hair dressing 40 13.3

Pharmacy 30 10

Printing press 10 3.3

Transportation business 5 1.7

School business 20 10

Total 300 100

Source: Field survey 2017

Data as presented in table 4.4 showed that 15(5%) of the respondents engaged in electronic
sales/repairs; 10(3.3%) were into pure water production, 20(6.7%) were into
supermarket/centers; 20(6.7%) were into supermarket/provision state business; 50(16.7%) were
into restaurant/drinking parlous business; 40(13.3%) were engaged in barbing/hair dressing
business; 30(10%) were into pharmacy business; 10(3.3%) were into printing business; 5(1.7%)
were into transportation business; and 30(10%) were into school business.

4.1.5 Classification of business by location

Table 4.5 classified business by location in calabar metropolis.

4.2 Analysis of Results

 32

This section analysis the results by conducting test of hypothesis to validate and / or

invalidate the earlier formulated hypothesis. The test if conducted using the chi – square

statistical analysis

4.2.1 Analysis of Results for Gokana LGA

Hypothesis One:

H0: Small and medium scale enterprises do not contribute significantly to employment

generation in Gokana LGA.

Table 4.6: Chi-square of the relationship between SMEs and employment generation in Gokana

LGA

Variables Observed Expected Calculate Critica

Frequenc Frequenc d l
y y x2 x2
Strongly 60 35
Agree 50 35
Agree 20 35 48.58 7.81
Disagree 10 35
Strongly
Disagree
Total 140 140
Degree of freedom=3
Level of significance=0.05
Source: Field survey,2017
 33

The result as shown in table 4.6 indicated that the calculated x 2 of 48.58 is greater than the

critical value of 7.81 at 0.05 level of significance with 3 degree of freedom. The null hypothesis

is rejected while the alternative hypothesis accepted. Thus, small and medium scale enterprises

have contributed significantly to employment generation in Gokana LGA.

Hypothesis Two:

HO: Small and medium scale enterprises have not contributed significantly to the promotion of

entrepreneurial development in Gokana LGA.

Table 4.7: Chi-square Analysis of the relationship between SMEs and entrepreneurial
development in Gokana LGA.

Variables Observed Expected Calculate Critical

Frequency Frequenc d X2
y X2

Strongly 65 35
Agree 55 35 72.94 7.81
Agree 12 35
Disagree 8 35
Strongly
Disagree

Total 140 140

Degree of freedom=3
Level of significance=0.05
Source: Field survey,2017

The result as indicated in table 4.7 showed that the calculated x2 of 72.94 is greater than the

critical value of 7.81 at 0.05 level of significance with 3 degree of freedom. The null hypothesis

is rejected while the alternative hypothesis is accepted. Hence, small and medium scale

enterprises have contributed significantly to the promotion of entrepreneurial development in

Gokana LGA.
 34

Hypothesis Three:

H0: Small and medium scale enterprises have not contributed to poverty alleviation in Gokana
LGA.

Table 4.8: Chi-square Analysis of the relationship between SMEs and poverty alleviation in
Gokana LGA.

Variables Observed Expected Calculated X2 Critical X2

Frequency Frequency
Strongly Agree 70 35
Agree 60 35 104.35 7.81
Disagree 6 35
Strongly 4 35
Disagree
Total 140
140
Degree of freedom=3
Level of significance=0.05
Source: Field survey,2017

The result as presented in table 4.8 showed that the calculated x 2 of 104.35 is greater than

the critical value of 7.81 at 0.05 level of significance with 3 degree of freedom. The null

hypothesis is rejected while the alternatives hypothesis is accepted. Hence, small and medium

scale enterprises have contributed to poverty alleviation in Gokana LGA.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of findings

This study was carried out to examine the contribution of small and medium scale enterprise
(SMEs) to the growth of River’s state economy with particular reference to Gokana LGA of
River’s State, from the results of the analysis the following summary of finding is made.
 35

i. Small and medium scale enterprise (SMEs) has significant contribution to employment
generation in Gokana LGA of River’s State.

ii. Small and medium scale enterprises (SMEs) have contributed significantly to the
promotion of enterprenural development in in Gokana LGA of River’s State.

iii. Small and medium scale enterprises (SMEs) have contributed to poverty alleviation in
Gokana LGA of River’s State.

5.2 Conclusion

This study was undertaken to examine the contribution of small and medium scale
enterprise (SMEs) to the growth of River’s state economy with particular reference to Gokana
LGA of River’s State. It is held that the development of small and medium scale enterprises is a
catalyst in the process of economic growth and development of an economy.

In Nigeria in general and River’s State in particular, there are numerous small and medium
enterprises operating in nooks and cronies of the metropolis. It is then believed that the existence
of these businesses should contribute to economic development. However, there has been serious
debate as to whether small and medium scale enterprises have led to the promotion of economic
development in Gokana LGA of River’s State.

