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GROWTH CONSTRAINTS OF SMALL SCALE ENTERPRISES IN NIGERIA
A CASE STUDY OF ABA URBAN
This study was intended identify the constraints, those factors which impede the performance of small scale enterprises. The study was carried out in Aba Urban area in Abia State. A total of 400 small scale enterprises considered for this study. However, a total of 128 firms were actually used. The firms were selected based on stratified sampling method using the criteria of product grouping. Research questions guided the study. Structured questionnaire, complemented with personal field observation the data collected. The study showed that finance, infrastructure, exemplified by irregular electric power supply, restricted market and managerial deficiency were the major factors, which impede the performance and growth of small scale enterprises. Based on the above findings, it was recommended that banks streamline their lending requirements to suit or favour small scale borrowers; that electric power supply be improved upon; that government through it agencies patronize the products of small industries and that government step up special and harmonized incentive package to small scale enterprises.
LIST OF TABLES
Table I Sampling procedure 20
Table II Summary of questionnaire responses 22
Table III Summary of data analysis 23
TABLE OF CONTENTS
Title Page i
List of Tables vi
CHAPTER ONE: INTRODUCTION
Statement of problem 1
Aims and objectives 6
Research questions 8
Method of study 8
Significance of the study 9
CHAPTER TWO: LITERATURE REVIEW
CHAPTER THREE: STUDY METHODOLOGY
Sampling procedure 18
Data collection 21
Method of data analysis 21
CHAPTER FOUR: DATA ANALYSIS
Summary of analysis 24
Interpretation of result 30
CHAPTER FIVE: MAJOR FINDINGS
Limitations of the study 34
Appendix I Arithmetic mean calculation 38
Appendix II Questionnaire 41
Appendix III. Government policies and incentives small and medium enterprises
Appendix IV. Importance of small scale enterprises 43
Over the years term Small Scale Enterprises (SSE) unique or universally varying interpretation or definitions. Consequently, there is no unique or universally accepted definition for this term. It is recognized that the definition changes over a period of time and depends to a large extent on a country’s level of development. The definition varies from country to country and industry to industry. More so, as inflation eats into the value of our domestic currency the monetary yardstick employed previously in defining a small scale enterprise soon becomes obsolete. A cursory look at some of the evolving definitions given to small scale enterprises will drive home the point being made here. This variety of definitions is probably due to differences in policy focus by different government agencies in Nigeria.
ü In its 1989 credit guidelines to banks, the central bank of Nigeria stated that in the case of commercial banks, small scale enterprises are those with annual turnover not exceeding N500, 000. In the case of merchant banks, they are enterprises with capital investment not exceeding N2.0 million.
ü In the federal ministry of industry guidelines to the Nigeria bank for commerce and industry (NBIC), small scale enterprises are defined as those with the total cost not more than N500, 000 (excluding) cost of land but including working capital. The NBCI, in its regular operations has adopted the definition of small scale as those with cost of capital not in excess of N750, 000 (excluding cost of land but including working capital).
ü The center for industrial research and development (CIRD) at the Obafemi Awolowo University, IIe-Ife defines as small scale, those enterprises with total assets in capital equipment, plant and working capital not exceeding N250, 000 and employing not more than 50 full time workers.
ü The Nigeria industrial development bank defines as small scale enterprises with project caot (investment and working capital) not exceeding N750, 000.
ü The introduction of the structural adjustment programme (July 1989-June 1988) and with it, the realignment of the naira exchange rate raised production costs, particularly of high dependent industries. The higher operational costs as a result of the depreciation of the naira motivated the World Bank to consider a definition closely related to present day cost price configuration. It described micro-enterprises as those with fixed assets (including land) plus cost of the investment project below N400, 000 in constant 1998 prices. Small and medium scale enterprises are those with fixed assets (excluding land) plus cost of the investment project exceeding N10.0 million in constant 1988 prices. This definition was to guide the disbursement of $270.0m loan assistance to Nigeria’s small and medium scale businesses.
ü The national economic reconstruction fund NERFUND, 1993 classified an enterprise to be small scale if its fixed assets (excluding land) were not in excess of N10.0m.
ü In its credit guidelines to bank in 1991, central bank of Nigeria, CBN, defined a small scale enterprise as a company whose capital investment (including land and working capital) does not exceed N10.0m or hose turnover was not more than N25.0m per annum.
ü The national council on industry defined small scale enterprise as any enterprise whose total cost (including working capital but excluding the cost of land) falls between N1.0m and N4.0m and whose staff strength is between 11 and 13.
It could be seen from the above that the definition of small scale enterprise revolves around investment outlay, labour employment and output. Accordingly, small scale enterprises are usually characterized by low levels of investment and turnover, simple technology and a few employees and managers. It is usually of sole proprietorship or partnership, though some are often registered as limited liability companies. It has centralized management and administration, limited sources of medium and long-term capital and high mortality rate.
Regarding the case of its formation, small scale enterprise does the economic landscape of Nigeria the rural areas not exempted. Small scale enterprises are dynamic, flexible and adapt more easily to new market conditions. They represent the foundation head of vitality for the national economy. It is generally believed that small scale enterprises came into existence as an aftermath of the indigenization policy of the 1970’s. The main objective of the indigenization policy of the 1970’s was raising the proportion of indigenous ownership of industrial investment in the country. The policy was seen as complementing political independence, which is in line with the strong belief that political independence would be meaningless without a god measure of economic independence. The policy gave adequate opportunities for indigenous participation in economic activities.
