CHAPTER ONE

INTRODUCTION
1.1 Background of the Study
Many scholars have written widely on small and medium scale enterprises (SMEs) and its
potency to generate employment, thus, underscoring the quintessence, significance and
relevance of this sub-sector in the development of any given economy. The experience of
developed economies in relation to the roles played by small scale industries buttresses the
fact that the importance of entrepreneurship cannot be over emphasized especially among
the developing countries. In order to highlight its significance in relation to the growth and
development of a given economy, small scale industries have been variously referred to as a
“source of employment generation”. This is because small scale industrial activities have
been found to be capable of making positive impacts on the economy of a nation and the
quality of life of the people (Adejumo 2000). Studies have established its positive
relationship with stimulation of economic growth; employment generation; and
empowerment of the disadvantaged segments of the population, which include women and
the poor (Olurermi and Gbenga, 2011; Thomas and Muller, 2000; Reynolds, 1987).
Nigeria as a country has numerous business and investment potentials due to the abundant,
vibrant and dynamic human and natural resources it possesses. Tapping these recourses
requires the ability to indentify potentially useful and economically viable fields of
endeavors. Nigerians have made their marks in diverse fields such as science, technology,
academics, business and entertainment.

Thus, small and medium scale enterprises (SMEs) activities and innovative ingenuity in
Nigeria have developed enterprises in the following areas, agricultural/agro-allied activities
where there are foodstuffs, restaurants, fast food vending etc. in the area of information and
telecom business, there are manufacturing and repairs of GSM accessories and the printing
and setting of recharge cards. In hospitality and tourism business, there are hotels,
accommodation, resorts centers, films and home video production; in oil and gas business,
there are construction and maintenance of pipelines, drilling, refining bye products. In the
area of environment and waste management business, there is refuse collection/disposal,
recycle plant and drainage/sewage construction job. In the area of financial banking services,
there is banking, insurance and stock trading. In engineering and fabrication work, there are
machines and tools fabrications there is also the building and construction, where there are
plan and design services and material sourcing (Agbeze, 2012)

These human and natural resources notwithstanding, Nigeria are still one of the poorest
countries in the world and Africa despite its alleged strong economic growth.
Chukwubuikem (2008) notes that youth’s full-time unemployment rate for 2006-2008 was
55.9 percent, 4 times higher (Salami, 2011). Many other industrial sub-sectors to such a
vibrant one that they have been able to reduce to the barest minimum their unemployment
and poverty level because of the immense contribution of the sub-sector to their economic
growth and development but such cannot be said of Nigeria (Onugu, 2005). In respect of the
above sad and deplorable situation, the government has done little to reduce the misery and
frustrations of the citizen. This has foisted a state of hopelessness on majority of young
people who have resorted to any means including crime to succeed in life. They resort to
vices because they are not gainfully engaged. In other words, they are unemployed;
unemployed, not because they lack the qualification but because the system has been
crippled politically economically, socio-culturally and even religiously. People especially
youths and graduates became displaced economically (Kuratko, 2009), a situation that
clearly negates the millennium development goals for 2015, I and II: to halve the proportion
of people living in extreme poverty and to halve the proportion of people suffering from
hunger respectively.
The dexterity with which hunger and poverty have devastated lives and future ambition of
youths especially graduates in Nigeria, have led to scholars prescribing small scale industries
development as the permanent cure for extreme hunger and poverty necessitated as one of
the external forces that influence the development of small and medium scale enterprises
(SMEs). The great need for small and medium scale enterprises (SMEs) development in
Nigeria today, more than ever, is necessitated by the rate of unemployment and its effect on
both the people and the nation and the need for small and medium scale enterprises (SMEs).

In spite of the fact that small and medium scale enterprises (SMES) development has been
regarded as the bulwark for employment generation and technological development in
Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant
unpleasant impacts on the economy against this backdrop. Entrepreneurship when and if
gallantly developed in Nigeria will take its pride of place in fuelling unemployment and thus
generating employment among Nigerian youths especially the graduates and once again,
place the economy on a proper footing.

It is in this respect that this research seeks to investigate the connection between small and
medium scale enterprises (SMEs) and employment generation in Nigeria; assessing the level
of unemployment in Nigeria and how far entrepreneurship has thrived, and also examines
the major problems of entrepreneurship and thus proposing some plausible strategies that
can promote effective small scale industries that will help quell unemployment and thus
generate employment for the Nigerians youths especially. Based on the above background,
the study intends to investigate the role of entrepreneurial development in unemployment
reduction in Nigeria with particular reference to Abuja Municipal Area Council (AMAC).

