The role of small scale industries in an economy cannot be over-emphasised. Small scale industries whether in developed or developing economies play a vital role in the economic development of any country. Big as the America economy is, small economy is, small scale industries play a leading role.
Here in Nigeria, this sector seem to be badly neglected and underfunded. This is not all, policies designed since independence seem to have stiffed this sector. In all government appears not to have made up its mind on what to do with this sector.
Equally, the small scale industrialists themselves seem not to have been helping themselves or the sector. The various financial institutions in the country have in the past tended to be too hard and rigid on lending terms to this sector.
With the hard economic times with us governments of the federation seem to have suddenly realise the importance and role of the small scale industrialist.
The government is now poised to help the absence of policy articulation in this sector.
Up to this point there appears to be varied opinions in government and the various financial institutions in the country on the appropriate definition of small scale industries.
For instance, the federal ministry of industries defined small scale industries (SSI) in 1979 as enterprises having investment capital (land, building, machinery, equipment and working capital) up to N60,000 and employing not more than 50 persons. This was later revised to include any manufacturing, service or processing industry with investment not exceeding N150,000.
In the same token, the Nigerian Bank for Commerce and Industry adopted a definition for the period of 1985-1990 which regards small-scale industries as those with capital cost not exceeding N750,000 including working capital but excluding cost of land.
The Central Bank on its part defines small-scale businesses as industries whose annual turnover does not exceed N500,000. The Centre for Industrial Research and Development of Obafemi Awolowo University defined small scale industries as those whose totals assets in plant, equipment and working capital do not exceed N250,000 and with no more than 50 employees.
From the foregoing, it shows that there has not been consensus as to what constitutes small scale industries.
Thee are many activities that the current definition dos not take care of. Activities such as shoe making and mending, local weaving, suya making, bronze casting that are carried out by a large proportion of the Nigerian labour force are not reflected in these definitions.
In the Nigerian economy today, the basic problem is the lack of intermediate technology to tap the nation‚Äôs indigenous technology and provide local material sourcing.
What policy objective should concern itself with in the Nigerian case of small-scale industries is how best to develop the local techniques as to provide the much needed intermediate technology to feed the large scale concerns.
The present industrial policies which artificially encourage the substitution of capital, the scarce and therefore relatively expensive factor of production for labour, have not worked the magic of industrialising the country.
More importantly, the present emphasis on industries that use advanced technologies do not make products that help satisfy the basic needs of the poor majority of Nigerians.
Products which do help satisfy these needs suited to the use of small scale industries.
These include building materials, clothing, good agriculture implements and processed foods as suya, meat preparation etc.
It was in recognition of the role of small-scale industries that the second, third and fourth national development plans expressed the hope that the small and medium industries would generate substantial employment opportunities for the unemployment youth, mobilise available but hitherto untapped local resources of raw materials and skills, stimulate the growth of indigenous entrepreneurship, encourage industrial dispersal to rural areas thereby helping to reduce the incidence of rural-urban migration.
Provide effective avenue for import substitution thereby saving the much needed foreign exchange and also lead to dispersal of uncomplicated technology.
From the foregoing it is deductible that the central theme is that the industrial take-off of any country most especially the developing economies of the less developed countries, LDC, depends on the success of small/medium scale industries.
This sector is vital to the economy for six basic reasons. Firstly, they are more labour intensive and therefore can create more jobs, they provide a good training ground for entrepreneurs, they are much likely to utlise to local raw materials; they are likely to provide linkages between the larger enterprises and local producers of basic raw materials through the production of semi-finished raw materials and lastly they are within the entrepreneurs as the demand of the sponsors for the contribution of equity is less taxing.
As vital as this subsector is to the over all industrial development of Nigeria, it is the less catered for both in terms of financing and policy benefit.
The sub-sector has been bedeviled by an avalanche of problems the most important of which are the inadequacy of quantitative date for decision-making and strategic planning, difficulty in recruiting higher level technical manpower, highly restrictive access to the capital and money markets.
Other problems facing small-scale industries are vulnerability to economic down-turn and recessions: inability to cope with the demands of opportunities arising from rapid economic and potential charges and most importantly lack of managerial capability to cope with the demands of modern day business, hence the failure and in some cases, outright collapse of many small and medium sale industries.
The small scale industries in Nigeria have had the face serious financial problems over these years. In most cases the SSI in Nigeria is always under-capitalised due to the fact that the manager/proprietor short-or-long-term capital needs of business from the organised financial market.
This sector relies heavily on personal savings or loans from friends, relations or money lenders and so has limited scope of finance. This sector does not operate in the organised financial market on account of the biases the sector feels are directed against it.
Beside they have to satisfy the bank‚Äôs requirements on collateral security, submission of feasibility studies and past business records. Also the sector finds the conditions to be fulfilled before raising long-term capital in stock exchange as too expensive.
Nigerian banks are not enthusiastic in extending loans to small scale proprietors. They regard the risk associated with this category of borrowers to be too high. The risk emanate from many factors. The manager of this firm single-handedly supervises the financing, production, marketing and personnel of his enterprise which may be poorly equipped.
The rate of business mortality is high, loans when granted to them are sometimes diverted from the purpose for which they were written.
In order to promote small-scale industries financing, the Central Bank for purpose of clarify defined SSI s those with annual turnover not exceeding N500,000. Consequently, the apex bank directed that credit to indigenous borrowers be increased to 70, 80 and 90 per cent in 1979, 1980 and 1982 respectively and that 10% of the loans, later raised to 16% in small-scale borrowers.
CBN demanded strict compliance with this directive by requiring commercial and merchant banks to submit returns on their loans to SSIs. It is worthy to note that these efforts of the Central Bank in promoting the financing of SSIs have not met with substantial success.
This is because some banks still prefer to pay penalties, to actually lending to SSIs.
They think that hardly does the small scale industries present lending-worthy projects and lastly most banks regard loans to SSIs as risky business because of the high incidence of loan repayment defaults
In the period of 1981-1986, the proportion of total bank credit to SSI ranged from N113.4 or 1% in 1980 to N1.5 billion or 9.3% in 1986.
In order to reduce the incidence of non-compliance and to raise the level of aggregate bank credit to the target group of borrowers, the Central Bank credit policy guidelines for fiscal year 1987 stipulated that any bank whose loans and advance fell short of the stipulated minimum target shall be requested to deposit the short fall with the CBN which in turn will make such funds available to the Nigerian Bank for Commerce and Industries for on lending to small scale business.
Apart from the CBN‚Äôs effort the federal government contracted a $4.0 million World Bank loan for supporting the development of small-scale and medium enterprises.