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PROBLEMS AND
PROSPECTS OF SMALL-SCALE INDUSTRIES IN NIGERIA
ABSTRACT
In Nigeria
the recognition of the economic significance of small-scale enterprises is only
a recent phenomenon. Hitherto, the adopted industrialization strategy, which
originated in the colonial era, encouraged the undistracted use of imported raw
materials to produce import substitutes. To the extent that this strategy was
biased towards large-scale production activities, it invariably undermined the
growth and development of indigenous industries, most of which are small medium
scale in size. The major criteria used in the definition of small-scale
enterprises include member of employees, sales value, relative size, initial
capital outlay, financial strength, compassion ownership and type of industry.
This study
examines the subjects through comparative definitions of small/medium and large
enterprises and states the purposes of small-scale enterprises in the task of
building an economically viable in Nigeria. The myriad of problems faced by
small and medium enterprise are discussed extensively.
To
successfully cover this particular aspect of the project, both primary and
secondary sources of acquiring the needed data are employed and the gathered
data are sorted, organized, and arranged under different heading for a proper
analyzing using a simple percentile method.
However, of
an the various Challenges of small scale business highlighted sounds paramount
because of a number of reasons, first, the peculiar situation small-scale
industries inherently suggests a weak capital structure and constraints in
respect of access to capital markets. Second, small-scale industries
traditionally suffer discrimination in the distribution of credits in the
conventional loan markets.
Lastly,
inspite of policy declarations and measures in favour of small-scale industries
by the government, uncertainties faced by financial institutions both public
and private still lead them to concentrate lending on low-risk, large scale,
corporate borrowers.
TABLE OF
CONTENTS
CHAPTER ONE
1.0 Introduction
1.1 Background of Study
1.2 Problem of Study
1.3 Research Question
1.4 Means of Obtaining Data
1.5 Limitation of Study
1.6 Definition of Term
1.7 Purpose of Study
1.8 Significance of Study
1.9 Scope of Study
1.10 Organization of Study
CHAPTER TWO
LITERATURE
REVIEW
2.1 Introduction
2.2 Definition of Small-Medium Scale
Enterprise
2.3 Features of Small-Medium Enterprises
2.4 Roles of Small and l4edium Scale
Enterprises
2.5 Problems of Small-Medium Scale Enterprises
2.6 Financial Problem
2.7 Deficient Entrepreneurial Capacity and
Poor Business Orientation
2.8 Failure to take Advantage of Management
Consultancy Services
2.9 Inadequate Physical Infrastructure
2.10 Competition
2.11 High Cost of Business Resources
2.12 Shortage of Technical Manpower
2.13 Public Relations
2.14 Shortage Facility
2.15 Advertising and Promotion
2.16 Characteristics, Values and Problems of
Small Scale Enterprises
2.17 SMEs and Financing System
2.18 Financing Problem of Rural Small Enterprises
2.19 Examining the Problems of Financing
Rural/Small Enterprises.
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 Introduction
3.2 Hypothesis Testing
3.3 Restatement of Research Question
3.4 Characterization of Study Population
3.5 Research Instrument
3.6 Procedures and data
CHAPTER FOUR
ANALYSIS AND
PRESENTATION OF DATA
4.1 Introduction,
4.2 Description of Respondents
CHAPTER FIVE
SUMMARY,
RECOMMENDATION AND CONCLUSION
5.1 Summary of Findings
5.2 Recommendation
5.3 Conclusion
Bibliography
Appendix
Introductory
Letter
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Small scale
industries are vital sources of employment generation, development of
indigenous technology; even dispersal of industrial set-ups if increases
production of manufacturing exports, and increasing local content of industrial
output by fostering forward and backward industrial linkages to enhances the
general level of economic activity.
Since the
second National Development Plan (1970 - 1974) and third National Development
(1975 - 1980), emphasis has been placed on the development and proliferation of
small-medium scale enterprises (SMEs) for the purpose of using them as
veritable engines for economic growth and development.
