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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,
reducingmaternal 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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