i OBIJURU EMMANUEL UCHE PG/MBA/08/53407 PROBLEMS OF ESTABLISHING SMALL SCALE INDUSTRIES IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE INDUSTRIES IN THE STATE) Management BEING A PROJECT REPORT SUBMITTED PARTIAL FULFILLMENT OF THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) Webmaster Digitally Signed by Webmaster’s Name DN : CN = Webmaster’s name O= University of Nigeria, Nsukka OU = Innovation Centre 2010 UNIVERSITY OF NIGERIA
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i
OBIJURU EMMANUEL UCHE
PG/MBA/08/53407
PROBLEMS OF ESTABLISHING SMALL SCALE INDUSTRIES
IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE
INDUSTRIES IN THE STATE)
Management
BEING A PROJECT REPORT SUBMITTED PARTIAL
FULFILLMENT OF THE AWARD OF MASTER OF BUSINESS
ADMINISTRATION (MBA)
IN MANAGEMENT
Webmaster Digitally Signed by Webmaster’s Name
DN : CN = Webmaster’s name O= University of Nigeria, Nsukka
OU = Innovation Centre
2010
UNIVERSITY OF NIGERIA
ii
PROBLEMS OF ESTABLISHING SMALL SCALE
INDUSTRIES IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE INDUSTRIES IN THE STATE)
BY
OBIJURU EMMANUEL UCHE
PG/MBA/08/53407
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
FEBRUARY, 2010
iii
TITLE PAGE
PROBLEMS OF ESTABLISHING SMALL SCALE
INDUSTRIES IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE INDUSTRIES IN THE STATE)
BY
OBIJURU EMMANUEL UCHE
PG/MBA/08/53407
BEING A PROJECT REPORT SUBMITTED PARTIAL
FULFILLMENT OF THE AWARD OF MASTER OF
BUSINESS ADMINISTRATION (MBA)
IN MANAGEMENT
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
SUPERVISOR: PROF. J. A. EZEH
FEBRUARY, 2010
iv
CERTIFICATION
1, OBIJURU EMMANUEL UCHE, a postgraduate student of the Department
of Management with Registration Number PG/MBA/08/53407 has
satisfactorily completed the requirements of the course and research work
for the award of Masters Degree in (MBA) in Management, Faculty of
Business Administration .
The work embodied in this project report is original and has not been
submitted in part of full for any Diploma or Degree of this in any other
University.
………………… ………………….
PROF. J. A. EZEH DATE
Supervisor
………………… ………………….
C. O. CHUKWU DATE
Head of Department
….……………………………… …….………………
OBIJURU EMMANUEL UCHE DATE
PG/MBA/08/53407
Researcher
v
DEDICATION
This project work is dedicated to Almighty God
for his infinite mercies
vi
ACKNOWLEDGEMENT
It is obvious that a project of this nature must definitely require the
contribution and support of other person. Therefore, I remain grateful to
all the authors and publishers of the various books materials consulted in
the course of the research.
My profound appreciation goes to my project supervisor PROF. J. A.
EZEH for his genuine advice and guidance that help towards the
accomplishment of this project. I am grateful to the Head of Department
of Management, C. O. Chukwu for his fatherly advice, Dr. Gideon
Emerole for his assistance, and all the staff of department of
management.
I am sincerely grateful to my family members for their moral and
financial support and encouragement in the course of my study. My
special thanks go to my mother for her wonderful montherly advice. My
siblings. Samuel I Obijuru, Hannah, Obijuru, Obinna Obijuru, Umunna
Obijuru Chinedu Obijuru and last born Oluchukwu Obijuru, they coopy
special portion in my heart for their wonderful understanding and help. I
remain loyal and grateful to all of you and also my friends, Egeonu, Ogbu
Anthony, Anyanwu Tony, Adubah Paul, Egeonu Chigoziri, Obinna
Fortune a.k.a (Smile for me), Gift a.k.a (Nkem), Ikwo Bassey a.k.a
vii
(Maureen Bee) and my lovely neighbor for their unalloyed and
unflinching support. And also my wonderful Ugwu Nneamaka S. who
made the typing of this work possible.
Above all, I am highly grateful to Almighty God, for providing me with
the knowledge and inspiration that is required for this project.
To God be the Glory.
viii
ABSTRACT
The study was carried out to determine the problems that militate against
the establishment of small scale industries. This necessitated carrying out
a survey of small scale establishments with view to findings lasting
solutions to the problems. Questionnaires are unstructured oral
interviews were the major instruments used in this study. A sample of 44
small scale establishments in Augata, Awka and Nnewi Local
Government Areas of Anambra State were served the questionnaires and
the various Pie charts were used in presentation and analysis of data and
for clarity purpose. It was found out that the problems confronting the
establishment of small scale industries are lack of adequate capital,
problems, relating to management/managerial, marketing, manpower,
quality/standard and non-availability of raw materials. These problems
are caused by political instability in the country, lack of good manpower
development programme, poor leadership style and unawareness cum
non-utilization of government assistance programmes. However, these
problems are at various stages of growth but most at the existence stage
when authority is still centralized and yet to stabilize. To solve these
identified problems, local sourcing or law materials, employment of
trained personnel and skilled manpower, as well as full utilization of
government assistance aimed at improving the productivity of the
establishment were recommended.
