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Impact of Venture Creation on Economic Growth Evidence: a study of Ifo Local Government Area, Ogun State.

 Format: MS WORD   Chapters: 1-5

 Pages: 92   Attributes: COMPREHENSIVE RESEARCH

 Amount: 3,000

 Apr 23, 2020 |  09:17 am |  987

CHAPTER ONE

 INTRODUCTION

1.1.        Background of the study

For the past decades, small business enterprises in Nigeria were characterized as essentially backward and cog in the wheel of the overall development of the Nigerian economy.  As a result of this, there has been a prevalent feeling that such businesses could be assisted only for social reasons, not as a promising opportunity for national development.

All over the world, Small and Medium Enterprises (SME’s) creations are treated as backbone for economic development. It is widely believed that entrepreneurship is helpful for economic growth and development. Moreover, studies had shown that Small and Medium Enterprise has the propensity to drive the Nigerian economy and data reveals that there are currently about 17 million SMEs employing over 31 million Nigerians. The SMEs accounts for over 80% of enterprises that employ about 75% of the Nigeria’s total workforce and innovative ways of building the Capacity, creating job – opportunities, thus helping Nigeria realized its quantity advantage.(Popoola, 2014). Entrepreneurship is an activity that involves the exploration, evaluation and exploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes, and raw material through organizing efforts that previously had not existed. The contribution of Small and Medium Enterprises to the growth and development of an economy can never be overemphasized and has been the focus of general interest and research, especially in developing countries due to the importance of Small and Medium Enterprises to the global economy. According to Opafunso and Adepoju (2014), Small and Medium Scale Enterprise (SME) has ascertained to be a major tool adopted by the developed nations to attain socio- economic development. 

 Despite abundant natural resources, the country still finds it very difficult to discover her developmental bearing since independence. Quality and adequate infrastructural provision has remained a nightmare, the real sector among others have witnessed downward performance while unemployment rate is on the increase. Most of the poor and unemployed Nigerians in order to better their lots have resorted to the establishment of their own businesses. Consequently, SME is fast becoming a household name in Nigeria. This is as a result of the fact that the so called white collar jobs that people clamor for are no longer there. The financial systems of African countries are petite, trivial and expensive, with limited outreach. This is not just limited to financial development indicators; it is also extended to firm and provides data on household with regards to the use of formal financial (Beck & Cull, 2014). In addition, financial system in developing countries and from the African continent in particular witnessed a dramatic change in the last past two decades in market set up and stability.

An increase in the number of entrepreneurs leads to an increase in business creation which will therefore leads to an increased in economic growth, because entrepreneurship is increase recognized as a primary engine of economic growth. The primary concern of the entrepreneur is to create something new, involving the motivation to overcome obstacles, the willingness to run risks, and the desire for personal prominence in whatever is accomplished. A strong need to build something and to feel that what was built is due to personal efforts is a primary motivation. Therefore, by combing new and existing resources with innovative ideas, entrepreneurs add value through the commercialization of new products, the creation of new jobs and the building of new firms. It has been asserted that nations with higher levels of entrepreneurial activity enjoy strong economic growth because entrepreneurs are the link between new ideas and economic growth. Entrepreneur is the reformxer, re-volutionizer and the Kingpin of the economic growth process. He is the propeller of change and a catalyst. Therefore, development does not occur spontaneously as a natural consequence when economic conditions are in some sense right, a catalyst or agent is needed, and this requires entrepreneurial activity. The economic development or under-development is the reflection of the abundance or scarcity of entrepreneurship in any society.

In the light of this background, this research study intends to examine the impact of small and medium enterprises creation on Ifo economic growth and development with regard to adding knowledge to the existing one. Thus, it is expected that the outcome of this research will go a long way in ensuring a turnaround of Nigeria’s SMEs sub-sector. 

1.2 Statement of the Problem

Although there are quite a lot of researchers and studies on the link between SMEs creation and economic growth, there is still the need to assess the case of the Nigerian economy. Notably, at a period the country is seeking alternative sources of economic revenue to come out of an economic recession. The country’s GDP indicated a negative 1.7 percent and 2.06 percent in the first and second quarter of 2016. This economic crisis was analyzed to have been caused mainly by dependence on crude oil for revenue, so when the global crude oil price fell it affected the country’s income. (Osalor 2016). These statements prompt the question of what the contributions and challenges of business start-ups in the nation are and can focus on entrepreneurship lead to economic growth.

The contribution of the self-employed sector is a topical policy issue given the extensive prom of self-employment as a tool to new job creation and to combat unemployment, and as an alternative to the traditional active labor market policies. As is well-known, policies promoting self-employment may be considered promising in this respect. In times of persistently high unemployment like the current one, self-employment is considered a means to combat unemployment given that new self-employed contributes to new job creation not only directly, by creating jobs for the self-employed, but also indirectly, by the hiring of additional employees by self-employed firms (Pfeiffer and Reize, 2000a; Haltiwanger, 2006).