From the
1970s, therefore different definition have been given as to what should be
regarded as a small of medium scale industry. The Central Bank of Nigeria (CBN)
discuses small scale enterprises, in its credit guidelines to banks as those
enterprises with annual turnover not exceeding N500.000 in the guidelines to
commercial banks and enterprises with capital investment not exceeding N2
million excluding cost of land; or with a maximum turnover not exceeding N5
million in the' case of guidelines to' merchant banks. Similarly, the federal
ministry of industry's guidelines to the Nigerian bank for commerce and
industry (NBCI) regard small scale industries as those enterprises cost of
land, but including working capital. In
practice, the Nigerian Bank for Commerce and Industry accepts small scale
industries as those enterprises with capital not exceeding N750,000 excluding
the cost of land but including working capital.
The Nigerian
Industrial Development Bank (NIDB) regards small scale enterprises as those
project cost, i.e. investment and working capital not exceeding N750,OOO and
medium scale enterprises as those with project cost ranging between N750,000
and N3 million.
The Center
of Industrial Research and Development (CIRD) at the Obafemi Awolowo
University, Ile-Ife defines small scale enterprises as those with total assets
in capital not exceeding N250,000 and employing not more than 50 full time
workers.
From the
various definitions one will notice that emphasis has often been placed on
certain financial ceilings in capital investment.
The
frequency of formation (and death) of small-scale enterprises are usually
explained by the desires of the owner-manager to own his personal business.
Thus, the small-scale enterprises being the lengthened shadow of its owner
reflect his or her strength as well as weaknesses. Thus; the small-scale
enterprises entrepreneur begins to its unique animation, abilities, work
experience, advantages and attitudes. In tum, the performance of the small
scale is determined by the personality characteristics of the owners, viz
responsibility, vigour, initiative, persistence and health thinking ability,
human relation ability, communication ability and technical knowledge.
Government
in both industrialized and developing countries provide a wide variety of
programmes to assist small and medium scale enterprises. Despite the success of
SME strategies in a few countries (e.g. Taiwan Northern Italy and Ireland), and
majority of developing countries have found impact of their SME development
programs on enterprise performance has been less satisfactory. Underlying the search for best practice are
some basic question:
i. What is the justification for pubic
intervention on the first place?
ii. Why should SMEs be singled out for
assistance?
iii. If there is justification for government
intervention, what form should that intervention take?
1.2 PROBLEMS OF STUDY
The problems
of facing small-medium scale enterprises in Nigeria are not insurmountable
since Nigeria is well placed to provide the sources to solve these
problems. In the main, the problem range
from inadequate financing, lack of accountability to lack of infrastructure.
Most small
business are a one-man proprietorship and the proprietor, through having to
give his attention to various managerial function in his business soon loses
full grip. This is why it makes for
efficient management to spread the responsibilities within the business or seek
the external assistance of a management consultant. The small-medium scale enterprises also
invariably require a high technical inputs and the cost of this technical
inputs and the cost of this technical expertise is usually high.
The issues
of inadequate financing usually derive form inadequate proprietorship equity
participation. A strong capital base and
financial outlook are required for a successful business. It therefore makes for sound financial
management to seek for more business partners who could bring in more funds to
finance the activities of the enterprises.
However, small scale enterprises are usually reluctant to bring in
partners, even at the risk of under capitalization. The underfunding of small-scale enterprises
has led government to formulate measures aimed at assisting this sector. Loan packages of the World Bank, National
Directorate to employment and in more funds to finance the activities of the
enterprises. However, small-scale
enterprises are usually reluctant to bring in partners, even at the risk of
under capitalization. The underfunding
of small-scale enterprises has led government to formulate measures aimed at
assisting this sector. Loan packages of
the World Bank, National Directorate to employment and NERFUND are among such
assistance scheme. The one-man
proprietorship syndrome of small scale enterprises is not only sad for their
financial profile but can also discourage accountability which is the foundation
of a successful business. Accountability ensures adequate control over the
appropriate financial strategies.
The
small-scale enterprises even not shielded form or immune to the lack of
infrastructure, which is the bane of all businesses in Nigeria. On the contrary, small medium scale enterprises
given more under the weight generating plant, high cost of telephone and
electricity. Needless to say, no
business can survive without their facilities.