ix
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Contents vii
List of Tables x
List of Figures xii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of Problem 8
1.3 Objective of the Study 8
1.4 Research Questions 9
1.5 Significance of the Study 9
1.6 Scope and Limitations of the Study 10
1.7 Definition of Important Terms 11
References 13
CHAPTER TWO: LITERATURE REVIEW
2.1 The Concept and Nature of Small Scale Enterprises in
Nigeria 14
2.2 The Concept of Manufacturing Industries 18
x
2.3 Development of Small Scale Industries in Nigeria an
Overview 19
2.4 Basic Characteristics of Small Scale Industries 25
2.5 Significance of Small Scale Industries 27
2.6 Government Incentive Policies for the Growth of
Small and Medium Enterprises (SME) 30
2.7 Financial Schemes for SMEs 31
2.8 Realisation of Industrial Policy Monetary and Fiscal
Meaus 35
2.9 Problems Confronting Industries in Nigeria 37
2.10 The Small Business and Business Failure 42
References 47
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction 51
3.2 Sources of Data 51
3.1.1 The Primary Sources 51
3.1.2 Secondary Sources 51
3.3 Population for the Study 52
3.4 Sample Size Determination 52
3.5 Instrument Used for Data Collection 53
3.6 Data Analysis Techniques 54
3.7 Validity and Reliability of Data 55
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation 56
xi
4.2 Data Analysis 69
4.3 Test of Hypothesis 69
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS
AND CONCLUSION
5.1 Summary of Findings 83
5.2 Recommendations 85
5.3 Conclusion 87
Bibliography
Appendices
xii
LIST OF TABLES
Table 2.1: Distribution of Entrepreneurs by what they consider
to be Principal Causes of Small Business Failures 44
Table 4.1.1: Major Problems Confronting the Small Scale
Establishments 5
Table 4.1.2: Stage of development 57
Table 4.1.3: Major Causes of the Management Problem 58
Table 4.1.5: Type of management/leadership style 59
Table 4.1.6: Impact of level of training of managers on level of
management /leadership problems 60
Table 4.1.7: Impact of management on the operational
efficiency/output of the company 60
Table 4.1.8: Level of personnel maintained by the organization 61
Table 4.1.9: major cause of financial problem 62
Table 4.1.10: Financial schemes 63
4.1.11: Benefit from the scheme 64
Table 4.1.12: Raw material procurement 64
Table 4.1.13: Impact of local sourcing of raw materials on
growth variables of the firm 65
Table 4.1.14: Customers preference for foreign made goods
to locally made ones 66
Table 4.1.15: Increase in the market demand of product 67
xiii
Table 4.1.16: Rate of profitability since inception 68
Table 4.1.17: Major factors that militate against the growth of
business enterprises 69
Table 4.2.1: What are the problems confronting small scale
industries 70
Table 4.2.1: Causes of management problems 71
Table 4.2.2: Cause of financial problems (reproduced) 73
Table 4.2.3: Reproduced 75
Table 4.2.4: What are the possible solutions to these problems
facing the small scale industries? 77
Table 4.2.5: Impact of local sourcing 79
Table 4.2.6: Impact of Government 81
Table 4.2.7: Demand of product (4.1.17 reproduced) 82
xiv
LIST OF FIGURES
Fig. 1: Histogram showing the relative importance attached to
the major problems facing small scale industries
Fig. 2: Pie chart showing the major causes of management problems
Fig. 3: Pie chart showing the major causes of financial problems
Fig. 4: Bar chart showing stage of growth at which these problems are
encountered
Fig, 6: Composite bar chart showing the relative impact of local sourcing
of raw materials on the growth variables of small scale firms studied
Fig. 7: Pie chart showing the distribution of the firms studied
xv
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Every organization in the process of pursuing its aims and objectives is
bound to have problems and prospects. Small Scale firms are not left out
in this effect.
The significance of small scale manufacturing enterprises in socio-
economic development, in many parts of the world has been well
documented. In Nigeria the contribution of small-scale business is not in
doubt. However, in the recent times the contribution of this vital sub-
sector to our economy has increasingly, assumed an unprecedented
development. It has come to occupy a central position in the development
aspiration of Anambra State.
As stated already, the concept of small-scale business is not new; it is the
practice that is new. According to UNIDO monographs on industrial
Development review titled: Industrialization of developing countries:
Problems and Prospects of Small Scale Industries there are two broad
categories of small scale industries. The first is the industry carried on by
traditional craftsmen and artisan, some of whom may need assistance to
modernize their skills, tools and techniques of production; the second is
the industry carried on by the group of small manufacturing enterprises
xvi
which produce a variety of consumer and simple producers‟ goods
required by large industry. In both categories the scale of operation is
generally too small to be of interest to a foreign entrepreneur.
According to Peter Ejiofor (1989:69), in pre-colonial Nigeria, the bulk of
the employed labour forces were farmers some were also engaged in
traditional industries and crafts. Such industries and crafts according to
him were small in scale and were mostly practiced in the home. For
example, there were elementary processing of agricultural products such
as floor from yam, garri, cassava and plantain, oil from palm fruits and
gin from palm wine. There were also cloth weaving from cotton yarn,
dying of cloth fabrics, casting and smelting works based on ferrous and
non-ferrous ores and metals, leather works and manufacture of simple
weapons, tools like iron, spores, wooden spore heads, swords, guns,
poisoned arrows, matchets, knives, hoes and household utensils such as
tripods for the fire place, metal cooking pots and oil lamps. These
industries together with crafts like carving from woods and shell,
weaving from raffia and grass, pottery products, calabash decorations and
products from cane and cassava constituted a vital secondary sector in
precolonial Nigeria.
xvii
However, with the advent of colonialism and its introduction of Western
Education, much of the hands involved in the indigenous small scale
cottage industry abandoned it for Western education in order to take up
the so called white-collar jobs. This was further worsened by the
influence of urbanization which led to an unprecedented rural-urban drift
or migration, draining the rural areas of its youths that would have taken
over indigenous crafts from their fathers and mothers and grandparents.
