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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 7 NO 1, JUNE, 2009

AN ASSESSMENT OF THE CONTRIBUTION OF SMALL BUSINESS FIRMS TO THE DEVELOPMENT OF BENUE STATE

 

Adoyi Peter Onu

Intercontinental Bank Plc, High Level, Makurdi

and

Agbo J. C. Onu

Department of Business Administration, Ahmadu Bello University, Zaria

 

 

Abstract

This paper has as its main objective the assessment of the contribution of small business firms to the development of Benue State. The paper adopts the descriptive research method and employs both primary and secondary data to determine the extent to which small business firms have developed the State. The study found that 86.3% of the small business firms pay their taxes regularly. These taxes increase the revenue base of the State which is used for development purposes. The paper concludes that given the catalytic role of this sector in employment generation, even development, mitigation of rural-urban population movements and diffusion of indigenous technology, a conducive environment for their operations should be provided by the State. The paper recommends, among others, the establishment of a Small Business Management Assistance Agency to help in handling the problems of low managerial and technical skills of entrepreneurs.

Keywords: Contribution; small; firms; development.

 


Introduction

Small business firms (SBFs) form the bedrock of the economic growth in every nation. No country achieves a viable economic growth and development without the establishment of small scale business firms.  They have always been in the forefront of development strategies. Nigeria’s quest for development must be hinged on industrialization.  This is because of the great role industries play in terms of production activities, employment generation and the overall improvement in the quality of life. 

 

Small business firms are seen as veritable instruments for the industrial development of a nation. Industrial development involves the development of a technical arrangement that moves an economy from traditional method of production to a more complex system of mass manufacture of a variety of goods and services involving technology and management techniques (Kasimu, 1998).  Industrialization propels growth and quickens the achievement of structural transformation and diversification of economies.  It enables a country to utilize fully its factor endowments and depend less on the external sector for its growth and sustenance.

 

Mohammed (1990), avers that SBFs have been important economic catalysts in the industrialized countries. The industry provides employment and earning opportunities, which contribute to economic growth and increase in the standard of living of the populace. Orgi (1988) views small business firms as the engine of development strategies in the promotion of economic growth and development. The Nigerian Industrial Promotion Council, NIPC, (2000:34) confirms this by stating that “the advent of Small and Medium Scale Enterprises in Nigeria was necessitated by the need to stimulate the establishment and growth of industries in order to launch the country’s industrial development.”

 

Small business firms perform vital roles in the economic development of any nation. They are the bedrock upon which industrial development could be achieved.  This is because SBFs promote stable industrial base and ensure a balanced distribution of industrial development of any nation.  Anyanwu (1996) sees the failure of past industrial policies, which were anchored on the establishment of large firms, the flexibility, adaptability and regenerative tendencies of SBFs to propel economic development and the fact that growing and dynamic small businesses elsewhere have grown into large ones and have contributed substantially to national development objectives as the reasons for adopting small business firms as a strategy for industrial development. Great Britain and Japan, for instance, owe their early industrial and economic expansion to their broad based small business establishments (Olla, 1989).

 

The establishment of large firms involves heavy outlay and is essentially capital intensive, which does very little in solving unemployment problems.  It also requires that manufacturing industries be designed and set up by foreign producers who also supply most of the raw materials and machinery spare parts needed for an uninterrupted production of industrial output.  Consequently, foreign exchange requirements by local producers become critical and the inability to procure such foreign exchange can lead to severe disruption in the production activities.

 

Thus, it behoves developing countries to devote vigorous energy to the development of local manufacturing industries.  To obtain economic self reliance and sufficiency, Nigeria needs to pursue small business firms as a strategy for growth and development. Given the paramount role of SBFs to the growth and development of the economy, it becomes imperative to assess their contribution to the development of Benue State, the “Food Basket of the Nation”.

 

Statement of the Problem

The Small Business Firms’ sector is characterized by low productivity and high rate of business failure. The sector bears most of the brunt of the existing gap in the Nigerian Management System.  Despite the vital role small business firms play in economic development, their impact is not adequately assessed.  An adequate assessment of their contribution to the economy would be a yardstick to ease their procurement of finance. 

 

This paper seeks to determine the contribution of SBFs to employment creation in Benue State specifically and, by extension, to Nigeria. It also determines how small business firms have enhanced the revenue base of the state through the income generated from taxes paid by them and assesses the extent to which SBFs have contributed to the development of the state.

