Promotion Of Small And Medium Scale Enterprises

Project and Seminar Material for Business Administration and Management BAM

Abstract

The objective of this research is to find out the extent to which the government funding programmes in the promotion of Small and Medium Enterprises (SMEs) in the population area as well as the impact on the socio-economic development of the area covered by the scope. The study is further intended to reveal the various enterprises with Okehi communities with a view to identifying their business activities, proffering solutions to the identified challenges impeding their effectiveness and proficiency to achieve economic development. Sample random sampling (SRS) was employed in selecting the sample population for the study. Experimental design was employed for quantifiable and testable result of findings of sampled opinion within the limit of 55 respondents to a list of questionnaire administered. The contributory efforts of the SMES key stakeholders for enterprises promotion and development have been identified and the major problems that inhibit the success of SMES activities in especially the rural area communities were analyzed. The research also uncovers the correlation between the quantum of funds made available to the entrepreneurs and their level of performance in the business activities. Identifying the investment opportunity available to entrepreneurs and to recommend based on findings from the research study, possible measures to minimize the challenges facing the practice of SMEs in the rural areas.

Chapter One

Introduction

1.1 Background of the Study

The main strategy for the establishment by the entrepreneurs of Small and Medium Enterprises (SMEs) and its promotion by various sectors, is to enhance job creation, promote economic growth, reduce poverty. The importance of Small and Medium Enterprises (SMEs) in any economy cannot by overemphasis. They constitute the smallest unit of business. They predominate in most sectors of the economy occupying every available space such as form enterprises in the rural areas, provision store, bakery, pure water production, garri processing or food processing industries.

Although, many writers have talked about the financing of the Small and Medium Enterprises in pre-consolidation and post-consolidation periods of Banks towards the enterprises development, the issue of credit accessibility and affordability as it affects economic development has not been stressed. The concern of this research is to examine the extent of promotion accorded the entrepreneurs of Small and Medium Enterprises. (SMEs) and the level of economic development in the rural communities.

The history of industrial revolution in developed and developing economies or countries has shown that Small and Medium Enterprises (SMEs) are driving force of industrial development. It is therefore, the attention of the government, the world over to focus on the funding and supporting of Small and Medium Enterprises (SMEs) activities. Available evidence shows that Small and Medium Enterprises (SMEs) are characterized by being managed by their owners as proprietorship or partnership. They are largely local in the areas of capital and relatively small size with the industry.

Small and Medium Enterprises (SMEs) predominate in the private sector of the Nigeria economy. Almost all of them are starved of funds. The relative importance of the enterprises differs from one type of business to another. The major areas of business enterprises activities are in manufacturing, rendering services and product distribution.

Banbeck (1983) included in his publication on “Basic Small Business Management” that more than one-third of all the manufacturing firms in Nigeria employ fewer than five persons or none at all and that close to two-thirds employ fewer than twenty workers. His study on the whole revealed that five per cent of non-form business of all kinds employs fewer than fifty workers each.

The characteristics of Small and Medium Enterprises (SMEs) largely constitute the basis of their problems and special needs that have attracted different authorities and sectors in recent past. It is also the focus of this research to critically examine and measure the effects of the government funding programmes on Small and Medium Enterprises (SMEs) activities. Though the result of the findings from the respondents/enterprises, the study will determine how much of the support have been received from the programmes and extent of development experienced in the population Okehi LGA. Kogi State.

The study is further intended to reveal the various enterprises with Okehi communities with a view to identifying their business activities, proffering solutions to the identified challenges impeding their effectiveness and proficiency to achieve economic development.

1.2 Statement of the Problem

The research examines in all possible ways, the extent of government funding programmes in the promotion of Small and Medium Enterprises (SMEs) in the population area as well as the impact on the socio-economic development of the area covered by the scope. The study further identifies the peculiar problems or challenges the SME sub-sector associated with their smooth operations. Possible suggestions to provide engine for economic growth and prosperity in the industries is also the focus of this study.

