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THE ROLE OF GOVERNMENT IN THE DEVELOPMENT OF SMALL SCALE INDUSTRIES

CHAPTER ONE

INTRODUCTION

Background to the Study

Small scale industries are recognized as the driving engine of socio-economic transformation of any economy. Internationally, the small scale sector absorbs more than 80 percent of job opportunities, it facilitates primary production and value addition. Also, it enhances capacity utilization and improves capital per head. It is the surest avenue for providing needed goods and services in rural or semi-urban areas, addressing the problem of rural to urban migration and income distribution, growing the entrepreneurial talent and stimulating economic development in the community (Kondaiah, 2010).

Small scale business or even large business evolves through the process of meeting a need in a society, doing business or engaging in entrepreneurship. “According to Desai (2010), entrepreneurship or entrepreneurism is the life-blood of any economy and the solution to unemployment and poverty”. Consequently, it has been rightly pointed out that the economic development of the developed world emerged largely from the efforts of small scale businesses. Historically, most of the large companies and multinationals of today were started by entrepreneurs with very small capital. In this direction, it is noteworthy that international conglomerates such as Ford, Guinness etc as well as Nigeria based multinationals controlled by the Dantatas, Dangotes, Innoson, Ekene Dili Chukwu etc are classic examples of mega companies that were started as small scale businesses.

Without overlooking large businesses, an empirical finding has shown that a significant feature of a flourishing or thriving economy is a vibrant small scale industry sector playing the ennobling role of creating employment, providing sustainability and innovation in the economy and the vital linkage between large industries and individual consumers. It is also known that countries with a higher share of small scale industry have higher growth than those with a lower ratio with the larger businesses having their origins traced to small scale industries. “According to Llyas (2010), a large percentage of the population depends on this sector directly or indirectly for one thing or the other in meeting their needs”.

Though they all have the same profit motive, but small scale businesses are characteristically different from their larger counterparts in their operational uncertainty, ability to access funding and other needed resources, and the capacity towards innovation and evolution. “According to Etuk and Mbat (2010), small scale businesses have a higher propensity to employ more labour-intensive production processes than large businesses”. They contribute significantly to the provision of productive employment opportunities, generate income and boost poverty reduction in the society.

According to Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) (2012), small enterprise account for approximately 90% and 99.8% of all businesses in developing countries and the European Union respectively”. They are also responsible for 47%, 77% and 62% of all employment in United States of America, the European Union and Japan respectively, while 58%, 53% and 51% total value addition to the economies of the European Union, Japan and South Korea respectively is attributed to this sector. Other studies showed that in high income countries such as Britain and United States of America, small scale businesses contribute over 55% of Gross Domestic Product (GDP) and 65% of total employment. In low income countries like Burkina Faso the sector accounts about 60% of Gross Domestic Product and 70% total employment while in middle income countries like India, Mexico etc it contributes 70% of Gross Domestic Product and 95% total employment.

Generally, the small scale sector plays a commanding role in the transition of traditional economies to modern ones, by adopting innovation and providing opportunities for secondary production or processing which enhances revenue generation and socio-economic development. “According to Jayachandiran (2015), small scale businesses help to absorb productive resources at all levels and add to the formation of flexible economic systems where they interlink with large firms which attracts foreign capital and investment”.

Therefore, small scale business is a distinctive mainstay of any economy that requires attention by all stakeholders, especially the government. Though its definition and characteristics vary from country to country, there is universal consensus on the type of business that is classified as small scale business. Small enterprises are everyday businesses, started either to provide livelihood to the proprietor or fill a need in the community. They are low level assets, few personnel, and low capital, mostly informal with a high mortality rate. Examples petty traders, furniture makers etc.

Small scale businesses are known to hold the future to the development of a country and occupy a pivotal position in the economy, especially as it concerns industrial growth, youth empowerment and innovation. Despite the vital role played by small scale businesses in economic development, it still experience challenges such as weak market linkage, inconsistent government policies, multiple taxation, obsolete technology, inadequate skills and human capacity including poor flow of information. All these combine together to limit their growth, inability to do better and eventually early demise.

Small scale businesses specializes in the production and marketing of various products and services ranging from food, beverages, drinks, sachet water, cosmetics, spare parts and many others. “According to Kayode (2015), he acknowledged the diversity of terms of the degree of specialization and division of labour and the quantity of raw materials and output and the character of markets being served by small scale businesses”.  As a result of bulks, Nigeria businesses fall within small scale business which account for over 80% of the number of enterprise in the country. Several number of small scale businesses are successful while others fall or stagger for survival.

The history of small scale business started long before the advent of large scale business, because almost all large scale businesses of today started as a small business and over 90% of all businesses are still classified as small scale businesses. Small scale business is unique in many aspects. If competition must exist, freedom of initiative and businesses are to be maintained and also to continue progress in extending more goods and services to the increasing number of the people in the world, then there must be small scale business.

Government plays a great role in the administration of small scale business in general, because it operates in the society controlled by the government and in particular, there are micro-policies specifically designed to address small business. They regulate production, distribution and marketing. The control of an economy means the control of the production and distribution of wealth. Government has a general duty to manage the prosperity of the nation but does not want to run an endless series of nationalized businesses. It tends to offer just enough support to get enterprise going but to encourage self reliance and self financing as possible. It is to this end that this research intends to examine the role played by government in small scale businesses.

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