ABSTRACT
The study investigates the impact of small and medium scale industries on
the Nigerian economy, spanning from 1986 to 2010. The study adopted
Ordinary Least Square (OLS) Linear Specification model. Using unit root
test, the work shows that small scale industries significantly contributed to
the economic growth in Nigeria despite poor funding by commercial banks.
The work recommends among others that government should improve its
monetary policies so as to reduce to an acceptable level, the rate of
interests charged by commercial banks as well as encouraging rural based
industrialization, whereby investors are encouraged to establish small and
medium scale industries that would be based entirely on local raw
materials, machines and equipments.

CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY.
In recent time, the fortune of small scale and medium scale
Industries attracted the attention of government world-wide and thus has
been the focus of general interest and research, especially in developing
Countries due to the importance of small scale and medium scale
Industries.
Their importance cannot be over emphasized as they constitute a
whole virile vehicle for the generation of vast production of outputs and job
creation. They are also act as catalyst for restructuring and diversifying the
productive base of an economy and for the Industrial economy and for the
Industrial economy take-off and growth of such an economy. The small
and medium scale Industries are seen to hold the key to future expansion
of the Industrial sector.
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In Nigeria, evidence has shown that in 1986, small scale and medium
scale Industries accounted for 70% of all firms, employing millions of
Nigerians (first Bank of Nigeria report, 1987). By the end of 1979, over
80% of all establishments licensed under the factory act were small and
medium scale Industries (Onwuala, 1987). This made the importance of
this economic unit to be unelectable.
Small scale and medium scale Industry in its widest sense implies the
urgent response to the challenges of developing countries, of which Nigeria
is not an exception. Small and medium scale Industries should be practiced
with due regards to the importance of available local raw materials in its
environs because the challenges facing small and medium scale
Industrialist are enormous.
The importance of small and medium scale Industries to the
economic development of any country, whether developing or developed,
have been widely acknowledged and acclaimed. They are considered as
there stimulate to private ownership and entrepreneurial skills, generate
employment, promote industrial dispersal and rural- urban migration.
Clive carpenter (2001), said that across the world, small businesses
are crucial for economic growth, poverty alleviation and wealth creation.
Uayatudeen (2001) said that across the world, small businesses have
such a crucial role to play in the development of an economy and that
cannot be ignored. According to William and David, most firms and
small and medium scale Industries are compared with companies that
economist usually study. But economists have concentrated on large scale
Industries. The leading textbooks in economics have title discussions on
small and medium scale business or entrepreneurs.
The partial combinations of small and medium scale Industries on the
Nigerian economy are; creation of wealth, poverty eradication and
employment generation as encapsulated in the national economic
empowerment development strategies (NEEDS)
However small and medium scale Industries are bedeviled by
numerous challenges which have hampered its development and growth
and also its combination to national development. To this end, government
has instituted various programs to address the challenges and constraints
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facing small and medium scale industries growth. The programs and
institutions Include:
a. Setting up and founding of industrial estates.
b. Establishment of national directorate of employment (NSE)
c. Establishment of the Nigerian bank of commerce and industry (NBC),
the national economic re-construction fund (NERFUND),the Nigerian
Industrial bank (NIDB) which has merged in to one agency in the
bank of industry, the world assisted small scale enterprises loan
scheme (SNEX), the Nigerian export and import bank (NEXIN) etc.
d. Setting up a small and medium scale enterprises development agency
of Nigerian (SMEDAN); an agency which Co. ordinates development
in small business sector.
Unfortunately, all these formal credit schemes have not been able to
adequately address the fundamental problems which have constrained
small scale enterprises access to credit; and any other enterprise
establishing a small and medium scale industry requires capital to take off
survive and eventually expand.
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Nigeria’s major manufacturers produce food and beverages,
cigarettes, textiles and clothing, soaps and detergents, footwear, wood
products, motor vehicle parts, chemical products and metals while small
and medium scale manufacturing engage in leather making, poultry making
and wood carving. The smaller industries are often organized in craft
guides involving particular families who pass the skill from generation to
generation.
People have lived in what is now known as Nigeria since at least
9000BC, evidence indicated that since at least 5000BC, some of them have
practiced settled agriculture. In the early (centuries (AD), kingdoms
emerged in the drier northern savanna, prospering from trade with north
Africa. At roughly the same time, the western and southern forested areas
yielded city- state and looser federations sustained by agriculture and
coastal trade. These systems changed radically with the arrival of the
Europeans in the late 15th century, the rise of the slave era in the 16th
Century through the 19th Century. Nigeria achieved independence in the
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1960, but has since been plagued by an unequal distribution of wealth and
inflation.
The first well documented kingdom was the Yoruba kingdom, which
was observed between the 11th
-12th centuries. Over the next few
centuries, they spread their political and spiritual influence beyond the
borders of its small city states. Its artisans were highly skilled, producing
among other things, bronze castings of heads in a very naturalistic style.
Terra- cotta, wood and Ivory were the common media instruments used.
Shortly after the 12th century, the kingdom of Benin emerged in the
mid-western south region. Although it was separate from the Yoruba
kingdoms; Benin legends claim that the kingdoms first rulers were
descendant from an Ife prince. By the 15th century, the Benin kingdom was
large, wood designing was what sustained the city’s trade (both within the
region and later with Europe). Its legacy includes a wealth of elaborate
bronze plagues and statues recording the nation’s history and glorifying its
rulers.
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From the above paragraphs, it can be noted that small and medium
scale industries are indeed necessary for the development of any economy.
Small and medium scale industries act as the major stepping stone to
economic growth. In Nigeria today, small and medium scale industries are
common but have no efficiently achieved or attained her goals.
Therefore, to encourage local businessmen and institutions in buying
small and medium sized businesses, the government established the
Nigerian bank for industry and commerce, which had an initial operating
capital of 50 million naira. There was some concern in Nigeria that
Nigerians might not be able to raise enough capital to take over the foreign
owned businesses affected by the decree and that there might not be
enough Nigerians with the technical and managerial skills necessary to
replace extricate personnel.
1.2 STATEMENT OF THE PROBLEM
The small and medium scale Industries survey conducted in 2005 by
the central Bank of Nigeria (CBN) provides some evidence that apart from
the acute short of technology, managerial skills, poor management,
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adverse environment, and change in policy, capital is a source of great
concern to the entrepreneur in the sector. Since one of the microeconomic
goals of the Nigerian government is economic growth, we can assume that
the government aims at the expansion of small firms.
In a continent where finance is a major constraint on development,
the problem confronting the private sector in Nigeria above all small and
medium scales Industries standout.