PROMOTION OF SMALL AND MEDIUM SCALE ENTERPRISES

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

The main strategy for the establishment by the entrepreneurs of Small and Medium Enterprises (SMEs) and its promotion by various sectors, is to enhance job creation, promote economic growth, reduce poverty.  The importance of Small and Medium Enterprises (SMEs) in any economy cannot by overemphasis.  They constitute the smallest unit of business.  They predominate in most sectors of the economy occupying every available space such as form enterprises in the rural areas, provision store, bakery, pure water production, garri processing or food processing industries.

Although, many writers have talked about the financing of the Small and Medium Enterprises in pre-consolidation and post-consolidation periods of Banks towards the enterprises development, the issue of credit accessibility and affordability as it affects economic development has not been stressed.  The concern of this research is to examine the extent of promotion accorded the entrepreneurs of Small and Medium Enterprises. (SMEs) and the level of economic development in the rural communities.

The history of industrial revolution in developed and developing economies or countries has shown that Small and Medium Enterprises (SMEs) are driving force of industrial development.  It is therefore, the attention of the government, the world over to focus on the funding and supporting of Small and Medium Enterprises (SMEs) activities.  Available evidence shows that Small and Medium Enterprises (SMEs) are characterized by being managed by their owners as proprietorship or partnership.  They are largely local in the areas of capital and relatively small size with the industry.

Small and Medium Enterprises (SMEs) predominate in the private sector of the Nigeria economy.  Almost all of them are starved of funds.  The relative importance of the enterprises differs from one type of business to another.  The major areas of business enterprises activities are in manufacturing, rendering services and product distribution.

Banbeck (1983) included in his publication on “Basic Small Business Management” that more than one-third of all the manufacturing firms in Nigeria employ fewer than five persons or none at all and that close to two-thirds employ fewer than twenty workers.  His study on the whole revealed that five per cent of non-form business of all kinds employs fewer than fifty workers each.

The characteristics of Small and Medium Enterprises (SMEs) largely constitute the basis of their problems and special needs that have attracted different authorities and sectors in recent past.  It is also the focus of this research to critically examine and measure the effects of the government funding programmes on Small and Medium Enterprises (SMEs) activities.  Though the result of the findings from the respondents/enterprises, the study will determine how much of the support have been received from the programmes and extent of development experienced in the population Okehi LGA. Kogi State.

The study is further intended to reveal the various enterprises with Okehi communities with a view to identifying their business activities, proffering solutions to the identified challenges impeding their effectiveness and proficiency to achieve economic development.

1.2       STATEMENT OF THE PROBLEM

The research examines in all possible ways, the extent of government funding programmes in the promotion of Small and Medium Enterprises (SMEs) in the population area as well as the impact on the socio-economic development of the area covered by the scope.  The study further identifies the peculiar problems or challenges the SME sub-sector associated with their smooth operations.  Possible suggestions to provide engine for economic growth and prosperity in the industries is also the focus of this study.

The research tend to ask and find answers to such guiding questions as

-              To what extent do the entrepreneurs have access to credit loan and guarantees?

-              How often have the industrialist received training and information services for the promotion and development of the Small and Medium Enterprises (SMEs)?

-              How long have the management of the Small and Medium Enterprises (SMEs) been enjoying credit facilities from Bank and government aid, what benefits evidenced in their enterprises?

-              Enumerate the limiting factors inhibiting the development of the Small and Medium Enterprises (SMEs) in Okehi Communities.

Finally, the research is carried out to uncover the administrative and technical weakness of government and other funding agencies in the efficient and effective implementation of their policies and strategies.  That is, do the government and other funding establishments actually realize their goals aimed at promoting and developing Small and Medium Enterprises (SMEs).

1.3       OBJECTIVES OF THE STUDY

The broad and primary objective of this research is to find out the extent to which the SMEs funding programmes as promotion strategy have impacted on the development of enterprises in the rural communities.  This is further to identifying the all inclusive measurable performance of the enterprises and to proffer possible solution to the challenges posed by SMEs programmes implementation strategies.

To realistically achieve this basic objective, this study will also identify other secondary objectives.  This aids the researcher to articulate the enterprises direction as regards where is the enterprise now, what does it want to be and how does it want to get there.