 

Objectives of the Study

  The main objective of this study is to assess the contribution of small scale business firms to the development of Benue State. Within this framework, the study seeks specifically to determine the extent to which SBFs have evenly developed the state, to identify the various ways small business firms generated income to the state and to uncover the fundamental problems that confront SBFs in their effort to develop the state.

 

Methodology

The research is descriptive in nature and employs the survey method in assessing the contribution of SBFs to the economic growth of Benue State. The study utilizes both primary and secondary data. It relied on questionnaire, interview and observation as instruments for primary data collection. The secondary data sources included publications of the Central Bank of Nigeria (CBN), Small and Medium Scale Industry Scheme, Ministry of Commerce and Industry, Makurdi, the Library, Journals, the Internet and other publications relevant to the study. The data obtained were analyzed through descriptive statistics.

 

Literature Review

The 1980s taught mankind great lessons in political economy on a grand scale.  The outcome of the economic lessons of the 1980s for Africa is not just the ubiquitous Structural Adjustment Programme with privatization of state enterprises as a basic feature, but also the change of focus from large scale enterprises to small scale private enterprises. The economic growth and prosperity of Nigeria lies in the dynamism and growth of small to medium and large scale enterprises. 

   

The small business industry requires a deep reflection and repositioning in order to confront the challenges facing the Nigerian economy both internally and externally. Internally, the continued instability in the value of the Naira, the high level of inflation, the liquidity squeeze, the high interest rates, the high level of unemployment, the falling standard of living and the general state of economic depreciation are a source of concern.  These challenges in the domestic economy relate to the requirements of survival, particularly in the short-term, which could only be met mainly through the instrumentality of small and medium scale enterprises, given their generally acknowledged low capital and labor ratios and greater susceptibility to indigenous technology.  Externally, the momentous and fundamental economic and political changes in the international environment call for a drastic action in gingering the export potentials of the Nigerian economy.  Since the international economy is no longer divided along ideological lines, but between the rich and poor countries, between the technologically backward and the advanced, between countries of the North and those of the South, it is only pertinent for developing countries like Nigeria and a state like Benue to brace up to the challenge of matching the massive flow of trade from Eastern Europe with the restructuring of their economies.  Thus, Nigeria must be ready to increase her exports of manufactured goods to the Europe and the North. This should reflect intensive use of locally available businesses.  This is where Small Business Firms become particularly relevant and critical.

 

The advent of SBFs in Nigeria was necessitated by the need to stimulate the establishment and growth of industries, in order to launch the country’s industrial development.  SBFs play critical roles as the main engine of growth and a major factor in promoting private sector development and partnership.  SBFs are indeed the bases that provide the necessary impetus for the transformation of most industrialized economies.  Hence, the rapid growth of SBFs is of crucial importance.

 

The Small Scale Industry is a relative heterogeneous concept.  What is small in an industrial country like the United States may not be considered small in an African country like Burkina Faso.  What is small in the manufacturing sector may not be small in the retail trade sector.  SBFs have been defined differently from one country to another based on differences in the levels of economic development.  Okonkwo (1996) posits that it is possible to define SBFs using many different indicators and parameters.  Haveman (1976) said that financiers might be inclined to use the value of fixed assets or turnover as parameters when defining SBFs.  On the other hand, labor officers are more likely to take into consideration the level of employment that would be recorded through the operation of SBFs, while traders and salesmen are virtually concerned with the sales volume, profit margin etc.  This, in essence, shows that no common yardstick is internationally accepted for measuring the size of enterprises.  There is no globally accepted definition of SBF since each country tends to give its own meaning in accordance with the prevailing economic conditions in the country.

 

The National Council of Industries defined Small Scale Industry as an industry with total capital employed (total investment) of more than N1,500,000 including working capital but excluding cost of land, but not more than N50,000,000 and a labor size of not more than 100 workers. This definition is reflected in the classification of industrial businesses in Nigeria shown in Table 1 below:


 

Table 1:  Classification of Industrial Businesses in Nigeria

 

Category

Total Capital Employed Plus Working Capital Less Cost of Land

Labor Force

Cottage

Not more than N1,500,000

1-10 workers

Small

Above N1,500,000 but not more than N50,000,000

11-100 workers

Medium

Above N50,000,000 but not more than N200,000,000

101-300 workers

Large

Over N200,000,000

Over 300 workers

 

Small business firms have contributed immensely and in diverse ways to the growth of the nation’s economy. The contribution, as Rosemary and Joe (1975), Tate et al (1975), Olokoyo (2000) and Nnanna (2003) observe, include Innovation and Flexibility, Employment Creation, Promotion of Even Development and Reduction of Income Disparities, Output Expansion, Production of Intermediate Goods, Increase in Revenue Base of Government, Transformation of Indigenous Technology, Utilization of Local Resources, Contribution to Consumer Interest, Keeping Larger Firms Competitive, Maintaining Close Relationship with Customers and Community, Providing a Comprehensive Learning Experience, Developing Risk Takers and Contributing to the Balance of Payment.

