AN APPRAISAL OF THE ROLE OF GOVERNMENT IN THE GROWTH OF SMALL AND MEDIUM INDUSTRIES
1.1 BACKGROUND TO THE STUDY
Interest in the role of Small and Medium Industries in the development process continues to be in the forefront of policy debates in developing countries. The advantages of Small and Medium Industries are numerous, including: the encouragement of entrepreneurship; the greater likelihood that Small and Medium Industries will utilise labour intensive technologies and thus have an immediate impact on employment generation; they are easily established rapidly and put into operation to produce quick returns. More generally the development of Small and Medium Industries can be seen to be accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation.
The role of finance has been viewed as a critical element for the development of small-scale industries. Previous studies have highlighted the limited access to financial resources available to smaller industries compared to larger organisations and the consequences for their growth and development (Udechukwu, 2003). Typically, smaller industries face higher transactions costs than larger industries in obtaining credit (Olorunshola, 2003). Poor management and accounting practices have hampered the ability of smaller industries to raise finance. Information asymmetries associated with lending to small-scale borrowers have restricted the flow of finance to smaller industries. In spite of these claims however, some studies show a large number of small industries fail because of non-financial reasons.
The panacea for solving problems of economic growth in developing countries often reside in the development of Small and Medium Industries. The establishment of those industries has been the centrepiece of industrial development of many countries such as India, Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the gains to be derived from the establishment of small-scale industries will be translated into the generation of employment at a low investment cost. These industries will also be able to harness raw materials locally and serve as raw inputs to the large-scale industries.
A business whether small of big, simple of complex, private or public is created to provide competitive prices. Business in Nigeria has been classified as small, medium and large. In both the developed and developing countries, the government is turning to Small and Medium Industries, as a means of economic development and a veritable means of solving problems. It is also a seedbed of innovations, inventions and employment. Presently in Nigeria, SMI assist in promoting the growth of the country’s economy, hence all the levels of government at different times have policies which promote the growth and sustenance of SMI. Small and Medium Industries orientation is part of the Nigerian history. Evidence abound in the communities of what successes our great grand parents, made of their respective trading concerns, yam barns, cottage industries, and the likes. The secret behind the success of a self reliant strategy does not lie in any particular political philosophy, so much as the people’s attitude to industrial and in the right incentive is adequate enough to make risk worthy businesses a necessity for the nation. There had been many policy actions by the government, governmental agencies and the private sector to promote SMI in Nigeria. Many experts recognize marketing as a major problem and relevant solution to the growth of SMI.
This research work identifies the historical development and orientation of SMI in Nigeria, tackles the operational definition and scope, describes the role of the Nigerian government as a participant, regulator and facilitator, both legally and politically in the growth of SMI. It identifies the marketing problems of SMI in Nigeria, the provision and enactment of beneficial and supportive laws, the provision of infrastructural facilities, constant man- power and development, direct financial assistance to SMI and the establishment of finance institutions to support SMI. It identifies the roles of SMI in Nigeria’s development and growth. It concludes by clearly specifying the role of government to the survival of SMI in Nigeria, and advances relevant recommendations. For SMI to survive marketing practice and principles must be given prominence.
Economic history is well stocked with enough insights into the humble beginnings of present great corporations. Evidence abound that almost all of the multinational giant corporations in America, Europe and even Nigeria were cottage industries, growing as their industry grew, and through their own sheer ability, marketing skills, and efforts to reproduce and produce existing products better and cheaply. Japan’s economy was dominated by traditional industries, cottage firms and by many SMI, who drew their strength, not only from the abundance of capital, but from the role of marketing in guaranteeing the growth of SMI.
1.2 STATEMENT OF THE PROBLEM
The key problem facing most Small and Medium Industries is lack of finance whether for the establishment of new industries or to carry out expansion plans. The inability to attract financial credit or resources has hindered or stifled the growth of small-scale industrial. The reasons for the lack of fund include the followings:
– High rate of inflation that led to the vast depreciation of Naira exchange rate, thus making it difficult for most Small and Medium Industries to obtain required inputs for expansion.
– Low level of savings in the economy, which leads to low capital formation.
– High rate of interest charged on loans, which scares off potential small and medium scale industrialists. The unwillingness of retail banks to grant credit to Small and Medium Industries because of the low creditworthiness of these industries has also hampered their growth over the years.
Bothered by the persistent decline in the performance of the industrial sector and with the realization of the fact that the Small and Medium Industries hold the key to the revival of the manufacturing sector and the economy, the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in 2000 to agree that each bank should set aside 10 percent of its annual pre-tax profit for equity investment in Small and Medium Industries. To ensure the effectiveness of the programme, banks are expected to identify, guide and nurture industries to be financed by the scheme. The activities targeted under the scheme include agro-allied, information technology, telecommunications, manufacturing, educational establishments, services, tourism and leisure, solid minerals and construction. The scheme was formally launched in August 2001. At the end of June 2004 over N24 billion had been set aside under the scheme while less than N10 billion had been invested. However, 2001 World Bank survey on Nigeria showed that although 85 percent of firms had relationships with the Small and Medium Industries Equity Investment Scheme (SMIEIS), not all of them has access to credit.
The main thrust of this study is to evaluate the effectiveness of the Small and Medium Industries Equity Investment Scheme (SMIEIS) as regard the extent to which it has been able to solve the financial problem of Small and Medium Industries in Nigeria.
1.3 OBJECTIVES OF STUDY
The main objective of this study is to assess the role of government in the growth of Small and Medium Industries. However, specific objectives includes;
- The evaluation of the various survival strategies put in place by the government for Small and Medium Industriesin Nigeria.
- The examinination of the mode of operations of the schemes or strategies
in terms of its lending policies, guiding principles etc.
- The identification of the major constraints hindering the effectiveness of the strategies adopted by the government.
- To make suggestions as to how the performance of the Small and Medium IndustriesEquity Investment Scheme (SMIEIS) could be improved.
- Finding out the role of banks (Banks of Industries, Commercial Banks, Micro-finance banks and the Central Bank of Nigeria ) in supporting the growth of Smalll and Medium Industries in Nigeria.
1.4 RESEARCH QUESTIONS