STRATEGIES FOR OFFERING
SUPPORT SERVICES TO ENTREPRENEURS IN NIGERIA: A CASE STUDY OF FIIRO
O I Wale-Awe & S O Ajayi
olisawe@gmail.com
(Published
in the Nigerian Journal of Management Research Vol 1, Jan 2005 pp171-187)
Abstract
Entrepreneurship is an engine to industrial and
technological progress. To develop the entrepreneurial talents in countries
governments usually target small and medium scale enterprises. This is a proven
path, which Nigeria adopted even before independence. FIIRO is one of those
early efforts at jump-starting industrialisation in Nigeria. This research work
is embarked upon to assess its strategies for supporting entrepreneurship in
Nigeria. Data collected for a period of 16 years proved that the institute had
lived up to expectations.
INTRODUCTION
A viable means
of promoting self-reliance in economic development is through the deliberate
promotion of small enterprises and through an encouragement of the
entrepreneurial spirit and skill in business ventures amongst the people
(Fadahunsi, 1992). Small industries are nurseries for entrepreneurial talents
because they are capable of being used to nurture and develop entrepreneurship.
Assistance to small industry is an important component of development plans.
Small industries are recognised as a wealth creator, a job creator, a training
facility and a social stabilizing factor.
The significant
role that can be played by the promotion and development of small-scale
enterprises through support/assistance becomes clearly visible when looked at
from the perspective of socio-economic crises prevailing in the West-African
states, most especially in Nigeria. Enguobhare (1997) stated that such
situations are reflected in the form of declining GDP, rising levels of
un-employment, increasing external debt, perpetual external trade imbalances
vis-a-vis the industrialized trading partners and the substantial drop in the
standard of living. The establishment of industrial estates and the
promulgation of the Nigerian Enterprises Promotion Decree, 1972, (as amended in
1977) had increased the participation of Nigerians in the modern sector of the
economic life of the country, thereby initiating a new crop of Nigerian
entrepreneurs.
According to
Owualah (1987), the public debate on the contributions of Small and Medium Enterprises
(SMEs) to a country’s economic development is continuing. The debate appears to
be spurred at all levels by the growing awareness of the potential social and
economic contribution of a viable SMEs sector to the overall development of the
economy.
The role of
small businesses in alleviating socio-economic problems and their contributions
to national economic development cannot be over-emphasized. Small businesses
are identified as tools in improving the standard of living of most developing
countries. The strategies for industrialisation and economic development which
focused on the establishment and operation of small and medium scale
enterprises pursued by the developed world has also been considered for the
developing countries (Engubahre, 1997). Even the most powerful and economically
buoyant nations of the world like the United States of America, are major
promoters of small businesses. In a paper on the promotion of entrepreneurs and
small business Daodu (1997) stated that other countries including the up-coming
industrialized countries have also proved that any country that pays serious
attention to the small business sector ultimately benefits in terms of
employment generation, an ample supply of entrepreneurs, increased use of local
raw materials and the use of indigenous technology. The promotion of
entrepreneurship by giving ample encouragement, support and motivation is a
logical starting point in building a virile culture for small business
management.
In order to
understand the basic characteristics and needs of the small business sector and
take appropriate measures to back-up the efforts in promoting and developing
the sector, small scale enterprises have to be defined. According to Daodu,
(1997) there is no internationally acceptable definition of small business or
small-scale industries because the term ‘small’ is a relative concept. What is
considered small in one community may in fact be a large one in another. Also,
a common definition is impracticable because of the use of different variables
for describing the small-scale business in different countries. The variables
used include the number of employees, sales turnover, quantum of assets,
investment, or a combination of some or all of these.
From the study
on entrepreneurship and small Industry Development carried out by Fadahunsi in
1992, the following definitions are cited:
(a)
The European Economic
Commission and the European Investment Bank generally use the following
definitions: an SME is any firm with a workforce not exceeding 500, with net
fixed assets less that ECU 75 million, and with not more than one third of its
capital held by a larger company, SME account for more than 95 percent of
companies within the community and provide more than two-thirds of total
employment.
(b)
In India, a small industry is
defined as one having investment of up to s in the case of ancillary unit.
(c)
In Korea, small industry is
statutorily defined as natural or juridical persons engaged in the business of
manufacturing, mining or transportation either with five or more but no more
than 500 million won (US$1,000,000).
(d)
In Japan, small firms are
described as “Chusho Kigyo” which refers to small and medium firms and they may
employ capital up to one hundred million Japanese Yen and less than 299
employees in manufacturing.
