ROLE OF GOVERNMENT IN THE GROWTH OF SMALL AND MEDIUM INDUSTRIES
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ROLE OF GOVERNMENT IN THE GROWTH OF SMALL AND MEDIUM INDUSTRIES
Chapter one
INTRODUCTION
1.1 Background of the Study
Interest in the role of Small and Medium Enterprises in the development process remains at the forefront of policy debates in developing nations. The benefits of Small and Medium Industries are numerous, including: encouraging entrepreneurship; the greater likelihood that Small and Medium Industries will use labor-intensive technologies, resulting in an immediate impact on employment generation; and they are easily established and put into operation to produce quick returns.
More broadly, the growth of Small and Medium Enterprises can be considered as hastening the fulfilment of larger economic and socioeconomic goals, such as poverty alleviation.
Small-scale industries rely heavily on money for growth. Previous research has highlighted the limited access to financial resources accessible to smaller enterprises in comparison to larger organisations, as well as the implications for their growth and development (Udechukwu, 2003).
Smaller firms typically have greater transaction costs when seeking financing than larger industries (Olorunshola, 2003). Poor management and accounting practices have restricted the capacity of smaller firms to raise capital.
Information asymmetries linked with financing to small-scale borrowers have hampered the flow of capital to smaller industries. Despite these claims, some research demonstrate that a significant number of small businesses fail for non-financial reasons.
The expansion of Small and Medium Enterprises is frequently the solution to economic growth challenges in developing countries. The construction of these sectors has been the cornerstone of industrial development in many nations, including India, Malaysia, Pakistan, and Indonesia, to name a few.
It is envisaged that the benefits of establishing small-scale industries will result in the creation of jobs at a cheap investment cost. These industries will also be able to source raw materials locally and supply them to larger-scale industries.
A firm, whether little or large, simple or complex, private or public, is established to offer competitive prices. Businesses in Nigeria are classified as small, medium, or large. In both rich and developing countries, the government is focusing on Small and Medium Enterprises as a method of economic development and a viable solution to challenges.
It is also a hotbed of innovation, invention, and employment. Currently in Nigeria, SMI contributes to the growth of the country’s economy, therefore all levels of government have policies in place to support the growth and sustainability of SMI. Nigeria’s history includes an emphasis on small and medium-sized enterprises.
There is evidence throughout the neighbourhoods of the success our great-grandparents achieved with their individual trading companies, yam barns, cottage industries, and the like.
The secret to the success of a self-sufficient strategy is not in any particular political theory, but in the people’s attitude towards industry and the correct incentives, which are sufficient to make risky firms a requirement for the nation.
There had been numerous policy steps taken by the government, governmental agencies, and the business sector to encourage SMI in Nigeria. Many observers see marketing as both a huge challenge and an important solution to SMI’s growth.
This study examines the historical history and orientation of SMI in Nigeria, discusses the operational definition and scope, and describes the Nigerian government’s involvement as a participant, regulator, and facilitator, both legally and politically, in the rise of SMI.
It recognises the marketing challenges of SMI in Nigeria, the provision and enactment of advantageous and supportive laws, the provision of infrastructure facilities, constant manpower and development, direct financial help to SMI, and the construction of SMI-supporting financial institutions.
It defines the functions of SMI in Nigeria’s development and growth. It finishes by clearly defining the government’s role in the survival of SMI in Nigeria and making pertinent recommendations. For SMI to survive, marketing practices and values must be prioritised.
Economic history provides much insight into the lowly beginnings of today’s large enterprises. Evidence abounds that practically all global firms in America, Europe, and even Nigeria began as cottage enterprises, developing as their industry evolved, and through their own sheer aptitude, marketing abilities, and efforts to reproduce and create existing products better and cheaper.
Japan’s economy was dominated by conventional industries, cottage enterprises, and many SMI, which drew strength not just from an abundance of capital, but also from the role of marketing in ensuring SMI growth.
1.2 Statement of the Problem
Lack of funding is a major issue for small and medium-sized businesses, hindering their ability to start new industries or expand. Small-scale industrial expansion has been impeded due to a lack of financial resources and credit. The causes for the shortage of funds are as follows:
– High inflation rates resulted in a significant depreciation of the Naira exchange rate, making it impossible for most Small and Medium Enterprises to purchase necessary inputs for expansion.
– Low savings in the economy hinders capital formation. – High interest rates on loans discourage small and medium-sized enterprises. Retail banks’ inability to extend loans to Small and Medium Enterprises due to their low creditworthiness has also limited their expansion over time.
Concerned about the industrial sector’s persistent decline and aware that Small and Medium Industries hold the key to the revival of the manufacturing sector and the economy
the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in 2000 to agree that each bank set aside 10% of its annual pre-tax profit for equity investment in Small and Medium Industries.
Banks are responsible for identifying, guiding, and nurturing industries that will benefit from the plan. The strategy targets the following activities: agro-allied, information technology, telecommunications, manufacturing, educational facilities, services, tourism and leisure, solid minerals, and construction.
The scheme was officially introduced in August 2001. At the end of June 2004, over N24 billion had been set aside for the project, with less than N10 billion invested.
However, a 2001 World Bank survey in Nigeria revealed that, while 85 percent of enterprises had contacts with the Small and Medium Industries Equity Investment Scheme (SMIEIS), not all had access to loans.
