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Chapter one


1.1 Background to the subject matter.

A lot has been said and written about small and medium-sized enterprises around the world. It has also been the topic of discussion in numerous seminars and workshops both locally and abroad. Similarly, governments at all levels (local, state, and federal) have concentrated in some way on small and medium-sized businesses.

While some governments developed policies to facilitate and empower the growth, development, and performance of SMEs, others concentrated on enabling them to grow through soft loans and other fiscal incentives (Ajagu, 2005).

According to Akwaja (2004), international agencies and organisations such as the World Bank, the United Nations Industrial Development Organisation (UNIDO), the International Finance Corporation (IFC)

the United Kingdom Department for International Development (DFID), and the European Investment Bank (EIB) are not only keenly interested in making SMEs robust and vibrant in developing countries, but have also made significant investments in them.

Locally, several Non-Governmental Organisations (NGOs) such as Fate Foundation, Support and Training Entrepreneurship Programme (STEP), the Nigerian Investment Promotion Commission (NIPC)

the Association of Nigerian Development Finance Institutions (ANDFI), and individual Development Finance Institutions (DFIs) have been promoting the growth of SMEs in Nigeria through advocacy and capacity-building initiatives, and have continued to canvass for better support structures.

All of the huge attention and support given to SMEs is based on the widely accepted reality that they create jobs and wealth. In justifying the introduction of SMIEIS in 2003, the then Governor of the Central Bank of Nigeria, Chief Joseph Sanusi, said: “With a concerted effort and renewed commitment from all stakeholders

this scheme will surely succeed and realise its intended objective of revamping the SMEs as engines of growth in the economy and a veritable tool for the development of indigenous technology, rapid industrialization, generation of employment for our teeming youths and

“The pivot for Nigeria’s long-term economic development” (Alawode, 2005).

Iornem et al. (2000) believe that Small and Medium Enterprises (SMEs) are a source of pride in almost every country or state. Because of their (SMEs) important roles in the development and evolution of diverse economies, they (SMEs) have correctly been referred to as “the engine of growth” and “catalysts for socio-economic transformation of any country.”

SMEs constitute a true vehicle for achieving national economic objectives such as job creation and poverty reduction at a low cost, as well as the development of entrepreneurial competencies, including indigenous technologies.

Other intrinsic benefits of vibrant SMEs include access to the infrastructural facilities occasioned by the existence of such SMEs in their surroundings, the stimulation of economic activities such as suppliers of various items and distributive trades for items produced and or needed by the SMEs

stemming from rural urban migration, and the enhancement of the standard of living of the employees of the SMEs and their dependents, as well as those who are directly or indirectly associated

In recognition of the vast potential roles of SMEs, some of which have been stated above, the government has devised and implemented a variety of special measures and plans, as well as policies, to stimulate their (SMEs) development and so make them more lively in Nigeria. The highlights of these measures are:

i. Fiscal incentives and protective fiscal measures.

ii. Specialised financial institutions and financing plans for SMEs.

iii. A favourable tariff structure.

4. The SMIEIS funding scheme

v. Selective exemption and preferential treatment under excise charges

vi. The establishment of export processing zones.

vii. Selection of items for exclusive manufacture in the SME sub-sector.

viii. The government’s complete backing and support for NEPAD and AGOA programmes and operations.

It is concerning, however, that despite incentives, regulations, plans, and support targeted at revitalising SMEs, they have performed below expectations in Nigeria. Different people, companies, and operators have presented numerous explanations for why SMEs have failed to meet their obligations.

While the average operator would always blame his loss on a lack of access to financing, others argue that inadequate managerial abilities, problems reaching the global market, a lack of entrepreneurial skills and know-how, bad infrastructure, and so on are primarily to blame.

In 2004, the Association of Nigerian Development Finance Institutions (ANDFI) made the following statement regarding why SMEs in Nigeria perform poorly:

“Finance is widely regarded as a major limitation for SMEs. While this may be accurate, empirical research indicates that finance contributes only about 25% to the success of SMEs.

Thus, the establishment of other relevant support systems and enabling environments is critical to the development of SMEs in Nigeria.” (Johnson, 2005).

In a Consultant’s Report on Business Support in FCT Number 107 by David Irwin for DFID in March 2004, it was stated on Page 5, paragraph 3.3 that “Governments all around the world now recognise the important contribution that small firms make to the economy- and many governments have established extensive support arrangements to help people start and grow their businesses.”

There has been no concerted attempt to encourage and support new firms in Nigeria thus far. Others have stated that the bane of SMEs in Nigeria is a lack of long-term loans, as most loans in the Nigerian market are short-term, yet what SMEs require to develop and succeed is long-term patient capital.

The lack of venture capital financing in Nigeria has exacerbated the situation, as venture capital offers long-term patient capital, allowing small businesses to flourish, as it does in Ghana and certain developed nations (Central Bank of Nigeria, 2001).

Other issues and problems frustrate SMEs in Nigeria, causing some of them to either die within their first two years of existence or perform below standard even after surviving in their early years. Inadequate infrastructural facilities (roads, water, electricity, etc.), insecurity of lives and property

inconsistent monetary, fiscal, and industrial policies, limited market access, multiple taxation and levies, lack of modern technology for processing and preserving products, policy reversals, capacity limitations, data inadequacies, harsh operating environment, fragile ownership base, fragile capital base.

While some of the issues that SMEs confront are caused by the operating environment (government regulations, globalisation effects, financial institutions, local government policies, attitude towards work, etc.), others are driven by the fundamental qualities of the SMEs themselves.

Small and Medium Enterprises (SMEs) in Nigeria have not performed admirably, and so have not played the crucial and lively role in Nigeria’s economic growth and development that was anticipated of them.

This situation has caused tremendous worry among the government, citizens, operators, practitioners, and organised private sector groups. Year after year, governments at the federal, state, and even municipal levels have demonstrated interest and recognition of the critical significance of the SME sub-sector of the economy through budgetary allocations, policies, and pronouncements, and have thus implemented strategies to energise it.

There have also been fiscal incentives, grants, bilateral and international agency support and aid, as well as specialised organisations, all aimed at revitalising the SMEs sub-sector.

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