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CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF STUDY

Small scale industries are vital sources of employment generation, development of indigenous technology; even dispersal of industrial set­-ups if increases production of manufacturing exports, and increasing local content of industrial output by fostering forward and backward industrial linkages to enhances the general level of economic activity. Since the second National Development Plan (1970 - 1974) and third National Development (1975 - 1980), emphasis has been placed on the development and proliferation of small-medium scale enterprises (SMEs) for the purpose of using them as veritable engines for economic growth and development.

From the 1970s, therefore different definition have been given as to what should be regarded as a small of medium scale industry. The Central Bank of Nigeria (CBN) discuses small scale enterprises, in its credit guidelines to banks as those enterprises with annual turnover not exceeding N500.000 in the guidelines to commercial banks and enterprises with capital investment not exceeding N2 million excluding cost of land; or with a maximum turnover not exceeding N5 million in the' case of guidelines to' merchant banks. Similarly, the federal ministry of industry's guidelines to the Nigerian bank for commerce and industry (NBCI) regard small scale industries as those enterprises cost of land, but including working capital.  In practice, the Nigerian Bank for Commerce and Industry accepts small scale industries as those enterprises with capital not exceeding N750,000 excluding the cost of land but including working capital.

The Nigerian Industrial Development Bank (NIDB) regards small scale enterprises as those project cost, i.e. investment and working capital not exceeding N750,OOO and medium scale enterprises as those with project cost ranging between N750,000 and N3 million. The Center of Industrial Research and Development (CIRD) at the Obafemi Awolowo University, Ile-Ife defines small scale enterprises as those with total assets in capital not exceeding N250,000 and employing not more than 50 full time workers. From the various definitions one will notice that emphasis has often been placed on certain financial ceilings in capital investment. The frequency of formation (and death) of small-scale enterprises are usually explained by the desires of the owner-manager to own his personal business. Thus, the small-scale enterprises being the lengthened shadow of its owner reflect his or her strength as well as weaknesses. Thus; the small-scale enterprises entrepreneur begins to its unique animation, abilities, work experience, advantages and attitudes. In tum, the performance of the small scale is determined by the personality characteristics of the owners, viz responsibility, vigour, initiative, persistence and health thinking ability, human relation ability, communication ability and technical knowledge.

Government in both industrialized and developing countries provide a wide variety of programmes to assist small and medium scale enterprises. Despite the success of SME strategies in a few countries (e.g. Taiwan Northern Italy and Ireland), and majority of developing countries have found impact of their SME development programs on enterprise performance has been less satisfactory.  Underlying the search for best practice are some basic question:

i.  What is the justification for pubic intervention on the first place?

ii. Why should SMEs be singled out for assistance?

iii. If there is justification for government intervention, what form should that intervention take?

1.2    PROBLEMS OF STUDY

The problems of facing small-medium scale enterprises in Nigeria are not insurmountable since Nigeria is well placed to provide the sources to solve these problems.  In the main, the problem range from inadequate financing, lack of accountability to lack of infrastructure. Most small business are a one-man proprietorship and the proprietor, through having to give his attention to various managerial function in his business soon loses full grip.  This is why it makes for efficient management to spread the responsibilities within the business or seek the external assistance of a management consultant.  The small-medium scale enterprises also invariably require a high technical inputs and the cost of this technical inputs and the cost of this technical expertise is usually high.

The issues of inadequate financing usually derive form inadequate proprietorship equity participation.  A strong capital base and financial outlook are required for a successful business.  It therefore makes for sound financial management to seek for more business partners who could bring in more funds to finance the activities of the enterprises.  However, small scale enterprises are usually reluctant to bring in partners, even at the risk of under capitalization.  The underfunding of small-scale enterprises has led government to formulate measures aimed at assisting this sector.  Loan packages of the World Bank, National Directorate to employment and in more funds to finance the activities of the enterprises.  However, small-scale enterprises are usually reluctant to bring in partners, even at the risk of under capitalization.  The underfunding of small-scale enterprises has led government to formulate measures aimed at assisting this sector.  Loan packages of the World Bank, National Directorate to employment and NERFUND are among such assistance scheme.  The one-man proprietorship syndrome of small scale enterprises is not only sad for their financial profile but can also discourage accountability which is the foundation of a successful business. Accountability ensures adequate control over the appropriate financial strategies. The small-scale enterprises even not shielded form or immune to the lack of infrastructure, which is the bane of all businesses in Nigeria.  On the contrary, small medium scale enterprises given more under the weight generating plant, high cost of telephone and electricity.  Needless to say, no business can survive without their facilities.

1.3    PURPOSE OF STUDY

The major purpose of this study are:

1. To review how small-scale proprietors can make for efficient management by spreading the responsibilities within the business of the need to seek the external assistance of a management consultant.

2. Appraise the issue of risk of under capitalization and related this to the reluctance of proprietors to bring in partners or adequate financing.

3. Suggest ways by which the government could improve the infrastructural base of the economy such that the cost of development of small-scale enterprises would be reduced.

4. Overview the situation where government could make foreign exchange affordable to small medium scale enterprises and allow the naira to float to find its true value.

5. Review the strategy to be adopted by SMEs in adopting a courageous approach to developing new ideas.

6. Analyze the inability of the owned-manager to acknowledge his own weakness and tap the resources of talents of employees.

1.4    RESEARCH QUESTION

The tentative research questions the study funds answer to are:

1. To what extent has inadequate financing affected the growth and development of small-scale enterprises in Nigeria?