2.1.5 The concept of small and medium scale enterprises
Nigeria remains a country with very high potential but an equally high
inertia to develop. The country is blessed with abundant supply of
enormous human, agricultural, petroleum, gas, and large untapped solid
mineral resources (Obadan, 2003). Since her independence from British
rule in 1960, the country has gone through decades of political
instability and this has brought with it a climate of social tension and
an unpredictable market for business. The successive forceful takeover
of government by the use of military coup and the indigenization policy
of the late 70’s has put off investors who hitherto saw the country as a
large and growing market. Due to the nature of these governments, there
is perceived corruption, policy instability, poor infrastructural
development and lack of accountability of public funds. For these
reasons, the World Bank described Nigeria as a paradox (World Bank,
1996). This is also true for most Sub-Saharan African countries as
industrial production has declined or stagnated over the past decades
(Lall, 1992).
According to Mambula (1997), since its independence, the Nigerian
government has been spending an immense amount of money obtained from
external funding institutions for entrepreneurial and small business
development programs, which have generally yielded poor results.
Unfortunately these funds hardly reach the desired business because they
may be lost to bureaucratic bottle necks and end up in accounts of
public office holders.
Despite these setbacks, the role of small business owned by middle class
Nigerians, set up by individual savings, gifts and loans and sometimes
sustained by profit cannot be ignored. According to Asmelash (2002)
countries that have made economic breakthroughs in the last two decades
demonstrate beyond doubt that the development of entrepreneurship has
been the sine qua non of economic growth and development. According to
Asmelah (2002), the significant role SMEs play in development is
acknowledged world over. He cited the work of Schell, (1996) who noted
that in developed countries such as the USA, where big corporations are
dominant, SMEs still play enormous role in the country’s economy. Also,
according to the report of the Indian working group on science and
technology for Small- and medium-scale enterprises, SMEs occupy an
important and strategic place in economic growth and equitable
development in all countries. Constituting as high as 90% of
enterprises in most countries worldwide, SMEs are the driving force
behind a large number of innovations and contribute to the growth of the
national economy through employment creation, investments and exports.
Owing to the success of the Asian tigers, interest is running high
globally particularly in developing countries that are in the rat race
to meet up and reduce the economic and development gap. Chinese and
foreign experts estimate that SMEs are now responsible for about 60% of
China’s industrial output and employ about 75% of the workforce in
China’s cities and towns (Schell, 1996), These SMEs creates jobs for
workers who have been laid off from state-owned enterprises due to the
steady transition from communism to a market based economy.
According to Cook and Nisxon (2000), interest in the role of small and
medium-sized enterprises (SMEs) in the development process continues to
be in the forefront of policy debates in developing countries. Owing to
the relevance of SME’s, in 2006 the government of Taiwan launched a $61
million ”branding” initiative, which is aimed to push the economy from
being production-based to knowledge-based. According to the report in EE
Times Asia in August 2006, the so-called ”Branding Taiwan Plan” is a
seven-year program designed to help promising small-to-medium
enterprises (SMEs) in developing their own brand, according to the
Taiwanese government. This was initiated with the full consciousness of
the ability of SMEs to drive the economy particularly in the medium
term. Small businesses employ 72,00 0,000 people (Asmelash, 2002).More
than 90 per cent of the industries in Indonesia, Philippines, Thailand,
Hong Kong, Japan, Korea, India and Sri Lanka are small enterprises
(Fadahunsi and Daodu 1997).
A 2004 survey conducted by the Manufacturers Association of Nigeria
(MAN) revealed that only about ten percent (10%) of industries run by
its members are fully operational. Essentially, this means that 90
percent of the industries are either ailing or have closed down. Given
the fact that manufacturing industries are well-known catalysts for real
growth and development of any nation, this reality clearly portends a
great danger for the Nigerian economy. The acting director-general of
the association, Mr. Jide Mike, who disclosed this fact, attributed the
cause of this sorry state to such factors as poor infrastructure,
multiple taxes imposed on manufacturers in Lagos state by all tiers of
government and the difficulty in accessing finance. He noted, ”The
debris of dilapidated manufacturing concerns across the country is the
outcome of years of harsh operating conditions”. Mr. Jide Mike also
remarked, ”In addition to policy somersault, funding remains a challenge
to all stakeholders in the manufacturing sector, the several
palliatives, including the Small and Medium Industries Equity Investment
Scheme (SMIE1S) and other sector-specific incentives notwithstanding”.
He added, ”In summary, 30 percent of industries in Nigeria have closed
down. About 60 percent are ailing companies and only 10 percent operate
at sustainable level”. The acting director-general of MAN emphasized
that low capacity utilization has undermined the competitiveness of
manufacturing industries, whose fortunes have been worsened by the
impact of globalization. He recalled that at Nigeria’s independence in
1960, the manufacturing sector’s contribution to national Gross Domestic
Product (GDP) was 3.8 percent and that despite the discovery of oil,
manufacturing contributed as much as 9.9 percent to the GDP from 1975to
1981 when capacity building was above 70 percent. Mr. Jide Mike however
regretted that the story is different today as the manufacturing sector
is back at the independence level as it contributed a mere 4.7 percent
to GDP in 2003while industrial capacity utilization dropped to a paltry
48.8 percent in 2003.The above is indeed not encouraging as it is
representative of the fate of the manufacturing sub-sector of the SMEs.
It is said that the large manufacturing companies are even better off
given that those of them, which have international affiliation do get
succor and support from their parent companies or technical partners
overseas. The support and services the multinationals get from their
parent companies could be driven by the profit repatriation, expansion
of their overseas market and other motivations but overall, the Nigerian
economy benefits if only through employment generation. President
Olusegun Obasanjo in his address on March 01, 2002 at the commissioning
of the headquarters of SMEDAN (The Small and Medium Enterprises
Development Agency of Nigeria) in Abuja also noted that there was a
great disconnection between the SMEs and the large companies in Nigeria,
pointing out that the multinational companies dominated business in the
country even in the area of finished products. Because of these and
other debilitating problems, only about 10 percent of SMEs in Nigeria
are into manufacturing.