(e)
The ILO/UNDP definition
indicates that:
(f)
up to 5 employees including the
owner is a micro enterprise.
(g)
5 – 20 employees is a small
enterprise.
(h)
20 – 99 employees is a medium
enterprise.
(i)
Above 99 employees is a large
enterprise.
(j)
According to Kesevan and
Ulferts, (1997), the size of a business in the USA is measured using several
criteria including the number of employees, total sales volume and total
assets. Any business that employs less than 100 people or grosses less than $1
million is considered small.
(k)
In Nigeria, the Federal
Government Industry policy of 1989 defined a small scale industry as one in
which the total capital outlay does not exceed 2 million naira excluding cost
of land. However, the National Economic Reconstruction Fund (NERFUND) puts the
ceiling at 30 million Naira in the 1995 budget, small enterprises had been
defined as a unit with a turnover of less than N1 million. In 1997, the
National Council of Industries defines small-scale industry as one with total
investment excluding land of up to 40 million naira with eleven (11) to
thirty-five (35) employees.
The fundamental
features of small business are enumerated below:
(a)
Labour intensive to generate
employment;
(b)
Capital formation to speed up
national development;
(c)
Affordability by most people
and opening opportunities for increasing participation of the people (i.e. open
competition via ease of entry).
(d)
Effective use of local
resources and stimulus for self-reliant development; and
(e)
Foreign exchange savings
through import substitution and exportation of some of their products.
Akinwale (1977)
stated that in a small business, the owner manager exercises all the functions
of planning, organizing, directing, coordinating and controlling employees,
materials, machines and funds to meet the objective of the business.
In spite of the
invaluable contribution of small scale and industries to the economic
development of Nigeria, they are beset with a plethora of problems, some of
which are listed below:
§ Inadequate qualitative data for decision making and strategic
planning;
§ Difficulty in recruiting higher level technical manpower;
§ Poor access to the capital market and low capability to borrow, the
exploitative nature of moneylenders in the community and the discriminatory
practices of the banking and financial institution has deprived the small
business sector of the necessary capital. Small businesses do not have the
required equity base and adequate credit worthiness to meet the requirements of
the banking system;
§ Vulnerability to economic down-turn and recession;
§ Lack of business management skills and the accounting function to
cope with demand of modern day industries, hence the failure of SMEs.
§ Inability to cope with the demand of opportunities arising from
rapid technological, economic and political changes;
§ Inability to maintain or improve the quality of their products to
compete favourably with the imported products that are substitutes to theirs;
§ Inability to sponsor their employees to training courses, workshops,
seminars, and exhibitions.
However, the most intractable of
these problems according to Daodu (1977), is poor access to capital. So wide is
the credibility gap that most banks prefer to pay the stipulated government
penalty rather than carry out government directive that a percentage of their
loanable funds be set aside to finance SMEs.
LITERATURE REVIEW
To achieve the
development of small-scale industries, integrated programmes of assistance are
necessary. Such programmes include: Industrial extension services to stimulate
new entrepreneurship and modernizing existing enterprises; financing on liberal
condition; provision of industrial estates, training and sourcing of
appropriate technologies.
Basically there
are two intervention strategies of support to small business namely: top down
strategy and bottom up strategy (dressing, 1990). Both options can be mutually
complementary. The top down approach primarily utilizes indirect assistance by
creating the favourable environment for private enterprises. Such indirect assistance
concentrates on micro legal variables such as prices, infrastructure,
regulations; and government policies.
The bottom-up
strategy, primarily aims at supporting micro-enterprises directly, on the
premise that the process of development is akin to “building a pyramid”, and
therefore depends on laying down a solid foundation before proceeding to the
next level else one is building a “shaky tower” (Dressing). Also from a classic
study by Bromley and Gerry, 1979, this strategy is said to be based on the
recognition that businesses of various sizes are organically linked in
intricate ways (such as through subcontracting). The bottom-up approach assumes
that the necessary structural adjustments can only be brought about with the
people’s active involvement. Greater participation in the development process
is central to this strategy.
The success of
an assistance programme is greatly conditioned by local circumstances. Africa,
of which Nigeria is part, is much less integrated into the world market economy
than other continents. The social systems vary greatly across geographical
areas and ethnic/tribal groups; some are matrilineal and others are patrilineal
or hybrid (Dressing, 1990). These differences are reflected in diverse power
structures, institutions, value systems, and behavioural attitudes.
