CHAPTER ONE

INTRODUCTION

1.0  BACKGROUND OF THE STUDY

The growth of small and medium scale enterprises in any economy is usually regarded as a catalyst to the development of industrial sector in that country. Small and medium scale firms have a vital role to play in promoting the social and economic well-being of the nation.

This is because this sub-sector is a viable means of utilizing the locally available resources. It is also a sustainable means for food security, employment generation, improving the earning capacity of the populace and laying the foundation for a sustainable development programme.

According to Ojodu (2002), in “reinventing Nigeria economy”, the promotion of small scale business is a well recognized and much heralded strategy of industrial development in developed and developing countries and its ability to enhance entrepreneurial and managerial skills. In advanced economies of US, Japan, Germany, UK etc, small and medium scale businesses have been recognized as the appropriate production units for the transformation of locally produced, agricultural and other products which serve as in puts for large scale industries.

Development economists are of the opinion that labour intensive industries like the SMEs can enhance employment generation, advance development generation, advance development goals like improved income distribution, generation and diffusion of technology and industrial skills, increased utilization of local resources improved spatial distribution of industrial activities and reduction of rural-urban population drift. In a depressed economy like Nigeria, effective and efficient operation of small and medium scale enterprises as well as creation of conducive operating atmosphere is the only way for industrial development.

By definition in 1979, the Central Bank of Nigeria (CBN) in its credit guidelines to commercial banks stated that small scale enterprises were those with annual turnover not exceeding five hundred thousand naira (N500, 000).

In addition a small and medium industry is defined in CBN briefs (2002-2003) edition as any enterprises with a maximum asset base of two hundred million naira (N200m) excluding land and working capital, and with the number of staff employed by the enterprises not less than 10 and more than 300.

In view of the operational efficiency of Eddision Aluminum Company, aluminum and other related components producing enterprise, it becomes germane to undertake a study on the role of small and medium scale enterprises, (SMEs) in an economy. It is worthy mentioning that the Federal Government of Nigeria has made some initiative to promote indigenous entrepreneurship in small and medium scale enterprises.

PROBLEMS OF SMES

2.6STATEMENT OF THE PROBLEM

It has been established, that small and medium scale enterprises are the backbone of the industrial sector of any economy. However, despite the contributions made by this sector in Nigeria, SMEs still face some problem which have manifested in the operation of Eddision Aluminum Company, Apapa.

Oresptu (1985) contributing his opinion in a sub-heading titled “Limitations and short-comings of small scale businesses in Nigeria” identified the major problems of small-scale industries as; finance, organization and technology. The finance problem derives from the fact that it cannot raise capital from organization capital market like the stock exchange. Borrowing from the financial institutions like banks is very difficult. This is the critical predicament facing Eddison aluminum Company, Apapa. Just as Samuel Taylor Coleridge said in the rhyme of ancient marine “water, water everywhere, but not a drop to drink” that is the case of most small and medium scale enterprises in Nigeria today. Very many banks and finance houses everywhere in major cities and commercial centres of Nigeria today, but no fund for SMEs.

In addition, management problems constitute the most threatening problem for SMEs like edition Aluminum Company, Apapa. These problems manifest in poor record-keeping, poor credit management, poor inventory control poor working capital and raw material planning, poor marketing/scales management.

Mostly, partly due to financial constraints, a small industry cannot afford to recruit and/ or retain highly skilled personnel. This is partly responsible for the in efficient operations witnessed in the industry, which Eddision Aluminum Company is not an exemption. The above scenario presents a barrier to the wheel of progress of SMEs in Nigeria.

2.7PURPOSE OF THE STUDY

WHY STUDY THE ROLE OF SMES IN AN ECONOMY

Small and medium scale enterprises have been recognized as the foundation for the attainment of accelerated economy growth and development. In specific terms, the purpose of the study include the following:

Ø To evaluate the role of SMEs in Nigeria economy.

Ø To evaluate the impact of SMEs both positively and negatively on the economy.

Ø To examine the contribution made by Eddision Aluminum Company in manufacturing sector of Nigeria economy.

Ø To examine the problems and prospects of small and medium scale enterprises in Lagos.

Ø To evaluate government effort toward promoting SMEs.

Ø To offer suggestions on how to improve the fortunes of SMEs in Nigeria.

2.8STATEMENT OF RESEARCH QUESTIONS

·        What has been the role of SMEs in economic development in Nigeria?

·        What are the opportunities open for SMEs in Nigeria?

·        In what ways have the various levels of government country?

·        What are the problems facing small and medium scale enterprises in Nigeria?

·        What prospects do SMEs have in achieving their goal?

2.9STATEMENT OF RESEARCH HYPOTHESIS

Ho:   Small and medium scale enterprises do not play any significant role in the Nigeria economy.

H1:   The small and medium scale enterprises play a significant role in the Nigeria economy.

H0:   These is no prospect for survival of SMEs in Nigeria.

H1:   These is prospect for survival of SMEs in Nigeria.

1.6   SIGNIFICANCE OF THE STUDY

SMEs play a key role in generation of new idea jobs and the encouragement of entrepreneurial skills. The relevance of SMEs can never be over emphasized, especially in a developing country like Nigeria.

