Small ad Medium Eterprises Fiacig ad Ecoomic Growth i Nigeria: A Ecoometric Aalysis. God stime Osekhebhe Eigbiremole Departmet of Ecoomics, Uiversity of Nigeria, Nsukka E-mail: eigbiremole@gmail.com, phoe: +2348030426701 Fracis Ileloa Igberaese Academic Plaig Divisio, Uiversity of Bei, Bei City E-mail:fracisileloa@yahoo.com, phoe:+2348075079509 Abstract This study ivestigates the role of Small ad Medium Eterprises (SMEs) i the achievemet of ecoomic growth i Nigeria usig a liear regressio model ad grager causality test. The Johase 2 likelihood ratio test statistics, the trace ad maximal eigevalue coitegratio test statistics, reveal two coitegratig equatios or vectors amog the variables of iterest. The coitegratig regressio result idicates that SMEs are idispesable i achievig sustaiable ecoomic growth as they exhibit positive impact o the ecoomy. This implies a boost to the ecoomy for every icrease i the operatios ad activities of SMEs. The grager causality test reveals a uidirectioal causal relatioship betwee SMEs ad ecoomic growth, ruig from the former to the latter. Movig forward, adequate ad coordiated fiacig with relatively low iterest rate should be made available ad assessable to SMEs across Nigeria, as the issue of iadequate fudig has remaied the major bae to their successful operatios. Also, govermet should make available eeded ifrastructure ad icetives like regular power supply, good roads ad tax holiday. These would greatly ehace ad ecourage the activities of SMEs ad positio them to play their all importat role i the achievemet of sustaiable ecoomic growth i Nigeria. Key words: Ecoomic growth, grager causality, regressio, SMEs. 1.0 Itroductio The place of Small ad Medium Eterprises (SMEs) i the achievemet of ecoomic growth especially i a developig coutry like Nigeria ca ever be over-emphasized. SMEs remai the foudatio as well as the buildig block i the realizatio of ay meaigful ad sustaiable growth i a ecoomy. SMEs costitute the drivig force i the attaimet of idustrial growth ad developmet. This is basically due to their great potetial i esurig diversificatio ad expasio of idustrial productio as well as the attaimet of the basic objectives of growth. For sustaiable ecoomy, SMEs have bee stressed as capable of helpig i brigig about positive ecoomic tur aroud ad complemetig the effort of the existig medium ad large scales idustries (Osuagwu, 2001). The recogitio of the importace of the roles of the SMEs as catalyst ad egie of growth has prompted the icreased attetio ad specific educatio o the method ad approach to build ad sustai a truly viable private sector domiated by small ad medium scale eterprise (SMEs). Such ecoomic cotributios are obvious i the mobilizatio of idle fiacial resources, the coservatio of foreig exchage, utilizatio of local raw materials, specialist suppliers to large compaies, addig varieties ad choice for the cosumers, checkig the moopolistic tedecy power, providig a source or iovatio, breedig groud for ew idustries ad above all employmet creatio (Bamidele, 2012). SMES utilize local raw materials ad techology thereby aidig the realizatio of the goal of self-reliace. Also, govermets at various levels (local, state ad federal) have i oe way or the other facilitated the performace of Small ad SMEs. While some have formulated policies aimed at facilitatig ad empowerig the growth ad developmet ad performace of the SMEs, others had focused o assistig the SMEs to grow through soft loas ad other fiscal icetives i order to ehace the socio-ecoomic developmet of the ecoomy like alleviatig poverty, employmet geeratio, ehace huma developmet, ad improve social welfare of the people (Oreoluwa, 2011). 2.0 Backgroud I Nigeria, it must be oted that SMEs have ot received the eeded attetio ad fiacig required for effective ad viable operatio. The challeges cofrotig SMEs i Nigeria seems multifaceted. Ekpeyog (1997) ad Utomi (1997) idetified iadequate capital ad iaccessible credit facilities as two major bae facig SMEs. There has bee dearth of log term loas eeded for adequate fiacig of SMEs. This upleasat 52