Thus as Nigeria moves from predominantly traditional to a modernized
economy, much of the character of its cottage industry mostly carried out
in the home, has drastically change, as much of it has been replaced by
small but modernized factories.
The much said, and publicized about the numerous documentation on
small scale industries are only on papers, journals and text books and
restrited only to those living in the cities with access to this information.
About 75 percent of Nigerians who live in the rural areas have no access
to this information. During the precolonial days and the period after
independence the then ministry of commencer and industry went from
village to village shooting documentary films on how to improve upon
our small-scale ventures, how to use better improved variety seedlings;
how to combat pests using pesticides etc. Even today, majority of those
who are involved in small-scale business in this country arc not aware of
xviii
the so called numerous research and documentation on small-scale
enterprises.
The major blame of the problems confronting small scale enterprises
today would go to the government which immediately after independence
in 1960 neglected and discouraged this important and indispensable sub-
sector of the economy that would have acted as engine of growth for our
economic development efforts, as reflected in its various economic
development plans. According to J.A. Ezeh (1997:1-2) since 1960 the
year of independence, the country‟s development plans have laid a great
deal of emphasis on public sector controlling of the economy. We have a
situation where the public private sector mix has increasingly titled
towards public sector domination. For instance, while in the first National
Development Plan (1962-1968), the private sector received 62% of the
total capital expenditure, in the Fourth plan (198 1-1985) only 12% of the
total capital investment was accorded the private sector with the public
sector controlling a staggering 88%. This trend has generally
distinguished the government as a major investor in a lot of businesses
which otherwise should have been left to the private sector3. This
apparently wrong development planning did not pass without adverse
consequences for the Nigeria economy that we are in today.
xix
In the developing countries, therefore it is now realized that the
government parastatals and large scale enterprises have not played and
cannot single-handedly be expected to play the dynamic role that they are
supposed to play in the rapid growth and development generation,
increasing local value added, technological development. It is thus
becoming evident as observed by May 1, Nwoye (1991:12) that small
scale manufacturing enterprise which had hitherto generally been
neglected could play the aforementioned roles, as well, if better than the
large scale establishment.
The specific attention now paid to small-scale enterprises is based on
their expected impact and potential contribution on broad and diversified
production base, as well as their accelerated effect in achieving macro
objectives pertaining to full employment, income distribution,
development of local or indigenous technology among others. Peter
Drucker (1980:7) clearly pointed out that small scale industries are
important not only because they account directly for a significant
proportion of the investment output and employment in a nation, but also
and even more significantly, because they provide vital links in the chain
of the economy at large, motivating, energizing and connecting various
sectors and sub sectors for greater over all output, employment and
productivity.5
xx
Indeed, the country‟s low per capita income, low technological know-
how and abundant supply of cheap labour force, make small-scale
manufacturing enterprises an important anchorman to national
development. It was therefore, in recognition of this unique position of
small scale enterprises within the national economy that a National
workshop-the first of its kind-on promotion and development of small
and medium scale enterprises was sometime held at the Administrative
College of Nigeria (Kuru Plateau State). Among the objectives of
workshop were to highlight the importance which the small and medium
scale enterprises could play in the revival and restructuring of the
Nigerian economy; to identify the problems confronting this category of
enterprises and to bring these to the notice of the Federal and State
Governments so they can adopt necessary measures to facilitate the
promotion and development of these vital sub-sectors of the economy. To
this effect, therefore, the need to promote active indigenous participation
in all aspects of the economy has never been in doubt through deliberate
policies by government at different stages of their economic
development. Thus the promulgation of the Nigeria Enterprises
promotion Decree, 1972 was the first real scientific approach to tackle
this subject with the full appreciation of its magnitude and complexity.
The Nigeria Enterprises Promotion Decree of 1977 has been
promulgation in consequence of a comprehensive appraisal of the result
xxi
oaf that of 1972. Besides providing for further indigenization of
enterprises in Nigeria, the primary objective of the decree is to promote
and protect the participation of all Nigerians in all spheres of the
economy.
Interestingly, enough, emphasis by the recent government policies on
expansion and setting up of new ones by private individuals through the
establishment of peoples banks, Community banks, Nigerian Bank for
Commerce, Credit and Industry, export promotion through many
incentives to discourage import so as to encourage local industries, Fund
for Small Scale Industries (FUSSI), Small Scale Industries Scheme
(SSIS), Industrial Development Centre (IDC), National Economic
Reconstruction Fund (NERFUND) etc. It is therefore not surprising that
the 3rd
National Development Plan (1975- 1980) specifically state that
the main objective of the government programme for the development of
small scale industries are the creation of employment opportunities,
mobilization of local resources, mitigation of rural urban migration and
even more distribution of industrial enterprises in different parts of the
country. Presently, emphasis is on small scale enterprises in all sector of
the economy. The Federal government has established some agencies to
device and coordinate the efforts of small scale business entrepreneurs.
However, the impact of these agencies is yet to be felt.
xxii
1.2 STATEMENT OF PROBLEM
According to statistics, one in every new businesses fails within the first
year of operation, while a staggering four out of five small business fail
during the first five years. These problems which include managerial,
financial, marketing, raw material acquisition, accessibility and other
environmental factors militate against the efficient and smooth attainment
of the organizations immediate, attainable or visionary objectives. Obong
and Jakande have attributed the failures to management and financial
problems.