1.3 PURPOSE OF STUDY
The major
purpose of this study are:
1. To review how small-scale proprietors
can make for efficient management by spreading the responsibilities within the
business of the need to seek the external assistance of a management
consultant.
2. Appraise the issue of risk of under
capitalization and related this to the reluctance of proprietors to bring in
partners or adequate financing.
3. Suggest ways by which the government
could improve the infrastructural base of the economy such that the cost of
development of small-scale enterprises would be reduced.
4. Overview the situation where government
could make foreign exchange affordable to small medium scale enterprises and
allow the naira to float to find its true value.
5. Review the strategy to be adopted by
SMEs in adopting a courageous approach to developing new ideas.
6. Analyze the inability of the
owned-manager to acknowledge his own weakness and tap the resources of talents
of employees.
1.4 RESEARCH QUESTION
The
tentative research questions the study funds answer to are:
1. To what extent has inadequate financing
affected the growth and development of small-scale enterprises in Nigeria?
2. To what extent has the one-man
proprietorship syndrome of small-scale enterprises of a successful business?
3. To what extent has small-scale
enterprises being affected because of the lack of infrastructure which impede
their level of development and growth?
4. To what extent have the complexity and
frustration involved in sourcing for foreign exchange to take care of the
import needs lead to high rate of business?
5. Failure to small-scale enterprises?
6. To what extent have low productivity,
poor management, poor accounting records and financial indiscipline have should
the extent at which small-scale enterprises can go?
1.5 STATEMENT OF HYPOTHESES
This
research tends to test the following hypotheses
HO: Financing small scale business in Nigeria
has a lot of problems which is not profitable.
HA: Financing small-scale business Nigeria has
prospects of which is profitable.
HO: There’s no justification for government
intervention in the growth of SMEs.
HA: There's justification for government
intervention in growth of SMEs.
1.6 METHODS OF DATA COLLECTION
There are
two types of research data namely, primary and secondary data from primary
secondary source.
Primary
data: These are data collected specifically for the research needs. The
sources: of these data for the study are administration of questionnaire given
to a person about a topic of the research, interviewing person in relevant
fields and personal observation of same activities and records kept by some
small and medium scale enterprises. This source of data is advantageous because
first and information is obtained and explanations are obtained concerning
answer to question.
Secondary
data: These are those data obtained from relevant reviewed literature which for
the purpose of this search include textbook and journals management and
financing of small and medium scale enterprises and other relevant
publications.
1.7 LIMITATION OF STUDY
The
methodology employed in this study faces some setbacks. These include
inadequate and unnecessary delay in responses, inability to have direct access
to some of the respondent cost of administering longer number of
questionnaires.
The study
also encountered sampling error because it is not everybody in the population
is sampled. Response error is also a serious drawback to the study because
respondents gave an insincere arid in appropriate response to enable -the
ascertainment of the line position of thing considering the prospects, problems
and position of small-scale enterprises in the country.
1.8 SIGNIFICANCE OF THE STUDY
The study is
important because several advantages accrue to the macro society form small
scale enterprises. These include the
development of the entrepreneurial spirit, employment generation for
entrepreneurs; promotion of savings potential and investment ratio. Skill
culture is increased as more people seek apprenticeship in preparation for
self-employment.
The study is
also important as it proffers ways to which local law materials use are
increased as low capital base might hinder the purchase of imported raw
materials obtained at the foreign exchange market (FEM) as parallel market.
The study
also affords the users the encouragement of developing local substitutes, and
strengthens the capacity to estimate and supply societal and industrial needs
through backward integration.
1.9 SCOPE OF THE STUDY
The study
covers the problems accruing to the financing accountability, management,
marketing and polities of small scale enterprises in Nigeria, bringing in
practical illustrations as much as possible.
The study
also delves into the problems which are confronted by SMEs in Nigeria ranging
from behavioural, political, cultural, socio economic and country related.
The study
does not extend to the financing, accountability, management marketing as well
as the policies of large-scale enterprises as that advantage much more than
what this study can possibly address. Hence, the study covers the activities of
some small-scale enterprises around Lagos metropolis, which are randomly
selected to cover the study centers of the project.