sceario has cotiued over time majorly because may fiacial istitutios do ot believe i the potetials ad viability of SMEs ad thus cosidered it risky extedig credit to them. Evbuomwa, Ikpi, Okoruwa ad Akiyosoye (2012) oted other costraits to iclude poor power supply ad iadequate relevat ifrastructure. This is true because o busiess, SMEs iclusive, ca operate efficietly i the absece relevat ifrastructure. They further opied i their study that 75.7% of their survey respodets relied mostly o ow fuds to fiace their busiesses. This iability to assess exteral sources of fudig has greatly hampered the activities of SMEs. A widespread cocer is that the bakig system i the sub sector (which supposed to be the major fiacier of SMEs) is ot providig eough support to ew ecoomic iitiatives ad i particular to the expasio of SMEs ad agriculture sector. It is oted that commercial ad the hitherto merchat baks which retaied liquidity levels i excess of regulatio have show reluctace i fiacig SMEs (Sacerdoti, 2005). While Micro Fiace Istitutios (MFIs) have expaded vigorously i a umber of coutries, the size of their credit remais limited, so that their support is ot o the scale eeded for may medium sized projects. Also, the iterest rate o micro-credits is very high, due to large admiistrative costs i relatio to their scale of operatios (Mahmoud, 2005) i Ookoya, Fasaya ad Abdulrahma (2013). Oluba (2009) posited that there are about 8.4millio SMES operatig i Nigeria with - eterprises comprise 80 per cet of the total umber (about 1.3 millio), small busiess costitutig 15 percet (aroud 420,000). I terms of SMEs cotributio to atioal output i Nigeria. It has bee reported that the SMEs, by reveue, cotribute about 75 per cet all etrepreeurial activities that make up Nigeria s gross domestic output, 21 per cet withi the -eterprises while 4% belog to the large complex orgaizatios. It is also scored high i etrepreeurial domiace because of its potetial i poolig skilled ad semi-skilled workers (Oreoluwa, 2011). Over the years, some studies have bee carried out to ivestigate the impact of SMEs i ecoomic growth ad developmet i Nigeria. However, may of such studies employed primary data, which at best captures the view of respodets but with a lot of icosistecies i estimatio procedure. Also, majority of such studies focused basically o the effect or impact of SMEs ad ecoomic growth without establishig the presece or absece of causality betwee them, which is as well very importat. Therefore, the objective of this study is to empirically examie the impact of SMEs o ecoomic growth i Nigeria ad as well as establish the ature of causality betwee them. Quarterly time series data from 1999-2012 sourced from the Cetral Bak of Nigeria (CBN) Statistical Bulleti, would be employed i this study. For other researchers, this study will spur them ito further research, especially i Nigeria where SMEs still remai uder-researched. At the idividual level, this study would eable people to uderstad ad appreciate the relevace of developig huma capital i a bid to achieve ecoomic growth. For the govermet, it would provide a framework for policy formulatio ad implemetatio. Above all, this study would add to the existig stock of literature ad bridge the gap i kowledge. The rest of the study is outlied as follows sectio three reviews various related literature, sectio four discusses the methodology, sectio five presets the data aalysis ad iterpretatio of fidigs ad sectio six provides coclusio ad recommedatios. 