In Nigeria, problem of poverty has for a long time been a cause of concern to the government. Attention was initially focused on rural development and town planning as practical means of dealing with the problem (Agu, 2013). Youths in Nigeria suffer high unemployment due to lack of opportunities, physical and psychological challenges resulting from poverty. Some youths respond to these challenges by engaging in criminal or violent behavior while others suffer from despair or depression. Unemployment creates a wide range of social ills and young people are particularly susceptible to its damaging effects namely; lack of skills, low self-esteem, marginalization, impoverishment and wasting of enormous human resources. These problems associated with unemployment can be solved by empowering the youths through development programmes such as Youth empowerment scheme (YES), National opening apprentice scheme (NOAS) etc, which will enable them to have opportunities for self-employment in every sectors in the economy (Agu, 2013).Youth empowerment has been recognized as a catalyst for achieving pro-poor growth among the Less Developed Countries (LDCs). This ledSacerdoti (2005) to argue that faster poverty reduction will not be possible without deepening of the financial system and, in particular, more support from the banking system. He further showed that there is strong association between access to bank credit and poverty reduction. Access to finance can help poor youth to increase income, build viable business, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially youth, to become economic agents of change (Bashir, 2008).

 This framework is none other than achieving economic growth with the help of small and medium scale enterprises of which small scale and medium scale business is a part. However that does not mean the sector is without its challenges. One of the primary concern in a small business is the problem of risk. Many who begin the start-up process terminate it in less than one year. Of those that survive, many are unable to achieve sustained growth and profits.(Popoola, 2014).

This study was informed by the perceived paradox of growth in Nigeria. Unfortunately, the reverse is the case. The country citizens  continues to record a dwindling economic situation, and low level of standard of living, increase in unemployment and underemployment, and low level of value creation in the informal sector enterprise, low empowerment programmes ,and low entrepreneurial initiatives. In spite of the fact that SMEs creation have been regarded as the backbone of most economy for employment generation and entrepreneurial development, its impact on Ifo local government economic growth and development has been low, thus warranting an empirical probing to various SMEs drivers and inhibitors that impact on the growth in Ifo local government Ogun State.

In recent time, however, economic growth and development and their drivers have been examined by researchers from various standpoint and with varying literary perspectives. The impact of Small and Medium Enterprises creation on the growth and development have also been investigated (Eze and Okpala, 2015;Opafunso and Adepoju, 2014).Thus the inclusion of small and medium enterprise, government expenditure to small and medium enterprise, employment generations, corruption, commercial bank credit to small and medium enterprise and lending rate to small and medium enterprises. If SMEs in Nigeria restructured to impact heavily on GDP in Ifo, arguably it will help to redress the challenge unemployment, poverty, low growth of GDP and a host of other human miseries.

Identifying and selecting strategies that create value which will result in firm growth for shareholders is a major challenge facing management in the modern era. The identification of financial factors which have the highest impact on value creation in a business can facilitate establishment of criteria for appropriate strategy selection in that direction. The ability of a firm to create value by distributing cash flows to its stakeholders depend on its ability for cash generation from its operating activities and access of additional funds through external financing. The two basic sources of external financing are debt and equity financing. A company’s ability to borrow today is based on projections of its future cash flow generation. The link between value chains and value drivers as reflected by sales growth rate, operating profit margin, income tax rate, working capital investment, fixed capital investment and cost of capital are basic building blocks of shareholder. Samy, B.N, Mohammed, G. (2002).

1.3 Objectives of the Study

The broad objective of this work is to bring to the fore the role of SMEs creation on economic growth of Ifo LGA Ogun state. However, the sub objectives are

1.   To examine the relationship between self-employment and new job creation.

2.   To investigate the relationship between empowerment and poverty reduction

3.   To ascertain the relationships which exist between entrepreneurial development and increase in the growth of GDP.

4.   To determine the relationship between value creation and firm growth.

1.4 Research Questions

To carry out this study the following questions were asked to help the researcher achieve the

desired objective of the study. The questions are as follows:

1.   What is the relationship between self-employment and new jobs creation? 

2.   Is there a relationship between empowerment and poverty reduction?

3.   Does a relationship exit entrepreneurial development and increase in the growth of GDP.

4.   Is there relationship between value creation and firm growth?

1.5 Research Hypotheses

It is the aim of this research to test the hypothetical postulations formulate in the course of this work, to know if these postulations would be acceptable. Therefore, to achieve this aim, the researcher formulated the following alternative hypotheses.

 The researcher intends to test the following null hypothesis at 0.05 level of significance:

Hypothesis One:

HO1:  There is no significant relationship between self-employment and new jobs creation.

Hypothesis Two:

Ho1:    There is no significant relationship between empowerment and poverty reduction

 

Hypothesis Three:

Ho1:    There is no significant relationship between development of entrepreneurship and increase in the real GDP growth.

