GOVERNMENT REGULATIONS AND THEIR IMPACT ON THE GROWTH OF SMALL-SCALE INDUSTRIES IN NIGERIA

ABSTRACT

The main objective of this were (1) to identify how government regulations help in the growth of small-scale industries in Nigeria; (2) To examine  the impact the impact of the government regulations in the growth of the small- scale industries (3) To make recommendations on any lapses in government regulations for the growth of small-scale industries in the country and (4) To fill a research gap on the merit and demerit of government regulations in the growth of the small-scale industries in the country. To enable the research to make his findings, it was hypothesized that (1) the greater the number of small- scale industries in Nigeria, the greater their role in rural transformation (development); (2) The positive impact of government regulations of small- scale industries would be possible when the have access to loanable funds for Expansion,  and  (3)  the  greater  the inadence  of bureaucratic  corruptive,  the higher the failure of the small-scale industries’ access to loanable funds for development. In the methodology, the researcher utilized samples, used respondents from Plateau, Nasarawa, Abuja, Benue for our survey.   The chi- square was used for data analysis, while the popular questionnaire of Yes-No type were used to measure the response in the questionnaire.

The findings were that:

i.       Government regulations have both negative and positive impaction the growth of small-scale enterprises in Nigeria.

ii.       Bribery and corruption practices by bankers and government officials negate the ideas of granting loans to the small-scale industries for development of our communities.

iii.       Small-scale entrepreneurs should have access to investment capital in order to get Nigeria economy out of the woods.

iv.     There should be an equity investment scheme that should require each bank in the country to set aside 10% of its profit before tax annually to make equity investment in small-scale industries.

v.     Banks should be involved in the running of small-scale industries to ensure judicious utilization of funds disbursed to small-scale industries.

vi.     The peasants must be assisted  through  loan and expert advice in the need to invest in small-scale industries for rural development.

vii.     The  federal  and  state  governments  should  provide  infrastructure  and social services in order to give some logistic support for the growth of small scale industries.

viii.     Major  companies  that  are  beneficiaries  of  major  contract  in  Nigeria should  be  encourage  by government  to  give  priority  to  SMEs  with relevant competence when giving our sub-contract.

ix.     Too operate a business in Nigeria as of now, you need to purchase your own power generator, sunk your own borehole for water and other necessary infrastructural facilities.   Government should improve the performance  of these infrastructure  to reduce the high  cost of doing business and thus ensure the survival of SMEs.

x.     The number of government approving agencies should be streamlined while unstable  exchange  rates, high  interest rates and un-cooperative attitude of government official should be addressed.

CHAPTER ONE INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Nigeria  is a mixed  economy with a positive leaning  towards  a free-market economic   system.   The   provisions   of   the   Nigerian   constitution   (1999) summarize the objectives of this economic system, namely that:

i.       The state shall control the national economic in such a manner as the secure the maximum welfare, freedom and happiness of every citizen on the basis of social justice and equality of status and opportunity;

ii.       The  state  shall  manage  the  major  sectors  of  the  economy  (defense, currency,  banking,  import,  export, military,  aviation,  railways,  active part in other resources, agriculture, industrial development, etc)

iii.       The state shall, without prejudice to the right of any person to participate in areas within the major sector of the economy project the right of every citizen  to engage in any economic  activities  outside the major sectors of the economy.

iv.     The state shall direct policy towards ensuring:

v.     The promotion of a planned and balanced economic development;

vi.     That  the  material  resources  of  the  community  are  harnessed  and distributed as best as possible to serve the common good;

vii.     That the economic system is not operated in such a manner as to permit the concentration of wealth or means of production and exchange in the hands of few individuals or of a group; and,

viii.     That   suitable   and   adequate   shelter,   suitable   and   adequate   food, reasonable national minimum living wage, old age care and pensions, and unemployment and sick benefits are provided for all citizens.

It can be seen that the above national economic objective provide a marriage between  the two principal economic  systems- the market economy and  the command economy. It provides checks and balances to ensure that the abuses

and disadvantages of either system are minimized or completely eliminated. The question that remain however, is a statement of how for these laudable economic objectives have been achieve in Nigeria.

It can be stated categorically that the state, through legislation, has been in full control national economy and that individual citizens have been free to engage in private enterprises, but the combination have not been such that has granted maximum  welfare,  and  happiness,  for  the  majority  of  people  nor  has  to provided  suitable,  and  reasonable  food,  clothing  or  shelter  for  all  citizens. There has been concentration of wealth and means of production in the hands of few individuals so that the majority of people are writing in the pangs of abject poverty,  hunger,  ignorance,  disease and death  (A.U Inegbenebor and Essosa Bob Osaze (199:13-14).