The research tend to ask and find answers to such guiding questions as

To what extent do the entrepreneurs have access to credit loan and guarantees?
How often have the industrialist received training and information services for the promotion and development of the Small and Medium Enterprises (SMEs)?
How long have the management of the Small and Medium Enterprises (SMEs) been enjoying credit facilities from Bank and government aid, what benefits evidenced in their enterprises?
Enumerate the limiting factors inhibiting the development of the Small and Medium Enterprises (SMEs) in Okehi Communities.

Finally, the research is carried out to uncover the administrative and technical weakness of government and other funding agencies in the efficient and effective implementation of their policies and strategies. That is, do the government and other funding establishments actually realize their goals aimed at promoting and developing Small and Medium Enterprises (SMEs).

1.3 Objectives of the Study

The broad and primary objective of this research is to find out the extent to which the SMEs funding programmes as promotion strategy have impacted on the development of enterprises in the rural communities. This is further to identifying the all inclusive measurable performance of the enterprises and to proffer possible solution to the challenges posed by SMEs programmes implementation strategies.

To realistically achieve this basic objective, this study will also identify other secondary objectives. This aids the researcher to articulate the enterprises direction as regards where is the enterprise now, what does it want to be and how does it want to get there.

These secondary objectives includes:

To identify the viability or otherwise of government funding programmes on SMEs.
To compare the standards (set objectives) of funding institutions with the a SMEs actual performance.
To identify the perception of the entrepreneurs or industrialists or SMEs operator and realistic on the implementation of the government funding programmes as the affect SMEs development.
To determine the socio-economic impact of the SMEs on the people in the study area.
To investigate the factors militating against meaningful development of small and medium scale enterprises in the local government area.
To identify other investment opportunities available to the entrepreneurs.
To recommend based on the findings from the research study ,possible measures to minimize the challenges facing the practice of SMEs in the rural communities.

1.4 Significance of the Study

The promotion of Small and Medium Enterprises (SMEs) by the funding institutions is geared towards improving the living standards of especially the rural dwellers in the country. The research signifies the following:

The research pinpoints the unique role of the funding institution in empowering the entrepreneurs/industrialists. If the purpose of SMEs must be achieved the entrepreneurs must be supported with adequate capital in form of credit, loan and guarantees, grants etc.
The study also uncovers the correlation between the quantum of funds made available to the entrepreneurs and their level of performance in the business activities. This compares in a measurable for the standards (set objectives) and actual performance.
The constraints and limitations which affect the success of the operators of SMEs are uncovered by this study. The research report will acquaint the industrialist and other stakeholder of the SMEs with some far reaching measures or suggestions towards realistic entrepreneurship development.
The study further identifies other possible way or available opportunities of diversifying their investments.
The research report/recommendation serves as a reference point to potential investors in SMEs. The study widens the business horizons of the entrepreneurs or operators of SMEs.

1.5 Research Question/ Hypothesis

Research Hypothesis

A hypothesis is described by Keple (2000) is a prediction of what can be seen in the world of reality. Hypothesis formulation is significant in a research work. It functions as:

A link between the world of theory and world of reality.
Showing the direction of data analysis.
Helping in the organization of the research report.
Transforming the researcher’s ideas into testable form.

Two types of hypothesis; null hypothesis (Ho) and Alternate Hypothesis (Hi) will be adopted for the problem under study.

Hypothesis 1 (Ho): There is no significant impact of government funding of Small and Medium Enterprises (SMEs) on the socio-economic development of Okehi communities.
Hypothesis 1 (Hi): There is significant impact of government funding of Small and Medium Enterprises (SMEs) on socio-economic development of Okehi communities.
Hypothesis 2 (Ho): The operators of the Small and Medium Enterprises (SMEs) in the rural communities cannot easily access credit facilities from financial institutions.
Hypothesis 2 (Hi): The operators of Small and Medium Enterprises (SMEs) in the rural communities can easily access credit facilities from the financial institutions.
Hypothesis 3 (Ho): The government funding of Small and Medium Enterprises (SMEs) especially in the rural communities has brought no reduction in poverty level.
Hypothesis 3 (Hi): The government funding of Small and Medium Enterprises (SMEs) especially in the rural communities has brought about high a reduction in poverty level.

