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THE ROLE OF
SMALL AND MEDIUM SCALE BUSINESS AS MEANS OF ECONOMIC DEVELOPMENT
ABSTRACT
The work is
an academic exercise which attempts to study the problems and prospects of
small and medium scale enterprises in Nigeria. The researcher by undertaking
this survey was able to unearth the contributions of small and medium scale
business in changing a depressed economy. Research questions were formulated
from which the major findings were obtained and recommendations were made. One
of the findings is employment generation which is a major contribution of small
and medium scale enterprises to any nation’s economy. It is therefore
recommended that for small and medium scale enterprises to play its role in
contributing to growth and development of the Nigeria economy, government
should reform the educational systems to be more functional, relevant and
need-oriented and driven. There is also the need to restructure and strengthen
policy in favor of a rapid growth and development of small and medium
enterprises so as to serve as the hub of industrial transformation.
CHAPTER ONE
INTRODUCTION
1 .1
BACKGROUND OF THE STUDY
Experience
has shown that industrial development in any country, provides the brightest
hope for generating sustenance growth employment, saving and investment and
indeed economic development. Nigeria, like any other developing country with
relatively low per-capital income, looks unto industrialization and structural
transformation, which are imperative in the quest for the development. One of
the most critical development issues in Nigeria revolves around the need to
design andimplement policies and strategies for an effective, competitive and
diversified industrial system. This is particularly important when one
considers the country’s endowment. Olatoke (2005)
Giant
business establishment make headlines in our news media, people therefore think
less of small and medium scale businesses but a clear examination will show
that small scale business venture are also extremely important in our societal
development. Most of today business giant started from humble beginning, from
dreams and dedication of perhaps one person while backbone of our economic
system hang on those business e.g. (Oil and steel companies etc), but the small
scale industries constitutes the muscle that enable such business giant above
is obvious however; that the small medium scale businesses cannot compete
directly with big business. Experiences show that the small-businessman is
mostly successful when he fulfills a need that cannot be or is not currently
being supplied by these big business competitors.”This act to provide something
better and different, gives Nigeria’s small business vitality”. (Ihekwoaba,
2007)
The federal
government of Nigeria in realization of the importance of small and medium
scale industries to the development of the economy. In her first National
development plan (1962 – 1968) the federal government introduces import
substitution industries. In her second National Development plan in early 80s
the main strategies of the industrial policy were foreign exchange policies and
trade regulations investment incentives and special incentives to provide
credit and technical assistance to small scale industries. (Udi&Omorokpe,
2006)
Under the
structural adjustment programmes (SAP) framework, having recognized futile
expenditure with increased revenue from petroleum, a new industrial policy was
launched in 1989, which re-emphasizes direct government realization process for
the first time, the national identified small and medium scale enterprises or
the main focus and strategy for the attainment of the goal of economic
self-reliance. (Ihekwoaba, 2007)
Small and
Medium Enterprises (SMEs) as defined by the National Council of Industries
refer to business enterprises whose total costs excluding land is not more than
two hundred million naira (N200, 000,000.00) only. A lot has been said and
written about SMEs the world over. It has also formed the subject of
discussions in so many seminars and workshops both locally and internationally.
In the same token, governments at various levels (local, state and Federal
levels) have in one way or the other focused on the Small and Medium
Enterprises. While some governments had formulated policies aimed at
facilitating and empowering the growth and development and performance of the
SMEs, others had focused on assisting the SMEs to grow through soft loans and
other fiscal incentives. International agencies and organizations (World Bank,
United Nations Industrial Development Organization (UNIDO), International
Finance Corporation (IFC), United Kingdom Department For International
Development (DFID), European Investment Bank (EIB) etc are not only keenly
interested in making SMEs robust and. vibrant in developing countries but have
also heavily invested in them. Locally, the several Non-Governmental
Organizations such as Fate foundation, Support and Training Entrepreneurship
Programme (STEP), the Nigerian Investment Promotion Commission (NIPC), the
Association of Nigerian Development Finance Institutions (ANDFI), as well as
individual Development Finance Institutions (DFIs) have been promoting the
growth of SMEs in Nigeria through advocacy and capacity-building initiatives,
and have continued to canvass for better support structures for operators in
the SME subsector. All the massive attention and support given to SMEs relate
to the widely acclaimed fact that SMEs are job and wealth creators. (Olatoke,
2007)
In
justifying the introduction of SMIEIS, the then Governor of the Central Bank of
Nigeria, Sanusi (2003) said “with a concerted effort and renewed commitment
from all stakeholders, this scheme will surely succeed and realize its intended
objective of revamping the SMEs as engines of growth in the economy and a
veritable tool for thedevelopment of indigenous technology, rapid
industrialization, generation of employment for our teeming youths and the
pivot for sustainable economic development in Nigeria”. Small and Medium
Enterprises (SMEs) occupy a place of pride in virtually every country or state.
