The Role Of Small Scale Enterprises In The Economic Development Of Nigeria
This study is on the role of small scale enterprises in the economic development of Nigeria. The total population for the study is 200 staff of selected banks in Ijebu Ode, Ogun state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up customer care officers, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
1.1 Background of the Study
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, development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives (Ajagu, 2005).
According to Akwaja (2004), international agencies and organisations (World Bank, United Nations Industrial Development Organisation (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 Organisations 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 sub- sector.
All the massive attention and support given to SMEs relate to the widely acclaimed fact that SMEs are job and wealth creators. In justifying the introduction of SMIEIS in 2003, the then Governor of the Central Bank of Nigeria, Chief Joseph Sanusi 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 the development of indigenous technology, rapid industrialization, generation of employment for our teeming youths and the pivot for sustainable economic development in Nigeria” (Alawode, 2005).
Iornem et al (2000) are of the opinion that 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.
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. The highlights of these measures include:
- Fiscal incentives and protective fiscal policies
- Specialized financial institutions and funding schemes for the SMEs
- Favourable tariff structure
- The SMIEIS funding scheme
- Selective exemption and preferential treatment in excise duties
- Establishment of Export Processing Zones
- Selective reservation of items for exclusive manufacture in the SME sub- sector
- Government’s full weight and support for NEPAD and AGOA activities and operations.
It 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, organisations, 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”. (Johnson, 2005).
In a Consultant’s Report on Business Support in FCT Number 107, by David Irwin in March 2004 for DFID, it was stated on Page 5, paragraph 3.3 that “Governments all around the world now recognise the important contribution that small firms make to the economy- and many governments have established extensive support arrangement to help people start and grow their businesses. In Nigeria, hitherto, there has been no concerted effort to encourage and support new businesses”. Some others have argued that the bane of SMEs in Nigeria is the lack of long-term loans since most loans in the Nigerian market are short-term while what SMEs require to grow and become really successful is long-term patient capital. The dearth of venture capital financing in Nigeria has also aggravated the situation as venture capital provides long-term patient capital, which allows a small business to grow, as is the case in Ghana and some developed economies (Central Bank of Nigeria, 2001).
Other challenges and problems, which frustrate SMEs in Nigeria and make some of them to either die within their first two years of existence or perform below standard even after surviving in their early years abound. The key ones include inadequate infrastructural facilities (road water electricity etc), insecurity of lives and property, inconsistent monetary, fiscal and industrial policies, limited access to markets, multiple taxation and levies, lack of modern technology for processing and preserving products, policy reversals, capacity limitations, data inadequacies, harsh operating environment, fragile ownership base, fragile capital base.
While some of the challenges that SMEs face are induced by the operating environment (government policies, globalisation effects, financial institutions, local government policies, attitude to work etc), other challenges are driven by the inherent characteristics of the SMEs themselves.
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 organised 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 (Alawode, 2005).
The decreasing level of Nigeria’s per capita income, which declined from $870 in 1981 to $260 in 1998, and $205 in2004 as well as a low level of agricultural, industrial and infrastructural development (irrigation, road and railway networks) all represent disturbing indices, which also contribute to the dismal performance and contribution of our SMEs.
Dr. Ade Oyedijo, (2007) a financial expert in a paper titled “Nigeria’s Economy and its Career Promise for the Mature Employee” affirmed that the plights of SMEs in Nigeria have to do with key variables and challenges that characterise the nation’s economy. These include but are not limited to a very high unemployment rate, which is expected to increase as a result of the current ongoing public sector reforms, high unemployment rate, high poverty level, disease, hunger, etc. Dr. Oyedijo also mentioned a drastic shift from the production of non-oil traded goods (mostly agricultural) to traded goods while about 95 Million Nigerians are reported to be living below the poverty line even as 19 of her citizens are ranked among the 500 wealthiest men in modern capitalist economy as among the characteristics of our nation’s economy which aggravate the problems of Nigerian SMEs. He also opined that since independence, the main thrust of Nigeria’s development strategies and objectives have been the development of industrialization, education and a self- reliant economy but regretted that the human capital which is expected to support the industrialisation process and propel other sectors to maturity has not exhibited the right mix of knowledge, attitude and skills required to achieve this purpose.
1.2 Statement of the Problem
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 a leaf from them. It is against this background that this study is aimed at analyzing the role of small scale enterprises in the economic development of Nigeria.
1.3 Objective of the Study
The road objective of this research work is to analyze the role of small scale enterprises in the economic development of Nigeria. However, the specific objectives include;
- The identification of the personal characteristics of the respondents in the study area.
- The enumeration of the various bottleneck facing small scale enterprises in developing countries at large and Nigeria in particular.
- Recommend ways to improve small scale enterprise in Nigeria so as to make the all important sector the engine room for economic development which it is meant to be.
