The Problems and Prospects Managing Small-Scale Manufacturing Enterprise in Nigeria




THE PROBLEMS AND PROSPECTS MANAGING SMALL-SCALE MANUFACTURING ENTERPRISE IN NIGERIA (A CASE STUDY OF ALLIWA SACHET WATER ACHARA LAYOUT ENUGU)

In this chapter the researcher wishes to present the views of existing writers and researchers that are connected with problems and prospects of managing small-scale manufacturing enterprises.  The view may take the form of related principles, theories, concepts and the identified outcome of applying the principles and theories in solving practical problems.  The presentation is to be done in sections that agree with the following subject matters.

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2.1     CONCEPT OF SMALL SCALE BUSINESS

The issue of what is meant by the team small scale enterprise is a controversial one.  It is so because definitions differ in terms of time, place and defining parameters such as volume of sales (turnover) number of persons employed and the amount of capital employed, no one definition of small scale business can attain universal acceptability.   No wonder therefore one easily encounters only operational definitions and statements of small-scale business.

According to Dr. C. P Ezeife (1998) in a seminar paper titled “Problems and prospects of small scale industries in a design for industrial Revolution” definition of small scale industry is essential for practical application as the definition used to be based on the level of capital and the number of workers employed, besides, he asserted that any definition based on the number of persons employed should be rejected unless the level of the technology employed is also specified. “Computers, robots and a few technicians can man an industrial undertaking into which a billion dollars has been invested”  To him the level of capital employed remains a relevant criteria for identifying the scale of an industrial operation.

He cited two definitions based on the level of capital employed.  A small scale industry is defined by the third national development plan (1970-1980) as an industrial undertaking involving total capital investment not exceeding N150,000 to be Nigeria in Bank for Commerce and Industry (NBCI), it is one employing up to N500,000 which figure was raised to N750,000 in 1985.  He opined that definitions based on level of capital employed in Nigeria may be bastardized place for

“What is today large- scale, can

Pass for small-scale in future and

What in Nigeria will pass as a

Giant may only be a lilipulian in the U.S.A

In giving his own personal definition he preferred to ignore cortege industry.  Collage industry, he explained, is a manufacturing activity requiring very little initial capital investment, unpaid family labour and usually combined with other subsistent economic activities like framework.  However, he defined small-scale industry as one needing capital investment that could be more than N100,000 but not more than N500,000 (Seminar) worship on industrial Revolution of Anambra State, 11th – 13th 1988, P. 34-35).

Professor Francis Okafor presented a seminar paper titled” “Planning and management of small-scale industries”.  He noted criteria used for distinguishing small form medium and larger enterprises; these include turnover, number of persons employed and total capital invested in a business.

Okafor observed that the federal ministry of industries defines small-scale industries as “those industries employed less than 50 workers and total capital outlay not exceeding N60,000” He observed further that definitions based on monetary values are obviously unreliable particularly in periods of violent changes in price levels.  Furthermore, he opined that business size could also be expressed in terms of degree of influence in the relevant industry or on the environment of the business.

He concluded by pointing out the following features of Nigeria small-scale industries:

  1. The owner is usually the manager
  2. The manager and members of his immediate family own the industry.
  3. The products of the industry are meant for local markets.
  4. Low initial capital is required
  5. Its technology is very simple and easily adaptable.

Small businesses, according to Baumback, used to be defined based on number of persons employed, asset value and dollar sales volume.  He, however, declared definitions based on quantitative criteria as being deficient. Similar businesses differ in their methods of operation, caliber of man power, market, etc. Besides quantitative definitions are rendered useless by inflation.  Furthermore, they disregard non-quantitative characteristics.

In consideration of the foregoing reasons Baumback would prefer to describe small businesses in term of their usual characteristic features such as:

  1. The owner manger relates personally with each of his employees.
  2. A small-business exerts negligible influence in the related industry.

Based on the quantitative (or features of small business) he defined small business as “any business in which the owners – manager is able to recall the first name of all his employees” (Baumback, P. 3-6).  B Chime Onuoha cited definitions of a number of writers that were based on number of employees, asset value, turnover, financial strength, number of locations, relative size and so on. A small business is one that is owned, managed and controlled by one or two person; that its decision making is influence by the owner’s family; that has undifferentiated organizational structure, a relatively small share of the market and less than so workers (Osaze, 1986).  He fond the industrial research unit of Obafemi Awolowo university (OAU) as having defined small-scale business as one with a total capital of N250,000 invested in capital and less than so workers.  Further, he observed that a company qualifies for a small company in any year that it satisfies the following conditions;

  1. It is a private company
  2. None of its member is a member of government corporation or agency or its nominee.
  3. The amount of its turnover for that year is not more than N2 million or such amount as may be fixed by the commission (ie corporate Affairs Commission).
  4. None of its members is an alien
  5. The directors between tem hold less than 51 percent of its equity share capital.

