ABSTRACT
The study investigated the role of small scale Industries in the economic
development of Nigeria with specific reference to Small scale operators in
Ijebu-ode local government area of Ogun state. Three hypotheses were tested and
it was found out that there is a significant relationship between the operations
of SMEs and the growth of the Nigerian economy. The study also showed that the
national Budget has not significantly taken care of Small scale Industries in Nigeria. The
researcher however recommended that the government through the Central Bank
of Nigeria should establish
the much-awaited National Credit Guarantee Scheme for SMEs, which should
guarantee at least 80 percent of loans needed by small and medium Industries in
Nigeria.
The government should tackle accelerated
development and upgrade of rural/urban road and rail network, water and air
transport system and other infrastructural facilities head on and review tariff
in favour of local manufacturers
especially the SMEs.
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND TO THE SUBJECT MATTER
1.2 STATEMENT OF THE PROBLEM
1.3 RESEARCH QUESTIONS
1.4 RESEARCH HYPOTHESES
1.5 OBJECTIVE OF THE STUDY
1.6 SIGNIFICANCE OF THE STUDY
1.7 SCOPE OF THE STUDY
1.8 DEFINITION OF TERMS
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCTION
2.2 THEORETICAL REVIEW
2.3 CONCEPTUAL FRAMEWORK
2.4 PROBLEMS OF SMEs IN NIGERIA
2.5 PROSPECTS OF SMALL SCALE INDUSTRY
IN
NIGERIA
2.6 A COMPARATIVE ANALYSIS BETWEEN INDIA’S SMALL
SCALE
INDUSTRIES (SSIs) AND NIGERIA’S SMEs
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 INTRODUCTION
3.2 RESEARCH DESIGN AND PROCEDURE
3.2. POPULATIONOFTHESTUDY
3.4 SAMPLE AND SAMPLING TECHNIQUES
3.5 RESEARCH INSTRUMENTS
3.6 RELIABILITY
AND VALIDITY
3.7 METHOD OF DATA ANALYSIS
3.8 PROCEDURE FOR DATA ANALYSIS
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1
INTRODUCTION
4.2
PRESENTATION OF RESULT
4.3
DISCUSSION OF FINDINGS
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 INTRODUCTION
5.2 SUMMARY
5.3 CONCLUSION
5.4 RECOMMENDATIONS
5.5 SUGGESTIONS FOR FURTHER STUDIES
5.6 REFERENCES
5.7 APPENDIX
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE SUBJECT MATTER
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 Industries. 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 Industries (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:
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 sub- sector
viii. 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 Industries (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 Industries in the
economic development of Nigeria.
1.3 RESEARCH QUESTIONS
1.
Is there any
significant relationship between the small scale Industry and economic growth
in Nigeria?
2.
Has the national budget
taken care of the needs of SMEs in Nigeria?
3.
Is there any
significant relationship between the growth of Nigerian banks and the effectiveness
and efficiency of small scale Industries in Nigeria?.
1.4 RESEARCH HYPOTHESES
H01: There is no significant relationship
between the small scale Industry and economic growth in Nigeria.
H11: There is
significant relationship between the small scale Industry and economic growth
in Nigeria.
H02: The amount budgeted for SMEs has not been
significantly implemented
H12: The amount budgeted for SMEs has been
significantly implemented
H03: There is no significant relationship
between the growth of Nigerian Banks and the effectiveness and efficiency of
small scale Industries in Nigeria.
H13: There is no significant
relationship between the growth of Nigerian Banks and the effectiveness and
efficiency of small scale Industries in Nigeria.
1.5 OBJECTIVE OF THE STUDY
The road objective of this research work is to
analyze the role of small scale Industries in the economic development of Nigeria.
However, the specific objectives include;
i.
The identification of
the personal characteristics of the respondents in the study area.
ii.
The enumeration of the
various bottleneck facing small scale Industries in developing countries at
large and Nigeria
in particular.
iii.
Recommend ways to
improve small scale Industry in Nigeria
so as to make the all important sector the engine room for economic development
which it is meant to be.
1.6 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 Industries 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.
1.7 SCOPE 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.
1.8 DEFINITION OF TERMS
i. Micro Industry:
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.
ii. Small Scale Industry: An Industry 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
Industry: 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
Industry: Any Industry 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.
Bank: an institution or establishment for
the custody of valuables and procurement and transmission of fund for
investment and other purposes.
Business: the sum
total of organized effort and procedures involved in providing people with
goods and services needed in their everyday life.
Collateral Security: Property
pledged as a guarantee for the repayment on loan
Entrepreneur: One who initiates activity, blending business
resource into a productive unit and assuming all the risk of business
operations for profit.
Finance: 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.
Loans: 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.
CreditScheme: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:
(v) NASME: Nigerian Association of Small and Medium
Industries, 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 Industries
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 Industries are those
firms, which satisfy the
definitions given above xi. SMEDAN: Small and Medium Industries
Development Agency of Nigeria
xii. BOI: Bank of Industry, which provides medium
to long-term loans to Industries 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 Industries
xxi. NGO: Non-governmental Organisation
xxii. LCCI: Lagos
Chamber of Commerce and Industry
xxiii. NACC:
Nigerian American Chamber of Commerce