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This work titled “small and medium scale enterprises and economic development in Ebonyi state: A study of Abakaliki Rice Mill” was aimed at examining the role played by the government towards the promotion of small and medium scale enterprises (SMEs) in Nigeria and Ebonyi State in particular, ascertaining the extent to which the financial system of government has contributed to the growth and development of small and medium scale enterprises (SMEs) in Nigeria particularly in Ebonyi State among others. This research was motivated by the poor small and medium scale enterprises financing in Nigeria and Ebonyi State in particular despite their enormous contributions. Systems theory propounded by David Easton in 1965 was adopted to guide the study. A descriptive survey design was adopted to study a population of 1,940 which was reduced to a sample size of 332 using the Taro Yamane formula, and simple random sampling technique was used. Data were collected from primary and secondary sources, structured questionnaire instrument was used for data collection and simple percentage method, and frequency distribution tables were used to analyze the data gotten from the questionnaire instrument whereas chi-square (X2) was applied in empirical testing of the hypotheses that guided the study. This study revealed that government has not played significant role in the promotion of small and medium scale enterprises in Nigeria and Ebonyi State in particular, the financial system of government has not significantly contributed to small and medium scale enterprises promotion, small and medium scale enterprises have immensely contributed to economic development in Ebonyi State and Nigeria in general, among others. Consequently, if government and the financial system continue to be inactive in promoting SMEs especially in the area of adequate financing, the nation’s economy will continue to be stagnant or dwindling but when they are promoted, the economy will experience a significant boom especially in the light of the current economic crisis in the nation. Hence, it was recommended that government should make adequate efforts to promote the growth and development of SMEs by putting adequate policy measures in place, the financial system of government should intensity efforts to make financial services available to SMEs especially by going into project financing for SMEs, Small and Medium Scale Enterprises operators should intensity efforts to ensure that the current devaluation of Nigeria’s currency and the fall in oil prices culminating to the current economic crisis do not reduce their contributions, among others.
1.1 Background of the Study
Over the years, Nigeria’s economy has been dominated by Small and Medium Scale Enterprises (SMEs) such as in agriculture, manufacturing, commerce and industry, services among others. Small and Medium Scale Enterprises (SMEs) has been defined by Imeokparia and Ediagbonya (2014) as any manufacturing, processing or servicing industry which is owned and managed by one or few persons with direct owner(s)’ influence in decision making, and having relatively low capital requirements, asset base and employee strength. In the words of Nwankwo, Ewuim and Asoya (2012:141), “the historical background of small and medium scale enterprises in Nigeria can be traced back to 1946 when the essential paper No. 24 of 1945 on ‘A Ten Year Plan of Development and Welfare of Nigeria’ was presented”. However, Aremu and Adeyemi (2010:5) had earlier argued that, “ever since 1946, SMEs have gained prominence and mentioned as seed bed of innovations, inventions and employment generation or creation in Nigeria”.
In the same vein, Ayozie, Oboreh and Umukoro (2013:2) contended that, “prior to Nigerian independence in 1960, the business climate was almost totally dominated by the colonial and other European multinational companies like United African Company (UAC), GB Olivant, Lever Brothers Company, Petterson Zechonics, Leventis and many others”. These companies primarily engaged in bringing into Nigeria, finished goods from their parent companies from over seas. These companies, Ayozie et al (2013:2) further argued “had vast business experience and strong capital base, and dominated the Nigerian economy”. The government of those days encouraged them to become stronger by giving incentives such as favourable tariffs and tax concessions. In 1962, the Nigerian Industrial Development Bank (NIDB) was established to assist potential entrepreneurs to get involved in agriculture, exploration of natural resources, commerce and industrial production among others (Aremo, 2013). Furthermore, “that period and the early 1960s saw the massive increase in import into Nigerian market, while the Nigerian economy became largely dominated by very few large foreign firms” (Adamu, 2015:20).
