INFLATIONARY EFFECTS OF PRODUCTION COST ON ENTREPRENEURSHIP DEVELOPMENT

ABSTRACT

The study sought to determine the effects of consistent increase in factor prices on entrepreneurship development in Lagos and Ogun states. Random sampling technique was adopted to administer 751 Likert -scale questionnaires titled “Inflationary effect and Entrepreneurship Development (IED)” to small scaled business operators in Lagos and Ogun states. Descriptive statistic of frequency counts, percentages, mean and standard deviation were used to summarize the data while relationship between variables was determined using Analysis of Variance (ANOVA) and Product Moment Correlation Coefficient at 0.05 level of significance using SPSS 19.0. It was discovered that a significant relationship with weak correlation existed between Regulatory Price Control (RPC) and Entrepreneurship Development (p < 0.05, r = 0.004). It was found that general price level was uncompetitive; there was high drive of SMEs from these states to neighboring West African markets and large number of “necessity entrepreneurs” in the states. The study recommended that entrepreneurs should source for raw materials locally; government should curb illegal inflow of goods through porous borders and provide industrial infrastructures which include industrial parks and incubator centers.

CHAPTER ONE

1.1 BACKGROUND TO THE STUDY

The persistent increase in the factors’ price (inflation) is a cogent economic and environmental variables. 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). With this scenario, we pose and address the research question thus: What effect does persistent rise in production cost has on entrepreneurial development in Lagos and Ogun States?

Objective of the Study

The broad objective of this study is to assess the relationship that exists between inflation and entrepreneurial development in Nigeria with emphasis on Lagos and Ogun States.