The role of small scale industries in nigeria economy?

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Small & Medium Scale Enterprises and Funding in Nigeria (Posted 25th Aug, 2003)
NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium
scale businesses controlled the economy of Europe. The industrial revolution changed the status quo and
introduced mass production. The twin oil shocks during the 1970s undermined the mass production
model, which triggered an unexpected reappraisal of the role and importance of small and medium sized
enterprises in the global economy. Findings by economists over the years show that small firms and
entrepreneurships play a much more important role in economic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small businesses. They are
seen to be characterised by dynamism, witty innovations, efficiency, and their small size allows for faster
decision-making process. Governments all over the world have realised the importance of this category of
companies and have formulated comprehensive public policies to encourage, support and fund the
establishment of SME's. Developments in small and medium enterprise are a sin quo non for employment
generation, solid entrepreneurial base and encouragement for the use of local raw materials and
technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam Mohammed Hayatu
Deen, titled "Stakeholders Roles and the Development Benefits in a Virile Small Enterprise Sector",
pointed out that small business operations are propelled by the dynamic theory, which makes them
efficient and prone to constant change. He gave a comparative statistic using 9 developed countries on
how SMEs create employment, increase job growth, induce change, innovation and competition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contribution to the economy in
terms of output of goods and services; creation of jobs at relatively low capital cost, especially in the fast
growing service sector; provide a vehicle for reducing income disparities; develop a pool of skilled and
semi-skilled workers as a basis for the future industrial expansion; improve forward and backward
linkages between economically, socially and geographically diverse sectors of the economy; provide
opportunities for developing and adapting appropriate technological approaches; offer an excellent
breeding ground for entrepreneurial and managerial talent, the critical shortage of which is often a great
handicap to economic development, among others.
Challenges faced by SME s in Nigeria
The challenges facing SME's in many developing countries are monumental. The most worrying among
these challenges is funding. Most new small business enterprises are not very attractive prospects for
banks, as they want to minimise their risk profile. In Nigeria, the situation is not very different, until
recently when the Banker's Committee intervened in 2001 with a scheme themed the Small and Medium
Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the background government
credit schemes that are not well thought-out and implemented.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nigeria. The scheme was
approved at their 246th meeting on December 21, 1999. According to them, this was a response to
President Obasanjo's concern and policy measures for the promotion of small and medium industries
(SMI) as a vehicle for rapid industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10% of their profit before
tax (PBT) for equity investment in small and medium scale industries. The scheme commenced on June
19th 2001.
The scheme aims among other things to assist the establishment of new, viable SMI projects, thereby
stimulating economic growth, development of local technology, promote indigenous entrepreneurship and
generate employment. The funds will be available for projects in the real sector of the economy which
include: agro-allied, information technology and telecommunication, manufacturing, educational
establishments, services (directly related to production in the real sector or to enhance production),
tourism and leisure, solid minerals, construction, and any other activity as may be determined from time
to time by the Bankers Committee.
To qualify for the scheme, an enterprise, in addition to being engaged in any of the activities listed above,
must have a maximum asset base of N200 million excluding land and working capital; with the number of
staff employed by the enterprise not less than 10 and not more than 300. The enterprise must be registered
as a limited liability company with the Corporate Affairs Commission and comply with all relevant
regulations of the Companies and Allied Matters Act (1990) such as filing of annual returns including
audited financial statement. Comply with all applicable tax laws and regulations and render regular
returns to the appropriate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Central Bank of Nigeria
(CBN), Bankers Committee and the individual banks, each playing a unique role to ensure the success of
the scheme. Available data as at February 2003 indicate that 80 banks have set aside N13.07 billion with
28 banks investing around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. But, recent development
like the SMIEIS and some other funding sources are now open. One of such is the independent fund
manager called the SME Manager Limited (SML), which is an investment advisory company established
by African Capital Alliance (ACA) to promote SME sector-led investments in Nigeria by making equity
investments in Nigerian SMEs. Also, available are: the Bank of Industry, the New Partnership for African
Development (NEPAD) initiative and the African Growth and Opportunity Act, AGOA, of the United
States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural facilities to assist small
businesses. Nigeria s economic terrain is very constraining with the focus being concentrated on the big
firms which are constantly down-sizing. Business people that fall in the SME category have frequently
accused the banks of providing funding to only their cronies and favoured companies. But the banks have
denied such allegations saying that many of the SMEs cannot meet up with banks requirements.
With services sector having 73.1% investments in number and 64.6% of value and Lagos-based
investments accruing 86.6% of total number and 87.7% of value, the banks are advised to spread their
funds wider. Also, the CBN should monitor closely some of the defaulting participating banks in the
SMIEIS scheme. On the part of government, policies that promote inward induced investment should be
encouraged far and above
This is answered by
Akogu Abbai David
davesquare2000@yahoo.com
08058455069, 08068993106
Niger State College of Education, Minna
Nigeria.