3.0 Review of Literature Several studies, both i Nigeria ad abroad, have bee carried out to examie role or importace of SMEs i the achievemet of ecoomic growth ad developmet. There seems to be a cosesus from most these studies that SMEs, whe adequately fuded, cotribute meaigfully to ecoomic growth ad developmet. A review of some of the empirical literature is provided below. Ookoya, Fasaya ad Abdulrahma (2013) examied the impact of fiacig small scale eterprises o ecoomic growth i Nigeria, usig a quarterly time series data from 1992 to 2009. The study combied several ecoometric estimatio techiques. The fidigs shows that loa to small scale etrepreeurs have a positive impact o the ecoomic performace while iterest rate has a egative impact o ecoomic growth. The study thereby cocludes that the greatest or worst problem cofrotig SMEs i Nigeria is maagerial capacity. Access to capital or fiace is ecessary but ot a sufficiet coditio for successful etrepreeurial developmet. Bamidele (2012) studied that fiacig of small ad medium scale eterprises (SMEs) i Amuwo Odofi Local Govermet of Lagos state, Nigeria. The study examied how govermet ad other agecies fiace SMEs i Amuwo Odofi Local Govermet area of Lagos State. The study was guided by etwork theory. The major 53
cocer of the theory is the objective patter of ties likig the agecies, idividual ad group of the society. The agecies i this study iclude baks, cooperative societies, ad govermet, amog others. Quatitative ad qualitative method was used to collect data for the study. Fifty (50) samples of respodets were selected from the Local Govermet Area. The data gathered was aalyzed usig descriptive statistics such as frequecy distributio, while the qualitative data was subjected to cotet ad descriptive aalysis. The study shows that govermet ad other fiacial istitutios have ot doe eough i supportig SMEs. I what eed to be doe by govermet ad other fiacial istitutios saddle with the resposibility of fudig SMEs, i order for SMEs to play their role of improvig the ecoomy; more loa should be givig with a appropriate extesio of deadlies for paymet, create good job for people i order for them to save some amout of moey ad become self-employed, ecourage ad support existig SMEs, by makig policies that would be beeficial to SMEs, create eablig ivestmet eviromet, such as ifrastructural developmet. Qureshi (2012) examied the problems ad costraits faced by small ad medium-sized eterprises (SMEs) i Pakista with regard to access to fiacig. The research methodology icludes qualitative data ad quatitative data. A survey was udertake from a sample group of 500 respodets of SMEs i Karachi from whom various questios were asked through a structured questioaire. I additio, oe-o-oe formal ad iformal iterviews were take from various busiessme ad bakers. Samples were selected coveietly. A coceptual model/framework was devised to test ad ascertai the statistical validity. It icludes depedet variable SME fiacig ad idepedet variables, fiacig costraits, fuctioal/iteral barriers, govermet support ad icetives, ad SMEs growth ad developmet. The study fids that Formal fiacig is the biggest problem of SMEs because a substatial portio of SMEs does ot have the security required for collateral. The loa processig time is very legthy ad cumbersome ad the loa terms are ot succict ad thoroughly uderstood by the borrower. Moreikeji ad Oluchukwu (2012) studied the impact of small ad medium scale eterprises i the geeratio of employmet i Lagos state. A total of a hudred (150) copies of the questioaires were admiistered out of which oe hudred ad twety (120) copies represetig (80%) of the questioaire were properly completed ad retrieved while thirty (30) copies represetig 20% were ot retrieved. The istrumets used to gather iformatio for this study icludes questioaires ad iterview. Two differet statistical methods were employed by the researcher for data aalysis. The tools are simple percetage ad chi-square (X 2 ). The results show that SMEs ad sustaiable developmet of the Nigeria