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INFLATIONARY EFFECT OF PRODUCTION COST ON ENTREPRENEURSHIP DEVELOPMENT

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INFLATIONARY EFFECT OF PRODUCTION COST ON ENTREPRENEURSHIP DEVELOPMENT

 

CHAPTER ONE

INTRODUCTION

 

Background Of The Study

The small entrepreneurship has been generally acknowledged as the bedrock of the industrial development of any country. In developing countries, Nigeria have since the 1970‟s shown increased interest in the promoting entrepreneurship by financing and small and medium scale enterprises for three main reasons. According to Owuallah, (19999:9), these reasons are:

 

  1. Transformation of traditional or indigenous industry

 

  1. Increase in job creation.

 

iii.              Redistribution of wealth and income

 

These small and medium scale enterprises serve as training grounds for entrepreneurs even as they generally rely on more on the use of local materials. Osaba, (1987:105) says that, the distribution of goods has continued to be the only viable and reliable option for development, growth and survival of any economy. The work explore the increasing factor pricing as a constraint to entrepreneurship development and its prospects as it contributes to the growth and development of the Nigeria economy.

 

Entrepreneurship has been full recognized by government and development experts as the main engine of economic growth and major factor in promoting industrial development and partnership (Adeusiyi, 1997:95).

 

Ajakaiye (2003) state that the central bank of Nigeria (CBN) has initiated a project for baseline economic studies to develop in integrated information system for SMEs to foster better economic environment for entrepreneurship.

 

Most Entrepreneurs ventures in Nigeria can be categorized into urban and rural enterprise. The former can be sub-divided into organized and unorganized enterprise. The organized ones tends to have paid employee with a registered office whereas the unorganized category mainly made up of artisan who work in open space temporary wooden structures, or at home and employ little or in some no salaries workers (Lied Holm and Mead, 1987, World bank, 1992).

 

Statement of Problem

 

The persistent increase in the factors’ price (inflation) is a cogent economic and environmental variable. Despite various government’s policies and programmes to curb inflation in Nigeria, it has continued to defy solution due to the fact that the sources of inflationary trends are multi-dimensional and dynamic. Inflation is an indication of persistent increase in general price level of goods and services in an economy (Jhinghan, 2002). When the general price level rises, each unit of currency buys fewer goods and services. Inflation depicts a reduction in the purchasing power of each unit of currency. Inflation has continually risen in Nigeria; indeed it has attained a double digit status (Central Bank of Nigeria, 2013). Industrial inputs have become very expensive and the Consumer Price Index shows that the cost of living is continually on the increase while cost of inputs changes upward arbitrarily. A feature of the problems of the Nigerian economy is that the Naira fluctuates regularly against the dollar and other major foreign currencies (Gboyega, 2013).

 

This slide is expected to continue, considering the over reliance of Nigerian economy on imports at the expense of local production (Ajayi, 2010). A reduction in Naira value exerts pressure on the price of imported goods which is very high in the production function resulting in high cost of production. Inflation has adverse effects on savings, investment, productivity and balance of payments in the Nigerian economy (Eregha, 2010). It is observed that the Central Bank of Nigeria (CBN), which is government’s principal regulatory agency in the financial sector, has not been able to determine why inflation is difficult to control (Oriahki, 2010). Persistent rise in prices has been experienced since 1996 as a result of stringent monetary policies of the Central Bank of Nigeria. It however increased further in 2001, 2003, 2008 and 2012 to 11.56%, 12%, 11.56%, 15.1% and 23.84% respectively (CBN, 2010; CBN 2011; CBN 2012). The GDP growth rate increased steadily between 1985 and 1990 but fell sharply in 1986 and 1987 to 2.5% and 0.2%. However the growth rate has been slightly relatively high since 2000. An examination of the long term pattern reveals the following secular swings: 1972 – 1980 Boom, 1981 – 1984 Crash, 1985 – 1991 Renewed Growth, 1992 – 2013 Wobbling (CBN, Statistical Bulletin 1972 – 2013).

 

Objective of the Study

 

The broad objective of this study is to assess the relationship that exists between inflation and entrepreneurial development in Lagos. Specifically the objective of the study is to:

 

  1. To identify the major problems militating against entrepreneurial development in Lagos state.

 

  1. To establish the relationship that exists between the business performance of entrepreneurs and persistent increase in production cost (inflation).

 

  1. To make recommendations on strategies for effective entrepreneurial development in Lagos state

 

Research Questions

 

It is clear that entrepreneurs living within Lagos state encountered various problems in their bid to make profit or to succeed as thriving business owners despite their numerous contributions towards socio-economic development of the state.

 

In order to realize the main aim of this study therefore answers to the following questions were sought:

 

  1. What are the major problems militating against entrepreneurial development in Lagos state?

 

  1. What is the nature of the relationship that exists between the business performance of entrepreneurs and persistent increase in production cost (inflation)?

 

  1. What recommendations can be made on strategies for effective entrepreneurial development in Lagos state?

 

RESEARCH HYPOTHESES

 

The researcher for this study has chosen this hypothesis:

 

HO: There is no significant relationship between inflation and entrepreneurial development

 

H1: There is a significant relationship between inflation and entrepreneurial development

 

SIGNIFICANCE OF THE STUDY

 

This research would be invaluable benefit to both the financial institution and entrepreneurship experts and scholars in Nigeria, as well as the counties policy makers who have desire to place Nigerian on a sound economic and industrial footing. When this research is concluded, it would have contributed to the study of knowledge already pilling on the issue of constraints on growth of entrepreneurship, which cannot over look an aspiring nation like Nigeria.

 

SCOPE OF THE STUDY

 

This scope of this study in terms of its contents is restricted to the concept of inflation as constraints on entrepreneurship development in terms of enterprise achieving its organizational goal and objective. The study is limited to five selected small and medium scale enterprises in Lagos state as proxy for entrepreneurship development in Lagos state considering factor pricing as a challeng for growth of output and overall business development.

 

The researcher restricted the study to Lagos state because of limited finance and time, constraint and therefore, service as a sample representative of the entire state and indeed Nigeria as a whole. The convenience of data collection is another reason behind the researcher‟s choice of the study.

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