Other special
features of Africa, also present in Nigerian, are presented below:
§ Certain activities in Africa are gender specific. For instance,
subsistence agriculture, trade and food processing are mostly reserved for
women.
§ Economic fragmentation is further exacerbated by the presence of
resident expatriate minorities who generally run larger businesses;
§ The informal sector constitutes the bulk of the economy and is the
backbone of the non-agricultural sector in terms of providing livelihood and
basic goods and services;
§ External circumstances and pattern of skill acquisition greatly
affect the profile of entrepreneurship.
This great socio-economic diversity, often within the same nation
poses a challenge to the design of support programs.
FIIRO was established in 1956 as a division of the then Federal
Ministry of Commerce and Industry, in response to one of the recommendations
made by an economic mission sent to Nigeria in 1953 by the International Bank
for Reconstruction and Development (the World Bank). According to FIIRO Today
(1989) the Institute took off physically as a small laboratory in a temporary
building at Victoria Island, Lagos, now FIIRO is situated near Cappa Bus Stop,
Oshodi, on a five-hectar land sandwiched between the grounds of the Nigerian
Telecommunications Limited (NITEL) Training school and Nigerian Army
Resettlement Centre.
FIIRO
Annual Report (1985), revealed that the Institute became semi-autonomous in
1977 under the then National Science and Technology Development agency (NSTDA)
through the Legal Notice Number 521 of September, 1977. FIIRO as well as all
other research institutes came under the newly created Federal Ministry of
Science and Technology as Semi-autonomous bodies on the dissolution of the
NSTDA through the National Science and Technology Act 1980. The main objective
of FIIRO was to quicken the pace of Industrialization of the Nigerian Economy
through Research activities. Presently, the objective remain the same, FIIRO
develops Appropriate Technologies in food production, chemical and fibre,
Biotechnology and design and fabrication of equipment to enhance the
application and commercialization of new inventions. The institute’s functions
and activities are in the areas of:
-
conducting applied research
into local raw materials and development of new products therefrom;
-
upgrading of indigenous food
production technologies;
-
improvement of the nutritional
status of Nigerian staple foods;
-
identification of Nigerian raw
materials that are potentially usable in industry;
-
design and development of
product processes and fabrication of equipment to replace traditional manual
techniques;
-
adaptation of imported
technologies to suit local needs.
Other services
rendered by the institute include:
(a)
analytical services with a view
to setting quality standards on foods, drinks, textiles and ceramic products;
(b)
engineering services (spare
parts production, equipment manufacture and electroplating);
(c)
consulting (feasibility
studies, market surveys, project appraisal).
(d)
industrial extension services;
(e)
training of entrepreneurs on
developed technologies.
(f)
technological, industrial and
business information dissemination.
The various
services required in order to promote, encourage, guide and assist small industrialists
to success are presented below. These are referred to as “support” services.
(a) Financial Assistance
These are
grants and credit programmes designed for SMEs and direct investment by an
outside agency.
(b) Training
Managerial, financial, vocational, entrepreneurial, and technical
training; design of appropriate accounting systems; inventory and human
resource planning; production manual preparation; training in production
efficiency and quality control.
(c.) Technology
– assistance in identifying and adapting technology appropriate to the SSE
needs; equipment installation and maintenance training.
(d) Marketing:
– improving promotion, market penetration, and distribution of SME products;
this may also involve extension services offered to input suppliers and
enterprise product users.
(e) General
Research Service: - economic research, including marketing surveys,
industry feasibility studies, appropriate technology generation, production
process improvement, and information leading to policy formulation.
(f) Raw
Material and Other Inputs/ Services supply – locating sources of raw
materials, organizing purchasing cooperatives, improving and standardizing
input quality and stabilizing input availability.
(g) Institutional
Brokering – fostering increased collaboration between private and public
sector institutions and the SME sector (financial, governmental, and exporting
agencies).
The ‘Federal
Institute of Industrial Research, Oshodi, (FIIRO) employs the strategy of
direct support. It deals with intended beneficiaries directly. The objective of
FIIRO is “to quicken the pace of industrialization through research and
development”. This objective is being achieved at FIIRO by its ability to
develop technologies which are cheap enough to be accessible to larger sector
of the country, FIIRO has fabricated and designed equipment that are relatively
cheap and simple to maintain.
FIIRO’s service
is targeted towards existing small, medium scale industrialists and prospective
entrepreneurs. For prospective entrepreneurs young school leavers, retirees and
retiring staff of various organizations are targeted for training in
development technologies and how to start and manage a new business.
