The Role of Productive Investment in the Development of SMEs in Nigeria
Chapter 1: Introduction - 1
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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