ABSTRACT
This study reviews the impact of trade liberalization on the
growth of Nigerian small and medium enterprises. The aim of the liberalized
trade policy was to encourage competition and improve efficiency in the use of
local resources; yet most Nigerian SMEs still find it difficult to compete and
merely struggle to survive the liberalized economic environment in Nigeria.The
objective of this study was to discuss whether trade liberalization has any
impact on the growth of small and medium enterprises in Nigeria and to assess
the significance of the impact of trade on the growth of SMEs in Nigeria.The
study consists of various small and medium enterprises in Nigeria which were
selected from the city of Abuja, covering different
forms of business such as; Sole Proprietorship, Partnership, Private and Public
Limited Companies and various kinds of businesses which include; Services,
Manufacturing, Processing, etc.Some of the findings of this research are that;
SMEs have played and continue to play significant roles in the growth,
development and industrialization of many economies the world over, although in
the case of Nigeria, SMEs have performed below expectation due to a combination
of problems which ranges from attitude and habits of SMEs themselves through
environmental related factors, instability of governments and frequent
government policy changes.Based on these finding, the study recommends that all
trade liberalization policies should be properly scrutinized to ensure that
they favor the Nigerian SMEs and also the rules and control policies should be
properly implemented to ensure checks and balances in Nigeria.
Table of Contents
Title Pagei
Certificationii
Declarationiii
Dedicationiv
Acknowledgementv
Abstractvi
Table of Contentsvii
CHAPTER ONE :
1.1 Background of the study1
1.2 Statement of the problem8
1.3 Aims and Objectives of the study19
1.4 Statement of hypothesis20
1.5 significance of the study20
1.6 Scope of the study21
1.7 limitation of the study21
1.8 Definition of terms22
CHAPTER TWO : LITERATURE REVIEW24
2.1 The Role of SME sub sector in the Economy24
2.2 The problem of small and medium enterprises in
the Nigerian economy28
2.3 The concept of Trade liberalization32
2.4 The Nigerian economy and Trade liberalization34
2.5 Advantages of Trade liberalization policy36
2.6 Recent experiences of the small and medium
enterprises in Nigeria37
2.7 Prospects
of SMEs39
CHAPTER THREE : RESEARCH METHODOLOGY41
3.1 Introduction41
3.2 Research Methodology42
3.3 Sources of data43
3.3.1 The Primary Source43
3.4 Population of Study44
3.5 Method of data collection
…………………………………………………..44
3.5.1 Statistical
Tools
3.5.2
Chi-Square(x2)………………………………………………………………46
3.6 Method of Data
Collection…………………………………………….46
3.6.1
Questionnaires……………………………………………………………47
3.6.2
Personal Interview…………………………………………………47
3.6.3 The
use of Documents and Records……………………......47
CHAPTER FOUR49
4.0 Data Analysis and Interpretation49
4.1 Introduction49
4.2 Analysis of questionnaire49
4.3 Test of hypothesis55
4.4 Findings/interpretations58
CHAPTER FIVE: SUMMARY, CONCLUSION, AND
RECOMMENDATIONS59
5.1 Summary of findings59
5.2 Conclusion59
5.3 Recommendation(s)60
Bibliography…………………………………………………………………………….63
Questionnaire ……………………………………………………………………..66
Appendix ……………………………………………………………………………..51
CHAPTER
ONE
1.1
BACKGROUND OF THE STUDY
Micro, small and medium enterprises
(MSME) have witnessed a dramatic expansion in recent years in almost all parts
of the world. It isn’t only in developing countries that have experienced such
phenomenon but a similar experience has also been gathered by a large number of
industrially developed countries like Japan, United Kingdom, Germany, United
States of America, Switzerland, etc. (Boiton committee,1971).