The results from the analysis showed that small and medium scale enterprises (SMEs)
have contributed significantly to economic development in Gokana LGA of River’s State.
Specifically, the result showed that SMEs have contributed significantly to employment
generation. The results also showed that SMEs have contributed to entrepreneurial development
in Gokana LGA. Lastly, the result showed that SMEs have contributed to poverty alleviation in
Gokana LGA of River’s State.

5.3 Policy Recommendations

Based on the results, the following policy recommendations are made.

i. The contribution of SMEs to employment generation in Gokana LGA calls for increases
provision of financial incentives to SMEs to enable them to expand their scale of
operation and contribute more to employment generation.
 36

ii. The contribution of SMEs to entrepreneurial development also calls for regular training
on business management and development to be conducted for SMEs operators. Such
training will further raise their skills and entrepreneurial development.

iii. Lastly the contribution of SMEs to poverty alleviation calls for policies to be adopted
aimed at promoting the survival of SMEs. For example, there is need to provide basic
infrastructures such as steady power supply to the SMEs.

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Beck, T., A. Demirguc-Kunt and R. Levine (2005). SMEs, Growth, and Poverty: Cross-Country
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Appendix 2
Chi-square computations of Results for Calabar South.
Hypothesis 1:
Expected Frequency, EF = = = =
Calculated Chi-square, = -x
= + + +
= + + +
=


Tabulated Chi-square:
Degree of Freedom
df = (C-1)(R-1)
 39

= (2-1)(4-1)
=1x3
 df = 3
Thus, tabulated at 0.05 level of significance with 3df = 7.81.

Hypothesis 2:
Expected Frequency, EF = = = =
Calculated = -x
= + + +
= + + +
=


Tabulated Chi-square:
Degree of Freedom
df = (C-1)(R-1)
= (2-1)(4-1)
=1x3
 df = 3
Thus, tabulated at 0.05 level of significance with 3df = 7.81.
Hypothesis 3:
Expected Frequency, EF = = = =
Calculated = -x
= + + +
= + + +
=


Tabulated Chi-square:
Degree of Freedom
df = (C-1)(R-1)
= (2-1)(4-1)
=1x3
 df = 3
Thus, tabulated at 0.05 level of significance with 3df = 7.81.

RESEARCH QUESTIONNAIRES
 40

THIS QUESTIONNAIRE IS DESIGNED TO EVALUATE THE CONTRIBUTION OF

SMALL AND MEDIUM SCALE ENTERPRISES TO THE GROWTH OF RIVERS’
STATE ECONOMY: A CASE STUDY OF GOKANA LOCAL GOVERNMENT AREA OF
RIVER’S STATE.

SECTION A

PERSONAL DATA………

Respondents Personal Characteristics

1. Gender

Male

Female

2. Age of Respondents

18-25
26-33
34-41
42-49
50 and above

3. Educational attainment of Respondents

FSLC
SSCE
NCE/OND
BSC/BED/HND
MSC/PHD

4. Respondents line of business.

Electronic sales/repairs
Pure water business
Internet café/business center
Super market/ provision store
 41

Restaurant/ drinking palours

Barbering/hair dressing
Pharmacy
Printing business
Transportation business
School business

5. Location of business

Calabar municipality

Calabar south

SA (STRONGLY AGREE)

A (AGREE)

U (UNDECIDED)

D (DISAGREE)

SD (STRONGLY DISAGREE)

Section 2

Questions

(1) Do you own a business?.............yes NO

(2) What is the staff strength of your business?

1-5 staff 6-20 staff 21-100 staff

101 and above

(3) What is the revenue strength of your business?

 42

10000-20000 30000-100000 100000 and above

(4) SMEs have increased the revenue base of River’s state… (SA) ….(A)….(U)….(D)….
(SD)
(5) SMEs has contributed to the growth of River’s state’s economy? (SA) ….(A)….(U)….
(D)….(SD)
(6) SMEs has reduced the rate of unemployment in River’s state? (SA) ….(A)….(U)….(D)
….(SD)
(7) SMEs has led to a reduction in crime rate in River’s State? (SA) ….(A)….(U)….(D)….
(SD)
(8) SMEs had led to a reduced poverty rate in River’s State? (SA) ….(A)….(U)….(D)….
(SD)
(9) SMEs has increased house hold income in River’s State? (SA) ….(A)….(U)….(D)….
(SD)
(10) SMEs has stabilized River’s State economy? (SA) ….(A)….(U)….(D)….(SD)

Role of small and medium scale enterprises in Gokana LGA

S/N Question Response

SA A D SD
11 Do you agree that SMEs have
contribution to employment
generation in Gokana LGA
12 Do you agree that SMEs have
contributed to entrepreneurial
development in Gokana LGA
13 Do you agree that SMEs have
contributed to poverty alleviation in
Gokana LGA
43