1.1 Introduction
Small scale industries (SSIs) are defined as business enterprises that operate on a relatively low scale in terms of capital investment, workforce, and output, but play a vital role in the economic structure of developing countries. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2020), small scale industries are enterprises with labor size between 10 and 49 employees and a total asset value (excluding land and building) of between ₦5 million and ₦50 million.
According to Todaro et al. (2015), social economic development refers to the process by which a community improves the economic and social well-being of its people through income generation, employment, education, health, and equitable distribution of resources (Todaro & Smith, 2015). Small scale industries are instrumental in driving this form of development by fostering local entrepreneurship, reducing poverty, and stimulating grassroots innovation. They provide an avenue for self-employment, help reduce rural-urban migration, and promote inclusive growth, especially in areas where large-scale industries are absent.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.
1.2 Background of Study
In Nigeria, the significance of small scale industries has grown in the face of economic diversification efforts, particularly as the country seeks to reduce its dependence on crude oil. SSIs have been recognized as tools for empowering marginalized groups, including women and youths, while also serving as platforms for informal training and skill acquisition (Nnanna, 2001). The historical development of small scale industries and their impact on social economic development dates back to pre-colonial times, where informal economic activities such as blacksmithing, weaving, pottery, and local trading formed the backbone of many African societies. According to Falola (2009), indigenous entrepreneurship thrived in pre-colonial Nigeria, with crafts and trade serving as primary sources of livelihood and community development.
Small scale industries (SSIs) have emerged as one of the key engines driving sustainable economic development, especially in developing nations like Nigeria. These enterprises operate with limited capital, employ relatively small numbers of workers, and are often locally owned and managed. Their relevance lies not only in their contribution to economic productivity but also in their role in promoting inclusive growth, and enhancing social development across communities. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2020), small scale industries account for a significant share of employment generation and contribute meaningfully to Nigeria’s Gross Domestic Product (GDP).
The social and economic development of a nation is closely tied to the vibrancy of its small business sector. Okpara and Wynn (2007) asserted that small scale industries are the foundation for industrialization and sustainable development due to their ability to adapt to local environments, respond to market needs, and create jobs with relatively minimal investment. Similarly, Ogujiuba et al. (2013) reported that SSIs contribute to equitable income distribution and act as a buffer against economic shocks, especially in rural and semi-urban areas.
Ariyo (2008) contended that small businesses remain the most dynamic segment of many economies, offering innovative solutions and stimulating economic participation among youth and women. However, the growth of SSIs in Nigeria is often hindered by infrastructural deficiencies, policy inconsistency, poor access to credit facilities, and insufficient technical training. Adebisi and Gbegi (2013) affirmed that multiple taxation and regulatory burdens are also major obstacles limiting the expansion and survival of small enterprises (Adebisi et al., 2013).
The potential of SSIs to promote social development goes beyond economic indicators. According to Nnanna (2001), when properly supported, small scale industries can help to bridge social gaps and promote regional development. Yet, the actual impact of SSIs on both social and economic outcomes is often underexplored in empirical research and underutilized in policymaking. This study is set against the backdrop of understanding the actual effect of small scale industries on social economic development in Nigeria.
1.3 Statement of Problems
Investigation revealed that small scale enterprises are positioned as the backbone of local economies, contributing to grassroots development, empowering individuals through skill acquisition, and stimulating domestic production. However, their performance is frequently constrained by limited access to finance, poor infrastructure, weak market linkages, and inadequate government support (Ariyo, 2008; Adebisi & Gbegi, 2013). Also, a significant issue lies in the mismatch between academic theories on industrial development and the real-life experiences of small business operators. While theoretical models suggest that SMEs drive local industrialization, practical realities expose them to volatility, insecurity, and market saturation.
Furthermore, the social impact of small scale industries is often underreported or poorly measured. The absence of structured support mechanisms for skill training, mentorship, and innovation results in a loss of opportunities for empowerment and poverty alleviation. On the other hand, where small scale industries have been adequately supported, they have proven to transform communities through increased employment, improved living standards, and greater economic independence (Okpara & Wynn, 2007). It is against this backdrop that this study seeks to examine the effect of small scale industries on social economic development.
1.4 Aim and Objectives of Study
The aim of this study is to explore the effect of small scale industries on social economic development in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To assess the challenges faced by small scale industries in contributing to social economic development.
- To examine the contribution of small scale industries to employment generation in Nigeria.
- To evaluate government policies and institutional support for small scale industries in Nigeria.
- To analyze the role of small scale industries in poverty reduction and income redistribution.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- How do small scale industries contribute to employment generation in Nigeria?
- In what ways do small scale industries influence poverty reduction and income distribution?
- What are the major challenges hindering small scale industries from impacting social economic development?
- How effective are government policies and institutional support systems in promoting small scale industries?
1.6 Research Hypotheses
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Small scale industries have no significant effect on social economic development in Nigeria.
- H1: Small scale industries have significant effect on social economic development in Nigeria.
Hypothesis Two
- H0: There is no significant relationship between small scale industries and employment generation.
- H1: There is a significant relationship between small scale industries and employment generation.
Hypothesis Three
- H0: There is no significant relationship between small scale industries and poverty reduction.
- H1: There is a significant relationship between small scale industries and poverty reduction.
1.7 Significance of Study
It is believed that at the completion of the study, the findings will serve as a guide for policymakers in enhancing support for small scale industries to foster inclusive development. This research will also contribute to academic discourse and act as a reference for further studies on enterprise development.
Furthermore, the outcome of this study will inform financial institutions on the importance of extending accessible credit facilities to small businesses. It will also help in advocating for improved infrastructure and training for small scale industrialists.
Lastly, researchers and Academics will benefit from the study as a reference for future scholarly work. In addition, development Agencies will use the findings to design programs targeted at SME development.
1.8 Scope of the Study
This study focuses on evaluating the effect of small scale industries on social economic development using Lagos State as a case study. The state is chosen due to its large concentration of small businesses and its economic significance within Nigeria.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Small Scale Industries (SSIs): These are enterprises with limited capital investment, small workforce, and low production capacity. According to SMEDAN (2020), SSIs in Nigeria have between 10–49 employees and assets worth between ₦5 million and ₦50 million, excluding land and buildings.
Social Economic Development: A process that combines both economic growth and social progress in areas such as income, education, health, and employment opportunities (Todaro & Smith, 2015).
Entrepreneurship: The ability and readiness to develop, organize and manage a business venture along with its risks to make a profit. Entrepreneurs are vital in driving innovation and local development (Schumpeter, 1934).
Employment Generation: The creation of job opportunities as a result of economic or industrial activity. SSIs are known to absorb a significant portion of the labor force, especially in developing nations (ILO, 2018).
Poverty Alleviation: The set of strategies and actions aimed at reducing the level of poverty in a population. SSIs help by creating income sources and reducing dependency (World Bank, 2020).
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