Micro, small and medium enterprises are
ancient practices in Nigeria and hawking is the most popular means of
retailing, where products are carried from one place to another either by head
or by cart. History has shown that Japan for instance, has achieved rapid
industrialization through the small scale sector in the latter half of the 19th
century. The small and medium scale sector in this country plays a catalytic
and predominant role in the accelerated growth of the economy. Even in
developed countries such of Western Europe, there is recognition that small and
medium industries play a significant role in complimenting the large industry
and in providing creative energies of the skilled people. The watch industry in
Switzerland- the largest in the world- is based on the work of a multitude of
small, almost medium industries. Small firms are considered that a report
(Boiton committee, 1971) parodied the famous saying of Voltaire that “if small
business does not exist, it would be necessary to invent it.”
The advantages of micro, small and
medium enterprises to any economy provides immediate large employment and have
a comparatively higher labor ratio; they need a shorter gestation period and
relatively smaller markets to be economic. The micro, small and medium
industrial units create immediate and permanent employment at a relatively
small capital cost. They can be based on processing of locally produced raw
materials. It offers a method of ensuring more equitable distribution of
national income which is socially desirable. Small scale units can be taken up
in a short period and hence can increase production in a short run. Micro and
small scale units can save and earn foreign exchange by producing and exporting
goods from local resources. It creates jobs in the rural areas of the
developing countries where unemployment and under employment are high. These
industries are usually labor intensive and do not require a large amount of
capital. Majority of small scale units do not require a high level of
technology. These units facilitate mobilization of resources of capital and
skills which often would remain inadequately utilized. These industries help in
creating economic stability in the society.
The small and medium
enterprises in Nigeria is presently experiencing a lot of predicament, there
are numbers of cases such as under capitalization, difficulties in gaining
access to bank credits, corruption, lack of transparency and support for the
roles of small and medium enterprises. However, like many developing countries,
Nigeria is engaging in a structural adjustment programme (SAP): a set of
economic reform measures designed to achieve recovery and growth. Nigeria embarked on SAP in 1986, emphasizing
domestic production over expensive imports, and a lesser dependence on oil
revenues. Decades after implementing Structural Adjustment Programs (SAP)
advanced by the World Bank and the International Monetary Fund (IMF), Nigeria
have still not made measurable progress.
The objectives of a
Structural Adjustment Program are largely the same for most African nations,
because the world bodies presume that African economies are at the same level
of development and are experiencing similar problems.
The stated objectives
of the Nigerian SAP are to:
• restructure and
diversify the productive base of the economy
• achieve fiscal
stability and positive balance of payments ,
• set the basis for a
sustained non-inflationary or minimal inflationary growth,
• reduce the
dominance of unproductive investments in the public sector.
The corresponding
program instruments include the strengthening of demand management policies,
adoption of a realistic exchange rate policy through the establishment of
Foreign Exchange Markets (FEM), rationalization and privatization of public
sector enterprises, and the adoption of appropriate pricing policies for public
enterprises. Nigeria has implemented SAP for almost a decade now, but none of
the objectives has been achieved, and there is no indication that any of them
can be achieved using the chosen program instruments. Indeed, all that is still
conspicuously present in Nigeria is the foreign exchange market and the
ceremonies associated with it. Foreign exchange markets, as part of structural
adjustment programs, served to increase the cost of imports and hence reduce
import spending. The indirect impact of this instrument affects all sectors of
any economy in which it operates. The effect of mandatory foreign exchange
markets has been to erode the value of the local currency over time. Most
countries undergoing adjustment have seen their currency values plummet in
relation to international currencies.
Recent efforts by SAPs to increasing primary exports have only led to
reduced earnings from commodities. SAP by its nature is inflationary because it
increases the amount of the local currency used in buying a unit quantity of
local goods and imports. SAP is also inflationary because it is based on the
fallacy that capital is the primary basis of economic growth, which by
extension implies that the mere establishment of banks in an artisan economy
automatically transforms it into a monetized and advanced economy.
All the African
nations implementing SAP have seen a rapid increase in the number of new banks.
