THE ROLE OF SMALL AND MEDIUM SCALE ENTERPRISES (SMES) IN COMBATING HIGH RATE OF UNEMPLOYMENT IN THE F.C.T.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Unemployment remains one of the major socioeconomic challenges confronting developing economies, particularly countries experiencing rapid population growth, increasing numbers of school leavers and limited opportunities for formal wage employment. In Nigeria, the problem has continued to attract the attention of government, policymakers, business organisations and development institutions because of its implications for poverty, income inequality, insecurity, economic instability and the general standard of living. The situation is particularly important in urban centres, where many individuals move in search of better employment opportunities but may find it difficult to secure stable and adequately remunerated jobs.
Employment is an important component of economic and social development. It provides individuals with income, promotes financial independence, improves household welfare and enables people to participate meaningfully in economic activities. When people are unable to find work despite their willingness and availability to work, their productive abilities may remain underutilised. Prolonged unemployment can also increase dependence on family members, intensify poverty and expose vulnerable individuals to social and economic difficulties.
The National Bureau of Statistics (NBS, 2024) reported that Nigeria's unemployment rate stood at 4.3% in the second quarter of 2024, compared with 5.3% in the first quarter of the same year. The report also showed that unemployment among young people aged 15–24 was 6.5%, while the urban unemployment rate was 5.2%. These figures were produced under Nigeria's revised labour-force measurement framework, which focuses on whether individuals are employed, unemployed or outside the labour force according to specified international standards. It is therefore important to interpret the figures using the applicable methodology rather than comparing them directly with unemployment estimates produced under earlier measurement systems.
Beyond the official unemployment rate, the structure of employment in Nigeria presents another important concern. A large proportion of working Nigerians engage in self-employment and informal economic activities. According to the NBS (2024), informal employment accounted for approximately 93% of total employment in the second quarter of 2024. This indicates that many Nigerians depend on informal businesses, personal enterprises and other non-formal employment arrangements for their livelihoods. It also highlights the importance of small businesses in providing opportunities for individuals who may not have access to formal employment.
The Federal Capital Territory (FCT), with Abuja as its administrative and commercial centre, provides an important environment for examining the relationship between business development and employment generation. The FCT has experienced considerable expansion in population, commercial activities, construction, transportation, hospitality, education, retail trade and other service-related sectors. Its status as Nigeria's capital has attracted government institutions, private organisations, investors, professionals, traders, artisans and job seekers from different parts of the country.
This growing economic activity has created opportunities for employment, but it has also increased competition for available jobs. Many young people, graduates, school leavers and skilled individuals seek employment in government establishments and private organisations. However, the number of available formal vacancies may not be sufficient to accommodate all qualified job seekers. As a result, some individuals turn to self-employment, informal trading, vocational activities and small business ownership as alternative means of earning a living.
Small and medium-scale enterprises (SMEs) are therefore important to the economic development of the FCT. These enterprises operate in different sectors, including retail and wholesale trade, food processing, fashion design, transportation, construction, hospitality, information and communication technology, agriculture, beauty services, education and professional services. Their operations create opportunities for business owners, employees, apprentices, suppliers, distributors and other individuals who participate in their activities.
The importance of SMEs in employment generation is widely recognised. The National Policy on Micro, Small and Medium Enterprises and the National Survey of MSMEs have provided an institutional basis for understanding the contribution of smaller businesses to Nigeria's economic development. According to figures from the 2021 National MSME Survey reported by PwC (2024), micro, small and medium enterprises accounted for approximately 96.9% of businesses in Nigeria and contributed 87.9% of employment. They also accounted for 46.32% of gross domestic product and 6.21% of exports. These figures demonstrate the importance of smaller enterprises to the country's productive and employment structure.
It is necessary to distinguish between micro, small and medium enterprises when interpreting these statistics. In Nigeria, the term MSME covers businesses of different sizes, including micro-enterprises, while the present study focuses specifically on small and medium-scale enterprises. Nevertheless, the national MSME figures provide useful evidence of the wider contribution of smaller businesses to employment and economic activities.