Research Question

To achieve a quality result from the study, the following fundamental questions will serve as guide to the researcher.

To what extent have the government funding programmes impacted on the development of SMEs in the rural communities?
Compare the actualization of the funding objectives of the government with standard set. (has the objectives been largely achieved?)
How often do the entrepreneurs/industrialist get funds from the government funding programmes?
What are the factors militating against meaningful development of SMEs in the Local Government Area?
What factors militates against the meaningful development of Small and Medium Scale Enterprises (SMEs) in Okehi local government area?
What are the investment opportunities available to the entrepreneurs in your locality?
What are the possible measures to be adopted in minimizing the challenges facing the practice of SMEs in the rural communities?

1.6 Scope of the Study

The research covers the major stakeholder of Small and Medium Enterprises (SMEs) in Okehi Local Government Area, Kogi State.
The enumerated areas as the sampled population of the study include randomly selected entrepreneurs in various communities actively engaged in the enterprises.
It is also within the scope of this study to enumerate the funding institutions such as Banks and identified government programmes in the promotion and funding of Small and Medium Enterprises (SMEs).
The scope covers a four (4) year (2007 – 2010) performance review period of the Small and Medium Enterprises (SMEs) major stakeholders. This period is used to measure the level of socio-economic development as a consequence of the promotion efforts or otherwise of the funding institutions.
Enumeration of the critical factors militating against the success or development of the enterprises in the rural communities also forms part of the scope of the study.
It also covers identified areas for improvement in the entrepreneurial development.

1.7 Limitation of the Study

A good research work is normally carried out with some attendant limitations, in this particular study under review, the under mentioned problems were encountered:

The study is limited to the assessment of promotion strategy on Small and Medium Enterprises (SMEs) and their measures of development in the rural communities. There are no much record made available to the researcher on the operators to quantify the efforts of the funding institutions
To collect scientific data in the production of quality reports some sampling techniques were employed. These techniques like questionnaires were delayed or not correctly answered by the respondents.
Time constraints: Time of survey were limited in terms of data collection. All sampled population could not meet all the needed information within the stipulated period.
During the survey period, the level of cooperation varied from one entrepreneur/industrialist to another.
Inaccessibility of records from the funding institutions like Banks and government agencies. The desired records to ascertain the quantum of grants or subventions or loan guarantee offered to the operators of the SMEs were not made available by the relevant stakeholders.
The method of data analysis where some formular are involved may be too technical to the understanding of a layman. The test of hypothesis may not be cleared to individual that is not mathematically inclined.

1.8. Definition of Terms

Various bodies/organization defined SMEs in their own perspective depending on the purpose, objective and use.

In the context and purpose of this research the following definitions were adopted:

(i) Funding Agencies:

These are government Parastatals/Agencies, Development Banks, Private Organizations like Banks, NGOs which make funds available in the form of grant, credit facilities to the industrialist or entrepreneurs.

(ii) Micro Enterprise/College Industry:

A firm or enterprise with a labour size of not more than ten workers (1 – 10) or total cost (including working capital but excluding cost of land) not more than two million naira (N2m) and/or a turnover of less than four hundred thousand naira only (N400,000.00).

(iii) Small Scale Enterprise:

Industry with a labour size of between 11 – 100 workers or a total cost including working capital but excluding cost of land) not more than fifty million naira only (N50m) and/or a turnover of less than ten million naira only (N10m)

(iv) Medium Scale Enterprise:

Industry with a labour size of 101 – 300 workers or a total cost including working capital but excluding cost of land) of over fifty million naira only (N50m) but not more than two hundred million naira only (N200m).