At the end of 1983, Nigeria had 32 approved commercial banks of which 25 were
functioning with a national network of 11,000 branches; there were 10 merchant
banks and 22 development banks, including savings banks.By 1992, about six
years after Nigeria has started implementing SAP, commercial and merchant banks
had increased to 120, there were 500 finance houses, over 200 stock-brokers and
brokerage houses, about 156 community banks, a people's bank with over 210
branches, and 85 savings banks. It comes
as no surprise that implementing SAP has brought about hyper-inflation, high
interest rates due to speculators' high demand for money, low productivity and
increasing general economic distress.
MSMEs in Nigeria and
elsewhere are recognized as one of the principal driving forces in sustainable
economic development because of their role in job creation, stimulation of
entrepreneurial skills and private ownership of businesses (Udechukwu, 2003,
Katwalo and Madichie, 2008). Due to their size and innovativeness MSMEs are
able to adapt to changes in market conditions besides helping to diversify the
economy through exports and international trade (UNECE, 2003). Udechukwu (2003)
also asserts that MSMEs development is an essential element in the growth
strategy of most economies and holds particular significance for developing
countries like Nigeria because they are flexible to market changes. It has been
suggested that the increasing prevalence of the flexibility and specialization
of MSMEs persuades many business analysts to believe in MSMEs` strategic role
in the industrial structure of developing nations (Berry, 2002). But due to
their small size and meager financial bases, they remain rather vulnerable to
external shocks often experienced in the global market as a result of trade
liberalization (Madichie, 2007; Vickery, 2008). Therefore, given favorable
policy environment there is reasonable assurance that MSMEs can compete
successfully both in the local and global market (Briggs, 2007). Base on this
premise, the Nigerian government embarked upon trade liberalization with the
aim of allowing MSMEs which are considered to be more efficient in adapting to
market/environmental changes than large firms to develop and grow in a
competitive business environment created by the liberalization policy (Dawson,
1994). Trade liberalization is the measure taken by the government to reduce
anti-export bias, import controls as well as non-tariff barriers and exchange
rate distortions (Santos-Paulino and Thirlwall, 2004, F51). The Nigerian
government implemented trade liberalization in order to create a competitive
business environment with the removal of restrictions on international trade,
capital flow and interest rates, deregulation of price control in the commodity
market and the privatization of all government parastatal. Since trade
liberalization is also accompanied by currency devaluation, the Nigerian
government also adopted the floating exchange rate in place of the
administratively managed (adjustable peg) exchange system (Odusola and Akinlo,
2001; Agbeyegbe, Stotsky and WoldeMariam, 2006).
1.2 STATEMENT
OF THE PROBLEM
Micro Small and Medium
Enterprises (MSMEs) in Nigeria have not performed creditably well and hence
have not played the expected vital and vibrant role in the economic growth and
development of Nigeria. Year in year out, the governments at federal, state and
even local levels through budgetary allocations, policies and pronouncements
have signified interest and acknowledgement of the crucial role of the SME
sub-sector of the economy and hence made policies. There have also been fiscal
incentives, grants, bilateral and multilateral agencies support and aids as
well as specialized institutions all geared towards making the SME sub sector
vibrant. Just as it has been a great concern to all and sundry to promote the
welfare of SMEs, it has also been a great cause of concern to all, the fact that
the vital sub-sector has fallen short of expectation. The situation is more
disturbing and worrying when compared with what other developing and developed
countries have been able to achieve with their SMEs. It has been shown that
there is a high correlation between the degree of poverty hunger, unemployment,
economic well being (standard of living) of the citizens of countries and the
degree of vibrancy of the respective country’s MSMEs. If Nigeria were to
achieve an appreciable success towards attaining the Millennium Declaration
Goals for 2015, one of the sure ways would be to vigorously pursue the
development of its MSMEs. Some of the key Millennium Declaration Goals like
halving the proportion of people living in extreme poverty, suffering from hunger,
without access to safe water, reducing maternal and infant mortality by
three-quarts and two thirds respectively and enrolment of all children in
primary school by 2015 may indeed be a mirage unless there is a turnaround of
our MSMEs’ fortunes sooner than later. The time is now to do something surgical
to the situation of our MSMEs given the aggravating level of poverty in Nigeria
and the need to meet up with the Millennium Declaration Goals. The decreasing
level of Nigeria’s per capita income, which declined from $870 in 1981 to $260
in 1998, and $205 in2004 as well as a low level of agricultural, industrial and
infrastructural development (irrigation, road and railway networks) all
represent disturbing indices, which also contribute to the dismal performance
and contribution of our MSMEs.