ecoomy are related, just as promotio of SMEs ad improvemets i employmet geeratio are related. They therefore coclude that for a atio irrespective of its ecoomic ideology to achieve meaigful ad sustaiable developmet, adequate attetio must be give to wide spread of ecoomic activities through etrepreeurship ad small ad medium scale eterprise geeratio. Nkwe (2012) discussed the role SMEs play i the developmet of coutries such as Botswaa. It focuses o what SMEs cotribute ad what barriers are there which make them ot to cotribute at their optimal. I the review, the researcher fids that the cotributio of SMEs i Botswaa is huge. SMEs cotribute to ecoomic developmet i various ways: by creatig employmet for rural ad urba growig labor force, providig desirable sustaiability ad iovatio i the ecoomy as a whole. The most importat developmet priority i Botswaa is to diversify the ecoomy i geeral, ad to diversify productio for export i particular. The diversificatio of exports should iclude services as well as maufactured goods. Ecoomic diversificatio is ecessary for future ecoomic growth, ad this i tur is ecessary for the growth of employmet ad others. SMEs are the pillars to the govermet s diversificatio drive. Oreoluwa (2011) assessed specific fiacig optios available to SMEs i Nigeria ad cotributio with ecoomic growth via ivestmet level. The Spearma s Rho correlatio test was employed to determie the relatioship betwee SMEs fiacig ad ivestmet level. The aalysis reports a sigificat Rho value of 0.643 at 10%. This idicated that there is sigificat positive relatioship betwee SMEs fiacig ad ecoomic growth i Nigeria via ivestmet level. Descriptive statistics were also used to appraisal certai fiacig idicators. The paper later proffer that accessibility to relative low iterest rate fiaces should be provided to small ad medium eterprises i Nigeria i order ehace ecoomic growth. 54
4.0 Methodology A multiple regressio model based o Ordiary Least Square (OLS) techique would be employed i determiig the impact of SMEs fiacig o ecoomic growth i Nigeria. Ordiary least square (OLS) is extesively used i regressio aalysis primarily because it is ituitively appealig ad mathematically much simpler tha ay other ecoometric techiques (Gujarati, 2003). I order to obtai robust estimates, this study would iclude real iterest rate, iflatio ad moey supply as related cotrol variables. The model is specified as follows: LOG ( RGDP) + λ LSMEs+ λ RINTR+ λ INF + + λ (1) = 0 1 2 3 U t Where; RGDP = Real Gross Domestic Product (a proxy for ecoomic growth) LSMEs = Loas to SMEs RINTR = Real Iterest Rate INF = Iflatio λ 0 = Itercept of relatioship i the model λ 1 - λ 3 = Coefficiet of each exogeous or explaatory variable. I order to capture the directio of causality betwee SMEs ad ecoomic growth, the Grager causality test would be employed. It ca be stated thus: RGDP t = i =1 i LSMEs t i + β j RGDP t j + U 1 t j =1 α (2) LSMEs t = i =1 i LSMEs t i + δ j RGDP t j + U 2 t j = 1 λ (3) Where U 1t ad U 2t are assumed be ucorrelated. 5.0 Data Aalysis ad Iterpretatio 5.1 Statioarity Test I order ot to ru a spurious regressio, a statioary test was carried out. The Augmeted Dickey-Fuller (ADF) test was used for this aalysis sice it adjusts for serial correlatio. If the calculated ADF test statistic is greater tha the MacKio critical values (both i absolute term) at the chose level of sigificace, we would reject the ull hypothesis of o-statoarity ad accept the alterative hypothesis of statioarity. The result is summarized i table I below. Table I: Adf Test Statistics Variable Adf Test Statistics 0.05 Level Order of itegratio RGDP -9.401019-2.897678 I(2) LSMEs -4.944154-2.897678 I(0) RINTR -4.145574-2.900670 I(1) INF -3.217670-2.901217 I(0) 55
