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IMPACT OF PUBLIC ON SMALL FIRMS DEVELOPMENT IN NIGERIA

ABSTRACT

As agreed by many, the development of small firm is a precondition for any country on the sustainable growth and development of its industry. SMEs are industries of tomorrow unless these inductees survive today and grow; we may not have large industries of tomorrow. In an attempt to evolve a virile SMF that would size un the challenges of the 2Ist century, efforts were made at an extensive usage of both secondary sources comprises relevant information from text books, journals, periodicals, seminar papers and previews literature on the subject matter, the primary source was through the administration of questionnaires and personal interview condition. With the objectives of evolving new strategies and policies that will not only ensure the survival of small firms but also result in their development and growth based on findings, this research work was divided into five (5) chapters. Chapter one(l) is the introductory chapter which introduces the project topic in terms of stating reasons which has prompted the research explains the objectives, significance, statement of problem and scope of the study. Chapter two (2) comprises general review on the subject matter. It also involves definition of concepts, why have public policy in the development of SME's in Nigeria, growth of SMEs in Nigeria, obstacles Targets of small firm policy, problems of SMEs in Nigeria and theories guiding SME. Chapter four (3) exemplified the procedures and methodology adopted in the task or process of collecting data/ information made use of in the course of study. Chapter four (4) is designed to analyses and interprets all the data generated in the course of the study. The data mainly used is from the administration of questionnaires and interviews. Lastly, Chapter five (5) is the conclusion and involves the study, finding, recommendations and conclusion made to enhance further research.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A Small scale industry is defined as one employing fewer than 300 persons and having a capital less than $28,000. lt was also defined by the Central Bank of Nigeria (CBN) as an enterprises in which total investment (including land and working capital) did not exceed N500,000 and or the annual turnover did not exceed N5.0 million. Public policy on the other hand is defined as the development of laws and regulation that impact consumers in the market place. lt can also be defined as the principles under which freedom of contract or private dealings are restricted by law for the good of the community. lt is also a governmental law, rule, statute or edict that expresses the governments’ goals and provides for rewards and punishments to promote their attainment. Small firms are said to be the backbone of the Nigerian economy in as much as enterprise policy is relevant to those looking to achieve economic development in urban areas experiencing high level of deprivation. Public policy on small firms development in Nigeria has to be concerned with two issues: the creation of employment in smaller enterprise and the problems which smaller enterprise experience in obtaining access to finance. Therefore, any discussion of the impact of public policy on small firms development in Nigeria has to be prefaced by asking why such policies should exist. Economist justify government intervention in a market economy when there is evidence of ‘market failure’. Although liberal economist would argue that the presence of market fallure is a necessary, but not sufficient condition for government intervention.

lt is then appropriate to examine carefully the arguments, which have been prescribed by the goverment in support of its small firm policies. Probably, the most frequently heard but least sophisticated, is that small firms have been shown to be a major source of job creation. Thus, to justify intervention in a market econömy, it is necessary to identify precisely where the market failure exist and whether it is possible to rectify that market failure through govemment intervention. lt is also important to assess who are the losers and the beneficiaries.Ideally, this has to be placed within a macroeconomics framework to yield an overall assessment. The prime objective of macro‑economic policy is not solely to assist smaller firms, but rather to provide a framework for all sizes of enterprises in the economy. Similarly, when we talk of small firms, we are talking of industries of tomorrow. Unless these industries survive today and grow, we may not have big or large‑scale enterprise tomorrow. lt is no longer news that the small and medium scale enterprises in many countries offer more than 50 percent of the total employment opportunities. For instance in Nigeria, the SMEs are believed to constitute 70 percent of corporate Nigeria (Management and communication review 1998 Volume 1 No. 1. Thus, for a country like Nigeria, adopting very vffective development policies would in no small measure foster the survival and growth of SMEs, which is conceived as a way of solving its numerous economic problems. The near static annual growth rate of the industrial sector in Nigeria and other less development countries (LDCs) and the growing disappointment with results of development efforts on SME has prompted the reason for this research.

The basic roles and features of SNIEs in most countries are similar but mention few should be made of the fact that there is no universally acceptable definition of SME because the classification of business into small, medium or large scale is a subjective and qualitative judgment. Nigeria’s SMEs (generally an umbrella term for firms with less than 260 employees) experience a lot of problems and hardship, and this is not just as an effect if economic down turn. There are a number of bottlenecks, including services under capitalization with difficulty in gaining access to bank credits and other financial markets. This brings about corruption and lack of transparency (although this is very general to the society), very high bureaucratic costs are but except with the intervention of the government and support for the roles that SMEs play in the national economic development and competitiveness. Still emphasizing on the important and sensitive nature of SMEs there has been a decision switch of emphasis from capital intensive large scale industrial products based on the philosophy of import substitution to SMEs with immense potentials for developing domestic linkages for rapid, sustainable industrial development.