The present research seeks to investigate the viability and rapid folding
up of these small scale industries in our fledging and developing
economy.
1.3 OBJECTIVE OF THE STUDY
The study has the following objective:
1. To determine the major problems encountered by small scale
establishments which pose danger to their survival and growth.
2. To determine the nature and causes of these problems as well as
their impact on the small scale businesses.
3. To find out the best and most efficient way of handling these
problems with view of finding lasting solution.
4. To make recommendations based on the findings of this study.
xxiii
1.4 RESEARCH QUESTIONS
This study endeavoured to answer the following questions:
1. What are the major problems confronting the small-scale
industries?
2. What are the causes of these problems?
3. What are the possible solutions to these problems facing the small
scale firms?
4. At what stage of growth are these problems encountered?
1.5 SIGNIFICANCE OF THE STUDY
The study is significant because the resultant findings and
recommendations will:
1. Reflect problems areas which would aid in better decision making
towards the continued and successful operation by the owners.
2. Draw attention of the small industrialists to vital factors or
problems that may impinge on their growth.
3. Provide information on how best to avoid or tackle the problems
that are „defined‟ and as are common with small businesses.
4. Help government identify requiring attention, thus stimulating
government into proper directing of incentive and loans to improve
upon existing infrastructures.
xxiv
5. Provide useful guide for prospective entrepreneurs that wish to
choose self employment as a career.
6. Form or serve as secondary data for subsequent studies by a
prospective entrepreneur or researcher.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
Small scale industries are beset with myriads of problems. These
problems cannot be adequately covered in a research work taking into
cognizance the time constraint, financial and material (data) resources at
our disposal. Nevertheless much was covered and the research was
limited to Animal Husbandry farms, Restaurants, and Bankers within
Anambra. Thus study was based on data collected from the few selected
small scale enterprises in Anambra State.
In the pursuance of a successful completion if this study, certain
limitation posed some threats to the researcher. Among them were the
unavailability of sufficient books by Nigerian Authors in area of small
business management and other problems associated with data collection
(which includes misleading and incomplete information from
respondents); limited time available for completion of the enormous work
and family, the financial resources available to carry out the research.
However, the researcher despite all odds was able to counter the affects
of these limitation.
xxv
1.7 DEFINITION OF IMPORTANT TERMS
1. Small-Scale Industry: The definition of small-scale industries
varies with people and countries (localities) such that it is better
defined based on the characteristics. In the Nigeria context small
scale enterprise is any servicing, processing or manufacturing
industry with an investment in machinery and equipment above
N500, 000 (Uaboi, l987). According to the Center for Management
Development, (CMD) in a policy proposal on Federal Government
in 1982, „A small scale enterprise‟ is a manufacturing, processing
or service enterprises involved in a factory or producing type
operation employing up to 50 full time employees, investment in
plant machinery are utilized in its operation.
2. Manufacturing: This is the mechanical or chemical
transformation of inorganic or organic substances into new
products (Heyel (ed) 1963).
3. Management: According to Akpala (1990:3) management is the
process of combining and utilizing an organization‟s input (men,
material, and money) by planning, organizing, directing and
controlling for the purpose of producing outputs (goods and
services) desired by customers so that organizational objectives are
accomplished.
xxvi
4. Restaurant: According to Obong (1993:27) place where meals
can be bought and eaten. This definition excludes canteens and
other road side eating places popularly known as „Mama Put‟.
5. Animal Farms: According to Jakande (1990:45) business
involving the rearing of animal (and birds) for meat and other dairy
products. Raw materials for further processing could also be
obtained here. Thus the farms include poultry, piggery, fishery etc.
xxvii
REFERENCES
Akpala A. (1990), Management: An introduction and the Nigerian
Perspective, Enough: Published by the Department of‟
Management, university of Nigeria, Enugu Campus.p.3.
Drucker P. Management: Tasks, Responsibilities and Practices, London:
Helnmann 1980 p.7
Ezeh, J. A. (1996), Small Business Management (Unpublished).
Heyel, (1963), The Encyclopeadia of Management New York. Litton
Educational Publishing Inc. (ed) p. 1020.
Nwoye, M.1. (1991), Small Business Enterprises: How to Start and
Succeed, Benin City: Ambik Press ltd. p. 1 2
Obong Z. and Y. Jakande, (1993), Major problems of Small Scale
Enterprises, Business Times January, p. 5.
Peter N. Ejiofor, (1989), Foundation of Business Administration,
Onitsha; African-Publishers Ltd. pg. 72-73
Uaboi S. A. (1987), „Development of Small Scale Sector: What role for
Federal Government? The Nigeria Banker Vol. 7 No. 1.
United Nation‟s Industrial Development Organization UNI DO),
Investors guide to Nigeria, Vienna UNIDO 19890 pg. 23
xxviii
CHAPTER TWO
LITERATURE REVIEW
2.1 THE CONCEPT AND NATURE OF SMALL SCALE
ENTERPRISES IN NIGERIA
All definitions of small-scale enterprises are pragmatic; there is nothing
sacrosanct about any of them, any definition is good if it serves its
purpose. (Peter Drucker, 1969:5). In order words, the definition of small
scale enterprises differ from one industry to industry and from country to
country.
Small Scale Industries assume heterogeneous character. According to
Uaboi (1987:19), various qualitative, statistical and combined descriptive
definitions have been offered to suit particular circumstances. Thus, no
universally accepted definition has as yet been adopted. The salient point
of comparison according to B.F. Hoseliz (1981:205), whether the
business is situated in developed or developing countries are often
consumption of raw materials, output, number of employees on the pay
roll, capital employed and some line sales volume.
