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IMPACT OF ECONOMIC RECESSIONS ON SMALL AND MEDIUM ENTERPRISES (SMES) NIGERIA: (EVIDENCE FROM PRESIDENT TINUBU ADMINISTRATION)
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INSTANT PROJECT MATERIAL DOWNLOADIMPACT OF ECONOMIC RECESSIONS ON SMALL AND MEDIUM ENTERPRISES (SMES) NIGERIA: (EVIDENCE FROM PRESIDENT TINUBU ADMINISTRATION)
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
In the immediate timeframe, the economy experiences alternating phases of rising economic activity, known as expansions, and declining economic activity, referred to as contractions or recessions. Recessions are defined by declines in both output and employment. Recessionary periods, however transient, can result in substantial economic adversity. Smoothing, which refers to reducing the fluctuations in the business cycle, can be beneficial in mitigating the negative impact of economic downturns on short-term output and employment losses (Owen, 2021). The National Bureau of Economic studies (NBER), an independent nonprofit organisation, is responsible for determining and defining recessions through its economic studies. According to NBER (2017), a recession is described as a substantial decrease in economic activity that affects various sectors of the economy and persists for a duration longer than a few months. The determination of recessions by the NBER does not rely on a single numerical criterion, but rather takes into account several factors such as income, employment, consumption, sales, and industrial production.
The Central Bank of Nigeria (CBN, 2017) states that economic recession can be attributed to two main sources: internal (endogenous) and foreign (exogenous) forces. The former is typically the result of conflicting views, the improper application of economic theory, and regulatory carelessness or policy inconsistency. The exogenous factors that contribute to a recession are external to the economy and are outside the control of policy makers. These factors include events such as natural disasters, climate change, revolutions, and conflicts. According to the United Nations, Nigeria's escalating debt, rising inflation rate, and their negative effects on the well-being of its inhabitants, pose a threat to the country's economic growth in 2024 (UN, 2023).
Global firms have substantial problems when confronted with economic recessions, which are marked by a widespread decrease in economic activity. Small and Medium Enterprises (SMEs), which are commonly seen as the foundation of many economies, are more susceptible to the negative effects of economic downturns because of their restricted resources and limited access to finance (Chinedu, 2022). The basic objective of every business is to generate value for its stakeholders, who often include investors, employees, and consumers. In essence, every enterprise must strive to generate profits, compensate its staff, and keep existing customers while also attracting new ones. The prevailing economic recession in Nigeria has had adverse effects not only on individuals but also on enterprises (Akunjobi, 2024). Large firms are anticipated to adapt to the crisis efficiently by utilising internal or external management input. However, Small and Medium Enterprises (SMEs) are unlikely to have access to such advanced procedures (Iroadu et al., 2023).
Small and medium-sized enterprises (SMEs) play a crucial role in Nigeria's economic framework, making substantial contributions to the country's gross domestic product (GDP), employment, and innovation. Based on data from the National Bureau of Statistics in 2023, small and medium-sized enterprises (SMEs) account for around 48% of Nigeria's Gross Domestic Product (GDP), playing a crucial role in driving economic growth and development. Small and medium-sized enterprises (SMEs) participate in diverse areas of the economy, including as agriculture, manufacturing, services, and retail, among others (Richard, 2022). Nevertheless, in times of economic downturn, small and medium-sized enterprises (SMEs) have distinct obstacles, such as decreased consumer expenditure, limited access to financial resources, elevated operational expenses, and interruptions in the supply chain. These issues might result in reduced profitability, the liquidation of businesses, and a deceleration in entrepreneurial endeavours. An economic recession has widespread effects on various sectors of the economy (Akande, 2023). According to Edima (2023), when there is a decrease in consumer demand for products and services, firms tend to limit their operations, resulting in a decreased need for labour and materials. Consequently, this leads to a reduction in business-to-business spending. Consequently, the rise in unemployment leads to a subsequent decrease in consumer demand. It is crucial to acknowledge that both consumers and businesses continue to make purchases during a recession, albeit at lower levels and with altered priorities (Solomon, 2022).
Nigeria, known for its vibrant and varied economy, has undergone multiple economic cycles, with the most recent one taking place under the tenure of President Bola Ahmed Tinubu. Bola Ahmed Tinubu became the President of Nigeria in May 2023. The current government faced a difficult economic situation upon taking office, characterised by a high inflation rate, unemployment, and substantial public debt. The Tinubu administration has prioritised a range of economic reforms with the objective of stabilising the economy, fostering growth, and enhancing the business climate. The objective of this study is to evaluate the repercussions of an economic downturn on small and medium-sized firms in Nigeria during President Tinubu's administration.
1.2 Statement of the Problem
The Nigerian economy has faced considerable hurdles due to the current economic slump that occurred during President Bola Ahmed Tinubu's term. Small and Medium Enterprises (SMEs), which are an essential component of the economic structure, have been specifically impacted. Although SMEs play a crucial role in stimulating economic growth, creating jobs, and encouraging innovation, they frequently face challenges in surviving and prospering during economic downturns due to their constrained resources and susceptibility to external shocks.
An issue of great concern in Nigeria is the government's reluctance to raise the minimum wage for its population, despite the inflationary effects of numerous programmes (Obi, 2024). Significant inflation rates can result in a decrease in the overall quality of life, as individuals face difficulties in sustaining their prior levels of expenditure and lifestyle (Sunny, 2021). Escalating expenses in food, housing, healthcare, and education compel households to make arduous financial choices, occasionally resulting in diminished savings and restricted investment prospects. Economic recessions generally lead to a reduction in the purchasing power of consumers, resulting in a decrease in the demand for goods and services offered by small and medium-sized enterprises (SMEs). The decrease in demand can have a significant negative effect on their revenue and profitability (Akabueze, 2023). Implementing supplementary measures, such as raising the minimum wage, could have been an effective approach to mitigate the effects of inflation on the Nigerian population. Increased purchasing power among households in Nigeria will result in higher sales for small and medium-sized enterprises (SMEs).