To reach its
target audience, the institute sends its annual programme of activities to
professional and Trade Associations. It is essential that contact be made
through a business association. To achieve this, the institute is a corporate
member of the following trade associations. Nigerian Association of Chambers of
Commerce, Industry, Mines and Agriculture, National Association of Small Medium
Enterprises (NASME), National Employers Consultative Association (NECA) and
MAN.
Services are
chosen based on need assessment of the target group (Client). Such as personal
needs analysis through business profiling. The services offered by the
institute include:
§ Development of appropriate technologies;
§ Design and fabrication of equipment;
§ Technology transfer through training workshops and technical
assistance
§ Services and licensing agreement
§ Contract research;
§ Business advisory services
§ Information services and analytical services.
The strategies
developed by the institute towards offering the services are listed below:
- The institute is manned by well-trained and highly experienced staff. They include industrial chemists, microbiologist, food technologists, polymer chemists, metallurgists, ceramic scientists, engineers, economists, and information and computer scientists. Scientific, engineering, technical, administrative and accounting staff supports these.
- Infrastructural facilities include modern laboratories, machine shop, fabrication workshop, a foundry, electroplating workshop, glass blowing workshop, computer center and textile testing laboratories.
- The food pilot plant facilities include mills, dyers, dewatering and sieving equipment and grain dehullers, well equipped fermentation facilities and a cereal and bakery facilities.
- The pilot plant production is undertaken to demonstrate the technical feasibility of some of FIIRO’s completed research projects. Products from these are soy-ogi, skin cream, from cocoa butter, pastuerised palm-wine, malt from sorghum, fufu, lafun and gari from cassava, laundry and toilet soap, ceramic products, etc.
- Team approach is employed in carrying out research and offering support services to clients. Individual approach is suitable for business counseling/advisory services.
- Credibility is established and maintained through feedback and value added package.
Activities of
FIIRO is promoted through:
- Radio and Television Interviews and programs.
- Promotion to Government and Non-governmental Agencies
- Promotion to Individuals who are likely to acquire technologies and set up small scale industries.
- Advertisement in national, news papers, journals, etc.
- Publications such as Research Reports, Technical Information Bulletin for Industries.
- FIIRO Today, Investment opportunities at FIIRO, Investment profiles are means by which the public is enlightened on FIIRO’s research findings.
- Attendance at Exhibitions and Trade fairs is another method of creating awareness on available research findings.
The institute
has in place, a monitoring and planning division for the purpose of planning
its activities, coordinating research activities and evaluating the
effectiveness of the institute in offering support services. The role of FIIRO
is examined with respect to the number of recipients of FIIRO’s transferred
technologies, percentage that have successfully set up businesses and are
surviving.
METHOD, MATERIALS AND FINDINGS
Data used in
this paper were collected directly from FIIRO. Research data covers 1986 to
2000. Research efforts covering 2001 to 2003 are still in various stages of
completion and therefore cannot be included in this paper. Their inclusion will
make the research findings inconclusive as they are still in their various
gestation periods and feedback from users of the various technologies is still
being collated.
Presented on
table A is the number of prospective investors that acquired FIIRO’s technologies
through-training workshops by type of project between 1986 and 2000. Table B
presents summary of FIIRO’s trainees by Industry from 1986 to 2000. On table C
is presented the beneficiaries from FIIRO’s Technical Assistance Services
(TAS). Also presented on table D are services provided by FIIRO.
From Table A
and B, it can be noted that the number of recipients of FIIRO transferred
technologies through training between 1986 and 1989 were significantly
different from that of 1990 to 1996 and 1997 – 2000. Out of the 2,051
prospective investors that acquired FIIRO’s transferred technologies, within
the study period 873 or 42.56% percent were trained between 1986 and 1989, only
532 or 26.9% per cent trained between 1990 and 1996 while 626 or 30.52 per cent
were trained between 1997 and 2000. This is summarised in the table below:
|
1986-1989
|
1990-1996
|
1997-2000
|
Total
|
Trained
prospective investors
|
873
42.56%
|
532
26.9%
|
626
30.52%
|
2,051
100%
|
Period in
Nigeria’s economic history
|
Introduction
of the Structural Adjustment Programme
|
Liquidity
squeeze resulting from international
economic sanctions
|
Democratic era
resulting in recovery as sanctions are lifted
|
|
Also there is a
striking difference between the numbers that received training in 1986 from
other years. That year alone had about 358 or 17 percent prospective investors
acquiring FIIRO technologies. The Structural Adjustment Programme was
introduced in mid-1986, this is assumed to have aroused interest in local
resources utilization, which led to establishment of small and medium scale
enterprises (SMEs). The period, 1990 to 1996 was extremely difficult in Nigeria
for investment due to various economic sanctions imposed on the country by the
international communities. This greatly affected FIIRO’s services to the
entrepreneurs, as funds were scarce to come by as a result very few
entrepreneurs came to FIIRO to acquire technologies.