These secondary objectives includes:

1.   To identify the viability or otherwise of government funding programmes on SMEs.

2.   To compare the standards (set objectives) of funding institutions with the a SMEs actual performance.

3.   To identify the perception of the entrepreneurs or industrialists or SMEs operator and realistic on the implementation of the government funding programmes as the affect SMEs development.

4.   To determine the socio-economic impact of the SMEs on the people in the study area.

5.   To investigate the factors militating against meaningful development of small and medium scale enterprises in the local government area.

6.   To identify other investment opportunities available to the entrepreneurs.

7.   To recommend based on the findings from the research study ,possible measures to minimize the challenges facing the practice of SMEs in the rural communities.

1.4    SIGNIFICANCE OF THE STUDY

The promotion of Small and Medium Enterprises (SMEs) by the funding institutions is geared towards improving the living standards of especially the rural dwellers in the country.  The research signifies the following:

1.           The research pinpoints the unique role of the funding institution in empowering the entrepreneurs/industrialists.  If the purpose of SMEs must be achieved the entrepreneurs must be supported with adequate capital in form of credit, loan and guarantees, grants etc.

2.           The study also uncovers the correlation between the quantum of funds made available to the entrepreneurs and their level of performance in the business activities.  This compares in a measurable for the standards (set objectives) and actual performance.

3.           The constraints and limitations which affect the success of the operators of SMEs are uncovered by this study.  The research report will acquaint the industrialist and other stakeholder of the SMEs with some far reaching measures or suggestions towards realistic entrepreneurship development.

4.           The study further identifies other possible way or available opportunities of diversifying their investments.

5.           The research report/recommendation serves as a reference point to potential investors in SMEs.  The study widens the business horizons of the entrepreneurs or operators of SMEs.

1.5       RESEARCH QUESTION/HYPOTHESIS

RESEARCH HYPOTHESIS

A hypothesis is described by Keple (2000) is a prediction of what can be seen in the world of reality.  Hypothesis formulation is significant in a research work.  It functions as:

·                    A link between the world of theory and world of reality.

·                    Showing the direction of data analysis.

·                    Helping in the organization of the research report.

·                    Transforming the researcher’s ideas into testable form.

Two types of hypothesis; null hypothesis (Ho) and Alternate Hypothesis (Hi) will be adopted for the problem under study.

1.   Hypothesis 1 (Ho): There is no significant impact of government funding of Small and Medium Enterprises (SMEs) on the socio-economic development of Okehi communities.

Hypothesis 1 (Hi): There is significant impact of government funding of Small and Medium Enterprises (SMEs) on socio-economic development of Okehi communities.

2.   Hypothesis 2 (Ho): The operators of the Small and Medium Enterprises (SMEs) in the rural communities cannot easily access credit facilities from financial institutions.

Hypothesis 2 (Hi): The operators of Small and Medium Enterprises (SMEs) in the rural communities can easily access credit facilities from the financial institutions.

3.   Hypothesis 3 (Ho): The government funding of Small and Medium Enterprises (SMEs) especially in the rural communities has brought no reduction in poverty level.

Hypothesis 3 (Hi): The government funding of Small and Medium Enterprises (SMEs) especially in the rural communities has brought about high a reduction in poverty level.

RESEARCH QUESTION

To achieve a quality result from the study, the following fundamental questions will serve as guide to the researcher.

1.   To what extent have the government funding programmes  impacted on  the development of SMEs in the rural communities?

2.   Compare the actualization of the funding objectives of the government with standard set. (has the objectives been largely achieved?)

3.   How often do the entrepreneurs/industrialist get funds from the government funding programmes?

4.   What are the factors militating against meaningful development of SMEs in the Local Government Area?

5.   What factors militates against the meaningful development of Small and Medium Scale Enterprises (SMEs) in Okehi local government area?

6.   What are the investment opportunities available to the entrepreneurs in your locality?

7.  What are the possible measures to be adopted in minimizing the challenges facing the practice of SMEs in the rural communities?

1.6    SCOPE OF THE STUDY

1.           The research covers the major stakeholder of Small and Medium Enterprises (SMEs) in Okehi Local Government Area, Kogi State.