1.2 Statement of the Problem

Nigeria is a country with numerous business and investment potentials due to the abundant
vibrant and dynamic human and natural resources it possesses. As good as the foregoing
sounds, Nigeria continues to experience its share of social, economic and political upheavals
which have often stunted its growth and development into the regional economic power that
it strives to attain. Nigeria has a relative high rate of violent crimes (Onurubiko, 2009). The
fact is that the Nigeria is becoming hostile to investment due especially to lack of steady and
sustainable power supply/energy crises in spite of the various attempts are reviving this
sector landing to firms depending on generators for their operation whose cost of buying,
fueling and maintenance are high, thereby increasing the cost of operation in Nigeria.

Besides, high and multiple levies and taxations being paid by these companies, energy crises
have combined to make the cost of doing business in Nigeria to be very exorbitant when the
industries and factories closed shops or relocated to a friendlier economic environment,
workers were laid off and prospects of recruiting new ones were dashed. All these
exacerbated the crisis of youth unemployment in the labour market (Adeloye, 2010; Onifade,
2011). Therefore this research work intends to investigate the role of entrepreneurship
development in unemployment reduction in Nigeria with particular reference to Abuja
Municipal Area Council (AMAC).

1.3 Research Questions:

This research would provide answers to the following research questions:

I. To what extent does the establishment of small and medium scale enterprises
(SMEs) helped in solving the problem of unemployment in Abuja Municipal Area
Council (AMAC)?
 II. To what extent does employment provision resulting from the establishment of
small and medium scale enterprises (SMEs) actually affect the standard of living of
the people?
III. To what extent does the establishment of small and medium scale enterprises
(SMEs) assist in mitigating the high level of social vices in Abuja Municipal Area
Council (AMAC)?

1.4 Objective of the Study.

The main objective of the study is to examine the role of the small and medium scale
enterprises (SMEs) in solving unemployment problem in Abuja Municipal Area Council
(AMAC). Specifically the study seeks to;

I. Examine the effect of the establishment of small and medium scale enterprises
(SMEs) in solving the problem of unemployment in Abuja Municipal Area Council
(AMAC).
II. To ascertain if the employment provision resulting from the establishment of small
and medium scale enterprises (SMEs) actually affects the standard of living of the
people living in Abuja Municipal Area Council (AMAC).
III. Determine if the establishment of small and medium scale enterprises (SMEs) assists
in the mitigating the high level social vices in Abuja Municipal Area Council
(AMAC).

1.5Research Hypothesis
In the course of this research effort, the hypotheses stated were tested. Thus:
 I. There is no significant relationship between small and medium scale enterprises
(SMEs) and the resolution of unemployment in Abuja Municipal Area Council
(AMAC).
II. There is no significant relationship between employment provision from the
establishment of small and medium scale enterprises (SMEs) and the standard of
living of the people.
III. There is no significant relationship between the establishment of small and medium
scale enterprises (SMEs) and the mitigation of social vices in Abuja Municipal Area
Council (AMAC).

1.6 Significance of the Study

It is worthwhile to lay great emphasis on the significance of this study target groups and
potential recipients showing how it will add knowledge, contribute to knowledge or aid
practice. Hence, this study will be indispensable to many. To the entire Nigerian populace,
this study will broadly enlighten them on the concept of small and medium scale enterprises
(SMEs) and how small industries development brings about unemployment reduction in
Nigeria scale.

Also, the Nigerian government is not left out. This promising research piece will clearly
show the public authorities and government officials how to effectively develop small scale
industries as they have been identified as engine of economic growth and development
hereby providing employment for the teeming unemployed youth. The study will help the
policy makers to recognize the importance of small and medium scale enterprises in the
provision of employment to the labour force for economic development. This shall further
guide them to make trade policies to enhance the performance of small and medium scale
enterprises (SMEs) as regards their activities to accommodate mushrooming population that
is attributed to high birth and fertility rates as well as rural urban migration within the
country.

Also, to students and other scholars who intend to widen their knowledge in the study of the
small and medium scale enterprises (SMEs) development as a panacea for unemployment
reduction, this study shall be a basis of reference since it focuses on the cause of the
establishments, how the unique characteristics of the industries have facilitated their role in
the provision of employment undertaken to harness their activities and how their activities
contributes to economic growth and development.

1.7 Scope and Limitations of the Study

The study focuses on the role of small and medium scale enterprises (SMEs) in
unemployment reduction in Abuja Municipal Area Council (AMAC). The economic
potentials of small and medium scale enterprises (SMEs) in relation to employment
generation shall also be explained as well as the benefit explained with particular reference
to Abuja Municipal Area Council (AMAC)

The limitations the researcher encountered during the survey are time constraint, lack of
finance, respondent’s attitudes and transportation constraints.