Furthermore, economic instability frequently gives rise to inflation and currency volatility, leading to increased charges for raw materials, transportation, and other operating costs (Lasode, 2023). Small and medium-sized enterprises (SMEs), due to their low financial reserves, face difficulties in absorbing these escalated expenses. According to Olumide (2023), financial institutions tend to become more cautious during recessions. This leads them to tighten their lending standards and decrease the amount of credit that is available. Small and medium-sized enterprises (SMEs), who already encounter difficulties in obtaining financial resources during regular conditions, encounter much greater obstacles in obtaining the required finances to sustain their operations and pursue expansion. This often results in the closure of numerous small and medium-sized enterprises (Akin, 2023).
In addition, despite the significant significance of SMEs to Nigeria's economic well-being, there is a lack of extensive research on the precise effects of economic recessions on these firms during President Tinubu's administration. The lack of understanding in this area impedes the capacity to develop efficient policies and strategies to assist small and medium-sized enterprises during periods of economic decline. Therefore, the necessity for this investigation arises.
Objectives of the study
The primary objective of this study is to critically assess the impact of economic recessions on small and medium enterprises (SMEs) Nigeria (evidence from President Tinubu administration). Specific objectives of this study are to:
To determine whether there is a significant relationship between economic recession and the performance of SMEs under President Tinubu administration.
To determine the extent economic recession has affected the availability of credits to SMEs under President Tinubu administration.
To determine the impacts of economic recession on the cost of operation of SMEs in Nigeria under President Tinubu administration.
To determine the impacts of economic recession on the sales performance SMEs in Nigeria under President Tinubu administration.
1.4 Research Questions
The following research questions which are in line with the objectives of this study will be answered in this study:
Is there a significant relationship between economic recession and the performance of SMEs under President Tinubu administration?
What is the extent economic recession has affected the availability of credits to SMEs under President Tinubu administration?
Have economic recession negatively impacted the cost of operation of SMEs in Nigeria under President Tinubu administration?
Have economic recession negatively impacted the sales performance SMEs in Nigeria under President Tinubu administration?
1.5 Research Hypotheses
To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:
Ho: There is no significant relationship between economic recession and the performance of SMEs under President Tinubu administration.
Ha: There is a significant relationship between economic recession and the performance of SMEs under President Tinubu administration
1.6 Significance of the study
The objective of this study is to address the lack of understanding regarding the effects of economic recessions on small and medium-sized enterprises (SMEs) in Nigeria during President Tinubu's administration. The study will provide evidence-based suggestions to improve the ability of SMEs to withstand and endure future economic downturns. The findings will provide a fundamental reference point for governments, entrepreneurs, students, and scholars.
Examining the impact of economic downturns on small and medium-sized enterprises (SMEs) can provide valuable insights for policymakers. It can provide guidance for the development of policies that aim to enhance the resilience of small and medium-sized enterprises (SMEs), the retention of jobs, and the stability of the economy. The findings of this study can enhance long-term economic planning and tactics for managing risks. This entails making preparations for future economic downturns and fostering resilience within the small and medium-sized enterprise (SME) sector.
Moreover, various sectors within small and medium-sized enterprises (SMEs) may exhibit distinct responses to economic downturns. Through the examination of this phenomenon, the study can elucidate the sectors that have greater resilience and those that exhibit greater vulnerability. This information is crucial for precise actions and assistance. Recessions can have a significant impact on the entrepreneurial environment by influencing the availability of capital, hindering firm growth, and impeding innovation. Gaining insight into these effects can guide approaches to cultivate a stronger and more resilient environment.
Furthermore, future scholars will utilise it as a thorough examination of the current body of literature. Consequently, other students with an interest in studying this subject will have the opportunity to utilise this work as reliable knowledge that can be comprehensively evaluated.
1.7 Scope of the study
Broadly, this study focus is to critically assess the impact of economic recessions on small and medium enterprises (SMEs) Nigeria (evidence from President Tinubu administration). Specifically, this study seeks to analyze the impacts of recession on the performance of SMEs in Nigeria under President Tinubu administration.
Geographically, the study will be conducted among SMEs in Kubwa, Abuja.
1.8 Limitations of the study
As is common in all human endeavours, the researchers faced minor limitations when conducting the study. The main limitation was the lack of extensive literature on the subject, as there is limited data available for impact of economic recessions on small and medium enterprises (SMEs) Nigeria (evidence from President Tinubu administration). Consequently, a significant amount of time and effort was necessary to locate the appropriate materials, books, or information and to gather data.
Additionally, this study is constrained by its small sample size and narrow geographical scope, focusing just on Nigeria. Consequently, the results of this study are not applicable for generalization, thereby leaving room for further research.
Additionally, the researcher's limitations were primarily due to financial constraints, as they are a student and do not have a source of income to sustain themselves. It was challenging to afford transportation expenses to and from the study location due to the high cost of transportation, which is influenced by inflation in Nigeria today.
Furthermore, the researcher faced a time constraint due to the need to do this research while also fulfilling the obligations of attending lectures and other educational activities.
1.9 Definition of terms
Economic recession: Economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales
Inflation: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
SME: SME stands for small and medium-sized enterprises. These are enterprises that have less than a specific level of investment and turnover. SMEs include both manufacturing and service businesses. The government categorizes them based on a combination of annual turnover and equipment investment.
This material content is developed to serve as a GUIDE for students to conduct academic research
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