2.1.5.1 Background to the Subject Matter
Small and Medium Enterprises (SMEs) as defined by the National Council
of Industries refer to business enterprises whose total costs excluding
land is not more than two hundred million naira (N200, 000,000.00) only.
A lot has been said and written about SMEs the world over. It has also
formed the subject of discussions in so many seminars and workshops both
locally and internationally. In the same token, governments at various
levels (local, state and Federal levels) have in one way or the other
focused on the Small and Medium Enterprises. While some governments had
formulated policies aimed at facilitating and empowering the growth and
development and performance of the SMEs, others had focused on assisting
the SMEs to grow through soft loans and other fiscal incentives.
International agencies and organizations (World Bank, United Nations
Industrial Development Organization (UNIDO), International Finance
Corporation (1FC), United Kingdom Department For International
Development(DFID), European Investment Bank (EIB) etc are not only
keenly interested in making SMEs robust and vibrant in developing
countries but have also heavily invested in them. Locally in Nigeria,
the several Non-Governmental Organizations such as Fate foundation,
Support and Training Entrepreneurship Programme (STEP),the Nigerian
Investment Promotion Commission (NIPC), the Association of Nigerian
Development Finance Institutions (ANDFI), as well as 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 for
operators in the SME sub-sector. All the massive attention and support
given to SMEs relate to the widely acclaimed fact that SMEs are job and
wealth creators. 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 realize 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 sustainable economic development in Nigeria”.
Small and Medium Enterprises (SMEs) occupy a place of pride in virtually
every country or state. Because of their (SMEs) significant roles in the
development and growth of various economies, they (SMEs) have aptly been
referred to as “the engine of growth” and ”catalysts
for socio-economic transformation of any country.” SMEs represent a
veritable vehicle for the achievement of national economic objectives of
employment generation and poverty reduction at low investment cost as
well as the development of entrepreneurial capabilities including
indigenous technology. Other intrinsic benefits of vibrant SMEs include
access to the infrastructure! 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,
enhancement of standard of living of the employees of the SMEs and their
dependents as well as those who are directly or indirectly associated
with them. In recognition of the enormous potential roles of SMEs, some
of which have been outlined above, various special measures and
programmes have been designed and policies enunciated and executed by
government to encourage their (SMEs) development and hence make them
more vibrant in Nigeria.
The highlights of these measures include:
i. Fiscal incentives and protective fiscal policies
ii. Specialized financial institutions and funding schemes for the SMEs
iii. Favorable tariff structure
iv. The SMIEIS funding scheme
v. Selective exemption and preferential treatment in excise duties
vi. Establishment of Export Processing Zones
vii. Selective reservation of items for exclusive manufacture in the SME
sub-
sector
viii. Government’s full weight and support for NEPAD and AGOA activities
and operations. It has however been worrisome that despite the
incentives, policies, programmes and support aimed at revamping the
SMEs, they have performed rather below expectation in Nigeria. Different
people, organizations, and operators have advanced various reasons as to
why SMEs have not been able to live up to their billing. While an
average operator would always hinge his failure on lack of access to
finance, some others think otherwise arguing that inappropriate
management skills, difficulty in accessing global market, lack of
entrepreneurial skills and know how, poor infrastructure etc are largely
responsible. The Association of Nigerian Development Finance
Institutions (ANDFi) in2004 issued this statement in relation to why
SMEs perform poorly in Nigeria:
”Finance is usually considered as the major constraints of SMEs. While
this may be true, empirical evidences have shown that finance
contributes only about 25 percent to the success of SMEs. Thus, the
creation of other appropriate support system and enabling environment
are indispensable for the success of SMEs in Nigeria”. In a Consultant’s
Report on Business Support in FCT Number 107, by David Irwin in March
2004 for DF1D, it was stated on Page 5, paragraph 3.3 that ”Governments
all around the world now recognize the important contribution that small
firms make to the economy- and many governments have established
extensive support arrangement to help people start and grow their
businesses. In Nigeria, hitherto, there has been no concerted effort to
encourage and support new businesses”. Some others have argued that the
bane of SMEs in Nigeria is the lack of long-term loans since most loans
in the Nigerian market are short-term while what SMEs require to grow
and become really successful is long-term patient capital. The dearth of
venture capital financing in Nigeria has also aggravated the situation
as venture capital provides long-term patient capital, which allows a
small business to grow, as is the case in Ghana and some developed
economies. Other challenges and problems, which frustrate SMEs in
Nigeria and make some of them to either die within their first two years
of existence or perform below standard even after surviving in their
early years abound. The key ones include inadequate infrastructural
facilities (road, water, electricity etc), insecurity of lives and
property, inconsistent monetary, fiscal and industrial policies, limited
access to markets, 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
challenges that SMEs face are induced by the operating environment
(government policies, globalization effects, financial institutions,
local government policies, attitude to work etc), other challenges are
driven by the inherent characteristics of the SMEs themselves.