Time Constraints: Research of this nature requires sufficient time for the execution. But in
the case of this project, the allotted time was quite insufficient. In this regard, the researcher
was under pressure throughout the while work in order to meet the deadline.
Respondents Attitude: Some of the respondents appeared to be biased in their response and
the greater percentage of the bias is during peak sales periods when the respondents had little
or no time for non business discussion.

Finance: Finance has always been the pilot around which the success of any research
revolves. In this case, the researcher was constrained financially because the researcher had
a little stipend from the guardian.

Finally, it is worthy to note that in spite of all these limitations, the researcher was able to
cover meaningful the scope of the study.

1.8 Definition of Terms

Enterprise: An enterprise is an entity engaged in an economic activity.

Small Scale Enterprises (SMEs): is regarded as small or medium sized if it has not more
than 250 employees and not more than 50 Million Euro turnover respectively a balance sheet
total of less than 43 Million Euro and if not more than 25% of the shares of such an
enterprise are in the ownership of another enterprise.

Unemployment: Unemployment refers to a situation where people who are willing and
capable of working are unable to find suitable paid employment.

Economic Growth: This is a term that is generally refers to the sustained, concerted efforts
of policy makers and living and economic health of a specific area or is a phenomenon of
marked productivity and increase in gross domestic product (GDP).
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

INTRODUCTION

The aim of this chapter is to review and study the existing literature and theories that are
related to this study, this chapter examines the basic theories and models underlying the
subject of Small medium enterprises (SMEs) and its role in solving unemployment. Hence,
the review of literature on theories and policies that constitute and explain both small and
medium enterprises (SMEs) and unemployment as a concept were carried out in this chapter.
Again the chapter contains the review of similar and related works done by different
scholars, with regard to the role of small and medium enterprises in solving unemployment
problems in Nigeria.

2.1 Conceptual Framework

2.1.1 The Concept of Small Scale Enterprises

The meaning and concept of small scale enterprises cannot be completely isolated
from the operational environment. Thus the perception and definition is highly dependents
on the particular economy that provides the environment of operation. In Nigeria, there
seems to be no clear out definition or scope of determining small and medium scale
enterprises (SMEs). However varied definition and scope were made by some agencies and
Umeh (2009) cited such definitions as follows:

Defining small business has always been very difficult and controversial. A small
scale business is defined as one which is independently owned and operated and not
dominant in its field of operation. (Tushabomwe-Kazooba 2006). It can also be defined in
terms of sales volume and by the number of employees in the business. According to
Ogunleye (2004), what might therefore be defined as Small and Medium Scale Enterprise
(SME) in a developed country, can be regarded as a large-scale enterprise in a developing
country, using such parameters as fixed investment and employment of the labour force. It is
important also to recognize that definitions change over time and hence, even in a
developing country, what was previously classified as small and medium enterprise (SME)
could be regarded as a large-scale industry when the quantities of relevant parameters
change during the production process.

The term small business‟ covers a variety of firms (Hertz, 1982; Nguyen and
Bellehumeur, 1983) and it is used loosely in most of the literature. According to Peterson,
Albaum and Kozmetsky (1986), a small business is one which is independently owned and
operated and which is not dominant in its field of operation. Researchers and other interested
parties have used specific criteria to operationalize the small business, from the perspective
of value added, value of assets, annual sales, and number of employees. Annual sales and
number of employees are most often used to delimit the category. The problem of definition
confronts all researchers as well as operators in the field.

A review of the literature on small and medium enterprises (SMEs) shows that the
definition of small and medium enterprises (SMEs) significantly varies from country to
country depending on factors such as the country’s state of economic development, the
strength of the industrial and business sectors, the size of small and medium enterprises
(SMEs) and the particular problems experienced by small and medium enterprises(SMEs)
(Harabi, 2003). Hence, there is no uniform or universally accepted definition of small and
medium enterprises (SMEs) (Investment Climate Assessment, 2009). In Nigeria, parameters
such as asset base (excluding land), the number of workers employed and the annual
turnover are used for the classification of small and medium enterprises (SMEs). Carpenter
(2001) maintains that there is no one definition for small and medium enterprises (SMEs);
they are defined in Nigeria and other countries based on one or all of the following: the size
or amount invested in assets excluding real estate; the annual turnover and the number of
employees. The 1992 review by the National Council on Industrial Standards (NCIS)
defined small and medium scale enterprises (SMEs) as enterprises with total cost (including
working capital but excluding cost of land) of more than N31m, but not exceeding
N350million, with a labor size of between 11 and 100 employees. There is, however, a
consensus of opinions when it comes to defining SMEs in terms of asset base than on any
other parameter. This is because in case of an economic depression, the impact on turnover
and employment base would be greater than the impact on asset base. For instance, during a
depression, there is a tendency for turnover and the number of people employed to fall
substantially, while the asset base may be unaffected (NCIS, 1992).