Because of their (SMEs) significant roles in the development and growth of
various economies, they (SMEs) have aptly been referred to as “the engine of
growth” and “catalysts for socio-economic transformation of any country.” SMEs
represent a veritable vehicle for the achievement of national economic
objectives of employment generation and poverty reduction at low investment cost
as well as the development of entrepreneurial capabilities including indigenous
technology. Other intrinsic benefits of vibrant SMEs include access to the
infrastructural facilities occasioned by the existence of such SMEs in their
surroundings, the stimulation of economic activities such as suppliers of
various items and distributive trades for items produced and or needed by the
SMEs, stemming from rural urban migration, enhancement of standard of living of
the employees of the SMEs and their dependents as well as those who are
directly or indirectly associated with them. (Ihekwoaba, 2007)
In
recognition of the enormous potential roles of SMEs, some of which have been
outlined above, various special measures and programmes have been designed and
policies enunciated and executed by government to encourage their (SMEs)
development and hence make them more vibrant in Nigeria. (Udi &Omorokpe,
2006)
The
highlights of these measures include:
i. Fiscal
incentives and protective fiscal policies
ii.
Specialized financial institutions and funding schemes for the SMEs
iii.
Favourable tariff structure
iv. The
SMIEIS funding scheme
v. Selective
exemption and preferential treatment in excise duties
vi.
Establishment of Export Processing Zones
vii.
Selective reservation of items for exclusive manufacture in the SME subsector
Government’s
full weight and support for NEPAD and AGOA activities and operations has
however been worrisome that despite the Incentives, policies, programmes and
support aimed at revamping the SMEs, they have performed rather below
expectation in Nigeria. Different people, organizations, and operators have
advanced various reasons as to why SMEs have not been able to live up to their
billing. While an average operator would always hinge his failure on lack of
access to finance, some others think otherwise arguing that inappropriate
management skills, difficulty in accessing global market, lack of
entrepreneurial skills and know how, poor infrastructure etc are largely
responsible. The Association of Nigerian Development Finance Institutions
(ANDFI) in 2004 issued this statement in relation to why SMEs perform poorly in
Nigeria: “Finance is usually considered as the major constraints of SMEs. While
this may be true, empirical evidences have shown that finance contributes only
about 25 percent to the success of SMEs. Thus, the creation of other
appropriate support system and enabling environment are indispensable for the
success of SMEs in Nigeria”. (Udi & Omorokpe, 2006)
1.2
STATEMENT OF PROBLEM
Small and
Medium Enterprises (SMEs) in Nigeria have not performed creditably well and
hence have not played the expected vital and vibrant role in the economic
growth and development of Nigeria. This situation has been of great concern to
the government, citizenry, operators, practitioners and the organized private
sector groups. Year in year out, the governments at federal, state and even
local levels through budgetary allocations, policies and pronouncements have
signified interest and acknowledgement of the crucial role of the SME
sub-sector of the economy and hence made policies for energizing the same.
There have also been fiscal incentives, grants, bilateral and multilateral
agencies support and aids as well as specialized institutions all geared towards
making the SME sub-sector vibrant. Just as it has been a great concern to all
and sundry to promote the welfare of SMEs, it has also been a great cause of
concern to all, the fact that the vital sub-sector has fallen short of
expectation. The situation is more disturbing and worrying when compared with
what other developing and developed countries have been able to achieve with
their SMEs. It has been shown that there is a high correlation between the
degree of poverty hunger, unemployment, economic well being (standard of
living) of the citizens of countries and the degree of vibrancy of the
respective country’s SMEs. If Nigeria were to achieve an appreciable success
towards attaining the Millennium Declaration Goals for 2015, one of the sure
ways would be to vigorously pursue the development of its SMEs. Some of the key
Millennium Declaration Goals like halving the proportion of people living in
extreme poverty, suffering from hunger, without access to safe water, reducing
maternal and infant mortality by three-quarts and two thirds respectively and
enrolment of all children in primary school by 2015 may indeed be a mirage
unless there is a turnaround of our SMEs’ fortunes sooner than later. The time
is now to do something surgical to the situation of our SMEs given the
aggravating level of poverty in Nigeria and the need to meet up with the
Millennium Declaration Goals.
The main
problems of SMEs, which are however not insurmountable: low of entrepreneurial
skills, poor management practices, constrained access to money and capital
markets, low equity participation from the promoters because of insufficient
personal savings due to their level of poverty and low return on investment,
inadequate equity capital, poor infrastructural facilities, high rate of
enterprise mortality, shortages of skilled manpower, multiplicity of regulatory
agencies and overbearing operating environment, societal and attitudinal
problems, integrity and transparency problems, restricted market access, lack
of skills in international trade; bureaucracy, lack of access to information
given that it is costly, time consuming and complicated at times. The problems
and challenges that SMEs contend with are enormous no doubt but it is curious
to know that some SMEs are able to overcome them. This gives hope and should
provide a basis for optimism that there is a way out. There must be some
survival strategies, which are not known to many SME promoters. This research
is also intended to explore and unravel some of the key business survival
strategies, which have worked for a few thriving SMEs. The benefits of this
could be tremendous in that other SMEs facing threats of extermination as well
as new and proposed new ones could also borrow
1.3 PURPOSE
OF THE STUDY
The overall
objective of this research is to identify ways and means, which will establish
and sustain the vibrancy of Nigerian SMEs so it can play the expected vital
roles as the engine of growth in our economic development efforts.