As Baylis (1982:17) observed, main features might be necessary for a
qualitative definition. First it is managed by its owners or part owners in a
personal way. Secondly, those owners are free to make their own
xxix
decisions. Thirdly, it has very little real market power and little or no
ability to influence its own environment.
Statistically, a number of criteria have been applied in the definition
(Uaboi, 1987:19) Blank (1961:95) stated the definition offered by the
Small Business Administration (SBA) in USA as one which employs 250
or fewer people. Hoseliz (1981:205) pointed out that critical question
have different answers in different business situations, political
boundaries, and financing situation in relation to small scale business
are:-
a. How small is the small scale; that is how can these small
businesses be qualified and quantified?
b. Should universal yardsticks apply in determining business sizes or
should emphasis be on specific yardsticks in specified situations?
c. Independent ownership: should this yardstick be considered
crucial?
d. In comparison, is it capital employed or number of people on the
payroll considered more important in measuring the „small‟ This is
in consonance with J.A. Ezeh‟s view that one of the problem of
understanding the concept of small-scale business enterprises is the
problem of knowing what we are talking about, a problem of clear
definition. WaIts (1975:6) tried to answer some of these questions
xxx
by citing the confederation of British industries. He argued that
although the definition of small business is necessarily arbitrary,
number of employees and turn over are paramount indicators.
However, the Central Bank of Nigeria in February 1988 for the purpose
of its credit guidelines in Financial Institutions come out with a definition
of a small scale industry which addressed two financial areas - the
Merchant Banks and the Commercial Banks. it states that, for the lending
purposes of Merchant Banks, a small scale industry is one with a
maximum annual turnover of N500,000 or with a capital investment of
not more than N200,000 (excluding the cost of land). And Commercial
Banks, a small-scale industry is one with annual turnover not exceeding
N500,000.
The Centre for Management Development (CMD) in a policy proposal on
small-scale industrial services to the Federal Government in 1982, give
the following definition.
“A small scale Enterprise is a manufacturing, processing or service
enterprises involved in a factory or production type operation, employing
up to 50 full time employees, investment in plant and machinery not
exceeding 500,000 and power plant and machinery are utilized in its
operations.
xxxi
The structure of the small-scale enterprises has also been reported by
many authors. in one such reports, Jegede (1990:10) observed that in the
early I 970s and according to a survey conducted by center for Industrial
Research and Development (CIRD), small and medium scale enterprises
concentrated on narrow range of activities with garment making and
allied activities accounting for more than 50% of the total number of
small and medium scale enterprises (SMES). Furniture making 0.0% and
mechanically-based service enterprises such as motor vehicle repairing
accounted for 9% SMES. Although wearing apparel remained a dominant
enterprises within the small-scale industries in the early I 980s, the pre-
eminence in the previous decade has been considerably reduced,
dwindling to 30% of the total employment ion the small-scale sector.
Food and beverages group of the enterprises has assumed a substantial
importance accounting for 20%, while the furniture industry remains
unchanged accounting for 8% of the total employment during the period.
In all, manufacturing sector in 1980s was characterized by high
geographical concentration, high production costs, low value added, low
capacity utilization, high import content and low level foreign investment
(Jegede, 1990:10).
According to the United Nations Industrial Development Organization
(UNIDO) report (1989:23)‟‟ the manufacturing sector is expected to grow
xxxii
at an annual average rate of 7.5% between 1989 and 1994 and to account
for over 10% of GNP by 1992 with the small and medium enterprise
contributing more than half of the manufacturing sector‟s contribution to
GNP the report observes that much of the growth is expected to come
from the small and medium enterprises using local resources and
employing labor-intensive or capital-intensive technology as appropriate.
It further notes that government investment is likely to remain of
considerable importance in the heavy industries particularly petro-
chemical, steel and gas infrastructure projects while the private sector is
expected to invest in the small and medium enterprises.
2.2 THE CONCEPT OF MANUFACTURING INDUSTRIES
The art of manufacturing as a process has been extensively studied by
numerous authors. The University English Dictionary (p. 249) has
defined manufacturing as the process of making anything by hand or
machinery from raw materials. Balkashin (1971) in one of his studies
describes the concept of manufacturing as follows: “...Man must always
expend labour to accomplish the qualitative transformation of the objects
of Nature which can be called a manufacturing process”
According to Degarme (1974:6) manufacturing can be classified as being
job-shop, mass-production or process-type. He described the job shop
plan as consisting of a group of general purpose machines that when
xxxiii
operated by highly skilled labour, permit a wide variety of products to be
produced. While the mass-production plants are composed of specialized
equipment that is designed and selected to, in combination, manufacture a
certain product or group of related products, the process type plants are
constructed around specific process usually chemical in nature such as
refining or distillation. Like the concept of Small Scale Business, Small
Scale manufacturing Industry varies from one country to another. Uaboi
(1987:19) reported the definition adopted by three countries including
Nigeria, namely:- Nigeria: Any servicing, processing or manufacturing
industries with an investment in machinery and equipment not above
N500,000.
India: All manufacturing enterprises with an investment in capital not
more than 750 rupees (75,000) except ancillary enterprises for which
capital is 1,250.00 rupees (N25,000). U.S.A.: According to the Small
Business Association in the U.S. any business which has less than 250
employees and whose annual turnover is not more than $1 0 million
(N100million).