Lastly, it should not be the sole role of govermnent to provide financial assistance for businesses such as the National Small Business Office (NSBO). NSBO is an independent body with the overall responsibility of the nation and all policies and programmes relating to small business including micro business. The NSBO will then have to seriously look into how it can encourage the growth of equity funding in Nigeria. Largely practiced in both the United States (US) and the United Kingdom (UK). This funding help provide the necessary funds or venture capital as it is widely known, has been the secret behind the growth of silicon valley and the mass number of fast growing high technology companies that abound there. With the high number of billionaires originating from Nigeria, this has to find a way of encouraging then to invest their wealth in small up and coming business, thereby helping them and the country to grow and prosper. Conclusively, it is strongly believed that this research work will examine and identify the impact of public policy on small firm development in Nigeria within a wider framework of the economy.

1.2  STATEMENT OF PROBLEM

lt has been shown that despite all the research works, seminars, lectures and other efforts made at creating the much needed environment for the survival and development of SMEs in Nigeria, especially in this period of economic down turns have not yielded proportionate or expected achievements, one begins to wonder what precisely may be responsible for this over the years. The SMEs have not been able to play their sensitive roles in the economy and this has truly affected other key areas of our socio‑economic and political sphere. An important question to ask is “what factors have stood against the expected rate of growth and development of SMEs particularly in the LDCs“? The African experience has shown that there had been a continuous fall in the number of SMEs. Considering the vital roles, which the SMEs play in modern societies, drastic and genuine efforts must be made to arrest this situation if the African countries and Nigeria in particular is to size up with the challenges of the future. As earlier stated, the SMEs have much greater linkage effects and thus whatever state it finds itself is perhaps how the other sensitive sectors would be affected. Unless the SMEs survive today and grow, we may not have big or large enterprises tomorrow.

1.3   OBJECTIVES OF TUE STUDY

The objectives of the study are:

(a) To possibly evolve new policies that will not only ensure the survival of SMEs but will result in their development and growth based on the findings.

(b) To isolate and determine the response of public policy towards small firms development in Nigeria.

(c) To provide the basis for an economic blueprint on strengthening the SMEs as against the marginalisation of some SME, lack of competitiveness etc.

(d) To undertake a comprehensive review of development policies adopted in Nigeria in the past with a view of eliminating existing bottlenecks.

(e) To focus on an assessment of small firms response to macro‑economic policies in Nigerian with a view to assessing the impact of these policy on two issues:

-  The creation of employment in small enterprise and

- The problem which smaller enterprises experience in obtaining access to finance.

lt is on this note that we shall examine an authoritative review by De‑Koning, Snijders and Viamen, which pointed out four main objectives in small and medium enterprises (SMEs) policy pursued by EC members’ status in relation to the Nigerian Context.

1 .        Strengthening the production chain

2.         Creation of employment

3.         Competition

4.         Diversification.

All these aforementioned objectives shall be our focus in this research work.

1.4       SIGNIFICANCE OF THE STUDY

The significance of the study is that it would add to the present knowledge as regards the impact of public policy on small firms development in Nigeria. It is hoped that with these new outlook, the SMEs will facilitate the development of a broader base indigenous entrepreneurial culture for the country and a higher value added to domestic industrial production. Also, the promQtion of SME is seen as a major tool for boosting employment as they employ a large number of people per unit of investment capital than large‑scale capitalintensive enterprises (Economic dialogue, May 1989 by NASSI). So also, a study done by the Federal Office of Statistics (FOS) shows that 97 percent of businesses in Nigeria employ less than 100 employees and the SME sector provides an average of 50 percent of Nigeria’s employment and 50 percent of its industrial output.

Again, potential investors would generally find the research highly useful, as it would direct them on the path of effective decision‑making. Statistics have shown that about a half of the potential investors are held back with respect to investing in SMEs for fear of not being able to effectively manage and make the desired profits from such line of investments. The study would also be of immense benefits to the large‑scale enterprises that are in most cases depending on those SME in terms of sourcing for raw materials etc. There is hardly any country which can do very well in its industrial sector without the presence of SMEs. As part of its numerous benefits, the study will be very useful to the Nigeria Society of which a greater percentage (about 70 percent) are under the employment of SMEs. In recent years, the International Labour Organization (ILO) has employment for the future in most third world countries.

Furthermore, government, Non‑Govenunental Organisations (NG0s), International Organisations such as United Nations Industrial Development Organisations (UNIDO) and other interest groups like Banks etc would find this study very useful, as it would enhance better decision‑making or promulgation of public policies that tends to influence the growth and development of SMEs. As the study provides the basis for a conducive economic and even political atmosphere, it will boat the influx of foreign investors who not only provides more employment but also the necessary skills and technical know‑how for SMEs. As the country develops industrially, it earns a better political status in the comity of nations. Finally, students of higher institutions of learning and researchers who intend to carry out studies in similar areas are offered a basis for research considering the findings and recommendations, which this research work is expected to provide. It perhaps will also indicate area for further study.

1.5   RESEARCH QUESTIONS

It has been shown that despite all the research works, articles and lectures made at creating the survival and development of SMEs in Nigeria, the SMEs at present experience a lot of problems and hardship and this is not just as an effect of the economic down turn. There are a number of bottlenecks, including serious under capitalization with difficulty in gaining access to bank credit and other financial markets. Corruption and lack of transpareney (although this is very general to the Nigeria soeiety), very high bureaucratic cost, but most damagingly, a seemingly lack of government interest in and support for the roles that SMEs play in national economic development and competitiveness.