The national directorate of employment defined it as being able to accommodate

project with capital investment as loan as N5,000 and employing as few as three persons.
The Central Bank of Nigeria in its monetary policy guidelines 1980 defined small scale
business as an enterprises whose annual turnover rangers between N25 000 and 50,000, also
he indicated that the Federal Ministry of Industries before the Structural Adjustment
Programme (SAP) and Foreign Exchange Market, defined small scale business as any
manufacturing, processing or service industry with capital investment of not more than
N150,000 in plant and machinery. The Nigeria Bank for Commerce and Industry also define
the small scale enterprises as firms’ or companies with assets [including working capital but
excluding land] not exceeding N750,000 and paid employment of up to 50 persons and such
an establishment wholly owned by Nigerians.

Measuring the appropriateness of some of these definition, Nwakobi in the Umeh

(2009) criticized most of the definition describing them as merely “institutional” Nwabobi
holds the views that the definitions do not paint a healthy of the gowth of small scale
business enterprises, considering the difficulties involved in capital formation and other
discrimination of attitudes of the banks towards the owners of small scale business
enterprises. In July, 2001, the national council on industries at the 13 th meeting in Markudi,
Benue State, reviewed and adopted the following classification of industrial enterprises and
came up with the definition that “A small scale industry is an industry with total capital
employed of over N1.5 million but not more than N50 million including working capital
excluding cost of land and of labour size of 11-100 workers.

However, a review of the performance index of small scale business can be best
anchored on the United Nations industrial development organization definition of small
scale business as “an economic venture” that is characterized by the following: Ownership
and management being vested in the same individual; Capital being made available by an
owner on whom the policy decision rest; and the owner participating very actively in all
decision making Processes on a day to day operation basis with a high degree of rigid
emerged, especially in the developing world, with roles of employment generation,
encouragement of rural development, assisting substantially I lifting gross domestic product,
developing entrepreneurship and providing avenue for self employment (Ideomobi, 2012).
2.1.2 The Concept of Unemployment

Every economy is characterized by both active and inactive populations. The

economically active ones are referred to as the population willing and able to work, and
include those actively engaged in the production of goods and services and those who are
unemployed. The International Labour Organization (ILO) defines the unemployed as
numbers of the economically active population who are without work but available for and
seeking work, including people who have lost their jobs and those who have voluntarily left
work (World Bank, 1998). According to Fajana (2000), unemployment refers to a situation
where people who are willing and capable of working are unable to find suitable paid
employment. Itn is one of the macro-economic problems which every responsible
government is expected to monitor and regulate. The higher the unemployment rate in an
economy the higher would be the poverty level and associated welfare challenges. Fajana
(2000), Alao (2005), and Wikipedia (2010) identify the following types of unemployment.

Structural unemployment occurs when there is a change in the structure of an industry or

the economic activities of the country. This may be because people's tastes have changed or
it may be because technology has outmoded and the product or service is no longer in
demand. It is mostly to be found in the developing countries of Asia and Africa. This type of
unemployment is due to the deficiency of capital resources in relation to their demand. In
other words, structural unemployment results from a mismatch between the demand for
labour, and the ability of the workers.

Frictional Unemployment is caused by industrial friction in which jobs may exist, yet the
workers may be unable to fill them either because they do not possess the necessary skill, or
because they are not aware of the existence of such jobs. The employable may remain
unemployed on account of shortage of raw materials, or mechanical defects in the working
of plants. Therefore, the better the economy is doing, the lower this type of unemployment is
likely to occur.

Seasonal Unemployment is due to seasonal variations in the activities of particular

industries caused by climatic changes, changes in fashions or by the inherent nature of such
industries. In the tropical region, ice factories are less active in rainy season because demand
for ice is low. Seasonal oriented industries are bound to give rise to seasonal unemployment

Cyclical Unemployment also known as Keynesian unemployment or the demand deficient

unemployment is due to the operation of the business cycle. This arises at a time when the
aggregate effective community demand becomes deficient in relation to the productive
capacity of the country. In other words, when the aggregate demand falls below the full
employment level, it is not sufficient to purchase the full employment level of output.
Cyclical or Keynesian unemployment is characterized by an economy wide shortage of jobs
and\ last as long as the cyclical depression lasts.

Residual Unemployment is caused by personal factors such as old age, physical or mental
disability, poor work attitudes and inadequate training.

Technological Unemployment is caused by changes in the techniques of production.

Technological changes are taking place constantly, leading to the increased mechanization of
the production process. This naturally results in the displacement of labour and finally
causing unemployment (Oladele, et al, 2011). Whatever the type and cause of
unemployment, entrepreneurship is its answer.