One of the most direct ways SMEs combat unemployment is through the employment of workers. A growing enterprise may require sales representatives, accountants, cashiers, technicians, drivers, production assistants, administrative personnel, cleaners, security personnel and other categories of workers. Even where a business employs only a few individuals, the combined employment opportunities created by many enterprises can make a meaningful contribution to the labour market.
SMEs also promote self-employment by providing individuals with opportunities to establish and manage their own businesses. Not everyone seeking employment will necessarily secure a position in a government agency or large private organisation. However, individuals with appropriate skills, business ideas and access to resources may establish small enterprises that provide income for themselves and potentially create additional employment for others.
Another important contribution of SMEs is their ability to provide opportunities for practical skills acquisition. Many small businesses offer apprenticeships, internships and informal workplace training through which individuals acquire occupational skills. For example, garment businesses train apprentices in sewing and fashion design, automobile workshops develop technical skills, computer centres provide digital services training, while catering and food-processing businesses expose trainees to production and business management. These experiences can improve employability and prepare individuals for self-employment.
In addition, SMEs can generate indirect employment through their relationships with suppliers, transport operators, wholesalers, retailers and service providers. A small food-processing business, for example, may create demand for agricultural produce, packaging materials, transportation and distribution services. Similarly, a construction enterprise may engage artisans, suppliers of building materials, equipment operators and independent contractors. This means that the employment contribution of an enterprise may extend beyond the number of workers directly employed by the business.
The contribution of SMEs to unemployment reduction can also be understood from the perspective of entrepreneurship development. Drucker (1985) explained entrepreneurship as an important process through which innovation and new business opportunities are translated into economic activities. Entrepreneurs identify unmet needs, organise available resources and introduce products or services that create value. When these enterprises grow, they may expand their operations, employ more workers and create additional opportunities for other businesses.
The International Labour Organization (ILO, 2015) also recognises the importance of small and medium-sized enterprises in employment creation and economic development. SMEs can provide work opportunities for individuals who may otherwise face barriers to entering the formal labour market. Their flexibility, relatively modest capital requirements in some sectors and ability to operate within local communities make them relevant to employment strategies, particularly in developing economies.
Despite these contributions, the ability of SMEs to combat unemployment is influenced by several challenges. Access to finance remains a major concern for many small businesses. Entrepreneurs may find it difficult to obtain affordable loans because of high interest rates, collateral requirements, inadequate financial records and limited access to formal financial services. Without sufficient capital, businesses may be unable to purchase equipment, expand production, rent suitable premises or employ additional workers.
Another major challenge is the high cost of doing business. Expenses associated with electricity, fuel, transportation, rent, raw materials, taxes and regulatory compliance can reduce the amount of money available for expansion and recruitment. For enterprises operating in the FCT, these expenses may be particularly important because of differences in commercial rent, transportation costs and the general cost of operating in urban locations.
Inadequate infrastructure can also affect business development. Unreliable electricity supply, poor access roads in some areas, limited storage facilities and inadequate internet connectivity may increase operating costs and reduce productivity. Small businesses that depend on electricity for production, refrigeration, computer operations and other activities may experience additional financial pressure when they have to provide alternative power sources.
Furthermore, some SMEs face challenges relating to managerial competence, business planning, record-keeping, marketing, technology adoption and access to markets. A business may have a good product or service but fail to expand because its owner lacks the knowledge required to manage finances, maintain customers, organise workers and plan for growth. These weaknesses may limit the enterprise's ability to recruit and retain employees.
The quality of employment generated by SMEs is another issue that deserves attention. Although small businesses provide livelihood opportunities, some workers may experience irregular income, limited job security, inadequate training and poor working conditions. Consequently, the role of SMEs in combating unemployment should not be assessed only by the number of people engaged in business activities, but also by the stability, productivity and quality of the employment created.