Small & Medium Scale Enterprises and Funding in Nigeria (Posted 25th Aug, 2003)
NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium
scale businesses controlled the economy of Europe. The industrial revolution changed the status quo and
introduced mass production. The twin oil shocks during the 1970s undermined the mass production
model, which triggered an unexpected reappraisal of the role and importance of small and medium sized
enterprises in the global economy. Findings by economists over the years show that small firms and
entrepreneurships play a much more important role in economic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small businesses. They are
seen to be characterised by dynamism, witty innovations, efficiency, and their small size allows for faster
decision-making process. Governments all over the world have realised the importance of this category of
companies and have formulated comprehensive public policies to encourage, support and fund the
establishment of SME's. Developments in small and medium enterprise are a sin quo non for employment
generation, solid entrepreneurial base and encouragement for the use of local raw materials and
technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam Mohammed Hayatu
Deen, titled "Stakeholders Roles and the Development Benefits in a Virile Small Enterprise Sector",
pointed out that small business operations are propelled by the dynamic theory, which makes them
efficient and prone to constant change. He gave a comparative statistic using 9 developed countries on
how SMEs create employment, increase job growth, induce change, innovation and competition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contribution to the economy in
terms of output of goods and services; creation of jobs at relatively low capital cost, especially in the fast
growing service sector; provide a vehicle for reducing income disparities; develop a pool of skilled and
semi-skilled workers as a basis for the future industrial expansion; improve forward and backward
linkages between economically, socially and geographically diverse sectors of the economy; provide
opportunities for developing and adapting appropriate technological approaches; offer an excellent
breeding ground for entrepreneurial and managerial talent, the critical shortage of which is often a great
handicap to economic development, among others.
Challenges faced by SME's in Nigeria
The challenges facing SME's in many developing countries are monumental. The most worrying among
these challenges is funding. Most new small business enterprises are not very attractive prospects for
banks, as they want to minimise their risk profile. In Nigeria, the situation is not very different, until
recently when the Banker's Committee intervened in 2001 with a scheme themed the Small and Medium
Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the background government
credit schemes that are not well thought-out and implemented.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nigeria. The scheme was
approved at their 246th meeting on December 21, 1999. According to them, this was a response to
President Obasanjo's concern and policy measures for the promotion of small and medium industries
(SMI) as a vehicle for rapid industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10% of their profit before
tax (PBT) for equity investment in small and medium scale industries. The scheme commenced on June
19th 2001.
The scheme aims among other things to assist the establishment of new, viable SMI projects, thereby
stimulating economic growth, development of local technology, promote indigenous entrepreneurship and
generate employment. The funds will be available for projects in the real sector of the economy which
include: agro-allied, information technology and telecommunication, manufacturing, educational
establishments, services (directly related to production in the real sector or to enhance production),
tourism and leisure, solid minerals, construction, and any other activity as may be determined from time
to time by the Bankers' Committee.
To qualify for the scheme, an enterprise, in addition to being engaged in any of the activities listed above,
must have a maximum asset base of N200 million excluding land and working capital; with the number of
staff employed by the enterprise not less than 10 and not more than 300. The enterprise must be registered
as a limited liability company with the Corporate Affairs Commission and comply with all relevant
regulations of the Companies and Allied Matters Act (1990) such as filing of annual returns including
audited financial statement. Comply with all applicable tax laws and regulations and render regular
returns to the appropriate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Central Bank of Nigeria
(CBN), Bankers' Committee and the individual banks, each playing a unique role to ensure the success of
the scheme. Available data as at February 2003 indicate that 80 banks have set aside N13.07 billion with
28 banks investing around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. But, recent development
like the SMIEIS and some other funding sources are now open. One of such is the independent fund
manager called the SME Manager Limited (SML), which is an investment advisory company established
by African Capital Alliance (ACA) to promote SME sector-led investments in Nigeria by making equity
investments in Nigerian SMEs. Also, available are: the Bank of Industry, the New Partnership for African
Development (NEPAD) initiative and the African Growth and Opportunity Act, AGOA, of the United
States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural facilities to assist small
businesses. Nigeria's economic terrain is very constraining with the focus being concentrated on the big
firms which are constantly down-sizing. Business people that fall in the SME category have frequently
accused the banks of providing funding to only their cronies and favoured companies. But the banks have
denied such allegations saying that many of the SMEs cannot meet up with banks' requirements.
With services sector having 73.1% investments in number and 64.6% of value and Lagos-based
investments accruing 86.6% of total number and 87.7% of value, the banks are advised to spread their
funds wider. Also, the CBN should monitor closely some of the defaulting participating banks in the
SMIEIS scheme. On the part of government, policies that promote inward induced investment should be
encouraged far and above
This is answered by
Akogu Abbai David
davesquare2000@yahoo.com
08058455069, 08068993106
Niger State College of Education, Minna
Nigeria.