Dr. Ade Oyedijo, a
financial expert in a paper titled “Nigeria’s Economy and its Career Promise
for the Mature Employee” affirmed that the plights of MSMEs in Nigeria have to
do with key variables and challenges that characterize the nation’s economy.
These include but are not limited to a very high unemployment rate, which is
expected to increase as a result of the current ongoing public sector reforms,
high unemployment rate, high poverty level, disease, hunger, etc. Dr. Oyedijo
also mentioned a drastic shift from the production of non-oil traded goods
(mostly agricultural) to traded goods while about 95 million Nigerians are
reported to be living below the poverty line even as 19 of her citizens are
ranked among the 500 wealthiest men in modern capitalist economy as among the
characteristics of our nation’s economy which aggravate the problems of
Nigerian MSMEs. He also opined that since independence, the main thrust of
Nigeria’s development strategies and objectives have been the development of
industrialization, education and a self-reliant economy but regretted that the
human capital which is expected to support the industrialization process and
propel other sectors to maturity has not exhibited the right mix of knowledge,
attitude and skills required to achieve this purpose.
In a seminar titled “Career Crisis and
Financial Distress- the Way Out”, the General Manager of Enterprise and
Financial Support Company Limited, Mr. OluseyiOluboba, identified in his paper
the following as the main problems of MSMEs, which are however not
Insurmountable: low level of entrepreneurial skills, poor management practices,
constrained access to money and capital markets, low equity participation from
the promoters because of insufficient personal savings due to their level of
poverty and low return on investment, inadequate equity capital, poor
infrastructural facilities, high rate of enterprise mortality, shortages of
skilled manpower, multiplicity of regulatory agencies and overbearing operating
environment, societal and attitudinal problems, integrity and transparency
problems, restricted market access, lack of skills in international trade;
bureaucracy, lack of access to information given that it is costly, time
consuming and complicated at times.
The problems and
challenges that MSMEs contend with are enormous no doubt but it is curious to
know that some SMEs are able to overcome them. This gives hope and should
provide a basis for optimism that there is a way out. There must be some
survival strategies, which are not known to many MSME promoters. This research
is also intended to explore and unravel some of the key business survival
strategies, which have worked for a few thriving SMEs.
The benefits of this
could be tremendous in to other MSMEs facing threats of extermination as well
as new and proposed new ones could also borrow a leaf from them.
Many other countries have
been able to energize and transform their SME sub-sector to such a vibrant one
that they have been able to reduce to the barest minimum their unemployment and
poverty level because of the immense contribution of the sub-sector to their
economic growth and development. It is expected that the outcome of this
project will go a long way in ensuring a turnaround of Nigeria’s MSME
sub-sector. It is hoped that the fortunes of MSMEs in Nigeria would
dramatically improve.