2.3 DEVELOPMENT OF SMALL SCALE INDUSTRIES IN
NIGERIA AN OVERVIEW
Over the years, experience has taught and established the Fact that the
present requires the history of the past for a better understanding. And
xxxiv
this proper understanding of the present favours corrects prediction of the
future. This means therefore, that a historical understanding of the
development of small scale manufacturing enterprises may be good
indicator of its future performance. Dating back to the Pre-colonial
Nigeria, it would be remembered that the bulk of the employed labor
force were farmers but some were also engaged in traditional industries
and crafts. Such industries, according to Pita Ejiofor (1989), were small
in scale and were mostly practiced in the home. For example, there was
elementary processing of agricultural products, such as flour, grains, oil
from palm fruits and gin from palm oil, cloth weaving from cotton,
casting and smelting works based on ferrous and non-ferrous ores and
metals etc. These industries together with crafts like carvings from wood
and shell etc., constituted a vital secondary sector in pre-colonial Nigeria.
As Nigeria moves from a predominantly traditional to a more modernized
economy, much of the character of its cottage industry has changed as
much of it has been replaced by small but modern factories. Though,
without doubt, some traditional industries and crafts have continued and
have been expanded.
What this clearly shows is that the historical development of small scale
manufacturing enterprises dates back to the pre-colonial time. That is to
rightly say that the concept of small scale manufacturing business is not a
xxxv
novelty in Nigeria. The striking differenced between the pre-colonial and
post-colonial period, then was a conscientious and conscious attempt by
the government to practically be involved in the development of this
hitherto to neglected sub-sector, realizing the importance. But in the pre-
colonial period there was visibly and practically no organized and
conscious effort on the part of the government to stimulate or encourage
entrepreneurship.
Hence, tracing from history, Jegede (1 990) noted that the earliest attempt
of the government to develop small-scale enterprises in Nigeria dated
back to 1946 when the sessional paper No. 24 of 1945 on “A Ten- year
plan of Development and Welfare for Nigeria, 1955, as amended by the
legislative council on 7th February, 1946. He also identified that the first
stage of development involved the establishment of a “Nigeria Local
Development Board” whose functions among others were primarily
associated with:
1. The promotion and development of the village crafts and the
industrial development of the products of Nigeria.
2. The setting up and operation of experimental under-taking for the
testing of industrial or processing development of any Nigerian
products.
xxxvi
3. Other suitable projects approved by the Governor-in-council. These
laudable schemes were designed to assist small-scale enterprises,
develop faster and to obtain a higher level of efficiency so that they
could become highly rewarding and profitable to the owners and
government alike. Jegede (1990:10) also pointed out that though,
there was no coherent industrial policy geared at promoting small
scale enterprises, during the pre-independence era, the former
Western and Eastern Regional Governments managed to set up
industrial estates-Yaba Industrial Estate (1958) and Enough
Industrial Estate in (1959).
By the 1960 survey of Eastern Nigeria, Small-scale establishments totaled
about 35,000 to 40,000 of which about 40% were one man operation.
(World Bank, 1974:82) Government during this period laid emphasis on
light industry and assembly plants and not small scale enterprises. This
time manufacturing products, if any, were mainly simple machine tools,
electric fans, kitchen utensils and motor vehicle assembly.
Between 1962 and „63 Jegede (1990:10) observed that the Ford
Foundation of U.S.A. joined hands with then Eastern and Northern
regional governments to set up an Industrial Development Centres
(IDCS) in Owerri and Zaria for the purpose of promoting the
development of small scale industry. These industrial Development
xxxvii
centres assisted in financing small-scale industries as well as in rendering
techno-managerial services to them.
Jegede (1990:10) further pointed out that the Federal Government at the
end of the Civil War assumed the leadership role in fostering the
development of small scale industry in the country by setting up a small
scale industry Division within the Federal Ministry of Industry and eleven
Industrial Development Centres (IDCs) in different states of the
federation in addition to re-activating the ones in Owerri and Zaria. In
addition to these too, small scale industries Credit Loan Scheme was
established in each state matching grants from the Federal Government.
The lukeworm emphasis given to the Small Scale sector in the first,
second and third National development Plans viz: (1962-66), (1970-74)
and (1975-80) respectively almost completely marred the progress so far
made in the development of the Small-scale enterprises. Also, Jegede
(1990:10) reported the numerous constraints, ranging from inadequate
funding and mismanagement of the state‟s small-scale industries credit
scheme to shortage of staff, funds and equipment, that confronted 13
IDCS then established.
Federal Government as reported by Babarinsa (1987:34) reaction to this
negative trend in the sectors development quickly set up the Nigerian
xxxviii
Bank for Commerce and Industry (NBC 1), on the 2 April, 1973 by
Decree No. 22 to act as a catalyst for Industrial growth of the Small Scale
sector. Thus, during the fourth National Development Plan period of 198
1-1985, the Nigeria Bank for Commerce and Industry was saddled with
the responsibility to administer loans to small scale enterprises, inculcate
financial discipline into borrowers, assist better with project appraisal and
offer advisory services to Small Scale enterprises. The plan also indicated
that state government would establish more industrial estates and
Industrial Promotion Centres (I.P.C.S).
The Fourth National Development Plan laid more emphasis on public
sector control of the economy. According to J. Eze (1992) while in the
first National Development Plan (1962-66), the private sector received
62% of the total capital expenditure, in the fourth plan, (1981-1985) only
12% of total capital investment was accorded the private sector with the
public sector controlling a staggering 88%. This trend generally
distinguished the government as a major investor in a lot of businesses
which otherwise should have been left to the private sector. But this
apparently wrong developmental planning did not pass without adverse
consequences for the Nigeria economy.
xxxix
2.4 BASIC CHARACTERISTICS OF SMALL SCALE
INDUSTRIES
The overall business scene and activities in Nigeria appear to be
dominated by small businesses which are established by individuals,
groups, companies and or cooperatives.