The FCT presents an interesting setting for investigating these issues because it accommodates a wide range of business activities and employment opportunities. From small retail shops and restaurants to fashion enterprises, transport businesses, ICT centres, workshops and service providers, SMEs form part of the daily economic activities of many communities within the Territory. Their ability to survive and expand may have important implications for local employment and household income.
Although the Federal Government and other institutions have introduced programmes aimed at promoting entrepreneurship and supporting small businesses, the effectiveness of such interventions depends on access to finance, business advisory services, infrastructure, skills development and a favourable operating environment. Support for SMEs must therefore go beyond encouraging people to establish businesses; it should also help existing enterprises become productive, competitive and capable of employing additional workers.
Against this background, this study examines the role of small and medium-scale enterprises in combating the high rate of unemployment in the Federal Capital Territory. It seeks to establish how SMEs contribute to direct and indirect employment, self-employment, vocational skills development and income generation. The study also examines the challenges limiting their employment capacity and considers measures that could strengthen their contribution to unemployment reduction and economic development in the FCT.
1.2 Statement of the Problem
Unemployment is a major economic and social concern because it prevents individuals who are willing and available to work from fully participating in productive economic activities. In the Federal Capital Territory, the concentration of government institutions, private organisations, commercial establishments and educational institutions attracts people seeking employment and better economic opportunities. However, the availability of formal employment opportunities may not be sufficient to accommodate the growing number of job seekers.
Many young people, graduates, school leavers and other economically active individuals face difficulties securing stable employment. Some spend considerable time searching for vacancies, while others accept temporary or irregular work that may not provide adequate income. This situation can increase household financial pressure, discourage productive participation and contribute to economic dependence.
Small and medium-scale enterprises are frequently identified as an important means of addressing this problem because they create employment opportunities, encourage self-employment and support the development of occupational skills. Through their activities, SMEs can absorb workers who may not be able to secure jobs in large organisations. They can also provide opportunities for individuals to acquire practical experience, establish businesses and earn income through independent economic activities.
However, the ability of SMEs to make a meaningful contribution to unemployment reduction is often restricted by operational and financial challenges. Many small businesses operate with limited capital and may lack access to affordable credit. This makes it difficult for them to acquire modern equipment, increase production capacity, open additional branches or recruit more employees. Even when entrepreneurs identify opportunities for business expansion, insufficient funds may prevent them from taking advantage of those opportunities.
The high cost of business operations also affects the growth and employment capacity of SMEs. Expenses relating to electricity, transportation, rent, raw materials, taxes and other business obligations may reduce profit margins and discourage business owners from employing additional workers. In some cases, businesses struggle to remain operational, while others reduce their workforce or operate with fewer employees than required.
Another concern is the limited managerial and technical capacity of some SME operators. Poor financial management, inadequate record-keeping, weak marketing strategies, limited technological knowledge and insufficient business planning may affect productivity and business survival. Where enterprises fail to operate efficiently, their ability to create sustainable employment becomes limited.
There is also the issue of the quality and sustainability of employment generated by SMEs. Some businesses employ workers without formal employment agreements, regular remuneration or adequate opportunities for career development. Others depend heavily on family members, unpaid assistants or casual labour. Although these arrangements may provide some form of livelihood, they may not always result in stable and decent employment.
Furthermore, while SMEs are widely recognised as contributors to employment generation in Nigeria, the extent of their contribution within the FCT requires closer examination. National statistics demonstrate the importance of MSMEs to the Nigerian economy, but national figures do not automatically explain the employment experiences of enterprises operating within Abuja and the other area councils of the Territory.
The central problem of this study, therefore, is the need to determine the extent to which small and medium-scale enterprises contribute to reducing unemployment in the FCT, particularly through direct employment, self-employment, skills acquisition and indirect economic activities. It is also necessary to identify the challenges limiting their capacity to create and sustain employment and determine the measures that could improve their contribution.
The study will consequently investigate the role of SMEs in combating unemployment in the FCT, with particular attention to their employment-generating capacity, the factors affecting their growth and the policy and business support measures required to strengthen their contribution to the economy.