 

These contributions to economic growth of the nation notwithstanding, SBFs have common problems in all countries and perhaps the most basic problem is the lack of adequate capital and credit facilities for sustaining their growth and development.  Credit, no doubt, is a critical input for industries in general but more so, in the case of SBFs, which have a weak capital base.  Other difficulties SBFs encounter as noted by Uye (1985), Osaze (1991) and Obitayo (2001) are Lack of Institutional Credit, Poor Management, High Rate of Business Failure, Low Productivity, Structural Problem, Poor Accounting Standard, Shortage of Skilled Labor, Indiscipline, Aversion to Disclosure of Information, Restricted Access to Institutional Credit, Illiteracy, Excessive Overhead and Operating Costs, Non-Conducive Regulatory and Operational Environment, Inadequate Fiscal Incentive Framework, Difficulties in Disposing Off SBFs’ Finished Goods, Inadequate Access to New Equipment and Production Technology and Deteriorating Macroeconomic Environment.

 

10

The relevance of small business firms to the economic growth of Nigeria calls for a determination of deliberate strategies for their survival and success. Their survival and success depend upon superior use of business or marketing strategies.  The entrepreneur must acquire thorough understanding, skills and experience in the formulation and application of business strategies.

 

Small business firms can employ tactics such as concentration on a narrow product line, development of a highly specialized product or service, production to meet the demands of a minority group, and provision of a product service ‘package’ containing an unusual amount of service.  This possibility of providing a different product or filling a specific niche deserves serious consideration in SBFs planning.  The small firm should look for and emphasize the special niche it wants to fill in the market.

 

A comprehensive strategy of a SBF should satisfy the questions of who, when, where, what, why, and how, if it is to be effectively implemented for the purpose of survival and success.  The entrepreneur may ask a number of fundamental questions about the firm and then thoughtfully produce answers to these questions in developing the strategy.  Strategic decisions should be reduced to writing to ensure completion of the strategy determination process and to provide a basis for subsequent planning.  The firm’s strategy should be incorporated into more specific plans of action.  In this way the small firm can devise a system that assures the implementation of strategic thinking.  Periodic review and evaluation sessions could be devoted to measurement of progress in following guidelines and dealing with problems that might emerge (Kotler, 2003).

 

A number of the strategies are available to the Small Business Firms to employ for their success and survival. These strategies, as Onu (1991) noted, are Financial Strategy which involves understanding how to acquire the required finance and managing the one available, Production and Engineering Strategies intended to secure the orderly and sequential flow of products through the plant at a rate commensurate with scheduled deliveries to customers, Personnel and Training Strategies which involves staffing and developing employees, Growth Strategy which aims at increasing the volume or expanding the scale of the business’ operations; Product Strategy which provides want satisfaction for the consumer and Marketing Strategy which is  a consistent, appropriate, and feasible sets of principles through which a particular company hopes to achieve its long-run customer and profit objectives in a particular competitive environment.

 

Marketing and product strategies are developed in response to consumer demand. The strategies include distribution, Promotion (advertising, personal selling, sales promotion and publicity), market research, market segmentation, pricing packaging, specialization, branding and tender loving care (TLC). Small business owners can develop these sets of principles – unique to their businesses – which can be employed over-time in achieving their customer and profit objectives.

 

The small business firm must constantly examine and re-examine its product line and marketing strategies. The sum total of all marketing activities is to increase sales and make profit.  The Marketing strategy should be based on corporate marketing objectives and should be implemented by a coordinated marketing action program.  The ideal marketing strategy would achieve what military strategists refer to as “a perfect economy of force.”  In economic terms, this would be the optimal strategy; that is, all resources of the firm, including personnel, would be utilized so that it would be impossible to improve the efficiency of one part of the operation without decreasing the effectiveness of others. 