(v) Large Scale Enterprises:

Industry with a labour size of over 300 workers or a total cost including working capital but excluding cost of land of over two million naira only (N200m).

Other abbreviations, terms and notation used in this study include but not limited to the following:

(vi) A.C.G.S:

Agricultural Credit Guarantee Scheme

(vii) NACRDB:

Nigeria Agricultural Cooperative and Rural Development Bank.

(viii) NASME:

Nigeria Association of Small and Medium Enterprises which is an umbrella of SMEs.

(ix) DFIs:

Development Finance Institution, these are companies involved in projects and development finance e.g. Bank of Industry (BOI).

(x) SMEs:

Small and Medium Enterprises (SMEs)

(xi) SMEDAN:

Small and Medium Scale Enterprises Development Agency of Nigeria

(xii) CBN:

Central Bank of Nigeria that supervises other Banks.

(xiii) NEEDS:

National Economic Empowerment and Development Strategy.

(xiv) SEEDS:

State Economic Empowerment and Development Strategy

(xv) NDE:

National Directorate of Employment

(xvi) NAPEP:

National Poverty Eradication Programme.

(xvii) MSME:

Micro-Small and Medium Enterprises.

(xviii) MAN:

Manufacturers Association of Nigeria. This is the association of manufacturing companies.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

From the discussion in the proceeding chapters, the research has emphasized on the various factors affecting the economic growth and development anchored by the SMES sub-sector in the Okehi local government area of Kogi State.

The significant role of the key SMES stakeholder in especially the study area has been identified by the researcher.

In chapter one, the concept of the small and medium enterprises have been introduced. The chapter analyzes the design of the research study vis-à-vis statement of the research problem, objective of the study, the significance, scope and limitations of the study were emphasized.

Chapter two gave a review of related literature as regard the topic under investigations. SMES has been defined as an enterprise with a minimum asset base of N200m excluding land and working capital and the number of staff employed not less than ten. (SMEEIS 2001) SMES have always been referred to as engine of growth which is born out of the fact that most economics that have focused on SMES sector ended up succeeding in the significant reduction in poverty level and its attendant enhancement in the quality of living.

The chapter further reviewed the development of SMES in Nigeria. Government and private sectors participation in the promotion of SMES in the study area and the key problems or challenges faced by the SMES operators.

In chapter three, different methods and techniques of research and data collection were enumerated.
Experimental design was employed for quantifiable and testable result of findings of sampled opinion within the limit of 55 respondents to a list of questionnaire administered.

In chapter four, data collected through the use of all relevant data collection instrument were statistically presented, analyzed and discussed.

The contributory efforts of the SMES key stakeholders for enterprises promotion and development have been identified as well as the major problems that inhibit the success of SMES activities in especially the rural communities were analyzed.

Chapter five as a concluding one gives the summary of the fact/findings established in the proceeding chapters and conclusions drawn based on the findings and assumption as well as significant recommendations for ways forward for the promotion of SMES and their realistic development of the local government and the Nigeria economy at large.

5.2 Conclusion

The fundamental objectives for which this research work or study as carried have been achieved to a great extent.

The objectives include;

Identifying the viability or otherwise of government funding programmes on SMES
Identifying the perception of the entrepreneur operators or industrialists on realistic implementation of the government funding programme through its agencies of the SmES development.
Determining the socio-economic impacts of the SMES on the people in the study area.
Investigating the factor militating against meaningful development of the SME sub-sector in the study area.
Identifying the investment opportunity available to the entrepreneurs and to recommend based on findings from the research study, possible measures to minimize the challenges facing the practice of SMES in the rural area communities.

The efforts of the operation of SMES in the development of the sector, the constraint and limitations which often affect their success have been uncovered.

The SMES sector in Nigeria as revealed by the study, is highly labour intensive, employing over seventy (70) percent of the nations labour force. The sector remains a veritable source for the mobilization of small domestic savings and widely spread across the length and breadth of the local communities, state and indeed Nigeria as a whole.