1.3 Objectives of the Study
1.3.1 General Objective
The general objective of this study is to examine the role of small and medium-scale enterprises (SMEs) in combating the high rate of unemployment in the Federal Capital Territory (FCT), Nigeria.
1.3.2 Specific Objectives
The specific objectives are to:
Examine the contribution of SMEs to employment generation in the Federal Capital Territory.
Determine the extent to which SMEs promote self-employment and entrepreneurial development among residents of the FCT.
Assess the contribution of SMEs to vocational skills acquisition and the employability of unemployed individuals.
Examine the relationship between the growth of SMEs and employment opportunities in the FCT.
Identify the major challenges limiting the capacity of SMEs to generate and sustain employment in the FCT.
Examine the effectiveness of government policies and support programmes in promoting SME development and employment generation.
Suggest appropriate measures for strengthening the contribution of SMEs to unemployment reduction in the FCT.
1.4 Research Questions
The following research questions will guide the study:
What contribution do SMEs make to employment generation in the Federal Capital Territory?
To what extent do SMEs promote self-employment and entrepreneurial development among residents of the FCT?
How do SMEs contribute to vocational skills acquisition and the employability of unemployed individuals?
What relationship exists between the growth of SMEs and employment opportunities in the FCT?
What are the major challenges limiting the capacity of SMEs to generate and sustain employment in the FCT?
How effective are government policies and support programmes in promoting SME development and employment generation?
What measures can strengthen the contribution of SMEs to unemployment reduction in the FCT?
1.5 Research Hypotheses
The following null hypotheses are formulated for empirical testing:
H₀₁: There is no statistically significant relationship between the activities of SMEs and employment generation in the Federal Capital Territory.
H₀₂: The growth of SMEs has no statistically significant relationship with the reduction of unemployment in the FCT.
H₀₃: There is no statistically significant relationship between SME participation and the promotion of self-employment among residents of the FCT.
H₀₄: Access to finance, infrastructure and government support has no statistically significant relationship with the employment-generating capacity of SMEs in the FCT.
The hypotheses will be tested using data collected from the selected respondents. The choice of statistical techniques will depend on the research design and the nature of the variables measured. Chi-square analysis may be used for appropriate categorical variables, while correlation or regression analysis may be considered where the data and research design support the examination of relationships.
1.6 Significance of the Study
This study is expected to be useful to government, SME owners, unemployed individuals, entrepreneurs, financial institutions, development agencies, students and future researchers.
1.6.1 Government and Policymakers
The study may provide useful information to government agencies and policymakers responsible for employment generation, entrepreneurship development and economic planning in the FCT. Its findings may help identify the areas where SMEs require support to increase their capacity to create jobs.
The study may also assist policymakers in evaluating the importance of access to finance, infrastructure, business registration support, entrepreneurship training and favourable regulatory conditions in promoting small business development.
1.6.2 Small and Medium-Scale Business Owners
The findings may help SME owners appreciate their role in addressing unemployment through recruitment, apprenticeship, skills development and business expansion. It may also encourage business owners to adopt improved management practices, maintain proper financial records, embrace appropriate technology and develop strategies for increasing productivity.
Furthermore, the study may help entrepreneurs understand how business growth can create opportunities not only for themselves but also for employees, suppliers, distributors and other individuals within their business networks.
1.6.3 Unemployed Individuals and Job Seekers
The study may help unemployed individuals appreciate the opportunities available through entrepreneurship, vocational training and participation in small business activities. It may encourage them to consider self-employment and skills acquisition as possible alternatives to relying exclusively on formal employment.
The findings may also highlight the importance of acquiring practical skills that can improve individuals' chances of securing employment or establishing independent businesses.
1.6.4 Financial Institutions and Microfinance Organisations
Banks, microfinance institutions and other financial organisations may benefit from understanding the relationship between access to finance, SME growth and employment generation. The study may encourage the development of financing arrangements that are more accessible to viable small businesses.
It may also provide useful information on the financial difficulties that prevent enterprises from expanding and employing additional workers.