The reasons for this colossal failure in realizing the promises of the economic objectives are to be found more in the political than in the economic arena. Political  instability  military  interregnum,  tribal  politics  and  selfishness  of leaders, general misrule, among many other political ills, have combined to thwart the notable constitutional economic objectives. Governments have been run in such a way as to create massive economic inequalities and disaffection among the populace. The economy has witnessed excessive money supply as the  government  mint  rolled  out  the  fifty,  hundred,  two  hundred  and  five hundred  naira currency notes in the billions.  Combined  with  the very high tastes  of  the  few  rich  for  foreign  ensured  a  very  how  and  continuously dwindling  naira value.

Nigerian  business  have  been  the  worse  for all  these.  An  unstable  political system  has  left  the  business  scene  highly  assess  have  had  to  fold  up  or drastically reduce capacity utilization. Lacking of continuity and stability from all  business  sectors,  economic  growth  has  steadily  been  in  the  decline, especially when measured in real terms.

Another aspect of the setting of this research is the development of business (history) in Nigeria. Every human society develops some means of producing and distributing the goods and services that it needs. The history of business in Nigeria  can  be  conveniently  divided  into  pre-colonial,  colonial  and  post colonial periods. In the pre-colonial era, several complex civilizations had developed in the forest zone of the west coast of Africa and the Sudan. The civilizations,  especially Ghana,  Songhai,  Mali,  Kanem-Bornu,  Ife,  Oyo  and Benin kingdoms built their economic on conquest, agriculture, craft industries and trading between Sudan and North Africa, the trans-Saharan trade in gold, Ivory, Kolanuts, salt, cloths and slaves flourished for several centuries. Other trade routes also developed along major rivers such as the Chad Basin area, Senegal, Niger, and Volta Rivers as well the Niger-Delta (pr the oil Rivers protectorate).

Along the trade routes, major commercial centres such as Timbuktu quickly developed. Market squares became characteristics features of the major cities of the kingdoms.  In these commercial  centres,  local merchants  emerged  as intermediaries between producers in the interior and buyers at the terminus of the   trade   routes.   These   merchants   performed   the   typical   functions   of middlemen   including   control   of  the   trade,   Identification   and   selection, machinery sourcing conduct of market studies and preparation of feasibility studies.

Again, the central role which government  ascribed  to small-scale  industrial activities in its strategy for economic restructuring  and growth  informed  its decision   to   utilize   United   Nations   Development   Programme’s   (UNDP) technical assistance to supplement key components of the national programme during the 4th  country programme 1992-1996. UNDP support was targeted at the  five  component  areas  considered  essential  for an  enterprise  to  perform effectively.  It  assisted  in  improving  the  regulatory  framework  for  policy, planning and institutional development to ensure that the new private sector led growth      strategy     with      the      active     participation      of     small-scale

industries/industrialists is properly articulated and implemented government’s efforts at industrial infrastructure facilities development.

However,   the   economic   policy   Blueprint   released   by   the   Obasanjo administration to guide economic reinvention and reengineering for the period

199-2003 apportions high priority to agriculture, manufacturing, small/medium

enterprises  and  the  informal  sectors  as  key  instruments  for  achieving  the targeted goals enumerated in the policy (Business Time, July 19,- 15, 2001, P.6).

There is little doubt that it has been fully realized and acknowledged; that an energized  and  fully  functional  small-scale  industrial  scale-sector  has  the potential of transforming the industrial base of the country as well serve as the propellant for the much needed economic rejuvenation.

The contribution of SMEs to the industrialization process is still generally low in Nigeria compared to countries with similar backgrounds in South East Asia Latin America. Although efforts have been made by many successive governments,  right  from  independence  to  promote  SMEs  in  the industrialization   process,   the   development   of   the   sub-sector   has   been constrained by a number of factors, both internal and external.

According to Chief Kola Jamodu, the minister of industry these factors include:

i.     Unstable macro-economic environment;

ii.     Inconsistent character of policy measures

iii.     Poor implementation and coordination of efforts on SMEs;

iv.     Absence of suitable institutional mechanism;

v.     Poor Infrastructural facilities; i.e. roads/railway systems, water supply electricity telecommunications, etc and

vi.     Lack of effective financial support systems (Ibid).

In addition to the fore-going, the SMEs in Nigeria was also handicapped by their peculiar internal characteristics, which manifest in the following forms of state-owned enterprises was very poor. The enterprises became a major drain on  government  revenues.  With  this  background  and  the  adoption  of  the structural Adjustment programme in 1986, government decided to privatize or commercialize many of its business ventures.