From the above, the key
areas of shortcomings of the Nigerian SME subsector could be summarized as
follows:
i) Rate of survival: it
is said that less than 5% of MSMEs survive beyond their first year of
existence.
ii) Contribution to
Industrial employment: In developed economies of Germany, United States of
America and even South Korea, MSMEs account for as high as 64% of industrial
employment, a comparative figure in Nigeria is around 31%, less than half of
those in developed countries. It is expected that these developmental indices
will increase with improvement in Nigeria’s MSME sub-sector’s performance, as
has been the case with economies whose MSMEs have developed and grown steadily
over the years.
iii) Contribution to
Industrial Production in particular and GDP in general: in spite of the fact
that there is hardly any well-documented, reliable and current data, it is
rather obvious that the contributions of MSMEs to the Nigerian Industrial
output in particular and the Gross Domestic Product in general are less than
satisfactory. Evidence for this poor performance is buttressed by the fact that
most manufacturing enterprises in Nigeria had operated well below capacity in
the last two decades. At times the capacity utilization has been as low as
thirty percent (30%). Only the multinational businesses had thrived with many
SMEs folding up and thus aggravating the unemployment situation in the country
and its attendant high crime rate. The constraints to full industrial capacity
utilization have been enumerated to include limited access to financing, high
costs of funds and equipment, infrastructural inadequacies, unpredictable and
inconsistent government policies, low purchasing power of consumers, low
quality of manufactured goods, multiple taxes and levies on manufacturing
inputs and manufactured goods, inefficiencies of customs and ports
administration, dumping of cheap finished products on the Nigerian market,
inadequate legal framework and non patronage of locally produced goods by
government and its agencies.
The government in The
Nigerian Vision 2010 initiatives had envisioned a future for MSMEs as that of
“a strong and virile small and medium scale enterprise that enjoys strong
institutional support, contributing significantly to the Gross National Product
(GNP)”.
In his address to the
2004 Annual General Meeting of the Lagos Chamber of Commerce and Industry
(LCCI), the President, Chief OlusolaFaleye, lamented that the real sector of
the economy, comprising manufacturing, solid minerals and agriculture sectors,
where most MSMEs fall into, continued to experience difficult times during the
year. Continuing, he said that the situation arose from the persistent problems
of high energy cost, weak consumer demand, and policy inconsistency,
multiplicity of taxes and levies, institutional bottlenecks, high cost of funds
and poor state of infrastructure among others. He cautioned that if something
concrete is not done to address these constraints, the real sector of the
economy especially the small and medium segment, would continue to experience a
sluggish growth if not outright stagnation. The President also pointed out that
the various poverty alleviation measures such as the Poverty Alleviation
Programme (PAP), which later became Poverty Reduction Strategy Programme (PRSP)
and currently National Poverty Eradication Programme (NAPEP) put in place by
the Federal Government have yet to be felt by the masses. He stressed that
these programmes do not touch the root of poverty problems in Nigeria as recent
estimates put the percentage of Nigerians living in abject poverty at 70%. The
LCCI was visibly concerned about the situation because of its wider
implications for consumer purchasing power, the state of internal security,
crime rate and the social and political stability of the country.
The government, as is
evidenced by the following objectives and strategies many of which have been
ongoing for a while, has indeed appreciated the above problems. The objectives
hinge on creating a favorable and enabling environment for stimulating growth
in the real sector of Nigeria especially the MSMEs.
Federal Government Objectives:
The federal government
made several policies which were aimed at improving the SME sub sector. Key
among these includes:
-
Restructuring the
Nigerian economy to make it market-oriented and technology driven.
-
Reducing unemployment and
increasing productivity.
-
Maintaining price and
exchange stability and a healthy balance of payments.
-
Reducing lending rates
and improving savings.
-
Improving the performance
of major infrastructural facilities such as power supply, communications and
transportation.
-
Ensuring transparency and
accountability in governance.
-
Improving credit delivery
and extension services to small and medium scale enterprises
Key Strategies: Towards
realizing the above objectives, the Federal Government had adopted the
following key strategies:
-
Priority attention to
rural and urban water supply nationwide.
-
Appreciate investments in
power generation, implementation of an emergency power programme (EPP),
encouragement of establishment of commercial power plant and focusing on
transmission, distribution and rural electrification.
-
Establishment of
anti-corruption bodies such as Economic and Financial Crimes Commission (EFCC)
and Independent Corrupt Practices Commission (ICPC).
