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.




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.

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 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.

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 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.

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.


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,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.

Most large scale industries in Nigeria have reduced their borrowings due to high interest rates and the short term nature of available loans. At the same time, banks are unwilling to lend to the small and medium scale sector with its high perceived rises. In this case, lending is not efficient to the real sector and loanable funds are currently used to finance primary consumer imports and to separate in foreign exchange markets. The research question from the above experience is thus; will small and medium scale contribute much to economic growth in Nigeria when they are not properly funded.


The aim of this research work is to examine the importance of small and medium scale industries on the Nigerian economy in order to ascertain how small and medium scale is utilized in production using the available raw materials and resources with a view to achieve gradual formalization in the guest for national industrialization. Meanwhile, the specific objectives are:

a. To determine the impact of small and medium scale enterprises.

b. To examine the effect of small and medium scale enterprises.


For the purpose of this study, the research developed the following hypothesis.

Ho: Small and medium scale industries are not catalyst for economic development and growth in Nigeria.

Hi: Small and medium scale industries are catalyst for economic development and growth in Nigeria.


The significance of the study is to establish an extent of growth and development and to expose the immense benefit derivable from small and medium scale industries. Also, this study will help to redress the belief of the society that small and medium scale industries can bring about economic and development in Nigeria.