1.2      STATEMENT OF THE PROBLEM

In recent years, development economists and policy makers have become increasingly troubled by two problems found commonly in the less developed countries (LDCs). These are slow growth in industrial development and a lag in rural development. It is often suggested that small-scale enterprises would help promote rural development empowerment. It is however, remarkable to note that inspite of this high hope little success has been achieved in Nigeria. The Indian,  Japanese,  South  Korean,  Brazil,  and  the  Mexican  nations  present veritable examples where marginal successes in socio-economic development have been achieved utilizing the small-scale industrial activities. Not much can be said about the Nigerian economy and small-scale industrial activities.

The  challenges  that  face  governments  in  developing  countries  (including Nigeria) are those of improving countries (including Nigeria) are those of improving standards of living, combating poverty and increasing adoption of rapid expanding labour forces. In recognition of the capability of small-scale industrial activities, the Nigerian government in formulating economic development strategies, recognizes that particular attention must be given to furthering small-scale industrial activities as cornerstone for long term-socio economic development and sustenance. Their flexibility dynamic adaptation to changing market conditions, ability adaptation to changing market conditions, ability to respond to technological innovations and their contributions to employment and decentralization policies make them significant engines for economic growth.

In Nigeria, the focus on the development of small-scale industrial sub-sector dates back to the second  National Development plan (1970 – 1975) during which the small-scale industries (SSI’s) credit scheme was initiated. This was as a result of the recognition of government support for the sector in terms of funding.

This credit scheme was initiated in the then 12 states of the federation with initial input from the Federal Ministry of Industry matched with a grant from the state governments in their annual budgetary provisions.

In order to sustain the growth and survival of the SSs, government though it necessary to establish  institutions  that would provide the back-up  extension services,  the  establishment  of industrial  Development  centre  (IDCs).  These were established to give direct grass-root support services including counseling on project.

The hope of finding an alternative route to the source of supply of goods to the trans-Saharan trade led the Portuguese, among other reasons, to embark on the exploration of the West African Coast. By the middle of the 15th  century, they had established trade links with the people of West Africa. The presence of the Portuguese from 1472, led by prince Henry the naugator and one Joe Alfonso trade, which unfortunately, was mainly in claves.

In the pre-colonial era, the method of exchange had developed beyond the level of barter. Different  currencies  in different places.  Subsequently,  these were replaced by cowries, which were more acceptable and more convenient to use.

For almost three centuries after Europeans, first set foot in West Africa, their interest   set  foot   in  West  Africa,   their   interest   was  mainly  commerce. Colonization  of  West  Africa  was  gradual.  As  the  industrial  revolution  in Europe got under way, the demand for primary products such as palm oil, palm kernel and groundnut increased. Europe also needed new markets for the output

of their factories. For sometimes, local merchants built up their business along the coastal areas where they exchanged goods with Europeans.

Following the reports of explorers of the commercial opportunities in the Hinterland,  and  to gain  control of the trade, European  enterprises began to expand their operations beyond the coast. They formed enterprises such as the African Inland Commercial Company with the aim of penetrating the interior and establishing depots. Where they could not achieve their aim peacefully, they  imposed   colonial   administration   whose   sole  aim   was   to   enhance commerce.

In Nigeria, the Royal Niger Company (Known as the UAC today) was at the Forefront of establishing  trading posts and wining territories for their home government.  Towards  administration  had  taken  over most of Nigeria  either peacefully through  treaties or by war. But once colonial administration  had been established, it provided protection for British companies and embarked upon building the basic infrastructure needed  to support the promotion  and expansion of private enterprise in the colonies.

The expansion of the operations of Britain, and some cases, French enterprises of Nigeria had both positive and negative impact on indigenous enterprises. On the  positive  side,  it  created  several  opportunities  for  local  businessmen  to become agents, produce buyers and distributors of a variety of goods. Even though many Africans had engaged in substantial business before colonial rule, the  expansion   of  foreign   business   enterprises   in   Nigeria   enhanced   the acquisition of modern business skills among Nigerians.

On the negative side, the foreign trading companies preferred to pass some of the retail and distributive trade to Lebanese rather than Africans. This price, along  with  discriminatory  laws  designed  to  protect  British  Commercial interests, limited the ability of Africans to expand their business operations. The  marginalization  of  the  African  businessman  was  re-enforced  by  the

discriminatory lending practices of commercial banks which were themselves foreign-owned.  Thus, before the Second  World  War and immediately after, most significant trading activities in Nigeria were firmly in the hands of British and Lebanese business enterprises.