-
Roads construction and
rehabilitation, and the establishment of a road maintenance agency.
-
Implementation of the
Small and Medium Industries Equity Investments Scheme (SMIEIS), which requires
banks to set aside 10% of their profits before tax to improve availability of
funds to MSMEs.
-
Enactment of the Pension
Act, which could be an additional source of funding for MSMEs.
It is however important
to mention that in spite of the above efforts and programmes, not much benefits
have been substantially realized from them.
This means that a lot
more needs to be done including a shift in the focus and administration of
implementation of the policies and programmes.
1.3
AIMS AND OBJECTIVES OF THE STUDY
The aims and objectives
of this research are mainly to:
i)
Discuss the concept of
trade liberalization.
ii)
Explain importance of
small and medium enterprises in an economy.
iii)
Assess the impression and
importance of trade liberalization on the growth of small and medium
enterprises in Nigeria.
iv)
Observe and ascertain
whether or not trade liberalization has any impact on the growth of small and
medium enterprises in Nigeria.
v)
Identify all the
problems, challenges, and constraints militating against the success of MSMEs
and also make appropriate recommendations for readdressing and eliminating them
so that the MSMEs could occupy their pride of place in the Nigerian economy and
hence play the vital role they are expected to play in the economic growth and
development of Nigeria.
1.4 STATEMENT OF HYPOTHESES
Ho: The
implementation of trade liberalization does not have any impact on growth of
the small and medium enterprise in Nigeria.
H1:
The implementation of trade liberalization has an impact on the growth
of small and medium enterprises in Nigeria.
1.5
SIGNIFICANCE OF THE STUDY
This study is motivated by the fact that MSMEs
in Nigeria and all over the world are recognized as one of the principal
driving forces in sustainable economic development because of the roles it
plays. It’s an advantage to government, organizations, and trade unions, micro
small and medium enterprises for conducting this research work in terms of
trade policies. It will also reveal the effect of trade liberalization of the
country’s economy. It will ascertain whether trade policies adopted by the
government are in their favor or not.
1.6 SCOPE OF THE STUDY.
The length and time used for statistical
analysis will be from 1988 to 2003 because commercial banks loan to micro small
and medium enterprises that stand as our independent variable affecting our enterprises, started in the
year 1988, thereby restricting to 1988. The length of time is important to run
accurate results and flexibility in decision making.
1.7 LIMITATION OF THE
STUDY
In every research work, limitations are
inherent and this research work will not be an exception. These include:
i.
Unavailability of data:
One of the greatest challenges encountered in this study relates to access to
and collection of hard data due to extreme data gaps. This compelled the
researcher to limit the study to trade liberalization on the growth of Small
and Medium Enterprises thus excluding Cottage and Micro Enterprises whose
challenges though comparable, could be fundamentally different from those of
SMEs.
ii.
Time Required: the time
frame under which this work is required to be accomplished is within a specific
period of time. Therefore greater work cannot be covered within the time
required.
iii.
Resistance of Respondent:
The researcher was also limited by the reluctance of some respondents to
complete the questionnaires promptly, thus limited the number of respondents
involved in the study despite the researcher’s efforts.
1.8 DEFINITION OF TERMS
-
Trade liberalization: trade liberalization can
be defined as the process of removal of restrictions and trade barriers,
thereby encouraging free movement of goods from one country to another.
-
Micro Enterprises: also known as cottage
industry is one in which the total cost including working capital (excluding
cost of land) is less than one million naira and labor force up to a maximum of
ten persons.
-
Small Enterprises: can be defined as a
business organization established, owned, financed and controlled by one person
with the aim of making profit. it has the labor size between eleven to one
hundred workers with a total cost of not more than fifty million naira
excluding cost of land.
-
Medium Scale Enterprise: medium
enterprise may be defined as the relationships that exist when two or more
persons own or establish an organization. It’s an enterprise with labor size
between a hundred to three hundred workers or a total cost of over two hundred
million excluding cost of land.
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