1.6.5 Development Agencies and Entrepreneurship Support Organisations
Organisations involved in enterprise development, vocational training and poverty reduction may use the findings to design programmes that strengthen the capacity of SMEs. Such programmes may include business advisory services, financial literacy training, digital skills development, entrepreneurship education and support for market access.
1.6.6 Residents and Communities in the FCT
The study may help communities appreciate the importance of supporting local enterprises. When small businesses grow, they may create jobs, provide goods and services, improve household income and stimulate economic activities within their communities.
The findings may also encourage residents to patronise locally owned businesses where appropriate, thereby supporting enterprise sustainability and local economic development.
1.6.7 Students and Future Researchers
The study may serve as a useful academic reference for students and researchers interested in entrepreneurship, SME development, unemployment, labour economics and economic development. It may also provide a basis for further studies examining the relationship between small business growth and employment creation in other states and regions of Nigeria.
1.7 Scope of the Study
The study focuses on the role of small and medium-scale enterprises in combating unemployment in the Federal Capital Territory, Nigeria.
Geographical scope: The study is limited to the Federal Capital Territory. The FCT consists of six area councils: Abuja Municipal Area Council (AMAC), Bwari, Gwagwalada, Kuje, Kwali and Abaji. The researcher should specify whether the study will cover all six area councils or selected locations within the Territory.
Content scope: The study examines the contribution of SMEs to direct employment, self-employment, entrepreneurial development, vocational skills acquisition, income generation and indirect employment. It also investigates the challenges affecting SME growth, including inadequate finance, poor infrastructure, high operating costs, limited managerial capacity and access to markets.
Population scope: The population may comprise selected SME owners, managers, employees and relevant unemployed individuals or job seekers within the selected study locations. The final population should be defined in accordance with the research design and the availability of a reliable sampling frame.
Sectoral scope: The study may cover SMEs operating in sectors such as retail and wholesale trade, manufacturing, food processing, fashion and garment production, transportation, hospitality, construction, ICT and other service-related activities.
Time scope: The study will cover the period relevant to the researcher's fieldwork and the available records of the selected businesses. The exact period should be stated in Chapter Three.
The study is not intended to examine every factor responsible for unemployment in Nigeria. Rather, it concentrates on the contribution of SMEs as an instrument for employment generation and the reduction of unemployment within the FCT.
1.8 Limitations of the Study
The researcher may encounter certain limitations in the course of carrying out this study. These limitations are discussed below.
1.8.1 Limited Availability of Business Records
Some SME owners may not maintain detailed records of their employees, recruitment history, business turnover and operational performance. Others may be reluctant to disclose such information because of privacy or business confidentiality concerns. This may limit the availability of information required to measure the direct employment contribution of SMEs.
1.8.2 Financial Constraints
The cost of transportation, questionnaire printing, communication, data collection and analysis may affect the extent of the researcher's fieldwork. Financial limitations may also restrict the number of locations and respondents that can be covered.
1.8.3 Time Constraints
The period available for the completion of the research may limit the researcher's ability to reach all relevant SME operators and unemployed individuals within the FCT. This may require the use of a carefully selected sample to obtain relevant information within the available time.
1.8.4 Respondents' Reluctance to Provide Information
Some business owners and respondents may be unwilling to participate or may provide incomplete information. This may arise from concerns about taxation, business competition, confidentiality or the purpose of the research. The researcher should explain that the study is strictly academic and that responses will be treated confidentially.
1.8.5 Difficulty in Measuring Indirect Employment
SMEs may create employment opportunities beyond their direct workforce through suppliers, transporters, distributors and other service providers. However, measuring these indirect employment effects accurately may be difficult, especially where businesses do not maintain detailed records of their supply-chain relationships.
1.8.6 Limited Generalisability
If the study covers only selected area councils or business categories, the findings may not represent every SME operating in the FCT. Differences in business size, sector, location and management practices may affect the employment contributions of individual enterprises.
Despite these limitations, the researcher will make efforts to obtain reliable information through appropriate sampling, carefully designed research instruments and systematic data analysis.
