PROBLEMS AND PROSPECTS OF SMALL SCALE INDUSTRIES IN NIGERIA

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PROBLEMS AND PROSPECTS OF SMALL SCALE INDUSTRIES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

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. It has been argued that SMEs are an effective instrument for economic growth and development in Developed and Less Developed Countries (Beyene, 2002; Nitani, 2005). This is because SMEs contribute significantly to the Gross Domestic Product (GDP) and produce substantial amounts of locally consumed products (ECA, 2000; Wattanapruttipaisan, 2003; Tagoe et al, 2005; Saleh and Ndubisi, 2006). According to Mojmir (2000), SMEs play an important role in the economic growth of any country including industrialised countries because they account for more than half of a country‟s output and employment (Hussain et al, 2008). In the same vein, Udechukwu (2003) asserts that the development of SMEs is an essential element in the growth strategy of most economies, which holds particular significance for developing countries like Nigeria. SMEs are a vital part of any market economy because they are represented in all major branches of manufacturing and service sectors (Obokoh, 2008c). This is in addition to their role in job creation for the unemployed, provision of goods and services within and across national boundaries of countries (Saleh and Ndubisi 2006; Woldie et al, 2008).

Due to their small size, SMEs are flexible and are more able to adapt to changes within the market environment than large firms (Mazzarol, 2000; Udechukwu, 2003; Aryeetey, 2005). However, the small size of SMEs and their small capital base also constitutes an obstacle to their access to funds for their operations (Obokoh, 2008). It is expected that SMEs, with ready and willing entrepreneurs, can succeed in an increasingly competitive world, especially if there are enabling and supportive government policies (Briggs, 2007). In this vein, Berry (2002) asserts that the flexibility of SMEs operations persuades business analysts to believe in their strategic role towards future industrial growth of developing nations. Despite this flexibility, SMEs are also exposed to external environmental risks such as government policies and competition from MNCs (Watson and Everett, 1999; Abonyi, 2003). Some of these environmental factors often hinder SMEs from gaining the necessary international exposure for achieving large scale production for the efficient utilisation of resources (Mambula, 2004).

Given favourable policy environment and support, it is believed that SMEs can achieve an efficient production process that would enable them to compete successfully in the global market (Briggs, 2007). Therefore, government policies should be directed towards improving the economic environment in which SMEs operate (Fredland and Morris, 1976; Everett and Watson, 1998). There is now a re-newed emphasis on the development of SMEs especially in LDCs (ECA 2001). This is in view of LDCs governments‟ formulation of policies that would create the enabling environment for the establishment and the operation of SMEs (Agboli and Ukaegbu, 2006).

This research is thus intended to critically appraise the circumstances of SMEs in Nigeria with a view to actually identifying and assessing the bottlenecks militating against the effective performance of SMEs and also seek to investigate the reasons why programmes designed by government to boost SMEs performance are yet to fully achieve their desired objectives (Mambula 2002).

1.2 Statement of the Problem

Small and Medium scale enterprises play an important economic role in many countries including Nigeria. However, it appears that considering the enormous potentials of the SMEs sector, and despite the acknowledgement of its immense contribution to sustainable economic development, its performance still falls below expectation in many developing countries. This is because the sector in these developing countries has been bedeviled by several factors militating against its performance, and leading to an increase in the rate of SMEs failure. SMEs are faced with the threat of failure with past statistics indicating that most SMEs die within their first five years of existence. Another smaller percentage goes into extinction between the sixth and tenth year thus only about five to ten percent of young companies survive, thrive and grow to maturity. A 2004 survey conducted by the Manufacturers Association of Nigeria (MAN) revealed that only about ten percent (10%) of industries run by its members are fully operational. Essentially, this means that 90 percent of the industries are either ailing or have closed down. This

situation has been of great concern to the government, citizenry, operators, practitioners and the organized private sector groups.

Also it will seek to determine the key factors militating against the survival and effective performance of SME in Nigeria especially the manufacturing sub- sector. It also intend to explore and investigate the reasons why programmes designed by the government to boost manufacturing SMEs performance do not effectively achieve its role.

1.3 The Objectives of Study

The objectives of this research is to:

Identify and assess the key factors responsible for the relatively low performance and failure of the SMEs survival.
Investigate the reasons why programmes designed by government to boost manufacturing SMEs performance do not effectively achieve its role.

iii. Make appropriate recommendation towards alleviating the problems facing SMEs.

Identify ways and means, which will establish and sustain the vibrancy for Nigerian SMEs.

1.4 Research Questions

The main interest of this research and the questions it intends to answer are;

What are the key problems militating against survival and effective performance of SMEs?

To what extent has the government development programmes designed to boost SMEs performance effectively towards achieving its desired goals?

iii. What can be done to curb the problem faced by SMEs and ways to improve their performance of SMEs to enable them play a major role in economic development?

What are the ways and means, which will establish and sustain the vibrancy for Nigerian SMEs?

1.5 Research Hypothesis

H0 : Policies implemented for SMEs have a negative relationship of the survival of SMEs in Nigeria.
H0 : There is no prospect of SMEs in Nigeria.

1.6 Significance of the Study

The study of SMEs Problem and Prospect is of relevance or great concern to the various governments (federal, state and local), SME promoters and operators, Banks as well as the civil society; It is said that a clear and precise definition of a problem represents half the solution – hence, identifying and crystallizing the key problems of the SMEs would lay a solid foundation for mitigating if not solving them out rightly. The time is now to do something to the situation of our SMEs given the aggravating level of poverty in Nigeria and the need to meet up with the Millennium Development Goals.

1.7 Scope of the Study

The study focuses on SMEs in the manufacturing sector because of the importance of the manufacturing sector to economic development in Nigeria. Due to budget and time constraints, the study was restricted to manufacturing SMEs operating in Kaduna State of Nigeria. The study traces the SMEs programme from which has affected SMEs in the manufacturing sectors with particular focus on the period of 2004 to 2011.

1.8 Definition of Terms / Acronyms

Various bodies, organizations and institutions have defined SMEs differently depending upon their purpose, objective and use. For this research, the following definitions have been adopted:

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.

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.

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.

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/acronyms, terms and notations used in this study include;

NASME: Nigerian Association of Small and Medium Enterprises, which is an umbrella association of all SMEs

MAN: Manufacturers Association of Nigeria is the official association of manufacturing companies in Nigeria

NACCIMA: Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture is an association of various Chambers of Commerce in Nigeria

NASSI: Nigerian Association of Small Scale Industries is the umbrella association of all the Small Scale Enterprises in Nigeria

DFIs: Development Finance Institutions are companies involved in project and development finance such as the Bank of Industry (BOI)

SMEs: Small and Medium Enterprises are those firms, which satisfy the definitions given above

SMEDAN: Small and Medium Enterprises Development Agency of Nigeria

BOI: Bank of Industry, which provides medium to long-term loans to enterprises

CBN: Central Bank of Nigeria, the apex bank in Nigeria, which supervises other banks

NACRDB: Nigerian Agricultural Cooperative and Rural Development Bank NEEDS: National Economic Empowerment and Development Strategy SEEDS: State Economic Empowerment and Development Strategy

NDE: National Directorate of Employment

CMD: Centre for Management Development NAPEP: National Poverty Eradication Programme MSME: Micro, Small and Medium Enterprises NGO: Non-governmental Organisation

SRS: Simple Random Sampling

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