Impact of MSMEs on the economy
The MSMEs is an important part of the overall economic development of any country, especially is the case of Nigeria which is a largely commodity market. A survey carried out by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in 2013 showed that the total number of MSMEs in the Nigeria stood at 37,067,416. The number of persons employed by the MSME sector as at 2013 stood at 59,741,211, which is 84.02% of the entire work force. The MSMEs contribute about 48.47% to Nigeria’s Gross Domestic Product (GDP), the sector’s contribution to exportation was also about 7.27% total volume in 2013.
The impact of Micro, Small and Medium Scale Enterprise (MSMEs) in the national economy cannot be underestimated as it is one of the biggest sectors in the Nigerian economic sector and it is regarded to serve as a means for families to meet ends.
Beaver (2002) said that the people who startup small businesses are often called entrepreneurs “the self-made people” who have created their own wealth/income instead of inheriting it. Small business enterprise owners argue that their small business enterprises encourage competition and entrepreneurship within the population and have huge external benefits on economic efficiency, productivity and growth. Also, small business enterprises owners claim that they are more productive than some large firms but financial market and other institutional failures reduces small business enterprises development.
The impact of MSMEs on various sectors of the economic development of a Nigeria ranges from better use of locally gotten raw materials, employment of large number of the country’s total workforce, rural development, entrepreneurial skill development, partnership with bigger companies and industries, self-employment opportunities and also providing opportunity for semi-skilled workers. Majority of developing countries including Nigeria depend on the dynamic nature of MSMEs to sustain the process of economic growth and development.
In the overall growth and development of a country’s economy, MSMEs play a major and important role. Apart from the oil and banking sector, the MSMEs sector is another important aspect of the economy, as most Nigerians prefer to own their own businesses rather than work for somebody else.
The role of SMEs in Nigeria cannot be over emphasized. They contribute immensely to economic development of the country in the following areas:
• Capacity Building: MSMEs serve as a medium for training local entrepreneurs, which drives the wealth creation process. It has also been established that MSMEs is the primary level of entrepreneurship whereas individual creativity and innovation are the driving force. Also a large number of the workforce in the MSME sector develop their entrepreneurial skills by learning from the people that are already established in the sector and this serves as a training avenue to better equip the unskilled work force.
• Poverty Reduction and Employment Generation: MSMEs have the capacity to generate their own employment as the type of operations some do are more labor intensive. The labor intensive nature is sometimes much higher than large enterprises. MSMEs have been very helpful in reducing the unemployment level in many developing countries including Nigeria. They also play an important role in combating poverty and reducing inequality among citizens and can be related to the affordable and low capital requirement for establishing some small businesses. MSMEs also engages both skilled, semi-skilled and unskilled labor thereby creating a means of livelihood for many Nigerian families. This is one of the most important aspect in any economic development process.
• Promoting Growth: MSMEs by their nature are such that they are very involved in primary and secondary economic activities that depend majorly on locally sourced raw materials. As such they achieve high value added operations which is a key role in the growth and development of any country’s economy.
• Industrial Dispersal: MSMEs are so dynamic that they could easily be located in rural and semi-rural areas because most can survive on basic industrial infrastructure. They serve as major facilitators for industrial distribution and also encourage rural development, thus have the capacity to facilitate rural-urban integration. In Nigeria, MSMEs are located in almost every part of the country. Whether in the urban or rural environments.
• Technological/Industrial Development: some MSMEs have short-term profit yielding period and high potentials for quick returns on investment. They provide alternatives to countries that desire the fast option of industrial growth and development. They can achieve this due to the less complex technology required to run and sustain most MSMEs and these technologies can be handled by most of the business owners. They also provide opportunities for the development of locally available skills and technology acquisition through adaptation.
Other impacts of MSMEs on the economy includes;
1. Large scale industries are likely to increase the inequities of income and concentration of wealth, SMEs are more likely to help equal distribution of income and wealth among the citizenry.
2. MSMEs provide a platform to a large number of potential entrepreneurs and investors who are deprived or lack appropriate opportunities in the large/ industrial sector. It also helps to release scarce capital towards a more productive use.
3. Small and medium businesses can use scarce resources more efficiently and to the full capacity with little or no wastage, they have higher resource allocation efficiency.