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THE IMPACT OF GLOBALIZATION ON SMALL AND MEDIUM SCALE ENTERPRISE IN NIGERIA

ABSTRACT

This study is on the impact of globalization on small and medium scale enterprises in Nigeria we used ordinary least square estimation procedure in regressing commercial banks loans to SME (s), trade openness, rate of interest rate and inflation rate on gross domestic product. Our result shows that both trade openness and interest rate are negatively related while inflation rate and commercial banks loans are positively related to economic growth in Nigeria during the study period. Based on these, the governments are advised to increase loans given to SME’s at a reduced interest rates to encourage the economy growth of SME’s.

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Globalization remain one of most controversial issue of our time, its implications range from trade and investment flow interest economist, to the ease with which we take to people all over the would, ease of travel, the ease with which we can see and hear view and event, around the would. The most striking aspect of globalization has been the growing interdependence of countries resulting from their increased economic integration via trade, foreign investment, foreign and international integration of people and ideals made possible by modern electronic communication. Virtually all countries of the world today are faced with the realities of increase integration of would trade and capital flows facilitated by the rapid growth of information technology and the opening up of hitherto closed societies and economies.

           In the world of increasing globalization, foreign investment and most country government, alike are paying greater attention to link, between project and local business, many of which are small and medium scale enterprise, as a way in which large scale investment can benefit with the investor and local community. Despite the importance of small and medium scale enterprise to the economies of both developing and developed countries, they have traditionally had difficulty in obtaining formal credit or equity. Small and medium scale enterprise are regarded by creditor and invested as high-risk borrowers because of insufficient assets and low capitalization vulnerability to marked fluctuation and high mortality rates, lack of accounting record, inadequate financial statement, as business plan make it difficult for creators to asses the credit worthiness of potential small and medium scale enterprise proposal. As a result, commercial banks are generally biased toward, large corporate borrowers which provide better business plans more reliable financial information and better chance of success and high profit for the bank.

          When banks do lend to small and medium scale enterprises, tend to charge premium for assuming risk and apply tougher screening measure, it driver up cost all sides. Commercial bank often prefer to lend to the government and the public sectors there is also the problem of inside texiting and cronyism, which diverts finance away from small and medium scale enterprise. Leading commercial banks have been particularly successful in servicing the small and medium scale enterprises marked, and increase the volume and profitability. Although the business environment in developing country differs in many respects, the problems of servicing small and medium scale enterprises customers are similar, namely high perceived risk, liquidity administrative costs and problem with information asymmetry.

1.2. STATEMENT OF THE PROBLEM 

The Nigeria economy has continued to present the symptoms of a country in a regressed state even after about twenty- one years of the inception of SAP, which marked the formal adoption of economic globalization in Nigeria. Despite policy effect made since the 1980’s the petroleum sectors continues to account for about 94% of the country’s total expert value. As a large percentage of foreign direct investment that comes into the country goes to the extractive industries. The manufacturing sectors has been on the verge of collapse and contributes about 3% of GDP as Nigeria has being a dumpling ground for all kinds of products (Orubu and Awepegba 2004, Aluko Akintola), while globalization favour the banking and financial sectors it’s impact on industry and agriculture is negative. These sectors are the victims of liberal interest rates, liberates trade and unstable foreign exchange regimes. Yet they constitute the real and productive sectors of the economy.

The questions to be addressed by the research are as follows:

-How can small and medium scale enterprises in Nigeria be used to facilitate sustained economic development through it’s we in the global economy process?   

-  In what ways can the small and medium scale enterprises sub-sector in   Nigeria be improved to be a major global player in the global economy?

- Does a Nigeria small and medium scale enterprises stand a chance of benefiting from globalization?

1.3   OBJECTIVES OF THE STUDY

The main objectives of this research are to ascertain the impact of globalization on small aid medium scale enterprises in Nigeria. The specific objectives are:

a.                 To examine the consequences of globalization on small and medium scale enterprises in Nigeria.

b.                 To proffer policy measure from findings.

c.                  To examine how small and medium scale enterprises can become more competitive and possible ways in order to increase its chances of benefiting from active participation in the global economy. 

1.4     RESEARCH HYPOTHESIS

Hi: There exist a negative relationship between globalization and small and medium scale enterprises in Nigeria.

Ho: There exist a positive relationship between globalization and small and medium scale enterprises in Nigeria.

1.5     LIMITATION OF THE STUDY

The study was constrained by some limitation such as data constraints; there was inadequate data such as lack of information to enable the study to be carried out extensively. Especially on the internet, where there were a lot of restricted file that needed password to be able to get through. The constraint by time and financial factors, as both time and finance to source for information was limited.

1.6      SCOPE OF THE STUDY

This study of impact of globalization on small and medium scale enterprises will cover areas such as globalization and funding arrangement for small and medium scale enterprises in Nigeria with a view to explore a more sustainable way of credit delivery to small and medium scale enterprises. The scope spreads across small and medium scale enterprises business in Nigeria especially those in the business in textile, soap and detergent making, electronic making and furniture making. The primary focus of this study is to identify the need to upgrade small and medium scale enterprises pedigrees in Nigeria to match other players in the global world and try to identify ways to make small and medium scale enterprises more viable in Nigeria.

The data used in this study covers a period of eighteen years (18) (1991-2008). The impact of globalization on small and medium scale enterprises was analysed using data taken from Central Bank of Nigeria Statistical Bulletin, National Bureau of Statistics (NBS), Journals, publications, magazines, and the Federal Budget Office.

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