1.9 Operational Definition of Terms
The following terms are defined according to their application in this study.
Small and Medium-Scale Enterprises (SMEs): Business organisations operating on a relatively smaller scale than large corporations, with classification based on applicable criteria such as employment size, assets, turnover and national policy guidelines. In this study, the term refers to the small and medium-sized businesses selected for investigation in the FCT.
Unemployment: A labour-market condition in which individuals who are within the labour force, available for work and actively seeking employment are unable to secure work, according to the applicable statistical definition.
Employment Generation: The creation of job opportunities through the establishment, expansion and operation of business enterprises.
Self-Employment: A situation in which an individual works for themselves by operating a business or engaging in an independent economic activity rather than working as an employee for another organisation.
Entrepreneurship: The process of identifying business opportunities, organising resources, accepting calculated risks and establishing or managing an enterprise to create economic or social value.
Business Development: The process of improving and expanding business operations through increased productivity, improved management, market expansion, innovation and better use of resources.
Job Creation: The provision of paid or income-generating work opportunities for individuals through business activities and economic expansion.
Vocational Skills Acquisition: The process of learning practical and occupational skills that enable individuals to perform specific tasks, secure employment or establish independent businesses.
Income Generation: The process through which individuals or households earn money from employment, self-employment, business operations or other productive economic activities.
Economic Empowerment: The improvement of individuals' ability to earn income, control economic resources and participate productively in economic activities.
Direct Employment: Jobs provided by an enterprise to individuals who work directly for the business.
Indirect Employment: Work opportunities created through the business relationships of an enterprise, including suppliers, distributors, transport operators and other service providers.
Federal Capital Territory (FCT): The administrative territory of Nigeria in which Abuja, the nation's capital city, is located. It comprises six area councils: AMAC, Bwari, Gwagwalada, Kuje, Kwali and Abaji.
Business Sustainability: The ability of an enterprise to continue operating, remain financially viable, adapt to changing business conditions and maintain its activities over time.
1.10 Organisation of the Study
The study is organised into five chapters.
Chapter One: Introduction. This chapter presents the background of the study, statement of the problem, objectives of the study, research questions, research hypotheses, significance of the study, scope of the study, limitations and operational definition of terms.
Chapter Two: Literature Review. This chapter reviews relevant literature on the concepts of SMEs and unemployment, the characteristics and contributions of SMEs, entrepreneurship and employment generation, challenges facing SMEs in Nigeria, government policies and programmes supporting SMEs, relevant theoretical perspectives and empirical studies. It also identifies the research gap that the present study seeks to address.
Chapter Three: Research Methodology. This chapter explains the research design, study area, population, sample size, sampling technique, sources of data, research instruments, validity and reliability procedures, data collection methods and techniques for analysing the collected data.
Chapter Four: Data Presentation, Analysis and Discussion. This chapter presents and analyses the data obtained from respondents. The findings are discussed in relation to the research questions, hypotheses and reviewed literature.
Chapter Five: Summary, Conclusion and Recommendations. This chapter summarises the research findings, draws conclusions based on the results and provides recommendations for improving the contribution of SMEs to unemployment reduction in the Federal Capital Territory.
REFERENCES
Drucker, P. F. (1985). Innovation and entrepreneurship: Practice and principles. Harper & Row.
International Labour Organization. (2015). Small and medium-sized enterprises and decent and productive employment creation. International Labour Office. https://www.ilo.org/
National Bureau of Statistics. (2024). Nigeria labour force survey: Q2 2024. https://www.nigerianstat.gov.ng/pdfuploads/NLFS_Q2_2024.pdf
PwC. (2024). Building resilience: Strategies for MSME success in a changing landscape. https://www.pwc.com/ng/en/publications/strategies-for-msme-success.html
World Bank. (2020). Small and medium enterprises (SMEs) finance. https://www.worldbank.org/en/topic/smefinance
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Academic note: This article is a general guide. Follow your institution's research handbook and supervisor's instructions, and verify references before using them in a submitted academic project.