In order to
achieve this, the followings are the purpose of this study:
(1) To
identify the major problems, challenges and constraints which have militated
against the SMEs.
(2) To
examine the roles, functions and importance of SMEs in Nigeria economy.
(3) To
determine the role of government in assisting the SMEs in Nigeria.
(4) To
suggest appropriate recommendations for solving the problems, challenges and
constraints of SMEs from performing it roles.
1.4 RESEARCH
QUESTIONS
The
followings are the research questions:
(1) What are
the major problems, challenges and constraints of SMEs in Nigeria?
(2) What are
the roles, functions and importance of SMEs to Nigeria economy?
(3) What are
the roles that government should play in assisting the SMEs in Nigeria?
(4) What are
the recommendation solutions to the problems, challenges and constraints of
SMEs in Nigeria?
1.5 RESEARCH
HYPOTHESES
The
following research hypotheses were formulated for this study:
Ho: there is
no significant relationship between SMEs and the growth of Nigeria economy
Ho2: there
is no significant role played by SMEs in the growth of Nigeria economy when
compared with other sector.
1.6
SIGNIFICANCE OF THE STUDY
All and
Sundry have been seriously agitated as to what to do in order to reduce the
crippling poverty, high level of ignorance and the embarrassing high level
unemployment rate in Nigeria. Given the vital and salutary role and
contributions which SMEs play in other developed and developing economics.
This
research is significance to potential, prospective and existing SMEs. The study
will be an eye opener to them (owners of businesses) to know how to manage, its
business, how to source for fund, principles and practice to employ in
maximizing its profits and cost reduction.
The
individuals, who are not employed, will also gain from this study, in the sense
that they can easily source for funds and establish business enterprises
instead of searching for white collar jobs.
1.7 THE
SCOPE OF THE STUDY
The scope of
this study is the entire staff of Telnet (NIG) Ltd and Bitcoms system (NIG) Ltd
(small and medium scale enterprises) in Eti-Osa local government area of Lagos.
1.8
DEFINITIONS OF TERMS
i. Micro
Enterprise: A firm, whose total cost including working capital but excluding
cost of land is not more than ten million naira (N10,000,000) and/or with a
labour size of not more than thirty (30) full-time workers and/or a turnover of
less than two million naira (N2,000,000) only.
ii. Small
Enterprise: An enterprise whose total cost including working capital but
excluding cost of land is between ten million naira (N10,000,000) and one
hundred million naira (N100,000,000) and/or a workforce between eleven (11) and
seventy (70) full-time staff and/or with a turnover of not more than ten
million naira (N10,000,000) in a year.
iii. Medium
Enterprise: A company with total cost including working capital but excluding
cost of land of more than one hundred million naira (N100,000,000) but less
than three hundred million naira (N300,000,000) and/or a staff strength of
between seventy-one (71) and two hundred (200) full-time workers and/or with an
annual turnover of not more than twenty million naira (N20,000,000) only.
iv. Large
Enterprise: Any enterprise whose total cost including working capital but
excluding cost of land is above three hundred million naira (N300,000,000)
and/or a labour force of over two hundred (200) workers and/or an annual
turnover of more than twenty million naira
(N20,000,000)
only. Other abbreviations, terms and notations used in t his study include but
are not limited to the following:
(v) NASME:
Nigerian Association of Small and Medium Enterprises, which is an umbrella
association of all SMEs
(vi) MAN:
Manufacturers Association of Nigeria is the official association of
manufacturing companies in Nigeria
(vii)
NACCIMA: Nigerian Association of Chambers of Commerce, Industry, Mines and
Agriculture is an association of various Chambers of Commerce in Nigeria
viii. NASSI:
Nigerian Association of Small Scale Industries is the umbrella association of
all the Small Scale Enterprises in Nigeria
ix. DFIs:
Development Finance Institutions are companies involved in project and
development finance such as the Bank of Industry (BOI)
x. SMEs:
Small and Medium Enterprises are those firms, which satisfy the definitions
given above
xi. SMEDAN:
Small and Medium Enterprises Development Agency of Nigeria
xii BOI:
Bank of Industry, which provides medium to long-term loans to enterprises
xiii. CBN:
Central Bank of Nigeria, the apex bank in Nigeria, which supervises other banks
xiv. NACRDB:
Nigerian Agricultural Cooperative and Rural Development Bank
xv. NEEDS:
National Economic Empowerment and Development Strategy
xvi. SEEDS:
State Economic Empowerment and Development Strategy
xvii. NDE:
National Directorate of Employment.
xviii. CMD:
Centre for Management Development
xix. NAPEP:
National Poverty Eradication Programme
xx. MSME:
Micro, Small and Medium Enterprises
xxi. NGO:
Non-governmental Organization xxii. LCCI: Lagos Chamber of Commerce and
Industry
xxiii. NACC:
Nigerian American Chamber of Commerce xxiv. SRS: Simple Random Sampling.
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