1.4 Research Hypotheses
- HO: There is no significant relationship between the small scale enterprise and economic growth in Nigeria.
- HI: There is significant relationship between the small scale enterprise and economic growth in Nigeria.
- HO: The amount budgeted for SMEs has not been significantly implemented
- HI: The amount budgeted for SMEs has been significantly implemented
1.5 Significance of the Study
The main interest of this research is to answer questions revolving around finding solutions to the problems militating against Small Scale Enterprises in Nigeria so that they can improve and stabilize their performance and hence fulfill their expected roles in the economic development of Nigeria. Most developing countries such as Nigeria heavily rely on the vibrancy of their SMEs in solving basic problems of unemployment, poverty, disease, rural-urban migration, etc. The impact of SMEs in this regard has been rather insignificant to the point that if Nigeria is to make progress in its economic growth and development, urgent drastic action needs to be taken regarding improving the lot of her SMEs. It is against this background that this study is set to investigate the role of SME in the economic development of Nigeria.
1.6 Scope and Limitation of the Study
The study is delimited to Ijebu-ode local government area. The constituent of the respondents shall include operators or owners, Public and Banks in the said Local Government Area. The researcher encounters some constrain which limited the scope of the study;
a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
1.7 Definition of Terms
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) per annum.
Small Scale 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.
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.
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.
An institution or establishment for the custody of valuables and procurement and transmission of fund for investment and other purposes.
The sum total of organized effort and procedures involved in providing people with goods and services needed in their everyday life.
Property pledged as a guarantee for the repayment on loan
One who initiates activity, blending business resource into a productive unit and assuming all the risk of business operations for profit.
Funds used or needed to support an undertaking. It could also be referred to as funds made available to business firms by government, banks and other financial institutions.
An amount of money lent by financial institutions at a specific interest rate to individuals, government and or business firms for a specific period of time and is repayable.
Small scale firms:
Business organization with small capital outlay, employing few labours and have relatively small share of the market.
A set of institutional arrangement for the provision of loans and grants to business organizations
Other abbreviations, terms and notations used in this study include but are not limited to the following:
Nigerian Association of Small and Medium Enterprises, which is an umbrella association of all SMEs
Manufacturers Association of Nigeria is the official association of manufacturing companies in Nigeria
Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture is an association of various Chambers of Commerce in Nigeria.
Nigerian Association of Small Scale Industries is the umbrella association of all the Small Scale Enterprises in Nigeria.
Development Finance Institutions are companies involved in project and development finance such as the Bank of Industry (BOI)
Small and Medium Enterprises are those firms, which satisfy the definitions given above xi. SMEDAN: Small and Medium Enterprises Development Agency of Nigeria
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
Nigerian Agricultural Cooperative and Rural Development Bank
National Economic Empowerment and Development Strategy
State Economic Empowerment and Development Strategy
National Directorate of Employment
Centre for Management Development
National Poverty Eradication Programme
Micro, Small and Medium Enterprises
Lagos Chamber of Commerce and Industry
Nigerian American Chamber of Commerce
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain the role of small scale enterprises in the economic development of Nigeria
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of small scale enterprises in the economic development of Nigeria
This study was on the role of small scale enterprises in the economic development of Nigeria. Four objectives were raised which included; The identification of the personal characteristics of the respondents in the study area, the enumeration of the various bottleneck facing small scale enterprises in developing countries at large and Nigeria in particular, recommend ways to improve small scale enterprise in Nigeria so as to make the all important sector the engine room for economic development which it is meant to be. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected banks in Ijebu Ode, Ogun state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up customer care officers, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Hardly can any major industry succeed without the services of small business enterprises. The relative strength of their importance varies from one industry to another. The role of small scale businesses in the development of indigenous technology capability in Nigeria cannot be over-estimated. Firstly, the continuing growth in the economy of any nation depends to a large extent on the startups of small businesses, which depends on locally fabricated machinery and local raw material inputs. Secondly, it is a considerable solution to balance of payment problems resulting from less dependence on imported inputs and also serves as a training school for the indigenous entrepreneurs and provides grounds for the acquisition of skill for a large number of workers.
The researcher after discussed the findings and conclusions recommended that the small scale business contributes in strengthening industrial linkages by producing intermediate products for use in large enterprise in Nigeria. The researcher also showed that government tax policies have not been favourable in the establishment of small scale enterprises in Nigeria for many years now. So government should know how it will be amending some of these tax policies they feel is affecting the establishment of small business in order to encourage more people into venturing into it. Government should also encourage the growth of small business by giving them the necessary assistance as regards to fund raising and equally advice them on how to utilize it effectively. Also, small businesses should form mergers; by this their capital would be placed in a better position when dealing with lending institutions. Their tax burden will not be heavily felt again.
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