CHAPTER ONE

INTRODUCTION

• BACKGROUND TO THE STUDY

Small and Medium Enterprises (SMEs) in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria. This situation has been of great concern to the government, citizenry, operators, practitioners and the organised private sector groups. Year in year out, the governments at federal, state and even local levels through budgetary allocations, policies and pronouncements have signified interest and acknowledgement of the crucial role of the SME sub-sector of the economy and hence made policies for energizing the same. There have also been fiscal incentives, grants, bilateral and multilateral agencies support and aids as well as specialized institutions all geared towards making the SME sub- sector vibrant.

World Bank, (1988) defines SMEs as an enterprise whose total fixed assets (excluding land) plus working capital does not exceed N10 million in constant 1988 prices. This means that a general increase in the price level will, normally bring about a rise in the upper limit of the Small-Medium Enterprises capital outlay within this definition. Small scale industry orientation is part and parcel of most nations. Evidence abound in our respective communities of what successes our great grandparents made of their respective trading concerns yam barns, iron smelting, farming, cottage industries and the likes. So the secret behind their success of a self reliant strategy does not, like in any particular political philosophy so much as in the people’s attitude to enterprise and in the right to which the right incentive is adequate enough to make risk worth taking are provided. Majority of the small scale industries developed from cottage industries to small enterprises and from small scale to medium and large scale enterprises (Ogechukwu, 2011).

Small and Medium Enterprises, (SMES) are very critical to the development of any economy. The important role of SMEs to the development of the economy of any nation is even more evident when the economies of developing nations are considered. The SMEs have played very important roles in the development of many Asian countries, and indeed the Asian giants. The economic boom in some of these Asian countries which is not unconnected to SME shave lifted hundreds of millions of people out of poverty and created tens of millions of new middle-class consumers (Tanzer, 2005). SMEs are responsible for driving innovation and competition in many economies.  In India, the SMEs account for about 39% of manufacturing output and 33% of total exports. SMEs possess great potential for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large scale industries (CBN, 2011). According to Fadahusi and Daodu (1997), SMEs constitute very significance sector of the Japanese economy due to a well articulated services and programmes in support of the sector, some of which are legislation, financial support, consultancy, technological, marketing, sub-contracting and modernizing advice given by government and non-governmental organization. Vem (2011) pointed out that, there are 4.69million SMEs constituting about 99.7 percent of all enterprises, accounting for 70 percent of all employment in the Japanese economy.

In the UK, SMEs have no investment ceiling but an employment ceiling of 199 employees Oyekamni (2003). According to the Department of Business Enterprise and Regulatory Reform (BERR) Enterprise Directorate analytical unit, the UK economy is 99 percent SMEs. Out of a total of 4.8million UK businesses, less than 1 percent are large corporations (i.e. over 250 employees). Besides one – man – bands who represent a huge 73 percent of all UK businesses yet only account for 7.4 percent of gross domestic product (GDP). UK SMEs employ 14.23million people out of a working population of approximately 30million (Vem, 2011).

Small and medium enterprises are a very important part of the Nigerian economy as a study by the International Finance Corporation (IFC) show that approximately 96% of Nigerian businesses are SMEs (Oyelarin-Oyeyinka2010). The SMEs represent about 90% of manufacturing/industrial sector in terms of number of enterprises in Nigeria. Between 1970 and 1979 when Nigeria adopted the SMEs subsector as a catalyst for economic growth and development, the sector contributed insignificantly to the level of employment because the supportive environment for the SMEs was weak. Various attempts were made by successive government to actually revamp the sector but to no avail. As at 1994 and 1999, the sector contributed 25.15 percent and 32.40 percent respectively to the level of employment in Nigeria. When the Small and Medium Industry Development Agency (SMIDA) was established in 2003 which was later changed to Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) in 2004, the performance of the sector became encouraging. It accounted for about 41.10 percent of employment level during this period. The introduction of microfinance policy, regulatory and supervisory framework for Nigeria in 2005 with the objective of providing a legal framework for microfinance banks to channel funds to the SME subsector raises the employment level of the sector to 44.80 percent. Also in 2006, 2007 and 2008, the SMEs contributed about 46.80 percent, 47.81 percent and 48.39 percent respectively to employment level. Other policies like the Small and Medium Equity Investment Scheme (SMEEIS) in 2009, the 200 billion for Small and Medium Enterprise Credit Guarantee Scheme in 2010 among others were set up for the SMEs sector. This effort improved the performance of SMEs in terms of employment as it does generate 48.41 percent, 48.43 percent and 48.60 percent in 2009, 2010 and 2011 respectively (CBN, 2011). The 2012 enterprise baseline survey has revealed that there are about 17,284,671 SMEs in Nigeria employing about 32,414,884 persons in Nigeria (Punch Monday 24th June, 2012). From the foregoing, we discover that the SMEs sector has been contributing significantly to the level of employment in Nigeria as more incentives, policies or initiatives are created.

However, in spite of the fact that the SMEs Constitute more than 90% of Nigerian businesses, their contribution to GDP Is only about 1%. Broadly speaking, SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant unsavory impacts on the economy. In a seminar titled “Carer Crisis and Financial Distress-The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: low level of entrepreneurial skills, poor management practices, constrained access to money and capital markets, low equity participation from the promoters because of insufficient personal savings due to their level of poverty and low return on investment, inadequate equity capital, poor infrastructural facilities, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agencies and overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times. This is why SME’s have not been able to achieve its goal in Nigeria.

Sustainable Development is a continual enhancement of the quality of human life both for now and the future.