2.1.5.1 Background to the Subject Matter
Small and Medium Enterprises (SMEs) as defined by the National Council of Industries refer to business enterprises whose total costs excluding land is not more than two hundred million naira (N200, 000,000.00) only. A lot has been said and written about SMEs the world over. It has also formed the subject of discussions in so many seminars and workshops both locally and internationally. In the same token, governments at various levels (local, state and Federal levels) have in one way or the other focused on the Small and Medium Enterprises. While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives. International agencies and organizations (World Bank, United Nations Industrial Development Organization (UNIDO), International Finance Corporation (1FC), United Kingdom Department For International Development(DFID), European Investment Bank (EIB) etc are not only keenly interested in making SMEs robust and vibrant in developing countries but have also heavily invested in them. Locally in Nigeria, the several Non-Governmental Organizations such as Fate foundation, Support and Training Entrepreneurship Programme (STEP),the Nigerian Investment Promotion Commission (NIPC), the Association of Nigerian Development Finance Institutions (ANDFI), as well as individual Development Finance Institutions (DFIs) have been promoting the growth of SMEs in Nigeria through advocacy and capacity-building initiatives, and have continued to canvass for better support structures for operators in the SME sub-sector. All the massive attention and support given to SMEs relate to the widely acclaimed fact that SMEs are job and wealth creators. In justifying the introduction of SMIEIS in 2003, the then Governor of the Central Bank of Nigeria, Chief Joseph Sanusi said ”With a concerted effort and renewed commitment from all stakeholders, this scheme will surely succeed and realize its intended objective of revamping the SMEs as engines of growth in the economy and a veritable tool for the development of indigenous technology, rapid industrialization, generation of employment for our teeming youths and the pivot for sustainable economic development in Nigeria”.
Small and Medium Enterprises (SMEs) occupy a place of pride in virtually every country or state. Because of their (SMEs) significant roles in the development and growth of various economies, they (SMEs) have aptly been referred to as “the engine of growth” and ”catalysts for socio-economic transformation of any country.” SMEs represent a veritable vehicle for the achievement of national economic objectives of employment generation and poverty reduction at low investment cost as well as the development of entrepreneurial capabilities including indigenous technology. Other intrinsic benefits of vibrant SMEs include access to the infrastructure! facilities occasioned by the existence of such SMEs in their surroundings, the stimulation of economic activities such as suppliers of various items and distributive trades for items produced and or needed by the SMEs, stemming from rural urban migration, enhancement of standard of living of the employees of the SMEs and their dependents as well as those who are directly or indirectly associated with them. In recognition of the enormous potential roles of SMEs, some of which have been outlined above, various special measures and programmes have been designed and policies enunciated and executed by government to encourage their (SMEs) development and hence make them more vibrant in Nigeria.
The highlights of these measures include:
i. Fiscal incentives and protective fiscal policies
ii. Specialized financial institutions and funding schemes for the SMEs
iii. Favorable tariff structure
iv. The SMIEIS funding scheme
v. Selective exemption and preferential treatment in excise duties
vi. Establishment of Export Processing Zones
vii. Selective reservation of items for exclusive manufacture in the SME sub-
sector
viii. Government’s full weight and support for NEPAD and AGOA activities and operations. It has however been worrisome that despite the incentives, policies, programmes and support aimed at revamping the SMEs, they have performed rather below expectation in Nigeria. Different people, organizations, and operators have advanced various reasons as to why SMEs have not been able to live up to their billing. While an average operator would always hinge his failure on lack of access to finance, some others think otherwise arguing that inappropriate management skills, difficulty in accessing global market, lack of entrepreneurial skills and know how, poor infrastructure etc are largely responsible. The Association of Nigerian Development Finance Institutions (ANDFi) in2004 issued this statement in relation to why SMEs perform poorly in Nigeria:
”Finance is usually considered as the major constraints of SMEs. While this may be true, empirical evidences have shown that finance contributes only about 25 percent to the success of SMEs. Thus, the creation of other appropriate support system and enabling environment are indispensable for the success of SMEs in Nigeria”. In a Consultant’s Report on Business Support in FCT Number 107, by David Irwin in March 2004 for DF1D, it was stated on Page 5, paragraph 3.3 that ”Governments all around the world now recognize the important contribution that small firms make to the economy- and many governments have established extensive support arrangement to help people start and grow their businesses. In Nigeria, hitherto, there has been no concerted effort to encourage and support new businesses”. Some others have argued that the bane of SMEs in Nigeria is the lack of long-term loans since most loans in the Nigerian market are short-term while what SMEs require to grow and become really successful is long-term patient capital. The dearth of venture capital financing in Nigeria has also aggravated the situation as venture capital provides long-term patient capital, which allows a small business to grow, as is the case in Ghana and some developed economies. Other challenges and problems, which frustrate SMEs in Nigeria and make some of them to either die within their first two years of existence or perform below standard even after surviving in their early years abound. The key ones include inadequate infrastructural facilities (road, water, electricity etc), insecurity of lives and property, inconsistent monetary, fiscal and industrial policies, limited access to markets, multiple taxation and levies, lack of modern technology for processing and preserving products, policy reversals, capacity limitations, data inadequacies, harsh operating environment, fragile ownership base, fragile capital base. While some of the challenges that SMEs face are induced by the operating environment (government policies, globalization effects, financial institutions, local government policies, attitude to work etc), other challenges are driven by the inherent characteristics of the SMEs themselves.