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Clusters, Networks, and Innovation in Small and Medium Scale Enterprises (SMEs)

The Role of Productive Investment in the Development of SMEs in Nigeria

Series:

Osmund Osinachi Uzor

The book presents a new approach towards the promotion of Small and Medium Scale Enterprises (SMEs). Over three decades there have been controversies in development policy circles on whether SMEs in Sub-Saharan Africa have the potential to create and sustain employment, generate income, alleviate poverty, and contribute to economic growth. The concerns were due to the worsening employment crisis in the region, increasing poverty, structural weakness and increasing globalisation pressure. Several theoretical approaches with respect to promoting Small and Medium Scale Enterprises in the region are discussed in the book, notably the view that certain internal and external constraints are limiting the growth of SMEs, and the view that specific obstacles, such as access to finance, local and global markets, entrepreneurship and management, human resources and training, information, innovation, and access to networks and technological capability have been extensively investigated.

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Chapter 1: Introduction - 1

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Chapter 1: Introduction 1.1 Research Problem Nigerian economy has encountered prolonged Dutch Disease created by over- dependence on oil exports. Between 1970s and 1990s, the economy was supported by overvalued exchange rate primarily for imports of consumer goods. Consequently, productivity in the non-oil sectors especially the tradable goods in agricultural cash crops and in the manufacturing sector was weakened. After independence, Nigeria pursued development strategy that placed priority on certain capital-intensive industries. The policy objectives were ill conceived ideas and subject to frequent reversal. Location of the so-called Core Industrial Projects (ICPs) and other public industries were ethnic motivated without economic consideration. Investments were concentrated on final stage consumer goods that lack inter-firm linkages. The industrial capacity and the production expanded rapidly to the detriment of agricultural development. The industries were protected with high tariffs and subventions. In the course of time severe scarcity of foreign exchange and surging foreign debt compounded the economic problem. Couple with mismanagement, these strategies could not be sustained as a result of their high dependency on imported inputs hence the firms became uncompetitive and non-viable. When oil prices collapsed in early 1980s, the country gradually slipped from a middle-income oil producing country in the 1970s and early 1980s to one of the lowest-income country in mid-1980s and 1990s1. In other words, a substantial improvement in income and employment could have been possible if the economy was significantly diversified away from the oil sector2. The consequences of over-dependence on oil ranges from risks of economic...

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