2.           The enumerated areas as the sampled population of the study include randomly selected entrepreneurs in various communities actively engaged in the enterprises.

3.           It is also within the scope of this study to enumerate the funding institutions such as Banks and identified government programmes in the promotion and funding of Small and Medium Enterprises (SMEs).

4.           The scope covers a four (4) year (2007 – 2010) performance review period of the Small and Medium Enterprises (SMEs) major stakeholders.  This period is used to measure the level of socio-economic development as a consequence of the promotion efforts or otherwise of the funding institutions.

5.           Enumeration of the critical factors militating against the success or development of the enterprises in the rural communities also forms part of the scope of the study.

6.            It also covers identified areas for improvement in the entrepreneurial development.

1.7    LIMITATION OF THE STUDY

A good research work is normally carried out with some attendant limitations, in this particular study under review, the under mentioned problems were encountered:

1.           The study is limited to the assessment of promotion strategy on Small and Medium Enterprises (SMEs) and their measures of development in the rural communities.  There are no much record made available to the researcher on the operators to quantify the efforts of the funding institutions

2.           To collect scientific data in the production of quality reports some sampling techniques were employed.  These techniques like questionnaires were delayed or not correctly answered by the respondents.

3.           Time constraints:  Time of survey were limited in terms of data collection.  All sampled population could not meet all the needed information within the stipulated period.

4.           During the survey period, the level of cooperation varied from one entrepreneur/industrialist to another.

5.           Inaccessibility of records from the funding institutions like Banks and government agencies.  The desired records to ascertain the quantum of grants or subventions or loan guarantee offered to the operators of the SMEs were not made available by the relevant stakeholders.

6.           The method of data analysis where some formular are involved may be too technical to the understanding of a layman.  The test of hypothesis may not be cleared to individual that is not mathematically inclined.

1.8.   DEFINITION OF TERMS

Various bodies/organization defined SMEs in their own perspective depending on the purpose, objective and use.

In the context and purpose of this research the following definitions were adopted:

(i)           Funding Agencies: These are government Parastatals/Agencies, Development Banks, Private Organizations like Banks, NGOs which make funds available in the form of grant, credit facilities to the industrialist or entrepreneurs.

(ii)          Micro Enterprise/College Industry: A firm or enterprise with a labour size of not more than ten workers (1 – 10) or total cost (including working capital but excluding cost of land) not more than two million naira (N2m) and/or a turnover of less than four hundred thousand naira only (N400,000.00).

(iii)        Small Scale Enterprise: Industry with a labour size of between 11 – 100 workers or a total cost including working capital but excluding cost of land) not more than fifty million naira only (N50m) and/or a turnover of less than ten million naira only (N10m)

(iv)        Medium Scale Enterprise: Industry with a labour size of 101 – 300 workers or a total cost including working capital but excluding cost of land) of over fifty million naira only (N50m) but not more than two hundred million naira only (N200m).

(v)         Large Scale Enterprises: Industry with a labour size of over 300 workers or a total cost including working capital but excluding cost of land of over two million naira only (N200m).

Other abbreviations, terms and notation used in this study include but not limited to the following:

(vi)        A.C.G.S: Agricultural Credit Guarantee Scheme

(vii)      NACRDB: Nigeria Agricultural Cooperative and Rural Development Bank.

(viii)     NASME: Nigeria Association of Small and Medium Enterprises which is an umbrella of SMEs.

(ix)        DFIs: Development Finance Institution, these are companies involved in projects and development finance e.g. Bank of Industry (BOI).

(x)         SMEs: Small and Medium Enterprises (SMEs)

(xi)        SMEDAN: Small and Medium Scale Enterprises Development Agency of Nigeria

(xii)      CBN: Central Bank of Nigeria that supervises other Banks.

(xiii)     NEEDS: National Economic Empowerment and Development Strategy.

(xiv)    SEEDS: State Economic Empowerment and Development Strategy

(xv)      NDE: National Directorate of Employment

(xvi)    NAPEP: National Poverty Eradication Programme.

(xvii)   MSME: Micro-Small and Medium Enterprises.

(xviii)  MAN: Manufacturers Association of Nigeria.  This is the association of manufacturing companies.

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