THE EFFECT OF FINANCE, INFRASTRUCTURE AND TRAINING ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES (A CASE STUDY OF AKWA IBOM STATE)

CHAPTER ONE

INTRODUCTION

1. 1. BACKGROUND OF THE STUDY

In Africa, the SMEs sector accounts for almost ninety percent of all the enterprises or firms, located in both the rural and urban areas, whereby there provide more equitable distributions of income in all spheres of the countries. Nigeria, been the focus continent of discussion, SMEs account for about 70% of industrial employment (Adebusuyi, 2011). Odeyemi (2010) describes Nigeria SMEs as a very heterogeneous group of businesses that operate in different sectors of the economy. This means that the SMEs are the major source of providing job opportunities to the people, and also stimulate the development of the countries by promoting business skills and entrepreneurship amongst communities and strengthening the local or domestic production sector as well as the industrial base. Therefore, SMEs in Africa have been recognized to be an essential engine for obtaining national development goals, which include economic growth and poverty alleviation (Mokaddem, 2006). Despite such, SMEs in Nigeria have not been performing creditably well and hence have not played or shows the expected role in the economic growth and development of the nation. The issue has been of high concern to the government, citizenry, practitioners, operators, and the organized private sector groups. Governments at Federal, State and even local levels through budgetary allocations, pronouncements and policies have signified interest and acknowledgement of the important roles of the SMEs sector of the economy and hence made policies for energizing the sector. There have also been supports and aids from fiscal incentives, grants, bilateral and multilateral agencies as well as specialized institutions, which are all geared towards making the SMEs sector vibrant, and also it is a great concern to all, and sundry to promote development and performance of SMEs. With this, it has been a great concern for all the fact that the vital sector has fall shorts of expectations. The situation is more worrying and disturbing when compared with what other developed and developing countries have been able to achieve with their SMEs sectors, and it has been shown that there are high correlation and relationship between the degree of poverty, hunger, unemployment, economic well-being of the citizens of the countries and the degree of vibrancy of the respective SMEs (Onugu, 2012). Onugu (2012) posits that if Nigeria was to achieve an appreciable success towards the attaining the Millennium Development Goals (MDGs) for 20:2020, one of the possible ways is to pursue the growth and development of its SMEs performance vigorously. Some of the key MDGs, like reducing child mortality, reducing extreme hunger and poverty, improving maternal health and the rest, may indeed be a mirage unless there is a turnaround of the SMEs fortunes sooner than later in order to achieve efficient result. It is now time to do something surgical to the situation of the SMEs in order to achieve performance, given the aggravating level of poverty in Nigeria and the need to meet up with the MDGs. One of the major drawbacks in Nigeria’s quest for industrial growth and development over the past years has been the absence of a vibrant, strong and performing SMEs sector. Given a population of well over one hundred and twenty million people, rich variety of mineral deposits, vast productive and arable land, and also enormous human and other natural resources, Nigeria should have been a haven for SMEs with maximum returns, as it also has the location advantage as a marketing hub for the West and even East African Countries (Onugu, 2012). A number of facts have been adduced as to why the expectations of SMEs have not been achieved. This clearly shows that the performance of SMEs in Nigeria has not been favourable over the years now. First and foremost, the little progress that was made by the entrepreneurial efforts of the first generation of indigenous industrialists were almost wiped out by the massive traumatic devaluation, dislocation and indeed devastation, that develop as a result of the Structural Adjustment Programme (SAP) (Onugu, 2012). Onugu (2012) stressed that the policies and good intentions of SAP were based on the neo-classical theory of efficiency, perfect and competitive markets whose assumptions were unfortunately not harmonized with the prevailing constraints, circumstances and operating environment of SMEs in a developing economy like that of Nigeria. The SAP era represents the anti-climax of flourishing, and thriving period for SMEs in Nigeria over the past decade and the economy of the country has been declining with no appreciable real growth. People gradually moved out of the farms into urban areas due to lack of agricultural incentives, and also even in the towns and cities, infrastructure continued to deteriorate, the roads were in bad conditions, water supply was irregular, power outage was a regular phenomenon or issue, and even for people who could afford to make use of electricity-generating sets, petroleum products to power them might not be available as needed. Political instability negatively affected the performance of primary institutions responsible for policy enunciation, monitoring and implementation that result in distortions in the macroeconomic structure and its attendant of low productivity. These and other problems constitute drawbacks to the performance of SMEs, which to all intents and purposes provide the critical building blocks for sustainable industrialization and economic growth.