The result from table I above clearly show that secod differecig is sufficiet i modelig this study. 5.2 Coitegratio Aalysis Theoretically, it is expected that a regressio ivolvig o-statioary time series variables may produce spurious (o-meaigful) results. Coitegratio tests prove that the combiatio of such variables has a logterm relatioship (Eigbiremole, 2013). Ecoomically speakig, two variables will be coitegrated if they have a log-ru or a equilibrium relatioship betwee them (Gujarati, 2004:822). The Johase 2 likelihood ratio test statistics, the trace ad maximal eigevalue test statistics, were utilized to determie the umber of coitegratig vectors. The decisio rule is to reject the ull hypothesis if the probability (P value) is less tha 5% (0.05). The result is summarized i the tables II ad III below. Table II: Johase Urestricted Coitegratio Rak Test (Trace) Hypothesized Eigevalue Trace Statistics 0.05 Critical Value Prob.** No. of CE(s) Noe * 0.295200 64.23987 47.85613 0.0007 At most 1* 0.255176 35.90269 29.79707 0.0087 At most 2 0.105461 12.03951 15.49471 0.1550 At most 3 0.036506 3.012322 3.841466 0.0826 * deotes rejectio of the hypothesis at the 0.05 level **MacKio-Haug-Michelis (1999) p-values Table III: Johase Urestricted Coitegratio Rak Test (Maximum Eigevalue) Hypothesized Eigevalue Max-Eige Statistics 0.05 Critical Value Prob.** No. of CE(s) Noe * 0.295200 28.33717 27.58434 0.0400 At most 1* 0.255176 23.86318 21.13162 0.0201 At most 2 0.105461 9.027186 14.26460 0.2839 At most 3 0.036506 3.012322 3.841466 0.0826 * deotes rejectio of the hypothesis at the 0.05 level **MacKio-Haug-Michelis (1999) p-values. Both the trace statistics (table II) ad Eige value statistics (table III) above reveal the rejectio of the first ad secod ull hypotheses at 5% level of sigificace based o our decisio rule. This implies that there is two coitegratig equatios or vectors amog the variables of iterest. Therefore, there is a log ru relatioship betwee the variables. That is, the liear combiatio of these variables cacels out the stochastic tred i the series. Therefore, the estimates multiple regressio model are summarized i table IV below. 56
Table: IV: Regressio Estimates Depedet Variable Idepedet Variables Coefficiets t-statistics Probability LOG(RGDP) CONSTANT 12.69467 136.4748 0.0000* R 2 0.871458 F-statistics 133.8958 Note: * idicates sigificace at 0.05 level. LSMs 0.0000043 11.39712 0.0000* RINTR -0.007350-2.425954 0.0175* INF -0.002007-2.987993 0.0037* MS 0.000000095 12.72800 0.0000* The result of the regressio (table IV) shows that the idepedet variables (LSMEs, RINTR, INF ad MS) joitly explaied about 87% variatios or chages i ecoomic growth. More specifically, the result reveals that SMEs fiacig (LSMEs) has a positive impact o ecoomic growth. Holdig all other variables costat, the growth rate of the ecoomy will icrease by 0.0000043 for every 1 uit icrease i LSMEs o the average. I additio, the result idicates that LSMEs is statistically sigificat i explaiig ecoomic i Nigeria. That is, SMEs is fudametal i achievig ecoomic growth i Nigeria. 5.3 Grager Causality: The grager causality testig procedure is stated as follows: ( RSS R RSS UR ) / m F = RSS UR /( k ) Where; m is equal to the umber of lagged M terms ad k is the umber of parameters estimated i the urestricted regressio. As a way of decisio, the ull hypothesis is rejected if the probability value is less tha the 0.05 level. The grager causality test result betwee ecoomic growth (RGDP) ad SMEs (LSMEs) is preseted i table V below Table V: Grager Causality betwee RGDP ad LSMEs Null Hypothesis F-Statistics Prob. LSMEs does ot grager cause RGDP 6.02738 0.0003 RGDP does ot grager cause LSMEs 1.89568 0.1206 The result i table V above reveals that SMEs grager cause ecoomic growth i. This meas that ecoomic growth ca be predicted with great accuracy by usig past values of SMEs, all other thig remaiig uchaged or held costat. O the other had, ecoomic growth does ot grager cause SMEs. This reveals a uidirectioal causal relatioship betwee SMEs ad ecoomic growth i Nigeria. 