 

Small Business firms have enough economic potential to enable Nigeria’s industrial sector meet the contemporary challenges of globalisation.  The enabling environment for the growth of SBFs such as macroeconomic stability, reduction in fiscal imbalances, stability in exchange rate, strengthening the basic infrastructure, need to promote linkages and inter-firms relationships through construction of industrial estates, capacity building through EDP, increasing SBFs access to credit facilities, and the need for reduction in tax rates should be created.  The Government and non-governmental organizations (NGOs) should partner together to ensure the growth and success of SBFs in Nigeria considering their catalytic role in economic growth and development.

 

Data Presentation and Analysis

Results were obtained from a total of 160 respondents comprising of 14 principal officers with the Ministry of Commerce and Industry, Makurdi and 146 registered small business firms in Benue State.

 


 

Table 2: Sources of Capital

 

Responses

Frequency

Percentage (%)

Benue State Government

Commercial Banks

Friends

Personal Savings

Relatives

30

20

40

10

60

18.8

12.5

25.0

6.2

37.5

Total

160

100

Source:  Field Survey 

 


Table 2 shows that the major sources of capital for SBFs in Benue State are relatives (37.5%) and friends (25%) which constitute 62.5%. the state government makes a paltry contribution of 18.8% to the establishment and development of SBFs in the state. The government has to intensify its effort by creating more credit and loan schemes for those willing to embark on such businesses. The commercial banks’ contribution is merely 12.5. This is due to the high interest rates charged by them and lack of collateral to secure loans by SBFs.

Table 3: Capital Structure

            Range

Frequency

Percentage (%)

N1.5 million- N10 million

N11 million - N20 million

N21 million - N30 million

N31 million - N40 million

N41 million - N50 million

N51 million and above

80

30

18

10

8

14

50.0

18.8

11.2

6.2

5.0

8.8

Total

160

100

Source:  Field Survey

 


Table 3 reveals the networth of SBFs in the state. This is the owners’ investment plus loans which is made up of fixed assets, working capital and loans excluding the cost of land. The table shows that the networth of majority of the SBFs falls within a capital range of N1.5 million – N10 million. Only 8.8% of the SBFs operating in Benue State have a capital base of a minimum of N51 million. Generally, most SBFs operating in the state have low capital base. This financial constraint affects their operations.


 

Table 4: Employment Generation

Number of Employees

Frequency

Percentage (%)

11 – 20

21 – 40

41 – 60

61 – 80

81 – 100

101 and Above

110

20

7

5

4

14

68.8

12.5

4.3

3.1

2.5

8.8

Total

160

100

Source:  Field Survey

 


The table indicates that most of the SBFs have employees ranging from 11 – 20. This implies that 110 SBFs employing, on the average, 20 personnels can create employment for 2,200 persons in the State. Thus, increase in the number of SBFs in Benue State would translate into increased employment for the unemployed youths in the State. This will greatly reduce social and other problems in the state.


 

Table 5: Payment of Taxes by SSB Owners

 

Responses

Frequency

Percentage (%)

Yes

No

138

22

86.3

13.7

Total

160

100

Source:  Field Survey

 


86.3% of the SBFs in the State pay their taxes regularly. The beneficiaries of the credit/loan scheme under the Ministry of Commerce and Industry in the State also pay a monthly or yearly interest. These taxes increase the revenue base of the State which is used for development purposes. 13.7% of the SBFs which just started operation are exempted from taxes or any form of returns for a period of three years.

Table 6: Even Contribution of SSBs to Development in terms of the Number that had metamorphosed into Medium and Large Scales

 

S/N

Name

Location

Year of Incorporation

Capital Based

Production Capacity/Employees

Required Working Capital

Problems

1.

Agro millers Ltd

Makurdi

July, 1987

N12 million

Authorized share capital

30,000 metric tons of paddy rice per year and 113 employees

N68,194,000 based on 50% capacity

Ø Finance

Ø Management

2.

Benue Burnt Bricks Ltd

Otukpo

-

N200 million

3 million bricks but indebted to a sum of N13.20 million as at  Dec. 1996.

It has over 100 employees.

N30.0 million

Ø  Lack of working capital

Ø  Absence of management

Ø  Debt

Ø  Lack of infrastructural facilities

3.

Taraku Mills Ltd

Taraku

1986

Shareholding of the coy

 

 

N56 M

120,000 tons of maize and 72,000 tons of Soya beans per annum at N50,000 an d N30,000 per ton respectively at full capacity.   Has 387 employees.