During the post independence Nigeria, between 1965 to 1976, a major remarkable breakthrough in small and medium scale enterprises came about through Indigenization Decree of 1972 and later in the Nigerian Enterprises Promotion Act of 1977 (Ayozie et al, 2013). Arguing further, they opined that “those were the genuine attempts by the federal government to make sure that Nigerians played an active and worthwhile role in the development of the economy”. In its 1970-1974 National Development Plan, the Federal Government gave special attention to the development of small and medium scale enterprises, particularly in the rural areas. This was in recognition of the roles of small and medium scale enterprises as the seed beds and training grounds for entrepreneurship (Adamu, 2015). Some of the cardinal points of the 1970-1974 Development Plan included: accelerating the pace of industrialization and dispersal of industries; generating employment opportunities; promoting individual incentives and entrepreneurship among the populace; assisting in the establishment of small and medium scale industries among others.
Within the period of 1977-1998, the government policy measures placed emphasis on the technological aspects of industrial development of small and medium scale industries in Nigeria (Ayozie et al, 2013). This entails that various tiers of government within this decade embarked on corrective measures to divert efforts towards the maximum exploitation of natural resources, and tried to discourage capital intensive mode of production in the light of the abundant resources available. In this regards, the industrial policy tried to focus its attention mainly on local resource utilization through varieties of incentives worked out by governments. Some of such basic policy strategies aimed at revitalizing the industrial sector included the following; encouragement in the use of more local materials in the industrial development activities and encouragement of greater capital utilization in Nigerian small and medium scale industries.
From 1999 to date, the federal government and state governments have both contributed to the growth of small and medium scale enterprises in Nigeria especially in the rural areas. In recent times, various fiscal and non fiscal incentives have been established for investors and entrepreneurs in the small and medium scale enterprises sub-sector of the economy; of special mentioning was the strategy adopted by federal government towards the training and motivation of unemployed graduates to be gainfully employed after graduation, referred to as Entrepreneurship Development Programme (Aremo, 2013).
Furthermore, small and medium scale enterprises in Nigeria have been the backbone of Nigeria’s economy and are key sources of economic growth, economic development, dynamism and flexibility. SMEs constitute a greater percentage of all registered companies in Nigeria and they have been in existence for a quite long time (Ayozie et al, 2013). The small and medium scale enterprises as argued by Ogboru (2014:12) as a sub sector “provides on average, 50% of Nigeria’s employment and 50% of its industrial output”. Arguing in support, Anochie and Ude (2015:11) submitted that, “small and medium scale enterprises are the backbone of virtually all economies of the world because of their role in employment creation and provision of personalized services; having strong influence on the sustainable development process to less developed as well as developed countries because they foster economic growth and alleviate poverty at low investment costs, development of entrepreneurial capabilities including indigenous technological developments, utilization of local resources, increased government revenue through taxation among others”.
Also, small and medium scale enterprises as recognized have over the years, been the engine for powering economic development in Nigeria. In terms of employment generation in Nigeria, SMEs accounted for the major source of employment to the over teeming unemployed population. For instance, Igwe (2011:43) stated that, “in 1970, of the estimated wage employment of 1.38 million, 622,000 persons (forty-five percent) were employed in small non-agricultural enterprises”. In this current dispensation where unemployment is alarming in Nigeria, the SMEs have become the bedrock by employing over 50%, both skilled, semi skilled and unskilled labour force. SMEs produce new goods and services which are supplied to satisfy the need of larger firms, and the consumption of the entire nation. In corroborating this view, Anochie and Ude (2015:17) opined that “SMEs bring about new goods and services and supply the needs of larger enterprises, which have to depend on small and medium scale enterprises for their own success”. In Nigeria, the contributions made by SMEs in the area of increased revenue for the government through the payment of income tax, value added tax (VAT) and other miscellaneous fees cannot be overlooked. Moreso, the Gross Domestic product and Gross National Product which are the values of the total goods and services produced in a country within a year have always received tremendous contributions of SMEs output. All those point out to the fact that SMEs have gone a long way in developing Nigerian economy from long history past.
However, interest in the development of small and medium scale enterprises and their contributions to economic growth and development in Nigeria has over the years accounted for the various policies, programmes and financial incentives by the various levels of government in promoting the small and medium scale enterprises sub-sector. In his own view, Ogundipe (2015:5) opinion that:
“Governments at various levels (local, state and federal levels) have in one way or the other, focused on the small and medium scale 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”.