Hypothesis Four

Ho1:     There is no significance relationship between value creation and firm growth

 

1.6 Significance of the Study

This work will be of use to some individuals, organizations, government etc. Primarily the researcher will be of immense benefit as this work will help me in prosecuting the Bachelor of Science degree programme that I am pursuing in the department of Entrepreneurial studies.

The study is thus important because of its potentiality in the development of the small business sector which has been characterized as the “main carrier of development and the engine of social and economic growth” in Nigeria.  The study will also help individual on how to empower themselves, how to create valuable product and services in the society and identifying why people don’t go into small –scale enterprise despite its numerous advantages.

The study will help government identify areas requiring attention, thus stimulating government into proper directing of loans and incentives and empowerment progammes to improve upon existing ventures.

 It will also provide useful guide for prospective entrepreneur that wish to choose self-employment as a career.  And finally, it will serve as secondary data for subsequent studies by prospective researchers.

1.7 Scope of the Study

The study shall cover the impact of business creation on economic growth in Ifo local government Ogun state. This town Ifo is one of the largest cities In Ogun State, which is located in the central of the state. The area is thickly populated.

The population for this study comprises of 15 small and medium scale businesses that will be selected within Ifo local government area of Ogun state. This research study will also target entrepreneurs and businessmen around Ifo LGA Ogun state. However 10 questionnaires each will be distributed randomly to the 15 small and medium scale businesses in the study, making a total of 150 population of study.

1.8 Limitation of the study

Certain Limitations will encounter in the course of this study. Key among these includes:

Unavailability of Data:

One of the greatest challenges the researcher encountered in this study relates to access to and collection of hard data due to extreme data gaps and paucity. This compelled the researcher to limit the study to Small and Medium Scale Enterprises thus excluding Cottage and Micro Enterprises whose challenges though comparable, could be fundamentally different from those of SMEs. The Cottage and the Micro Enterprises have been acclaimed to have significantly impacted on the grassroots by way of poverty alleviation and reduction. On a quite related note, there also appears of late to be a lot of Nongovernmental Organizations, Bilateral and Multilateral Agencies and Organizations, which focus their attention on and channel their support and donations towards the Micro and Cottage Enterprises in order to contribute.

Resistance of Respondents:

The researcher is also limited by the reluctance of some respondents to complete the questionnaires promptly and those who even fail to complete them at all. This thus limited the number of respondents involved in the study despite the researcher’s efforts and approaches to them explaining the potential benefits of the study to them.

Materials:

Mass literature on SMEs in scattered form abound but published data on categorizing and ranking of problems facing SMEs in Nigeria as well as the contributions of SMEs Creation to our national economic growth and development proved rather difficult to come by. It was easier for the researcher to access data relating to the performer of SMEs in other parts of the world especially the Asian and Western Countries than those pertaining to SMEs in Nigeria. This factor thus limited the depth of discussions in the area of contributions of SMEs creation in Nigeria to our economic development and growth towards poverty reduction.

1.9 Definition of Related Terms

Empowerment: Empowerment as a means to stretch out the benefits of socioeconomic and political development in the economy to the poorest among those who seek a livelihood in the rural areas. Ekanem (2004)

Entrepreneur: Entrepreneur is the organizer whose input gave value to the other resources when combined in the production process. Mustapha, (2013).

Entrepreneurship: Entrepreneurship is an act of identifying and exploiting opportunities. A perspective viewed as a compelling means not just of battling unemployment, poverty and under-employment in the developing countries, but also as a technique for fast economic advancement in both developed and developing countries (Ubong 2013).

Entrepreneurial development: It focuses on the individual who have the required skills and capability and wishes to start or expand a business, concentrating more on growth potential and innovation (Ajagbe et al, 2015).

Firm growth: They are a bundle of internal and external resources that help a firm to grow and to realize a competitive advantage. Coad (2007),

GDP Growth:GDP growth on the other hand refers to an increase in the value of goods and services produced by an economy and it is conventionally measured as the rate of increase in real gross domestic products.(Afolabi 2015)

Job creation: The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially (Naude, 2015).

Nongovernmental organization: Referred to as NGOs are usually nonprofit and sometimes international organizations independent of governments and international government (though often funded by government) they are active in humanitarian, educational, health, social, human rights and other areas to effect changes according to their objectives (Lewis, 2007).

Poverty reduction: It is the strategy used to attain basic capabilities such as being adequately nourished, living a healthy life, possession of skills to participate in economic and social-political life, permission to take part in community activities (Odeh&Okoye, 2014).

Self-employment: It is the method of creating new jobs and enhancing labor market opportunities for the unemployed precisely because the self-employed run their own businesses often at their own risk. (Douglas & Shepherd, 2000)

Smes: It been recognized as critical breeding and nurturing grounds for domestic entrepreneurial facility, technical proficiency, technological modernization and managerial competencies for the development of a vibrant and productive economy (SMEDAN, 2010).

Value creation: It is the process of introducing new combinations, improving on already existing productive resources, proper utilization of resources, and creation of employment opportunities. (Ubong 2013).

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