Most businesses start off as small, but with proper planning and
management, they expand and grow. However, it will be risky to assume
that small industries are exactly like big ones after all the difference is
size. But it is necessary to differentiate the small business from the large
ones and to associate those characteristics with problems inherent in the
small business.
In summary, characteristics as indentified by several writers among
whom are Broom and Longnecker (1972) Mussel man and Hughie (1973)
and Yewande (1991) are presented here. It must not however be taken
that these characteristics are all embracing or that all must be present in
the same magnitude in a business for such a business to qualify as a
“Small Scale Business”.
(1) Management is not independent. Generally the managers are also
the owners. This means that the manager/owner can run the
business as he pleases. Discipline as the control factor in this case
xl
may sometimes be missing. This lack of proper managerial
discipline lead to business failures.
(2) Capital is supplied and ownership is held by a small group or an
individual. The initial capital, usually equity holdings is supplied
by the owner or co-owner of the business. Often for working
capital, they depend on trade credit or credit fiancé or both.
(3) Capital requirement is small and therefore within reach of the
indigenous entrepreneurs.
(4) The area of operation is mainly local employees/workers and
owners all like in one home community. Most small scale firms
even those identified as modern utilizing plants and machinery, are
run along family lines. However, market served by them are not
always local. Modern small scale firms serve markets across
ethnic, cultural and even nation or state boundaries.
(5) The size of the small business firm within industry is usually small.
Thus they are not dominant in their individual fields of‟ operation.
(6) Majority of the modern small business units are labor intensive and
are able to achieve high productivity. These units are concentrated
in areas of low technology.
(7) One other all embracing characteristics of small scale business in
Nigeria is the apparent lack of attention to managerial functions, of
planning, organizing, directing, coordinating and controlling.
xli
All the entrepreneur set out to achieve is high return on sales or
investment. The workers are not adequately remunerated and therefore
not sufficiently motivated. Business is often poorly managed and failure
rate is high. Most of them do not keep records either due to ignorance or
deliberately evade tax.
2.5 SIGNIFICANCE OF SMALL SCALE INDUSTRIES
The contributions of small scale manufacturing industry n a developing
economy like ours cannot be overstated. Various scholars authors have
done a lot of research studies on this subject. In a study of the
development of the small and medium scale industry in Nigeria, Jegede
(1990:9) observed that the economic conditions that prevailed in the
country during the 1 970s and I 980s raise doubts about the large-scale
industry fulfilling the dynamic roles bringing about rapid growth and
development of the Nigerian nation. The roles include substantial
contribution of‟ the sector to the gross domestic product (GDP),
increasing local value added, employment generation and technological
development. By 1985, it became clear that the small scale industries
which had hitherto been neglected could play the aforementioned roles as
well, if not better than the large scale enterprises.
xlii
Many reasons have been advanced by the advocates of small-scale
industries development in Nigeria. These reasons include:
(a) The low level of capital required for establishment of the industry
(Osoba, 1987:98-116).
(b) The large number of the establishment and their labor-intensive
modes of operation guarantees employment for a large number of
persons (Adejugbe, 1987:73).
(c) Inventions, adaptations and general technological development are
common in these enterprises (Adejugbe 1987:82-86)
(d) A more equitable, distribution of income is usually achieved in this
sub sector (Oshagbemi and Sanai, 1987 p. l47-15).
(e) Industrial diversification and relatively more balanced regional
development is assured (Ige 1987, p. 67-7l).
(f) General enhancement of the tempo of industrial development is
visible among small and medium scale establishments (Oshagberni
and Oguntoye, 1987:156).
(g) Tendency among small and medium scale industries to become
feeders of the large-scale firms and services products made by the
latter (1-lealey and Lutkerhorst, 1989: l56).
Pita Ejiofor (1989:72.75) summarized the place or importance of small
scale business in the economy as follows-creation of employment,
manpower training, local development, fill in employment, waste-
xliii
utilization, introduction to big business, promotion of competition, self-
reliance, and to industrialization and catering for small demands.
From a broader or global perspective, Weaver (1990:68) highlighted three
main reasons that justified the importance of‟ a healthy manufacturing
industry. They are: -
a) To create a successful economy depends on successful
manufacturing of goods.
b) Manufacturing industry provides the best exploiter of technology.
c) Manufacturing sector plays vital role in providing internationally
tradable goods. He noted that industry and commerce provide the
means by which mankind in general benefits from invention and
innovation and the channel through which the creative ideas of the
few can benefit the majority.
In support of this view, a former Minister for Science and Technology, G.
Ezekwem in a paper presented on the occasion of the Launching of
project and Development Agency (PRODA) permanent site observed that
if Nigeria should overcome its present economic malaise, great emphasis
must be laid on the small scale manufacturing enterprises in all sectors of
the economy especially if raw materials are locally sources. He further
cited Japan, South Korea, Taiwan, Singapore, India etc as few
technological developed nation that attained their enviable
xliv
industrial/technological height through maximurn emphasis on small and
medium scale industries.
Sutton (1990:59) in a similar view observed that in the advanced of a
country from a level of low productivity and low income to one of high
productivity and high income, one usually finds that the strategic role is
1ayed by the industrial rather than by the service and other sectors.