2.1.3 Causes of Youth Unemployment in Nigeria

In the study of unemployment in Nigeria, Adebayo (1999), Alanana (2003), Echebiri

(2005), Morphy (2008 and Awogbenle and Iwuamadi (2010) have identified the main causes
of youth unemployment in Nigeria. The first is the rapidly growing urban labour force
arising from rural urban migration. Rural-urban migration is usually explained in terms of
push-pull factors. The push factors include the pressure resulting from man-land ratio in the
rural areas and the existence of serious underemployment arising from the seasonal cycle of
climate. The factors are further exacerbated in Nigeria by the lack of infrastructural
facilities, which makes the rural life unattractive. Youths move to urban areas with the
probability of securing lucrative employment in the industries. In addition to this, there is the
concentration of social amenities in the urban centers. This meant that the rural areas are
neglected in the allocation of social and economic opportunities.

The second is the rapid population growth. Going by the 2006 census in Nigeria, the
nation’s population was put at 140,431,790 and projections for the future indicate that the
population could be over 180 million by the year 2020, given the annual growth rate of 3.2
percent (National Population Commission and ICF Macro, 2009). With this population,
Nigeria is the most populous nation in Africa. It is argued that the high population growth
rate has resulted in the rapid growth of the labour force, which is far outstripping the supply
of jobs. The accelerated growth of population on Nigeria’s unemployment problem is
multifaceted. It affects the supply side through a high and rapid increase in the labour force
relative to the absorptive capacity of the economy.

The third is the outdated school curricula and lack of employable skills. Some
scholars and commentators have argued that as far as the formal sector is concerned, the
average Nigeria graduate is not employable and, therefore, does not possess the skills needed
by the employers of labor for a formal employment. After all, employers do not need people
to pay or spend their money on but people that will help their organization grow and make
more profit as the primary goal of every enterprise is to make profit. Often, this is attributed
to the Nigeria’s education system, with its liberal bias. The course contents of most tertiary
education in Nigeria lack entrepreneurial contents that would have enabled graduates to
become job creators rather than job seekers.
 The fourth is the rapid expansion of the educational system which directly leads to
increase in the supply of educated manpower above the corresponding demand for them.
This contributes to the problem of the youth unemployment in Nigeria. For instance,
according to Manning and Junankar (1998) quoted by Okoye, N., Kenneth, I., and
Ugochukwu, U. (2014), the total number of graduates turned out by the higher institutions in
Nigeria, which were 73,339 in 1986/1987 which rose to 131,016 in 1996/1997. Presently,
with over 97 universities in Nigeria (both federal, state, and private) and the increasing
demand for higher education there has been the problem of suitable employment for the
varieties of graduates who are turned out by these higher institutions every year.

Ordinarily, this should not have been a problem, but the reality is that the Nigerian
economy is too weak to absorb this large number of graduates (Utomi, 2011). Further, there
is no vibrant manufacturing sector which has the capacity to absorb unemployed youths in
Nigeria, as there are over 800 collapsed industries in Nigeria and over 37 factories have
closed shops in 2009. About half of the remaining operating firms have been classified as
“ailing,” a situation that poses a great threat to the survival of manufacturing in the country
in the next few years.

According to a survey carried out as part of its membership operational audit in

January 2010 by the Manufacturers Association of Nigeria (MAN), the 834 figure represents
the cumulative aggregate of firms that have shut down their operations in 2009 across the
country. The MAN survey usually covers five manufacturing enclaves, into which the
country is divided, in terms of manufacturing activities. These include the Lagos, northern,
southeast, south-south and southwest areas. The report of the survey showed that in 2009, a
total number of 176 firms became terminally sick and collapsed in the northern area,
comprising the Kano and Kaduna states manufacturing axis. In the southeast area, which is
comprised of Anambra, Enugu, Imo, and Abia states, a total number of 178 companies
closed during the period. While in the south-south area, which consisted of Rivers, Cross
River, and Akwa Ibom states, 46 companies shut down operations before December 2009.
According to the survey, the southwest area, which is comprised of Oyo, Ogun, Osun, Ondo,
Ekiti, Kogi, and Kwara states, lost 225 companies during the year. It said that the Lagos
area, covering Ikeja, Apapa, Ikorodu, and other industrial divisions in the state, followed
closely with 214 manufacturing firms closing shop before the end of 2009 (Okafor, 2005;
2011).

In a nutshell, Nigeria is a country with numerous business and investment potentials

due to the abundant, vibrant and dynamic human and natural resources it possesses. As good
as the foregoing sounds, Nigeria continues to experience its share of social, economic and
political upheavals which have often stunted its growth and development into the regional
economic power that it strives to attain. Nigeria has a relative high rate of violent crimes
(Onwubiko, 2009). The fact is that the Nigeria is becoming hostile to investment due
especially to lack of steady and sustainable power supply energy crisis in spite of the various
attempts are reviving this sector lading to firms depending on generators for their operation
whose cost of buying, fueling and maintenance are high, thereby increasing the cost of
operation in Nigeria. Besides, high and multiple levies and taxations being paid by these
companies, energy crises have combined to make the cost of doing business in Nigeria to be
very exorbitant. When the industries and factories closed shops or relocated to a friendlier
economic environment, workers were laid off and prospects of recruiting new ones were
dashed. All these exacerbated the crisis of youth unemployment in the labor market
(Onifade, 2011).