1.10 ORGANIZATION OF STUDY
The study is
divided into five chapters. Chapter one is the introductory part of the study
which includes review of latest literature, problems of study, background of
study, research questions, means of obtaining data, hypothesis testing,
limitation of study, definition of terms, purpose of study, scope of study, significance
of study.
Chapter two
is captured "Literature Review" where several part works the subject
matter are several reviewed to cover a well detailed theoretical framework of
the study.
Chapter
three is the research methodology of the study. It covers the research design
employed, the research instrument, restatement off research question, data
collection procedure and data analysis techniques.
Chapter four
is the analysis, presentation of data using a simple percentile method of
analysis.
Chapter five
is the summary of findings, recommendation of the study as well as conclusion
of the study. At the end of the study, suggestion for further study is offered
for interested users and readers.
1.11 DEFINITION OF TERMS
It is well
known fact that progress in organizing opinion about a subject is showed down
until the terminology that is used means the same to all concerned. Whereas small business defies easy
definition, nevertheless, for the receiver to have a meeting of minds on this
subjects matter requires the fulfillments of some definitions obligations. It
is the contention of Siropolis (1997:04) that typically we apply the term
“small business" to some type of stores such as neighourhood groceries and
restaurants. Typically, we apply "big business" to such giants as
Dupont and General motors. But within, these two extremes full these businesses
that may be considered medium size depending on the yardstick and at off point
used to measure size, among these common yardsticks for determining business
are:
i. Yearly sales revenue and
ii. Numbers of employees
Siropolis,
(1877:05) argues further that much that each yard stick has to advantages, the
number of employees has more in its favour than any others for the following
reasons;
Firstly, it
is the inflation proof, and it is affected by changes in the purchasing power
of the currency.
Secondly, it
is comparable, that is, it allows for good comparison of size between
businesses of the same industry group. Fourthly, this available that in, it is
easy to get from business people.
In Nigeria,
definitions of small-scale business have not been static. Rather they have
constantly been revised from time to time in response to changing economic
environment. But principally, the definitions have emphasized the investment
components of business and the number of employees.
The
operational definition of small-scale enterprises, in the context of study, are
those prescribed by the Central bank and those adopted by the NERFUND. The
Central bank considers an enterprises seeing small if it has capital investment
of N2 million. However, National Economic Reconstruction Fund (NERFUND)
stimulates capital investments with limits of N10 million in fixed assets
(excluding cost of land) to cover medium enterprises.
No hand and
fast ruler can guide the definition of SMEs; for example the galloping
inflation, the government changing fiscal policy and monetary policies, the
diminishing value of naira the escalating cost of raw materials and labour and
the constant change in technology and among such factors that will continue to
militate against any attempt at establishing static definition for what is small
and what is medium enterprises in the country.
According to
(Ex/Former) Governor of Central Bank of Nigeria, Chief (Dr.) Joseph Sanusi: The
conception and definition of SMEs is dynamic in character and values with time
and also values among institutions and among countries: However, the basic
definition parameters are the same and include the number of employees, asset
base; turnover, financial strength, relative size, among others.
Current
definitions are based on a mix of local condition and valuables determine the
choice of parameters to use in formulating a suitable definition.
For
instance, the Central Bank of Nigeria Monetary Policy circular No. 22 of 1988
defined small scale enterprises as an organization whose investments (including
land and working capital, do not exceed = 5m). In 1989 Nigerian Industrial
Policy defined small scale industries as those with total investment of between
N100,000 and N2 million, excluding land but including working capital. Micro
and cottage industries Were similarly defined as those with investments not
exceeding N1,000,000 excluding land but including working capital.