In a dogged effort to achieve a more self-reliant economy, Nigeria pursued and import substitution strategy; a strategy of manufacturing locally those consumer goods it imported previously. Aided by the indigenization decrees of the 1970’s and measurable protectionist policies, industries mushroomed all over the place.
Small scale enterprises therefore, cannot be divorced from the industrialization drive of the managers of Nigeria economy. The economic realities of the precipitous decline in oil earnings in the 1980’s necessitated a policy re-direction aimed at re-aligning domestic production pattern with the local resource base. Hence the promotion of small scale enterprises. Small scale enterprises were recognized by the government as far back as the early 1970’s as one of the means of achieving industrialization. The focus on small scale enterprises was predicated on their impact and potential contribution to broad-based economic growth and development as well as their catalytic effect in achieving macro-economic objective such as employment, diffusion of economic power and promotion of indigenous technology. Through a network of intricate linkages with large scale enterprises, small scale enterprises are capable of enhancing a diversified production base.
The growing importance of small scale enterprises in Nigeria can be appreciated by looking at the pride of place it occupied in many national development plans. For instance, in the second national development plans the government stated that it was its policy to give active support to the promotion and development of small initiated by government to enable them attain their objectives. This culminated in the establishment of the Nigerian industrial development bank (NIDB). The fourth national development plan (1980-85) stated that the objective of mounting special assistance programme for the development of small scale enterprise was for them to serve as a necessary tool for the development of the Nigeria entrepreneurs. Government interest in this sector is suggestive of the fact that government sees the sector as growth generating.
Small scale enterprise could be factory or non-factory oriented. Factory type refers to small manufacturing concerns. Non-factory type refers to both traditional and modern artisan establishment. Service providers or facilitators such as transporters fall under the non-factor category.
For the purpose of this study, the interpretation given to a small scale enterprise is a firm engaged in the manufacture or fabrication of materials whose capital base (excluding land) is less than N2.5m and employment strength of less than 50 persons.
1.2 STATEMENT OF PROBLEM
Small scale enterprise engaged in manufacturing, are replete with tales of woes in terms of performance, despite of governments incentives (see annex III) to them. This situation must have compelled Olumu (1985) to state that small scale enterprises in the developing countries hardly grow beyond a certain point as if there are physical barriers that are impossible for them to assail. In other words these enterprises continually remain small against the expected growth and expansion.
Small scale enterprise is among other things expected to provide raw materials and semi-finished products to large scale enterprises. As at today, the large scale enterprises source a greater percentage of their raw materials from outside our economy since the small scale enterprises cannot meet their requirements. Cookey (1998) quoting Anywanwu et al (1997) observed that the contribution of this sector to the nation’s Gross Domestic Product (GDP) has been on the decline. In 1981 its contribution was 10% in 1991 it was 8.5% while in 1994 it slides further down to 8.4%.
Many of these small scale enterprises are closing shop or retrenching their workers thus compounding the unemployment problem in the country. Fakorede (1988) found that more than 720 small scale enterprises folded up in Lagos state alone. The story is not different in other states of the country.
The civilian administration of Obansanjo since 1999 has spent a colossal sum of money to ensure a steady provision of energy (electricity). Instead of regular power supply, firms experience more epileptic electricity supply. Consequently, machines in some firms idle away. The provision of sizeable generators cannot be contemplated, as the cost is well beyond the financial resources at their disposal.
Financial institutions are not helping matters. In spite of central bank of Nigeria (CBN) instruction to them to allocate a sizeable percentage of their loanable fund to small scale enterprises, banks are cautious in complying with this instruction preferring instead to pay attendant penalties. Banks set conditions extremely difficult to meet all in an attempt to avoid extending loans to small scale enterprises. To buttress banks reluctance to extending loans to SMEs, Mr. Erastus Akingbola, Vice Chairman and Chief executive officer, intercontinental bank PLC opined that most SMEs do not have bankable projects.
1.3 AIMS AND OBJECTIVES
The purpose of this study is to identify those factors which impede the performance of small scale enterprise thus disenabling them to fulfill their role in the overall economic development of Nigeria. Especially the study is aimed at
1. Identifying the constraints which militate against the performance of small scale enterprises.
2. Analyzing how the identified constraints actually impinge on the performance of the small scale enterprises and
3. Drawing policy implications to tackle the identified constraints.
1.4. RESEARCH QUESTIONS
This study will be guided by the following research questions:
1. Do you agree that the operating environment in terms of infrastructure especially power supply is conducive for the growth of your establishment.
2. Bank readily extends medium and long term credit to your kind of business. Do you agree?
3. It is difficult getting people with requisite skills to run your business. Do you agree?
4. Restricted market impedes your expansion prospects. Is this true?
5. Sourcing foreign inputs is cumbersome. Is this true?
6. Managerial deficiency hinders the growth of your business. Do you agree?
1.5 METHOD OF STUDY
The method of study shall be sample survey. Questionnaire items shall be given to select small scale enterprises chosen through a sampling procedure. Information supplied by respondents to the questionnaire shall be analyzed and interpreted. Where applicable interviews and personal field observation shall complement the information supplied by respondents. Arithmetic mean shall be employed to interpret the data obtained from the questionnaire.
1.6 SIGNIFICANCE OF THE STUDY
The study seeks to bring to the fore for development and the necessity on the part of government to encourage them play or discharge their roles in the economy.