THE ROLE OF GOVERNMENT IN THE GROWTH OF SMALL AND MEDIUM INDUSTRIES. A RESEARCH PROJECT MATERIAL ON ENTREPRENEURSHIP
1.1 BACKGROUND TO THE STUDY
Interest in the role of Small and Medium Industries in the development process continues to be in the forefront of policy debates in developing countries. The advantages of Small and Medium Industries are numerous, including: the encouragement of entrepreneurship; the greater likelihood that Small and Medium Industries will utilise labour intensive technologies and thus have an immediate impact on employment generation; they are easily established rapidly and put into operation to produce quick returns. More generally the development of Small and Medium Industries can be seen to be accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation.
The role of finance has been viewed as a critical element for the development of small-scale industries. Previous studies have highlighted the limited access to financial resources available to smaller industries compared to larger organisations and the consequences for their growth and development (Udechukwu, 2003). Typically, smaller industries face higher transactions costs than larger industries in obtaining credit (Olorunshola, 2003). Poor management and accounting practices have hampered the ability of smaller industries to raise finance. Information asymmetries associated with lending to small-scale borrowers have restricted the flow of finance to smaller industries. In spite of these claims however, some studies show a large number of small industries fail because of non-financial reasons.
The panacea for solving problems of economic growth in developing countries often reside in the development of Small and Medium Industries. The establishment of those industries has been the centrepiece of industrial development of many countries such as India, Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the gains to be derived from the establishment of small-scale industries will be translated into the generation of employment at a low investment cost. These industries will also be able to harness raw materials locally and serve as raw inputs to the large-scale industries.
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