In view of the above, Nigerian government had devised policies and incentives for the development of small and medium scale enterprises. Such efforts according to Adebusuyi (1997) cited in Eze and Okpala (2015), could be classified broadly into fiscal and export incentives, tax regimes, financial supports and technical assistance programmes. Additionally, infrastructural incentive is part of government’s efforts over the years. In their words, Eze and Okpala (2015: 27) opined that:
“The fiscal incentives include tax relief for small enterprises during their first six years of operation, granting of pioneer status for a period of five years with a possible extension of two years for enterprises located in economically disadvantaged areas and provision of relief for investment in infrastructure, capital allowances and minimal local materials utilization… Export incentives include the introduction of import duty draw back, export credit and insurance schemes etc”.
To protect SMEs from dumping, the government adopted the use of high tariff rates to discourage importation of some of the industrial goods that could be produces domestically, and discouraged the importation of some of the industrial and agricultural products. Also, to provide funds to small and medium scale enterprises by way of commercial loans, government established the Bank of Industries (BOI), the Nigerian Agricultural Co-operative and Rural Development Bank (NACRAB), Small and Medium Scale Enterprises Equity Investment Scheme (SMEEIS), Micro Finance Institutions (MFIs) inter alia, all aimed at promoting SMEs for economic development. “In Nigeria, the respective government policies accorded and gave priority to the countries’ small and medium scale enterprises, this has been in recognition that they constitute the fountain head of vitality for the national economy…” (Ayozie et al, 2013:30).
Notwithstanding, in Nigeria in general and Ebonyi state in particular, the small and medium scale enterprises sub sector has been faced with a number of constraints with inadequate financial facilities as the principal constraint (Oduyoye et al, 2013). Finance has been viewed as a critical element for the development of small and medium scale enterprises (SMEs). “Small and medium scale enterprises face higher transaction costs than larger enterprises in obtaining credit” (Lee, 2004:2). Moreso, “information asymmetries associated with lending to small scale borrowers have restricted the flow of finance to SMEs” (Berger and Udell, 2004:4). Also, “bank credits play a crucial role in providing external financing to small and medium scale enterprises, but in Nigeria, this crucial source of finance for small and medium scale enterprises is apparently non functional” (Kadiru, 2012:5). Berger and Udell (2004:9) attributed this trend to “the high interest rates on government securities which serve as anti- incentives to intensify lending to small and medium scale enterprises”. In the case of the Development Finance Institutions (DFIs), the cumbersome procedure and stringent requirements for obtaining loans often deter small owners from approaching them for financial assistance. These point out that the financial system has not been active in playing their role effectively and efficiently in promoting SMEs for faster economic development of Nigeria.
Moreso, SMEs in Nigeria have been challenged by other factors like the multiplicity of government policies and regulatory measures and the high rate of insecurity in the country, especially in the north eastern part which have crippled many SMEs in Nigeria.
The Abakaliki Rice Mill in Ebonyi State has over the years, been crucial in the economic development of Nigeria in general and Ebonyi State in particular. It was established in 1964 though rice production in the city dates back to the pre-colonial era (Igwe, 2011). It is a hundred percent (100%) private sector driven enterprise and does not serve just Abakaliki and its environs but the length and breathe of Nigeria. It is a small and medium scale enterprise that is concerned with rice milling, destonning, blowing, and polishing among others. Its product is rice which makes it a rice processing enterprise. Since the inception of its activities and operations, the Abakaliki Rice Mill has effectively employed thousands of people hence reducing the unemployment rate of the state in particular and the nation in general. The consumption of the famous “Abakaliki Rice” cuts across the nooks and crannies of the country. From long distance past, the role of the Rice Mill over the years in ensuring adequate food production in reducing the rate of hunger and an effective substitute for rice products from other states of the federation and foreign rice products cannot be overemphasized.