Corruption, which has permeated the entire social structure of Nigeria, has robbed the
country of developing a vibrant economic base. Funds meant for development projects have
been misappropriated, diverted, or embezzled and stashed away in foreign banks, while
some incompetent and corrupt bureaucrats and administrators in the public enterprises and
parastatals have liquidated these organizations (Okafor, 2011). The point being made here is
that the collaboration of the political elites, local and foreign contractors in the inflation of
contract fees have robbed Nigeria of the chances of using more than $500 billion estimated
revenue from the oil sale in the last 50 years to develop a vibrant economy that would have
created jobs for the youths in various sectors of the economy. The ruling (political) class
failed because they replaced the vision, policy, and strategy, which should be the thrust of
every leadership with transactions (contract award and other mundane money related
activities), as each successive government took turns to prey on the nation’s wealth, by using
public power, resources, good will, utilities, instrument of abuse, and personal gains
(Okafor, 2005).

Thus crippling the economy and engendering and exacerbating unemployment which creates
abject poverty, hunger and frustration; killing the zeal and means for entrepreneurship
development in the Nigerian youths.

2.3 Theoretical Framework

This chapter deals with some theories relating to unemployment. The theories that are
discussed under here are the theory of innovations and the classical school theory.

2.3.1 Theory of innovations

Originally, this theory was developed by the German economist Von Mangoldt (Ekelund
and Hebert 2007) wrote a book about small and medium enterprises (SMEs) profits in 1855
and connected profits to risk. He provided several ways by which the small business can
make profits. These ways are (1) finding particular markets, (2) acquisition of productive
agents, (3) skillful combination of factors of production, (4) successful sales policy, and (5)
innovations. And it is well understood proposition that small business profits will increase
employment (Mohammed 2010).
Schumpeter (1934) does not provide explicitly a theory of unemployment but his theory of
the business cycle does demonstrate clearly how unemployment can be reduced. Innovation
which creates more jobs relative to job destruction is the basic force beyond the increases in
employment and the decreases in unemployment. When small businesses innovate
something new such as the production of a new product, the finding of a new market,
introducing a new method of production and the invention of new technologies and a new
organization they increase investments to materialize those innovations. Domestic
investment expenditures will increase demand on economic resources and will increase their
prices. Other small businesses will imitate the leaders by adopting the new innovations.
Labor and materials will be employed to produce the new items. Consequently, wages will
be increasing and unemployment will be declining, assuming that employment creation will
outweigh employment destruction due to the new innovations.

2.3.2 Classical school theory

The classical school theory was developed in the 18 th and 19th by various scholars, but the
most important theorist associated with this is Knut Wicksell in the year 1923. Wicksell
thinks that if wages are sufficiently flexible downward, then this decline can maintain full
employment (Jonung 1989). Cheaper credit to businessmen is the most effective measure to
fight unemployment. He even thought that the government should support private
investment in the development of small and medium enterprises (SMEs). Government can
support the introduction of various inventions as well; support should be financed by
taxation.
Wicksell analyzes technical unemployment due to technological change as well. The
introduction of machinery would cause unemployment but the unemployed will search for
new jobs, a search that will push wages downward. Hence, full employment is restored
again. For the normal (frictional) unemployment, Wicksell thinks that advertisements and
employment agencies can reduce the normal rate of unemployment. The cyclical
unemployment, as another type of unemployment, is due to the lack of effective demand. He
though it would be a good idea to raise wages in order for workers to buy more. But this
action may cause workers to lose their jobs as a result of higher wages.
Essentially, for Wicksell the cyclical unemployment was due to the wrong investment of
capital. Capital was invested in areas where rates of return were low. He concluded that
public works is the best measure to fight cyclical unemployment. After World War I,
Wicksell thinks the boom and the rise in prices induced by the war would come to an end;
thus, unemployment would rise.
Hayek (1984) contends that unemployment is due “to a discrepancy between the distribution
of labor between industries and the distribution of demand among their producers. This
discrepancy is caused by a distortion of the system of relative prices and wages.” In other
words, the unemployment is caused by “a deviation from the equilibrium prices and wages
which would establish themselves with a free market and stable money.” This is actually a
mismatch between demand and supply of labor, which is usually caused by expansionary
monetary and fiscal policies and powerful trade unions. These policies create economic
dislocation and structural changes in an economy which misdirect labor and other economic
resources to other alternatives. Unions are also able to set higher wages compared to market
wages, which generate unemployment, particularly in industries that become less profitable.
In short, for Hayek the unemployment problem is caused by resources being in the wrong
places at the wrong time and can be corrected if wages and prices are determined by the
equilibrium of supply and demand.
In line with Hayek theory of unemployment, Trehan (2001) provides an important
explanation of the search theory of unemployment. Small and medium enterprises (SMEs)
search for the productive workers and workers search for high-paying jobs. So, both agents
continue searching until matches are reached. At that point a worker will leave the
unemployment pool. But if a worker realizes later on that his/her productivity is worth
higher wages and firms are paying high wages on the average, then the worker’s reservation
wage will increase. Consequently, the unemployment rate will start rising gradually,
indicating a mismatch has occurred again.