Onuoha also gave a definition from the 1991 credit guideline (monetary policy circular N0. 25) of the central Bank of Nigeria (CBN).  This definition has it that “Small-scale Enterprise for commercial and merchant banks is defined as one whose capital investment doe not exceed N5 million including land and working capital or whose turnover is not more than N25.00 annually.

Equally, he found that in granting loans to small-scale industries in their areas various state governments have used definitions which are different from the forgoing definitions and motivated by their level of economic development (Onuoha 1994, P.4).

Finally, he recommended that the above definitions should be raised from time to time for the following reasons:

  1. The need for the definitions to meet the changing need of small firms in Nigeria.
  2. The need to reflect inflationary trend in the Nigerian economy.
  3. Devaluation of Nigeria currency. (Onuoha and Udensi, 1996, P. 322).
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The above definitions and characteristics of small-scale enterprises related as well to the small-scale manufacturing enterprises.  However, some specific definitions and distinguishing features may be investigated and presented in next subsection.

 

2.2     CONCEPTS OF SMALL SCALE MANUFACTURING ENTERTAINMENT

The forgoing section treated the definition and nature of small-scale business.  However, small-scale business may be carried out under three broad classifications, namely merchandising, service – oriented undertaking and manufacturing (Baumback, P.5).  Manufacturing enterprise has been defined as “an enterprise engaged has been defined as “an enterprise engaged primarily in receiving materials in one forms, and after working on them, distributes them in altered form”.  It may be a processor of farm products, a local crafts man or an artisan, a bottling plant and similar enterprises.

 

2.3     PROBLEMS OF SMALL-SCALE MANUFACTURING ENTERPRISES

GOVERNMENT – RELATED PROBLEMS:

There are some of the managing small-scale manufacturing industries that are supposed to be addressed by federal, state and local government.  Where an owner- manager ventures into solving them be may find out that the overall investment cost becomes so high that his industrial undertaking ceases to be small.  The problems are to be discussed one after the others

  1. Poor Provision of Information

          In Nigeria, government has put in place as formal and effective system of providing information to the existing and prospective small-scale manufacturing.  This is contrary to the situation in India and South Korea where government would provide such services as identification of project ideas, development of reversibility studies, identification of sources of machinery equipment and raw materials, and provision of information on the intentions of would be competitors.  Consequently owner- managers develop very deficient plans the implementation of which would end in serious losses.

  1. Lack of Inadequacy of Infrastructural Facilities

Some basic facilities are needed to facilitate industrial activities. These facilities are lacking, inadequately provided or properly maintained where they are founded at all.  What is observed are lack of inadequate provision of sub-urban or rural roads and water, electricity supply deficiencies, inadequate means of communication and non-availability of equipment repair/maintenance services.  All these hamper effective management of small-scale manufacturing industries.

  1. Land Acquisition Difficulties

Land may be needed to provide for accommodation for a new manufacturing firm or for its expansion.  More often than not problems are encountered in respect of land acquisition.  These difficulties includes demand of huge sum of funds and administrative bottle necks relating to location and building planes.  Another very serious related problem has to do with land disputes that may involve course injections after an industrialist may have achieve a substantial development of a piece of land.  These problems are considered to government –related because they would not have arisen if governments in Nigeria have provided at the appropriate places, industrial estates, industrial layouts and industrial areas.

Having analyzed the above so called government related and general problems of managing small-scale manufacturing enterprises Ezeife went ahead to state the investor – related problems; these result from managerial inefficiency and ineffectiveness and they include:

  1. Provision of Improper or Inadequate requirements such as plant and machinery, unqualified manpower, improper, site, etc.
  2. Improper forecast of future needs for fund and failure to provide funds in advance of needs for them.

iii.      Lack of plan for business diversification.

  1. Use of machinery and raw materials the importation of which is not guaranteed. Embargo and /or foreign exchange problem may materialize to throat efforts to provide these inputs, and
  2. Failure to obtain useful information available in government (public) and private establishment.

Next the researcher presents the problems which Okonkwo found to be confronting small-scale manufacturers in Anambra State (Seminar/Workshop on industrial Revolution of Anambra state may 11th – 13th 1988, P. 46).

  1. Frequent Changes In Government Policies:

          It is known that successive military or civilian administrations in Nigeria usually discontinue the policies formulated by the predecessors and introduce their own.  These frequent changes of policies invariably impose corresponding and costly changes in the policies of small scale industries.  Objectives and steps for realizing them may have to be reviewed with often crippling costs.

