SMALL AND MEDIUM-SCALE ENTERPRISE FINANCING AND INDUSTRIAL GROWTH IN AFRICA

Abstract

Small and medium-scale enterprises (SMEs) have been identified as the engine and foundation of rapid industrial growth. Unfortunately, the potentials of the SMEs to accelerate the process of industrialization in Africa have been undermined by numerous constraints, prominent among which is lack of access to finance. The study examined the impact of SMEs financing on industrial growth in Africa using panel time-series data from all the 15 ECOWAS countries from 1986 – 2016. In implementing the panel data regression, the study engaged in panel unit root using the LLC, IPM, Fisher-type ADF and PP tests, and co-integration tests using the Kao residual-based and Johansen Fisher combined tests. The study also placed adequate control for any unobserved heterogeneity among the ECOWAS countries, using a well-specified fixed effect in exploiting the time dimension present in the dataset. The result shows that SMEs output significantly affects industrial growth positively while the Deposit Money Banks’ credit to SME’s do not have significant impact on industrial performance during the review period. The result further reveals that interest rates have a significant negative impact on industrial growth. Based on these findings, the study recommends that monetary authorities in ECOWAS countries can encourage easy access to finance by making available interest-free loans using microfinance institutions.