SMEs are primarily expected to serve as bedrock of supply of promising entrepreneurs who would be ready to take chance on the exploration of new ideas or favourable market development. SMEs create more jobs. In most developing economies, unemployment is the greatest threat to economy growth. Hence, the proliferation of SMEs and development could be an antidote to large scale unemployment in these economies.

Other areas in which SMEs and of significance are mobilization of local resources, mitigation of rural-urban migration distribution of industrial enterprises. Thus SMEs would not only encourage indigenous technology but also promote the establishment of import substitution industries. They are known to contribute to gross domestic product (GDP), and a source of sustenance of means of livelihood of many citizens.

Finally, they are expected to produce for exports thereby generating Edditional foreign exchange that would strengthen the Nigerian balance of payment position.

1.7   HISTORICAL BACKGROUND OF EDDISON

Aluminum Company, Apapa, Lagos.

Established in 1989 at No 3 Cardoso Street, Apapa, Lagos with an initial capital outlay of two hundred and fifty thousand Naira (N250,000), turning and sale of Aluminum profiles accessories and glasses. In the 1990s, Eddison, market on the production, marketing and scale of these products were booming. It had a significant marketing share in the construction and sales of aluminum doors and windows within the industry at Apapa and its environs. The company also had a large pool of skilled workforce including apprentice in the production dept, which had good motivational package. Today however, things have fallen apart with the organization. In the face of economic down turn in Nigeria especially with the devaluation of naira Eddison, Aluminum Company and not meet her factor demands for basic raw materials which are imported from abroad. This often led to her use of inferior basic raw materials which resulted to customer complaint and loss of low many customers to competitors.

Simultaneously, most of her skillful workers resigned because of cut or irregular payment of their salaries. Her inability to meet other short-term debts compounded the situation as her creditors who are private lenders always besiege the company’s premises asking for their repayment.

Owing to her incapability to borrow from the banks or other financial institutions because of lack of collateral security, but in view of the effort made by the Federal Government in 2001 in setting up small/medium industries equity investment schemes (SME’s) the plight of Eddison Aluminum company could be overcome.

1.8   SCOPE OF THE STUDY

The current study will cover Eddison Aluminum Company at Apapa, Lagos. It will embrace the operations of the company since its inception including the role the firm had played in the past eighteen (18) years of its existence.

1.9   METHOD OF DATA COLLECTION

The research study requires the collection of both primary and secondary sources of data.

Primary sources of data would come mostly from the questionnaires.

Also, oral interview within the company premises would constitute another source of primary data.

The secondary sources on the other hand, include journals, textbooks, case study and some documented records by the organization.

1.10 DEFINITION OF TERMS

(a)    A system: A system is simply a set of enteritis that interact, interdependent and function together for a purpose.

(b)    Capital market: this is the market when companies raise funds on long term basis by issuing the securities i.e share to the general public.

(c)    Devaluation: This means increasing the rate at which local currency exchanges for foreign currency. Olawale and Folorunsho (1984).

(d)    Effectiveness: This is the ability to choose appropriate objectives or means for achieving a given objective or as Peter Drucker put it “doing the right things”.

(e)    Efficiency: This is the ability to get things done correctly or according to Peter Drucker “doing things right”. It is the maximization of output to input ratio.

(f)     Financial Institution: This is any institution that deals in money or money instrument. It involves the creation protection, transfer, lending and borrowing of money.

(g)    Gross Domestic Product (GDP): This refers to the values of all the goods and services produced by people resident in a country- Essang and Olayide (1974).

(h)    Market Share: The portion of total market or scales which occurs or belongs to a particular organization.

(i)     Working Capital: money needed for carrying on a business-advance Learner dictionary.

REFERENCES

Books

Asika, Nnamdi (1991) Research Methodology in the behavioural Sciences.  Ikeja Longman Nigeria Plc.

Dixon. Ogbechi, B. N. (2002) Research Methodology and Elementary Statistics in Practice.  Shomolu Philglad Nigeria Limited.

Essang, S. M. & S.O. Olayide (1974) Intermediate Economics Analysis. Ibadan Aromolaran Publisher. Company Limited.

Ogundele, O. J.K. (2005) Management and Organization: Theory and Behaviour 18 Lewis Street, Lagos Molofin nominee.

Olawale, J. B. andd folorunsho (1984) Advance Level Economies Applied. Ilesha: Jola publishing Company.

Journals

Ø    Central Bank of Nigeria (CBN) Briefs (2002-2003) Edition.

Ø    Management Trend: Journal of School of Management and Business studies “reinvigorating Nigeria economy” without the international monetary Fund (IMF) Vol. 1. No2, May 2002.

Ø    NDIC quarterly- Small and medium scale enterprises as Foundation for Rapid Economic Development in Nigerian Vol. 10.  No. 4 Dec, 2000.

Ø    Ojodu Hammed O. (2002) “Small Scale Enterprises As a sustainable Development-strategy in Nigeria. Journal of school of Management and Business Studies Vol. 1 No 2.

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