According to him, improvement in efficiency in the non- industrial
sectors such as financial and other service sectors or government agencies
have not helped to greatly increase the wealth of a nation.
Suffice it to say that the achievement of a strong economic cum
technological future in Nigeria, in this regards, lies on a careful down-
ward movement to start re-constructing the foundations via proper
development and exploitation of small and medium scale manufacturing
enterprises which will later grow into large scale types.
2.6 GOVERNMENT INCENTIVE POLICIES FOR THE
GROWTH OF SMALL AND MEDIUM ENTERPRISES (SME)
In full realization and recognition of the myriads of problems confronting
small and medium scale enterprises in Nigeria, and in attempt to mitigate
these inadequacies so as to realize the benefits and objectives of
promoting SMEs, the Federal government has devised a comprehensive
xlv
policy packaged to stimulate the growth or SMEs. The “hey is aimed at
encouraging the private investors comprising local and/or foreign
investors to shift from assembly-type operation to manufacturing
activities, which increasingly utilize the domestic resources. The
incentive policies consist of three related approaches
1) Financial Schemes for SMEs.
2) Specialized Agencies of SMEs.
3) Monetary and Fiscal measures through which industrial policy
goals and objectives are attained.
2.7 FINANCIAL SCHEMES FOR SMEs
The government, recognizing the importance of finance in the growth of
an economy, usually allocated substantial funds, through its National
development plans and annual budgets as well as its agencies, for
providing necessary financial assistance and other extension services to
SMEs. Some of these specialized schemes include:
1) Fund for Small Scale Industries (FUSSE)
FUSSI is set up in different states of the Federation as an arm of the
Ministry of Commerce and Industries. It was meant toy be a medium of
channeling government assistance to small-scale businesses in state. The
FUSSI scheme is derived from both states and Federal governments. The
loans are given to SME on application.
xlvi
2) Small Scale Industries Credit Scheme (SSICS)
The Scheme is a joint programmes both Federal and State governments
for financing viable industrial projects. It is specifically meant to assist in
the improvement and expansion of existing small industries. SSICS is
also employed in financing new manufacturing industries that produce
accessories and components for other industries. Unlike commercial
financial institutionps loans by SSICS are subject to a moratorium period
of about 2 years.
3) National Economic Reconstruction Fund (NERFUND)
This was announced by the Federal government during the 1988 budget
speech. The fund was created and earmarked for medium and small-scale
enterprises as a means of encouraging them with easy access to loan.
These loans are to be administered through participating commercial and
merchant banks, on favourable terms. There is also a clause that the
ownership of the project, to benefit from this facility will e wholly
Nigeria. NFRFIJND finally became operational with the NERFUND
decree, 1989. However, the proprietors of these small scale industries
claim not to have seen the impact of the scheme as both the UND
proposals and NERFEBD decree seem to be only on paper.
xlvii
4) Nigerian Bank for Commerce and Industry (NBCI)
Receive financial support from the Federal government NBCI. Apart
from providing equity and loan finances, it performs consultancy
services, carries out feasibility studies and guarantees letters of credit
among others.
5) Small and Medium Loan Scheme
(SME Loan Scheme) This was set up in 1989 by the Federal Government
to support programmed of assistance to SME; helping SME entrepreneurs
become more competitive by encouraging and engaging the rehabilitation
and expansion of existing enterprise as well as encourage the
establishment f new ones.
In summary, Jegede (1990:11) observed an active participation of the
Federal Government in the development of SMEs through:
1. Initiating and providing financial backing for various schemes such
as the work for yourself, programme (WYP), Open Apprenticeship
Programme, Entrepreneurship Programmed.
2. Initiating, funding and setting up of industrial estates, Export Free
zones (EFZ) and Industrial incubators to reduce overhead costs of
SMEs;
3. Providing local and foreign finance through its agencies;
xlviii
4. Facilitating and guaranteeing external finance through the World
Bank, African Development Bank (ADB) etc;
5. Initiating in its fiscal policies-taxation, tariffs, subsidies, customs
and excise duties, and income policies;
6. Setting up and funding the national Directorate of Employment
(NDE)-for the purpose of generating employment and setting up of
small scale enterprises.
Jegede noted further that for proper execution of the above policies, the
government set up the following organs:
1. Small Industries Credit Committee (SICC). To administer small
industries credit fund (SICF) throughout the country between 1975
and 1980
2. Industrial Development Centres (IDCs) to provide extension
services to SMEs in terms of technical appraisal of loan
application, managerial assistance, product development and
production planning and control.
3. The National Directorate of Employment (NDE) established in
1986, to promote the development of small and medium scale
enterprises and as a result of which over 148,000 new jobs were
created in 1987 alone through the funding and setting up of small-
scale enterprises (Philips 1989:13)
xlix
4. The Central Bank of Nigeria (CBN) to oversee projects and the
implementation of government financial policy on funding of
SMEs.
5. The Nigerian Bank for Commerce and Industry (NBCI) to provide
financial services to SMEs through loans and equity investments
(Anyanwu, 1989:10)
6. The Nigerian Industrial Development Bank (NIDB) set up in 1964
to provide credit and other facilities to industrial enterprises
especially medium and large scale industries.
2.8 REALISATION OF INDUSTRIAL POLICY MONETARY
AND FISCAL MEASU
The major targets of government goals and objectives policy, between
1986 and 1989, has continued to be employment, generation,
maximization of local value added export promotion forward linkages
through SMEs. Jegede (I990:13) “observed that various measures
undertaken by the government to achieve these goals and objectives
include as follows:
a) Establishment of National Economic; Recovery Fund