The primary goal of this research is to assess the performance of the Small and Medium Industries Equity Investment Scheme (SMIEIS) in terms of how well it has solved the financial problems of Nigerian small and medium-sized enterprises.
1.3 OBJECTIVES OF STUDY
The primary goal of this research is to evaluate the influence of government in the growth of Small and Medium Enterprises. However, specific objectives include:
Evaluation of government survival plans for Nigeria’s Small and Medium Industries.
Ø Examine the operation of schemes or plans, including lending policies and principles.
Ø Identifying major obstacles that hinder the efficacy of government strategies.
To identify ways to improve the performance of the Small and Medium Industries Equity Investment Scheme (SMIEIS).
Identifying the role of banks (Banks of Industries, Commercial Banks, Micro-finance Banks, and the Central Bank of Nigeria) in promoting the growth of Small and Medium Enterprises in Nigeria.
1.4 RESEARCH QUESTIONS.
The research will be directed by the following questions:
(i) How effective have the Nigerian government’s survival tactics been in addressing the financial challenges faced by Nigeria’s small-scale industries?
(ii) Is there a substantial relationship between the government’s previous attempts to improve SMI and its performance in Nigeria?
(iii) Is there a link between small and medium-sized enterprises and economic growth in Nigeria?
1.5 Statement of Hypotheses
The hypotheses to be tested during the course of the study are listed below.
HO1: The Nigerian government’s survival measures have been ineffective in resolving the financial problems of Nigeria’s small and medium-sized industries.
H11: The survival measures put in place by the Nigerian government have been effective in overcoming the financial problems of Nigeria’s small and medium-sized industries.
H02: There is no significant association between small and medium-sized industries and Nigerian economic growth.
H12: There is no significant association between small and medium-sized industries and Nigerian economic growth.
H03: There is no substantial association between the government’s previous attempts to improve SMI and its performance in Nigeria.
H13: There is a considerable association between the government’s previous attempts to improve SMI and its performance in Nigeria.
1.6 Significance of the Study
Africa’s small and medium-sized industries rely heavily on their own savings to expand and innovate. These industries frequently require real-world services support and formal financial help; otherwise, underinvestment in long-term skills (training and R&D) may occur (Oyelaran-Oyeyinka, 2003).
The Small and Medium Industries Equity Investment Scheme (SMIEIS) was developed to address the challenges that small and medium-sized industrialists face.
Years after its inception, it is crucial to assess the scheme’s performance in light of its aim and the other responsibilities performed by the government in revitalising a vital and indispensable subsector of Nigeria’s economy.
This study would benefit small-scale operators, students, bankers, financial institutions, and others who want to learn more about the government’s role in the expansion of Small and Medium-Sized Industries (SMI).
1.7 Limitations of the Study
Every major task has ups and downs. As a result, the following elements may impede the success of this research activity, but which the researcher expects to properly manage:
i. Availability of relevant and up-to-date literatures on government policies and incentives in a country like Nigeria, where less attention is devoted to paperwork, and even when documents are available, they are usually not often updated;
ii. The stress associated in obtaining relevant and up-to-date literatures and researchable resources;
iii. Data owners’ unwillingness to disclose data for research purposes.
iv. Financial and temporal constraints for the researcher.
1.8 Operational Definition of Terms
To avoid misunderstanding for research consumers, the following terminology have been defined as they are used in the research.
A micro/cottage industry is one that employs no more than ten people and has a total cost of no more than N1.50 million, including working capital but excluding land costs.
Small-Scale Industry: An industry that employs 11-100 people or has a total cost of no more than N50 million, including working capital but excluding land costs.
Medium Scale Industry: An industry that employs 101-300 people and has a total cost of more than N50 million but less than N200 million, including working capital but excluding land costs.
An industry is defined as a group of enterprises that produce the majority of the specific items sold in the market.
Policy is defined as a principle or norm that guides decisions and ensures rational outcomes.
Incentives: Any factor (financial or non-financial) that enables or stimulates a specific course of action, or serves as a cause to choose one choice over another.
Small and Medium Industry: This is defined as any industry with a minimum asset base of N200 million, excluding land and working capital, and a staff of 10 to 300.
Fiscal Policies: These are the government’s policies for collecting and spending money.
Capital-intensive processes demand a high concentration of capital relative to labour per unit of output produced.
work intensive: This refers to the processes involved in production that demand a relatively substantial number of work (skilled, semi-skilled, and unskilled).
Monetary Policies: These are government policies that govern whether and how fast the country’s money supply expands.
Management is the intelligent use of industrial resources to achieve predetermined goals and objectives.
Marketing refers to all activities aimed at understanding and addressing customer demands through good interactions with target markets.
Industrial resources are raw materials used to manufacture other goods and services. These resources include land, labour, capital, and industrialists.
Gross Domestic Product (GDP) is the production of goods and services produced by both indigenous and non-indigenous people in a country.
The business sector includes corporations and all groups that produce goods and services for profit.
Growth refers to a rise in size, quantity, degree, and beneficial activities.
Job: This is defined as a set of tasks performed by an individual or an incumbent in order to achieve organisational goals and objectives.
Bank Rate: This is the rate of interest charged by a bank for lending money, as determined by the Central Bank of a specific country.
A bank is an organisation that provides a variety of financial services as well as an institution where money and other valuables are maintained.
A loan is money that one institution, such as a bank, gives to another organisation or individual.
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