Small & Medium Scale Enterprises and Funding in Nigeria (Posted 25th Aug, 2003)
NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium
scale businesses controlled the economy of Europe. The industrial revolution changed the status quo and
introduced mass production. The twin oil shocks during the 1970s undermined the mass production
model, which triggered an unexpected reappraisal of the role and importance of small and medium sized
enterprises in the global economy. Findings by economists over the years show that small firms and
entrepreneurships play a much more important role in economic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small businesses. They are
seen to be characterised by dynamism, witty innovations, efficiency, and their small size allows for faster
decision-making process. Governments all over the world have realised the importance of this category of
companies and have formulated comprehensive public policies to encourage, support and fund the
establishment of SME's. Developments in small and medium enterprise are a sin quo non for employment
generation, solid entrepreneurial base and encouragement for the use of local raw materials and
technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam Mohammed Hayatu
Deen, titled "Stakeholders Roles and the Development Benefits in a Virile Small Enterprise Sector",
pointed out that small business operations are propelled by the dynamic theory, which makes them
efficient and prone to constant change. He gave a comparative statistic using 9 developed countries on
how SMEs create employment, increase job growth, induce change, innovation and competition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contribution to the economy in
terms of output of goods and services; creation of jobs at relatively low capital cost, especially in the fast
growing service sector; provide a vehicle for reducing income disparities; develop a pool of skilled and
semi-skilled workers as a basis for the future industrial expansion; improve forward and backward
linkages between economically, socially and geographically diverse sectors of the economy; provide
opportunities for developing and adapting appropriate technological approaches; offer an excellent
breeding ground for entrepreneurial and managerial talent, the critical shortage of which is often a great
handicap to economic development, among others.
Challenges faced by SME's in Nigeria
The challenges facing SME's in many developing countries are monumental. The most worrying among
these challenges is funding. Most new small business enterprises are not very attractive prospects for
banks, as they want to minimise their risk profile. In Nigeria, the situation is not very different, until
recently when the Banker's Committee intervened in 2001 with a scheme themed the Small and Medium
Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the background government
credit schemes that are not well thought-out and implemented.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nigeria. The scheme was
approved at their 246th meeting on December 21, 1999. According to them, this was a response to
President Obasanjo's concern and policy measures for the promotion of small and medium industries
(SMI) as a vehicle for rapid industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10% of their profit before
tax (PBT) for equity investment in small and medium scale industries. The scheme commenced on June
19th 2001.
The scheme aims among other things to assist the establishment of new, viable SMI projects, thereby
stimulating economic growth, development of local technology, promote indigenous entrepreneurship and
generate employment. The funds will be available for projects in the real sector of the economy which
include: agro-allied, information technology and telecommunication, manufacturing, educational
establishments, services (directly related to production in the real sector or to enhance production),
tourism and leisure, solid minerals, construction, and any other activity as may be determined from time
to time by the Bankers' Committee.
To qualify for the scheme, an enterprise, in addition to being engaged in any of the activities listed above,
must have a maximum asset base of N200 million excluding land and working capital; with the number of
staff employed by the enterprise not less than 10 and not more than 300. The enterprise must be registered
as a limited liability company with the Corporate Affairs Commission and comply with all relevant
regulations of the Companies and Allied Matters Act (1990) such as filing of annual returns including
audited financial statement. Comply with all applicable tax laws and regulations and render regular
returns to the appropriate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Central Bank of Nigeria
(CBN), Bankers' Committee and the individual banks, each playing a unique role to ensure the success of
the scheme. Available data as at February 2003 indicate that 80 banks have set aside N13.07 billion with
28 banks investing around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. But, recent development
like the SMIEIS and some other funding sources are now open. One of such is the independent fund
manager called the SME Manager Limited (SML), which is an investment advisory company established
by African Capital Alliance (ACA) to promote SME sector-led investments in Nigeria by making equity
investments in Nigerian SMEs. Also, available are: the Bank of Industry, the New Partnership for African
Development (NEPAD) initiative and the African Growth and Opportunity Act, AGOA, of the United
States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural facilities to assist small
businesses. Nigeria's economic terrain is very constraining with the focus being concentrated on the big
firms which are constantly down-sizing. Business people that fall in the SME category have frequently
accused the banks of providing funding to only their cronies and favoured companies. But the banks have
denied such allegations saying that many of the SMEs cannot meet up with banks' requirements.
With services sector having 73.1% investments in number and 64.6% of value and Lagos-based
investments accruing 86.6% of total number and 87.7% of value, the banks are advised to spread their
funds wider. Also, the CBN should monitor closely some of the defaulting participating banks in the
SMIEIS scheme. On the part of government, policies that promote inward induced investment should be
encouraged far and above
This is answered by
Akogu Abbai David
davesquare2000@yahoo.com
08058455069, 08068993106
Niger State College of Education, Minna
Nigeria.
This article may be outdated following the current development in Nigeria used as context. Though
useful, am still working on the supplementaary current roles of SMS in Nigeria Economy.
Thanks.