As the agitation for political independence gained ground in the fifties, concern was also expressed about the economic domination of the economy by expatriates.  The Nigerian political class was however not keen on a radical change. Industrial policy was directed at attracting foreign investment but at the sometime, measures were taken to loosen foreign grip of the distributive trade as well as promote the policy of Nigerianization.  The colonial policy of a free enterprise economy was generally accepted and indigenous private enterprise was expected to respond to various incentives like their foreign counterpart.

After independence in 1960, and especially after the military coup of 1966, more  radical  economic  policies  were  adopted.  One  of  the  objectives  & of economic policy was to develop an egalitarian society in which Nigerians were to control the commanding heights of the economy. The concept of a mixed economy gained prominence and with the deluge of revenues from oil a host of public enterprises  in diverse sectors were established.  The role of the state shifted from providing infrastructure and supporting facilities for investors to playing a leading role in establishing and running business enterprises.

Government also adopted the indigenization policy by which foreign investors were excluded for certain business activities and their participation in others were limited. The purpose of this policy was to increase the business opportunities availed to Nigerians and to reduce foreign entrepreneurs to more into  business  activities  that  required  higher  level  of technological sophistication.

While government participation in business was designed to redress the foreign domination  of  the  economy,  it  soon  became  clear  that  state  investment  in business enterprises was not the answer. For various reasons, the performance

i.       Lack  of  equipment,  which  is  mostly  imported  at  great  cost  with attendant risks of late or uncertain arrival, and

ii.     Non-availability of spare parts;

iii.     Maintenance personnel

iv.     These  imported  equipments  are  not  easily  adaptable  to  traditional process of technologies designs, patents;

v.     Low levels of technical skills in the forms of technological, managerial, entrepreneurial, and strategic compatibilities;

vi.     Inability to compete  effectively in domestic and export markets with dumped goods and cheap imports;

vii.     Poor  quality  of  their  products  or  unfamiliarity  with  export  market strategies and networks;

viii.     Inability to meet stringent quality requirements set by some developed countries and

ix.     Lack of productive resources, especially finance.

The greatest bane of the scale industrial sub-sector  is financing.  The initial capital used in establishing most of the industries is the personal saving of the entrepreneur. In most cases, this capital is not sufficient for any meaningful technologically based enterprise. It handicaps the recruitment of professionals, and slow down the rate of expansion. Even in the case where expansion is envisaged and accepted, the fear of losing their investment by going public to source for needed funds is another problem often encountered by the small- scale  industrialists.  This  fear  is  equally  exhibited  in  the  composition  and structure of management of these ventures.

It is in the light of the above mentioned problems of small-scale industries that we examine the impact of government regulations in the growth of small-scale industries in the country.

1.3      OBJECTIVES OF THE RESEARCH

The goals of this study are:

i.       To identify the government regulations that help in the growth of small- scale industries in Nigeria.

ii.     To examine the impact of government regulation in the growth of small-

scale industries in the country.

iii.       To fill a research gap on the merits and lapses of government regulations in the growth of small-scale industries in Nigeria.

1.4      RESEARCH HYPOTHESIS

We proffer the following tentative statements on the thesis:

(i)      The greater number of small-scale industries in Nigeria, the greater their role in rural development in Nigeria.

(ii)    The   positive   impact   of   government   regulations   on   small-scale industries will be possible when they have access to loanable funds for expansions.

(iii)  The greater the incidence of bureaucratic corruption,  the higher the failure of the small-scale industries’ access to loanable funds for development.

1.5      SIGNIFICANCE OF THE STUDY

This research is significant in two important ways:

i.       Theoretical Significance: The research helps to increase the body of literature  on  the  role  and  constraints  of small-scale  industries  in  the economic development of the third world states.

ii.       Theoretical Significance: The research helps to increase the body of literature  on  the  role  and  constraints  of small-scale  industries  in  the economic development of the world states.

iii.       Practical Significance: The research is aimed at helping the Nigerian government find ways of utilizing the small-scale enterprises for rural and urban development of the country. It is our fear that if economic growth does not accelerate further; through the effective participation of small-scale industries, no visible positive impact on the living standards of a large majority of Nigerians can be expected for some time in the

21st century A.D.

1.6      LIMITATION OF THE STUDY

The generalizability of the findings of this research is limited by the following factors:

i.       The time available for the completion of the project is short. For this reason, it is not possible to research out to more respondents nation- wide.

ii.       Also, funding of the research by self cannot go far in enhancing the information   that  is  expected  from  this  research.  So,  there  is  no sponsorship from government agencies or any private endowment.

iii.       Finally, the title of the research warrants that a sample of respondents is used. As a result, there is geographic bias-the utilization of respondents in Jos, Abuja and Lafia.

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