2.4 The Role of Small and Medium Scale Enterprises (SMEs) in Solving
Unemployment Problems in Abuja Municipal Area Council (AMAC)

Hardly, can any major industry succeed in isolation of the service and contribution of
small business enterprises. The relative strength of their importance and role vary from one
industry to another. In fact the importance of small and medium scale enterprises (SMEs) is
any economy cannot be over estimated. Firstly, continuous growth in the economy of any
nation depends to large extent on the startup of small scale enterprises business. Even on a
recessionary economy, small and medium scale enterprises are a legitimate and viable
component in any strategy for reconstructing the economy (Idemobi, 2012).

Furthermore, it is emphasized that the small and medium scale enterprises (SMEs)
make the possibility of the equitable distribution of national income more realsistic of
providing employment opportunities on a large scale, by creating more employment
opportunities on large scale and by creating more employment they help in mobilizing
capital and human resources that would otherwise be left idle. Some small and medium scale
enterprises no doubt, provide certain distinct service that in most case may not be matched to
the success of large businesses.

The role of small and medium scale enterprises (SMEs) in the development of Abuja
Municipal Area Council (AMAC) has made it very possible for firms to depend less on
imported goods or materials. They often rather depend on locally made machines and local
raw material as inputs. One can buttress this point further by the fact the non dependence of
small businesses on imported raw materials as inputs leads to a reduction in the demand of
foreign raw materials thereby saving the foreign exchange earnings of the nation and solving
unemployment problems.

Worthy of mention also is the advantage of solving payments problems as a result of

less dependence on imported inputs. This has an attendant blessing of creating an interest in
the promotion of homemade products. In this way, small business ventures generate
revenues and strength the Nigeria Economy.

Small scale enterprises have shorter gestation period and as a result, yield quicker
returns on investment. They facilities balanced industrial development in that only such
small scale venture can easily be established in many rural areas. In this regard, that presents
a potent means of reducing rural urban migration and its consequential urban congestion,
unemployment and other social vices. Small scale enterprises also serve as a training school
for indigenous entrepreneurs and provide the opportunity for acquisition of skills for a large
number of workers. They facilitate a speedy development of Abuja Municipal Area Council
(AMAC).
2.5 Empirical Literature on the Subject Matter

Kadiri (2012) explored the contribution of small scale enterprises to

employment generation in Nigeria by providing sectorial analysis of the generation. The
Bionomical logistic regression analysis was explored as the tool for statistical analysis, result
of the study shows that the sector was unable to achieve this goal sue to its inability to obtain
adequate business finance. Onakoya, Fasanya and Abdulrahman (2013), studies on the
impact of financing small scale enterprises on economic growth in Nigeria, using quarterly
time series data for 1992 to 2009. The result reveal that loan to small scale enterprises have a
positive impact on the economic growth. They concluded that the worst obstacle confronting
small and medium scale enterprises in Nigeria is managerial capacity, and access to capital
of finance.

Akighir (2011) works on rice processing and unemployment reduction in

Kwanda local Government Council of Benue State, Nigeria. The study measured
unemployment status using head count ratio and poverty gap measures. The findings showed
that rice processing reduced the unemployment status of the respondents. The study
identified the challenges of rice processing to include; low capital, poor transportation
network and low price of locally processed rice among others.