6.0 Coclusio/Recommedatios The role of SMEs i the achievemet of ecoomic growth i Nigeria was empirically ivestigated by this study, usig a coitegratig regressio model ad grager causality test. The Johase 2 likelihood ratio test statistics, the trace ad maximal eigevalue coitegratio test statistics, reveals two coitegratig equatios or vectors amog the variables of iterest. The coitegratig regressio result idicates that SMEs are statistically sigificat i the determiatio of ecoomic growth. This meas that SMEs remai idispesable i our pursuit of ecoomic growth ad developmet as a atio. I additio, SMEs positively impact or effect ecoomic growth. That implies a boost to the ecoomy for every icrease i the operatios ad activities o SMEs. The added cotrol variables, RINTR, INF ad MS, are all statistically sigificat i explaiig ecoomic growth, with MS impactig ecoomic growth positively, while RINTR ad INF exhibit egative effects. The grager 57
causality test reveals a uidirectioal causality betwee SMEs ad ecoomic growth, ruig from the former to the latter. Movig forward, adequate ad coordiated fiacig with relatively low iterest rate should be made available ad assessable to SMEs across Nigeria, as paucity of fud has remaied the major bae to their successful operatios. Also, govermet should make available eeded ifrastructure ad icetives like regular power supply, good roads ad tax holiday. These would greatly ehace ad ecourage the activities of SMEs ad positio them to play their all importat role i the achievemet of ecoomic growth ad developmet i Nigeria. Refereces Bamidele, R. (2012), Small ad medium scale eterprises (SMEs): A Paacea for Ecoomic Growth i Nigeria, Joural of Maagemet ad Corporate Goverace, Volume 4, Jue, 2012. Eigbiremole, G.O. (2013), Ivestmet Expediture ad Ecoomic Growth i Nigeria, Germay, Lambert Academic Publishig. Ekpeyog, D. B. (1997) "Problems of Small Busiess ad why they Fail." Joural of Geeral Studies, Bayero, Uiversity, Vol. 3, No.1. Evbuomwa G. O., Ikpi A. E., Okoruwa V. O. ad Akiyosoye V. O. (2012). Prefereces of Micro, Small admedium Scale Eterprises to Fiacial Products i Nigeria. Joural of Agricultural Ecoomics ad Developmet, 1(4), 80-98. Mahmoud, D. (2005) "Private Sector Developmet ad Poverty Reductio i Nigeria: Maistreamig the Small Medium Eterprises Sector." The Nigeria Ecoomic Submit Group (NESG) Ecoomic Idicators, 11 (1), Jauary -March: pp. 18 23. Moreikeji, S.A. ad Oluchukwu, N.B. (2012), Impact of Small ad Medium Scale Eterprises i the Geeratio Of Employmet I Lagos State. Kuwait Chapter of Arabia Joural of Busiess ad Maagemet Review Vol. 1, No.11; July 2012. Nkwe N. (2012), Role of SMES i Botswaa. America Iteratioal Joural of Cotemporary Research Vol. 2 No. 8; August, 2012. Oluba, M. (2009). Sausi tsuami: wages of fiacial recklessess. The Spectator, August, 21-27, p.15. Oreoluwa A.R. (2011), Small ad Medium Scale Eterprises ad Ecoomic Growth i Nigeria: A Assessmet of Fiacig Optios. Pakista Joural of Busiess ad Ecoomic Review Vol. 2, Number 1 (2011). Osuagwu, L. (2001), Small Busiess ad Etrepreeurship Maagemet, Surulere, Lagos, Grey Resources Limited. Qureshi, J. H. (2012), The Role of Small ad Medium Size Eterprise i Socio-Ecoomic Sustaiability i Pakista, Global Joural of Maagemet ad Busiess Research, Volume 12, Issue 19, Versio 1.0. Sacerdoti, E. (2005) "Access to Bak Credit i Sub-Sahara Africa: Key Issues ad Reform Strategies. Iteratioal Moetary fud (IMF) Workig Paper WP/05/166, August. Utomi, P. (1997) "The Role of Higher Istitutios i Promotig Etrepreeurship ad Small Busiesses i a Developig Ecoomy: Lesso From Experiece." I FadahusiGlu ad Tuji, Daodu edts., Small ad Medium Eterprises Developmet: Policies, Programmes ad Prospects. West Africa Maagemet Developmet Istitutes Network (W AMDEVN): pp. 120-128. 58