Minimum of N500 million for 3 months

Ø Finance

Ø Management

Ø Facilities

4.

Benco Roof Tiles Ltd

Abinsi

1994

Shareholding

 

 

 

 

 

N14 M

Has over 39 employees

-

Stiff competition

5.

Benro Packing Coy Ltd

Gboko

1978

 

 

 

 

Over

N16 M

60,000,00 bags per annum.

Has over 138 employees.

As at 2001, it has short term loan of over N45.9 million

Ø Lack of working capital

Ø Stiff competition

6.

International Hotel

Makurdi

1982

N600.0 million

The project was abandoned because it requires huge capital to be completed.  Its viability will also need to be reconfirmed before completion.

-

Finance

7.

Fruitcon Nigeria Ltd

Katsina Ala

1996

Initial project cost was put at N77 million.  Currently, the sum of N350 million is required to complete the project

-

-

Finance

8.

Benue Printing and Publishing Co. Ltd

Makurdi

-

-

-

-

Ø Lack of working capital

Ø Broker down machinery

9.

Benue Cattle Ranch

Ikyogen

-

BNSG 50%

Cavey exports USA 20%

Kwande Local Government 10%

Private Investors 20%

The technical partners withdrew from the project.  However, the project is being reappraised.

-

Problem of adaptability by the cattles.

10.

Yuteco Foods Nig Ltd

Km.3 Yandev Gboko Road Gboko

1989

Over N10 million

Deals with Agro Allied products.  Has over 140 employees.

-

-

11.

Benue Cement Plc

Tse Kucha

1980

14

Over N80 million

Deal with cement.  Has over 1000 employees.

-

-

12.

Agbo Foundation Nig Ltd

Along Enugu Road Ogbadibo LGA

1994

Over N14 million

Soap manufacturing

-

-

13.

Benue Bottling Coy Ltd

Km. 5 Gboko Road Makurdi

1980

Over N10 million

Soft drinks (Mineral water).  Has over 113 employees.

-

-

14.

Benue Brewery Ltd

Makurdi

1977

Over N12 million

More Beer Production.  It has over 113 employees

-

Finance

 

Source:  The Ministry of Commerce and Industry, 2003, Makurdi

Table 6 shows that a minimum of fourteen (14) SBFs, which started on small scale basis, had metamorphosed into medium and large scale businesses situated at different local government areas of the state thereby enhancing even development of the state.  More SSBs should be encouraged and empowered to metamorphose into large scales and multinational organizations.  This is the only way employment can be created for the yearning unemployed youths and for economic emancipation of the state.

Table 7: Problems of Small Business Firms


 

Problem Areas

Frequency

Percentage (%)

Finance

Management

Competition

Infrastructure

Lack of raw materials

Inadequate information

Government policy

79

22

16

8

10

5

20

49.4

13.8

10.0

5.0

6.2

3.1

12.5

Total

160

100

Source:  Field Survey

 


Table 7 reveals that the major problems militating against the operations of SBFs in Benue State are finance (49.4%), management (13.8%), government policy (12.5%) and unhealthy competition (10%). The most critical of these and other problems, however, is finance. Finance is one of the most important assets required in business operations. Small business firms in Benue State find it difficult to raise funds for business operations. Where funds are acquired, they are confronted with the problem of managing such funds prudently.

 

Conclusion

The small scale business industry is seen as the bedrock of industrialization based on its expected impact and potential contribution towards diversified production base. Their catalytic role in employment generation, even development, mitigation of rural-urban population movements and diffusion of indigenous technology or resources is not in doubt. They are particularly conducive for the creation of employment than the large scale enterprise.  Their operations are, however, inhibited by lack of capital, shortage of infrastructural facilities, ignorance of institutionalized incentives and inappropriate technologies for improved performance.

 

For small business firms in Benue State to contribute meaningfully to the development of the state, it is necessary to set up a Small Business Management Assistance Agency to assist in handling the problems of low management and technical skills. It is necessary to encourage the formation of trade associations at the local government levels which can serve as links between the government, other institutions and small entrepreneurs in the state.  To discover and exploit opportunities, it is important to establish research units to collate relevant data which will help small business owners in the state. The government and non-governmental organizations can also assist small business owners in the state with the preparation of feasibility reports at minimum costs as well as project implementation. This will greatly enhance their managerial ability which will culminate in improved performance which will lead to immense contribution to the development of Benue State.

 


 

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