The Rice Mill company of Nigeria Limited, Abakaliki, Ebonyi State (Abakaliki Rice Mill) according to Orient Daily Newspaper (2012:10) “is always a beehive of activities, the mill boasts of over 5,000 workers, 2,500 rice milling machines, and a production capacity of more than 11,000 metric tones per month”. Abakaliki is known for agriculture, especially rice production which dates to years before the 1960s. Many people from hinterland from within and outside Ebonyi State take their parboiled (unprocessed) rice to the mill for milling, destonning, bagging and other services (that is, processing). People travel from all the nooks and crannies of the country to purchase rice from the mill.
Moreso, it is interesting to note that over 50% of the mill is owned and managed by non-indigenes of Ebonyi State, many of whom have been active stakeholders in the rice mill for decades. There is a thriving market within the rice mill run by several petty traders of food stuffs, articles, restaurants, ware house and a petrol station called Rice Mill Oil which is run by the Rice Mill Owners Association. The Rice Mill Owner’s Association is an umbrella of several small groups which all peacefully co-exist together. These groups meet from time to time and they have their various leaders. The groups include; the Rice Blowers, the Rice Millers, the Rice Blenders, the Rice Destonners, the Rice Dusk/Husk Carriers, the Bag Stitching workers, the Barrow pushers amongst others.
In terms of the role of the Abakaliki Rice Mill in the economic development of Ebonyi State in particular and the nation in general, the Rice Mill over the years have contributed to the economy of the state through payment of their income taxes to the government, thereby enriching the internally generated revenue of the state. The Rice Mill also pays for other fees like business permit, premises and license fees among others. Abakaliki Rice Mill over the years has been in the forefront of sufficient food (rice) production in the state thereby, alleviating hunger and poverty in the state and beyond. The income of the individuals and the rice mill owner’s is still a worthy contribution to mention. Farmers whose main occupation is rice farming mill and sell their rice in the rice mill and as such, earn a lot of income which most of them have used to train their children in various tertiary institutions within and outside the state. In the area of employment, the Abakaliki Rice Mill has employed over two thousand (2000) employees including the rice mill owners. This has gone a long way in reducing the rate of unemployment in the state. Interestingly, the Rice Mill contributes in no small measure to the Gross Domestic Product (GDP) of the nation’s economy. The technological development of the state has been boosted by the Rice Mill. Ebonyi State being a non-industrial state can mainly boast of Abakaliki Rice Mill in terms of technology and industry and utilization of local materials etc.
Despite all these, the industry is faced with numerous challenges including; poor financing, the issue of relocation by the state government, importation of foreign rice among others.
In recognition of the role of Abakaliki Rice Mill in the economic development of the state, the effort of the Ebonyi State government towards improving the operations of the Abakaliki Rice Mill was witnessed in 2012 when the State Government under the administration of Martin Elechi constructed three ultra-modern Rice Mill industrial clusters in the three senatorial zones of Ebonyi State and decided to relocate the Abakaliki Rice Mill to the three newly constructed rice mill clusters at Iboko in Izzi Local Government Area, Onuigboji in Ikwo Local Government Area and Osso-Edda in Afikpo South Local Government Area. Though this move to relocate the Rice Millers has been frictional and proved abortive as the Rice Millers refused to hearken to the voice and directives of the state government but rather dragged the state government to court. Since then, the case is still pending in the court up till today.
1.2 Statement of the Problem
Small and medium scale enterprises (SMEs) as noted earlier occupy a place of pride virtually in every country’s or state’s economy. “Because of the significant role of small and medium scale enterprises 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” (Ebube and Ezeigwe, 2014: 21). SMEs represent a veritable vehicle for the achievement of national economic objectives of employment generation and poverty reduction at low industrial cost as well as development of entrepreneurial capabilities including indigenous technology. Other vital 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 supplies of various items and distributive trades for items produced and/or needed by SMEs, stemming from rural urban migration and enhancement of standard of living of the employees of the SMEs.
Despite the above contributions, small and medium scale enterprises in Nigeria and Ebonyi State in particular have not performed creditably well and hence have not played the expected vital and vibrant role in economic growth and development of Nigeria. Thus, according to Osuji (2015:11), “virtually 95% of small and medium scale enterprises in Nigeria die after their first four to five years of establishment”. Furthermore, he opined that “this situation has been
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