1.2 STATEMENT OF PROBLEM

SMEs are very dynamic and acknowledged as factory of production, for economic growth, development and poverty alleviation in both developed and developing countries. This universal recognition of SMEs is justified by its potentials in the areas of job creation, ability to mobilize domestic savings for investment, introduction of business methods, capacity to reduce inequalities, products and services that help to restructure the weak agricultural sector or other uncompetitive transition economies, stability of economic balance through industrial dispersal, promotion or provision of efficient resource utilization, linking participants in supply chain among others (Ojo, 2006; Ogujiuba, Ohuche & Adenuga, 2013; SEAF, 2013). Despite the significance of SMEs contribution to economic growth, government institutions and policies aimed at supporting and enhancing the capacity of SMEs in Nigeria still yet SMEs fall short of expectations. Onugu (2012) posits that the performance of SMEs in Nigeria has been slow and in some cases even collapsed due to a number of challenges confronting this important sub-sector of the Nigerian economy. Some of the obstacles highlighted in the body of literature as being responsible for the problems include: deplorable infrastructural facilities; inadequate managerial and entrepreneurial skills; financing challenges; limited demand for their products and services; limited capacity for research and development as well as innovation; insufficient technology system; burden of multiple taxes charge; lack of business plan or good business plan; recruitment of incompetent employees; absence of motivation to staff; choosing of wrong business location; lack of transparency arising from government regulations and regulatory bodies; as well as lack of interest and focus on the side of government in addressing the specific factors responsible for the abysmal performance of the sub-sector. On the other hand, Oluboba (2011) argue that the issues faced by SMEs can never be overemphasized and it is as a result of poor access to funds, management practices, low equity participation from stakeholders, inadequate infrastructural facilities, societal and attitudinal problems, shortage of skilled manpower, multiplicity of regulating agencies, little access to markets and lack of access to information. As a result of this it clearly shows a gap, which have been identified as the major problems that still affect the sector that are known as finance, infrastructure and training which adequate attention will be given and they are the vacuum area to be filled up in order to add value to knowledge in this study. The reason or the yardstick while the variables under study was used in this study despite it has been used by previous studies is that in Nigeria same variables solution to its challenges have not been meant with that it hinders the performance of SMEs. The uniqueness of the study variables is that they serves as the flourish engine for SMEs to achieve its aims in the Nigeria context, and at the same time the variables of such nature have not been used in same study in Nigeria, this shows that using same variables in same study is very effective and efficient because with that it will easily capture or to know the performance of SMEs if the variables under study are all in place in Nigeria.

1. 1. AIMS OF THE STUDY

The major purpose of this study is to examine the effect of finance, infrastructure and training on the performance of small and medium enterprises in Akwa Ibom. Other general objectives of the study are:

1. To examine the economic role of Small and medium enterprises.

2. To examine the performance of Small and medium enterprises’ in Akwa Ibom State.

3. To examine the effect of finance, infrastructure and training on the performance of small and medium enterprises.

4. To examine the challenges affecting the performance of small and medium enterprises in Nigeria.

5. To examine the relationship between finance, infrastructure, trainingand performance of Small and medium enterprises.

6. To proffer solutions on how small and medium enterprises will have a better performance.

1.4 RESEARCH QUESTIONS

1. What are the economic roles of Small and medium enterprises in Akwa Ibom state?

2. How is the performance of Small and medium enterprises’ in Akwa Ibom State?

3. What are the effects of finance, infrastructure and training on the performance of small and medium enterprises?

4. What are the challenges affecting the performance of small and medium enterprises in Nigeria?

5. What is the relationship between finance, infrastructure, training and performance of Small and medium enterprises?

6. What are the possible solutions on how small and medium enterprises can have a better performance?

1.5 RESEARCH HYPOTHESES

H01: Finance has no significant effect on the performance of Small and medium enterprises in Akwa Ibom.

H02: Infrastructure has no significant effect on the performance of Small and medium enterprises in Akwa Ibom.

H03: Training has no significant effect on the performance of Small and medium enterprises in Akwa Ibom

1.6 SIGNIFICANCE OF THE STUDY

This study has the following significance: Nevertheless, the research add to the existing literature and provide background information to research organizations and scholars who will need to carry out further study on SMEs performance as a key area of development. For instance, a research on SWOT analysis should be conducted on the SMEs finance situation in the country, using lenders (financial institutions) and borrowers (SMEs) to ascertain how financial literacy in the country is characterized by problems associated with risk, information, fund availability and government’s policies. Government should undertake policy development work aimed at making access to fund easier for SMEs with growth potential and reduce the interest rate. The existing infrastructural facilities such as road, electricity, water supply, and telecommunication should be improved to a high standard by the Government. Academics have been provided with a new, scientific and verifiable process of studying factors affecting SMEs performance in Nigeria.

1.7    SCOPE OF THE STUDY 

The study is based on the study of the effect of finance, infrastructure and training on the performance of small and medium enterprises in Akwa Ibom.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Small and Medium Enterprises: Public service is a term used to cover all the organizations, institutions or bodies owned by the government. It also includes all the employees of government that work to execute its policies.

Finance:Finance is a field that is concerned with the allocation (investment) of assets and liabilities over space and time, often under conditions of risk or uncertainty. Finance can also be defined as the science of money management.

Infrastructure:The basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise.

Training:Organized activity aimed at imparting information and/or instructions to improve the recipient's performance or to help him or her attain a required level of knowledge or skill.

Performance:The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed. In a contract, performance is deemed to be the fulfilment of an obligation, in a manner that releases the performer from all liabilities under the contract.