PROBLEMS AND PROSPECTS OF ESTABLISHING SMALL SCALE ENTERPRISES IN NIGERIA

1.1 Introduction

Small Scale Enterprise varies with people and countries such that it is better defined based on the characteristics. The role of Small and Medium-Scale Enterprise (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. Small firms marketing practices have been assessed in the context of existing models based on large firm practices. However, given that the marketing discipline is undergoing a transformation in some part of African countries with new paradigms emerging as relationship marketing.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

1.2 Background of Study

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.

Small scale industries are vital sources of employment generation, development of indigenous technology; even dispersal of industrial setting 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. The survival and stability of any economy be it in the developed and undeveloped countries requires the involvement of private individuals (entrepreneurs) in the production of some goods and services. In the developed countries of the world, the success of the small-scale business firms has contributed a lot towards the economic stability and development of such countries.

It is believed that for a country to be developed, great proportion of the labour force must be engaged in the private sector. This factor has necessitated the setting up of companies such as manufacturing, construction, financial institution transportation and other services companies by private individuals to mobilize the idea of industrialization. These companies set up by private individuals at a very small level are called small-scale industries.

Nigeria’s desire to concentrate on developing the small indigenous firm sector has always been buttressed by and reflected in a wide range of economic policies. In fact the present consciousness on the part of every segment of the society including the government for small/medium industrial growth, cannot be a surprise, and delay in appreciating this sector as an catalyst is frustrating. It could be understood from economic history that many advanced countries of the world, which have attained the height of industrialization, started as mere small-scale firm, which later metamorphosed into giant corporations. In the past, industrial development processes were as slow and painful and the further advancement in technology in developed countries resulted from the survival of cottage firms, which were nurtured, pampered and breastfed to grow up as big industrial corporations of today.

Developing countries as a whole have now realized that they lack much behind than the developed countries not only in industrial base but also in material standard of living. As a result these countries now seem to have hastened the pole of their industrial developmental process in order to increase their living standard and thus reduce the present rate of unemployment.

Therefore, in Ekiti State where the research was carried out, the activities that was conducted is to know the Problems and Prospect of Establishing Small Scale Industries.

1.3 Statement of Problems

Investigation revealed that 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 is 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 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 from 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.

1.4 Aim and Objectives of Study

The aim of the study is to examine the Problems and Prospects of Establishing Small Scale Enterprises in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

1. To find out 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. To appraise the issue of risk of under capitalization and related this to the reluctance of proprietors to bring in partners or adequate financing;
3. To analyze the inability of the owned-manager to acknowledge their own weakness and tap the resources of talents of employees;
4. To examine 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; and
5. To 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.

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• To what extent has inadequate financing affected the growth and development of small-scale enterprises in Nigeria?
• To what extent has the one-man proprietorship syndrome of small-scale enterprises of a successful business?
• To what extent has small-scale enterprises being affected because of the lack of infrastructure which impede their level of development and growth?
• To what extent have the complexity and frustration involved in sourcing for foreign exchange to take care of the import needs lead to high rate of business failure to small-scale enterprises?
• To what extent have low productivity, poor management, poor accounting records and financial indiscipline have to the extent at which small-scale enterprises can go?

1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: Financing small scale business in Nigeria has a lot of problems which is not profitable.
• H1: Financing small-scale business Nigeria has prospects of which is profitable.

Hypothesis Two

• H0: There is no justification for government intervention in the growth of SMEs.
• H1: There is justification for government intervention in growth of SMEs.

1.7 Significance of Study

The study is important because several advantages accrue to the macro society form small scale enterprises. These include the development of the entrepreneurial spirit, employment generation for entrepreneurs; promotion of savings potential and investment ratio. Skill culture is increased as more people seek apprenticeship in preparation for self-employment.

The study is important as it proffers ways to which local law materials use are increased as low capital base might hinder the purchase of imported raw materials obtained at the foreign exchange market (FEM) as parallel market.

The study also affords the users the encouragement of developing local substitutes, and strengthens the capacity to estimate and supply societal and industrial needs through backward integration.

1.8 Scope of Study

The scope of the research is focused on the Problems and Prospects of Establishing Small Scale Enterprises in Nigeria using Ado-Ekiti Local Government Area of Ekiti State as a case study.

1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Research material: availability of research material is a major setback to the scope of the study.
2. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
3. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.10 Definition of Terms

Small Scale Enterprise: The definition of small scale enterprise varies with people and countries such that it is better defined based on the characteristics.

Entrepreneur: According to Hagen, an entrepreneur is an individual who conceives the idea of business, design the organization of the firm, accumulates capital, recruits labour, establishes relations with supplies, customers and the government and converts the conception into a functioning organization business.

Development: This entails growth of the business, increases in goods and services and t he improvement of lives of the citizen.