The questions asked are mainly to extract the nature and most importantly evolve the impacts of public policy on small firms development in Nigeria. The question is all about solving problems of small firm and government policies. lt embraces more finance, production technology and government policies etc, An important question to ask is what factors have stood against the expected rate of growth and development of SMEs particularly, in the LDc?” Many others are:

a. Do government policies have effect on the development of small firms in Nigeria?

b. Are there much co‑operation between the SMEs and LSEs?

c. How is raw material being sources?

d. How is initia.1 eapital for business obtained?

e. What is the highest academic certificate obtained by the enterprises?

f. How often are the capital markers contacted for fund?

To solve the above problems and questions, the government must assist by establishing a well funded National Credit Guarantee Fund that will act as buffer for credit facilities from banks and other financial institutions over and above the equity provided under Small and Medium Industries Equity Investment Scheme (SMIEIS).

1.6   RESEARCH HYPOTHESIS

A hypothesis is a conjecture or a predietion of what can be seen in the world of reality and this prediction is made from the world of theory. It has several functions in research. These are as follows:

a. lt is a link between the world of reality and the world of theory and explanations (abstractions).

b. lt transforms the researcher’s ideas into testable forms.

c. lt helps to specify what variables are to be measured or collected by Researcher in order that he may have the expected results or discoveries.

d. lt shows the direction of data analysis.

e. lt helps the researcher to focus his attention and efforts in the right direction.

W shall look at two hypotheses with two variables to be used. These are:

HYPOTIIESIS ONE

H0: That Government Policies have negative effects on the development of small firms

H1: That Government Policies have positive effects on the dev elopment of SMEs.

HYPOTHESIS TWO

H0: That there is no significant relationship between initial capital and the size of the enterprises.

H1: That there is significant relationship between initial capital and the size of SMEs.

Thus, the two variables in this hypothesis are:

X: Government policies (variation in degree)

Y: Development (Variation in kind or quantity)

So, X variable (the cause), triggers Y variable (the effect) to happen. It is then very easy to identify both dependent (Y) and independent (X) variables.

1.7   SCOPE AND LIMITATION

For the purpose of the study, the study areas shall be few selected from industrial estates in Lagos State of Nigeria. The choice of Lagos State is not unconnected with its huge industrial nature but the review of literature would be majority from the Nigerian perspective. Moreso, the primary data collection which is through the administration of questionnaires would not exceed the study area, Lagos State. This is not unconnected with co.nstraints such as time, distance and finance just to mention a few. But also, will the report form part of a study approved by the Presidential Advisory Council on Investment in Nigeria for the preparation of sector profiles that would serve as reference documentation for the promotion of target at sectors to the international investing public. Of such are food processing, Textiles and clothing, Leather and leather products, Rubber processing, Timber and Wood processing, Metallic Materials processing and fabrication, Non‑Metallic processing, Petro‑Chemicals and Pharmaceuticals of which they are all primary SME subsystems for foreign investment and potentials areas for accelerating the pace of industrial development in Nigeria.

PLAN OF STUDY

The study report will consist of five chapters, the first chapter present the introduction which introduces the project topic in terms of highlighting reasons which has prompted the research and explains the statement of problems, objectives of study, Significance, Methodology, Literature review, Research questions and the scope of study. Chapter two is a general review of literature on the subject matter and the theoretieal framework of which two different theories will be looked into. This is necessary as it provides a basis and focus for this study. Chapter three exemplifies the procedures and methodology adopted in the task or process of collecting data/information made use of in the course of the study and also explains other related issue that would in no small foster a proper understanding and solving of the problems at hand. Chapter four is designed to analyse and interpret all the data generated in the source of the study. The data mainly used is primary data sources from the administration of questionnaires and interviews. Lastly, chapter five is the conclusion and deals with the summary of the study, Recommendation and conclusion made to enhance fürther research.

CONCEPTUAL CLARIFICATION

Public Policy: Refers to as a government programme of action or the regulation of goverment activities that is, what government intends to do or how it intends to do it (implementation).

Development: is an increase in output coupled with positive social changes and the standard of living of an individual. So also does development perceives the process of optimizing the resources of a nation to meet the needs of the people and their enlightened daspiration and endowing them with the capacity to sustain their achievement.

Micro Enterprises: are those with between 0 and 9 employees with a digital of less than a million Naira.

Small Scale Enterprises: are those with 10 to 99 employees with an investment not less than  ten million Naira (N 10m).

Medium Scale Enterprises: is sometimes used interchangeably with small scale enterprises but medium scale enterprises has a project above ten million Naira but net up to fifty million Naira and at the same time employing not less than 100 people to 199 employees.

Large Scale Enterprises: are industries whose turnover or asset is not less than one billion with above 500 employees.

Equity Funding: is known as the fairness of money resource but has not been used effectively in SMEs.

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