Also, the
decree establishing the National Economic Reconstruction Fund (NERFUND)in 1989,
defined SMEs as these with fixed asset other than land but exceeding cost of
investment project not exceeding Nl0 million. Currently, under SMEs, and SME is
defined as an enterprise with an asset base not exceeding N200 million
excluding land and working capital; and with a staff strength of not less than
10 and not more than 300. All these are the various definitions put forward by
the different local institutions. The SME department of the World Bank Group
prescribes the following definition:
Micro
Enterprise
Employees: 10 or less
Total
Asset:
N100,000 or less
Turnover: N100,000 or less
Small
Enterprise
Employees: 10 - 50
Total
Asset:
N100,000 to N3 million
Turn
over:
N100,000 to N3 million
Medium
Enterprise
Employees: 50 - 300
Total
Asset: N3
million to N5 million
Turn
over: N3
million to N5 million
Distinguished
participants, I have taken the trouble to go through the various definitional
perspectives to underline the dynamic nature as well as-the variability are
common to all the definitions such as the number of employees; total assets and
the turnover. What has also emerged from these definitions is that many of the
businesses that are currently regarded as small businesses in Nigeria are
actually micro enterprises. And this is why 'some of the policies that had been
put in place have not been beneficent to majority or the businesses in this
category.
Some basic
parameters are common to all the definition as explained such as the number of
employees; total assets and the turnover. What has also emerged from these
definitions is that many of the businesses that are currently regarded as small
businesses in Nigeria are actually micro enterprises.
A. ENTREPRENEURSHIP
This is an
aspect of the complex management processes involved in the operations and
summing of a company. It can be seen as management decision-making under
situations of great uncertainty of results, of outcome; it applies to both
large and small organization is dynamic and complex business organizations.
B. ENTREPRENEURSHIP DEVELOPMENT
This
category of business can be defined as demonstrated excellent ability to
generate business, ideas, cost effective management, technical and managerial
abilities as well as marketing know-how. Small-medium scale enterprises provide
goods preparation ground for the development of indigenous entrepreneurs, which
derive the wealth creation process at all levels.
C. DOMESTIC SAVINGS
This could
be defined as savings that individually could not have been made, available for
investment.
D. FLEXIBILITY OPERATIONS
This
operations or their operation are easily adapted to changing market conditions
i.e. (the flexibility and diversification of industrial production).
E. INTERVENTION OPTIONS
This is the
applied way to aid the development of small-medium scale enterprises and some
of these models could be considered for adoption. These include the credit
guarantee scheme, input subsidiary, compulsory and effective official
patronage, inter-firm linkages, tax and incentives, tariff concession, policy
and. institutional support, development of business parks with infrastructure,
promotion of foreign direct investment and technological acquisition,
macro-economic stability and an effective Small and Medium Industries Agency
(SMIDA). ,
F. CREDIT GUARANTEE SCHEME
This could
be defined as a risk mitigating mechanism, which will make it more convenient
for the banks to grant credit to the small medium enterprises. This scheme will
be the small medium enterprises equivalent of the agricultural credit guarantee
scheme, which, is currently being managed by the central bank.
G. SMEIS
This scheme
is an initiative from the bankers' committee to support the small medium
enterprises through equity participation.
To note: As
at April 2003, the sum of N14.6 billion has been set aside under the scheme out
of which only N3.5 billion has been disclosed. This is a remarkable
intervention novelty by the banks.
H. BUSINESS PARKS WITH INFRASTRUCTURES
Banks,
insurance companies and all turns of government should as a rule collaborate to
development of business parks in all local government areas of the country, The
term business parks with infrastructures are explained or definitely note as
parts that should have necessary infrastructural facilities such as
electricity, water Supply transportation, telecommunication, road waste
management, warehouse, storage facilities etc. These parks generate economies
of scale for the small medium enterprises and invariably bring down operating
cost.
I. TAX AND TARIFF CONCESSIONS
This is the
legalized levied amount of money form the government on small medium
enterprises, which has to be a considerable one. SMEs should be given Tax and
Tariff concessions on their law materials input, machineries, profit etc.
Capital allowance should be greatly enhanced and there should be capital grants
for small medium enterprises, this will help bring down the operating cost of
SMEs small medium scale enterprises and also enhance their competitiveness.
J. FINANCE
This is the
capital realized (either through the following dividend shares or share capital
loan, investment of equity capital etc.) for the establishment or formation of
small-medium scale enterprises.
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