In a similar study conducted by Ojodu (2005) on SMEs as a sustainable development

strategy in Nigeria in which random sampling techniques was used to select 200 respondents
out of a total population of 350 SMEs within Mushin local council development area of
Lagos State with the adoption of questionnaire and interview as research instrument it was
discovered that majority of this respondents see their businesses (SMEs) as a way out of
endless unemployment meaning SMEs is a singular and unmatched strategy of combating
underdevelopment occasioned by the menace of unemployment with attendant predicament
associated with it. Considering the above reviewed empirical studies, SMEs no doubt is an
indispensable factor to ensure sustainable growth and development in an economy
characterized by incessant kidnapping, political thuggery, harm robbery and other socio
vises brought about by unemployment

2.6 Study Gap

Most of the various studies that were carried out in this field such as (kadiri, 2012, Akighir,
2011and Ojodu 2005) failed to evaluate the roles of small and medium enterprises (SMEs)
in solving the unemployment problems in Abuja Municipal Area council (AMAC) which
serves as a study gap. They either looked at various sector ranging from rural development,
poverty eradication, economic development, manufacturing and agricultural sectors. This
study looked at the role of small and medium enterprises in solving unemployment in
Nigeria using the Abuja Municipal Area Council (AMAC) as a case study.
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter focuses on the research methodology. This can be regarded as the road map
or sample of the entire research activities and the section is expected to provide
information on techniques and methods used in the course of the study. The following
headings are interacted with in this chapter: research design, sources of data collection,
method of data collection, population of the study, sample size and sampling techniques,
and method of data analysis.

3.2 Area of the study

The objective of this study is to assess the role of small and medium enterprises in
solving unemployment problems in Abuja Municipal Area Council (AMAC). The Abuja
Municipal Area Council (AMAC) was created on October 1984. It is located on the
eastern wing of the Federal Capital Territory and comprise of twelve wards namely, City
center, Garki, Gui, Gwagwa, Gwarimpa, Jiwa, Karshi, Karu, Nyanya, Orozo and Wuse.

3.3 Research Design

The research design methods used in this study aims at investigating the role of small
and medium enterprises in solving unemployment in Abuja Municipal Area Council
(AMAC). The research design applicable to this study is basically descriptive, applying
the field survey dimension of the design. This was considered appropriate because
survey design can generally be used to effectively investigate problem in realistic
settings.
3.4 Population of the Study
The population of the study is 2,236 small and medium enterprises (SMEs) of different kinds
(services, manufacturing, processing, oil & gas, educational etc) operating in the Abuja
Municipal Area Council (AMAC).

3.5 Sample Size and Sampling Techniques

Due to the large population size, the Taro Yamane formula would be used to determine the
sample size of the sample of the study.

The solution is illustrated below:

N
n ¿ 1+ N (e)²

Where;

n = sample size

N = population size

e = error margin

1 = constant

2236
n ¿ 1+ 2236(0.05)²

2236
n ¿ 1+ 2236(0.0025)

2236
n ¿ 1+ 5.59
 2236
n ¿ 6.59

n = 339

The sample size adopted for the study is 339 respondents. The simple random sampling was
used in this study; this was adopted with the view of reducing the unfairness of the
respondent’s opinion on the topic during the distribution of questionnaires.

3.6 Sources of Data

The study makes use of both primary and secondary data to achieve its objectives. The
secondary data was acquired from library documents, research journals on the internet, and
relevant materials related to the research. The study makes use of both sources of data with
the aim of creating a form of balance between the research observations and available
literature on the matter under consideration. However, the primary data used was obtained
through questionnaires distributed to the respondents in Abuja Municipal Area Council
(AMAC).

3.7 Method of Data Collection

The gathering of relevant data using appropriate instrument is the basis of any research. In
this study, the method employed in gathering the requisite data is through the use of
secondary source of data and questionnaires.

Secondary source of data

The secondary source of data for additional and supplementary information to the research
work was obtained from research work previously carried out by other people and
organizations. The sources of the secondary data include text books, magazines, journals,
lecture notes etc.

Questionnaire

The data gathering instruments for this study are 103 copies of structured questionnaire, the
questionnaire serves as a major tool for the collection of data for the study. It is divided into
sections. Section A which provides the Bio-data about the respondents and section B
provides information which is used in the analysis and test of hypothesis formulated for the
study.

3.8 Method of Data Analysis

The primary data generated were carefully summarized and presented for analysis so as to
answer the research question with the aim of providing solution to the research problems. To
derive useful meaning from the data generated, the following statistical techniques and
procedures was used:

i. Simple Percentage: This was used in the analysis of each of the questions in the
questionnaire and was presented in a tabular form.
ii. Chi-Square: This was adopted in testing the hypothesis formulated. The chi-Square
formula is stated below:
X2 =∑ (O-E) 2
E
Where:
O = Observed frequencies
E = Expected frequencies
X2 = Chi-Square
iii. All the statistical test and analysis were carried out at the conventional 5% level of
significance.
iv. The chi-square calculation is used to further enhance the acceptance or rejection of
either the null (H0) hypothesis or alternate hypothesis (H1).
It is also aimed at giving the research work a statistical backing and proper
calculation.
If the calculated value is greater than the critical value, we reject the null hypothesis
(H0).
If the critical value is greater than the calculated value we accept the null hypothesis
(H0).