The slight
improvement noticed since the period of transition to democratic governance and
installation of democracy is illustrated by the increase in the number of
investors that acquired technologies between 1997 and 2000. Table C and D
indicate that about 135 companies (mainly small businesses) benefited from
FIIRO’s Technical Assistance Services (TAS) and other services listed.
From a study in
South Western Nigeria, the rate of adoption of small-scale technologies among
FIIRO – trained entrepreneurs is 41 per cent.
Investors acquired the laundry and toilet soap technology through
training from 1986 to year 2000. It was very difficult to obtain accurate data
of all the businesses that were set up based on FIIRO’s transferred
technologies due to the fact that only few recipients respond to the feedback
system put in place to monitor the establishment and success of these businesses.
From a study,
conducted in South Western Nigeria, on the rate of adoption of small-scale
technologies among FIIRO trained entrepreneurs, about 59 percent rate of
non-adoption was established. The most common reason (33%) for non-adoption is
finance. About half of the 59 percent that adopted the technologies have failed
due to problems chief of which is management.
SUMMARY AND CONCLUSION
FIIRO has come a
long way as a research institute in Nigeria. Its impact is felt in
technological innovation, discovery of raw materials, adaptation, direct
involvement in plantations, and industrial designs. It has impacted all sectors
of the Nigerian economy.
This research
paper has gone through the establishment, development and achievements of FIIRO
especially its activities covering a period of 16 years (1986 to 2000). From
the various enterprises enrolled in its training, the level of adoption of its
technological discoveries and the degree of survival of the businesses
emanating from its efforts it can be inferred that it has contributed immensely
to the economic development of Nigeria.
The following
recommendations are made for best practices in offering support services to
entrepreneurs in Nigeria.
1.
There
is need to strengthen the link between Research and Development and Business
Enterprises: This can be carried out by increasing and
strengthening circulation of information between Research and Development
Institutions and Business Establishments to provide feedback on the needs for
the benefit of small business development.
2.
The Government should develop a
National policy strategy for the development of small-scale enterprises with
clear-cut plans and implementation systems and procedures.
3.
There is need for appropriate
incentive schemes such as favourable tax payment, import duties that are very
vital.
4.
Where multifarious services are
scattered between various agencies, a strong policy of coordination becomes
inevitable. Where efforts are diverted at existing enterprises, the need for
policy encouraging new initiatives and business expansion becomes clear.
5.
Information is crucial for the
initiation, establishment and continuity of enterprises. Government may
organize activities and programs to generate, process and disseminate
information related to market, technology, location, investment and incentives.
6.
Government should promote
encourage and facilitate NGOS to play an effective role in this field of
assistance to entrepreneurs directed and coordinated and such should fall
within national policy objectives and framework.
7.
Support and sustaining activities
should be considered as the main part of the total package of entrepreneurship
and small industry development.
8.
Effective linkage of
entrepreneurs with the development of local engineering design and fabrication
product capacities for simple machines, spare parts, standardization and
quality control is essential.
9.
The current CBN initiative for
banks to set aside 10% of their pre-tax profit to take equity position in SMEs
is a step in the right directions, SMEs are enjoined to bring up bankable
projects for both equity and loan funding irrespective of their area of
operation.
10. Introduction
of a Credit Guarantee Scheme for SMEs is recommended together with formation
and encouragement of venture capital companies.
11. Direct
Involvement of banks in the funding and management of SMEs is recommended.
12. Although
associations of entrepreneurs such as NASME and NASSI exist, there is need to
articulate and deploy the dynamics of social capital. This is a form of public
good for building partnership, sharing risks and resources, pooling knowledge,
facilitating access to information, technology and skills.
This research effort is geared towards assessing
the contribution of FIIRO to the development of SMEs in Nigeria. The conclusion
is that FIIRO had lived up to its objectives and goals. Research is an on-going
process, it is expected that further research efforts would come up to extend
the years covered in this work and also to assess the contributions of other
SME assistance agencies in Nigeria. Future research can also target the
contributions of United Nations and World Bank agencies to the development of
SMEs in Nigeria.
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