The SMES sector promotes indigenous technology and enhances the dispersal of economic activities and particularly poverty reduction. Through the SMES sector the vast majority of rural poor has been economically empowered as they has self reliant, employers of labour, reduction in social up-heavals and contribute their quotas to gross domestic product (GDP) or national economic development. Okehi local government area Kogi State engages in such SMES as agro-allied industry, real sector, that is manufacturing all kinds of agricultural activities, the services related enterprises such as information and technology, telecommunication, educational tourism and leisure service and other micro services.

Despite the laudable programmes of the successful administration in promoting SMES sector in Nigeria the contribution of the sector to the development of Nigeria has remained rather low.

5.3 Why SMEs in Okehi LGA have Performed Below Standard

The major reasons identify by the researcher as responsible for this include but not limited to the following:

Lack of access to credit and poor incentive administrators
Lack of infrastructure which significantly increase the cost of doing business
Inconsistency in policies and the attendant poor formulation and implementation.
Poor managerial capacity low skills and lack of adequate knowledge.
Poor account keeping habit, weak financial and marketing planning.
Poor access to modern technology and information and markets for SMES products and services.

5.4 Recommendations

Driven by the findings in this research, it is obvious that from the various local and state government experiences in Nigeria that SMES is a veritable source of employment. The increase in employment by SMES is however, not associated with increase in productivity.

SMES in Nigeria have a long way to go to the sector to be relevant focus, productive enough and play the crucial role it is expected to in relation to contributing to the growth and development of the Nigeria economy.

The following recommendation should be taken into cognizance for the SMES to yield large success in the promotion and development of the local communities in particular and Nigeria in general.

Development of enterprise culture. The government, country should pursue the development of enterprise culture through the system and prgrammes of education entrepreneurship and training links to job needs.
Establishment of enterprises development agency. There is the urgent and dire need for the government to revamp the SMES sector of the economy redress the unemployment rate, reduce poverty level, enhance living standard and stimulate economic growth and development. In order to substantially realize the above, the government through its agency the SMEDAN should speedily establish development agencies in every state of the federation and small business development centres in every local government.
Development of an efficient services infrastructure. To enhance the growth, job creation potential and competitiveness of small and medium enterprise, consideration should be given to availability and accessibility of a range of direct and indirect support services for the SMES and their workers. These include promotion and development of enterprises based training. Information services advice in government policies. Advice on the effective application of information and communicates technologies to the business processes.
Policy formulation and legal frame work: In order to create an environment conducive to the growth, development of SMES, government should adopt and pursue appropriate fiscal, monetary and employment policies an optimal environment.
Community based enterprises: the establishment of community based enterprises should be encouraged. This will strengthen community, identify local employment and enhance long-term stability of the community.

The following represent other key recommendations for making SMES in Nigeria vibrant through the creation of enabling environment for optimum performance.

The federal government through the central bank of Nigeria should consistently maintain national credit guarantee scheme for SMES, which should guarantee at least 90% of loan needed for SMES in Nigeria.
The government should establish industrial parks in all the 774 local government areas in the country.
Infrastructural upgrade: the government should accelerate upgrade of the power sector, road network, health centres, water and other infrastructural facilities.
SMEDAN should through its business development services provide support in the area of capacity building and skills upgrade, identification of sources of funds with attractive interest rates electronic and printed information on raw materials, market equipment, services regulatory, legal and tax matters, developing financial records etc.
Policy makers should endeavour to understand the nature, problems and needs of SMES in especially the local communities before emancipating policies for the sub-sector. In other words, policy makers should consult with relevant stakeholders before enacting such policies that affect them.
Above all, the government of Nigeria should have the political will to effectively and efficiently implement the above recommendation measures in order to achieve the desired results or else, we cannot achieve or expect any improvement in the crucial SME sector.