  1. Poorly Trained Technicians:

There is this mounting clamour that our institutions of higher learning turn-out poorly trained technicians because standards set for lecture quality and student’s performance, are being flouted with impurity.  The owner – manager who has employed the caliber of technicians that are available ends up with poor and wasteful performance.

iii.      Financial Handicaps:

Due to lack of high financial rating and acceptal collateral securities, small-scale manufacturers cannot easily obtain loans and overdrafts from banks and other financial institutions.  Also they are known to misuse loans and default in repayment as they spend business loans on new houses, taking more wives, and title etc.  Other handicaps include inadequate capital and poor capital mix, these lead to financing long-term projects with readily available short-term loans and over-drafts rather than with unavailable long-term funds like share- capital, long-term loans, bonds and so on.

  1. Lack of Executive Capacity

The business owner-managers lacks the funds to recruit and maintain in his employment, experts in management and such organizational functions as personnel management, production, finance, marketing and Research and development.  He tries to perform all the managerial and organizational functions by himself with limited number of poorly qualified assistants.  Consequently, he lacks the time to perform what he is capable of performing creditably.

  1. High Cost of Raw Materials

High cost of raw materials and other inputs, especially imported ones render uncompetitive the selling prices of small scale business.  This constraint could lead to poor profit and even loss.

  1. Lack of National Standard

Standard organization of Nigeria (SON) has not established standards for similar products of competitors in their respective industries.  Manufacturers product according to standards and quality specifications set by themselves.  The practice accounts  for prevalence in Nigeria markets of varying qualities of similar products and for failure of locally made products to compete effectively against usually preferred imported counterparts that are high standards.

These manufacturers who attempt observing high quality standards find that their selling prices become relatively too high, poor sales and invariably poor profits, follow:

vii      Lack of Good Technical Workshop

In this situation problems arises regarding repairing, maintaining and installing machines.

viii     Incapability of the Small-Scale Industries Association

          The small-scale industries Association was inaugurated originally. To assist is members solve major problems that confront them, especially those caused by Government.  So far it has not been able to perform this role because it has little funds, no well-organized secretariat, no means of transport and other constraints.

In a Seminar/Workshop on industrial Revolution of Anmabra State (May 11th – 13th 1988, P. 54).  Onyeshi stated the major constraint that hampered the development of the manufacturing sector during the plan II period.  The problems are analyzed as followed.

  1. Restrictive Industrial Policy and Administrative Policy

Various permits, licenses, etc had to be obtained from too many authorities. It took a lot of money, time and running round to obtain them.  Besides, it was not clear what government policies were on payment of royalties, license fees, technical and management fees and so on.

  1. Slow Implementation of Public Sector Strategic Manufacturing Projects
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          Certain projects embarked upon by government, on their completion, were expected to promote private sector manufacturing activities.  Some of the projects the Iron and steel project at Ajaokura and Alaja, petrochemical projects, the liquefied Natjurla as (LNG) projects, the liquefied Petroleum Gas (LPG) projects, and others.  Completions of those projects has not actually materialized as they are yet to commence enduring production. Consequently, private manufacturing activities that would have depend on them, have remained more dreams.  Thus industrial advancement of Nigeria is being retarded.

iii.      Government shift from Facilitating Role to Participative Role

          Before the Nigeria oil, government had done a lot to encourage private sector manufacturing activities.  It provided roads, telecommunication and transportation facilities, industrial estates and pipe- bone water.  Other incentives to manufacturing firms included tax holidays, loans to small-scale industrialists, lower or no duty on importation of raw materials and machinery.  Suddenly, government abandoned provision of more and maintenance of the infrastructures and incentives.  With huge earning from crude oil in the 70s government began to invest in the manufacturing sector in competition, with the private industrialists. This shift of government from facilitating to participative role led to faulty industrial base.  This mistake is now being connected through commercialization and privatization of government owned companies.

  1. Devaluation of the Naira and Exchange Rate Determination through Foreign Exchange Market (FEM)

          These actions led to escalation of investment costs, increased cash required to operate under FEM and shortage of investable funds.

DISECONOMIES OF SMALL –SCALE OPERATION

          The diseconomies include lack of price inducement or necessary support services form suppliers nor to customers and high cot of production, marketing and financing, this view was expressed by Prof.  Okafor in the seminar/Workshop on Industrial Revolution of Anambra State, (11th – 13th May, 1988, P.62).

MAINTENANCE OF INADEQUATE FINANCIAL RECORDS

Small business owner – manager, according to Ike, maintains inadequate financial records.  This is because he does not know to apply the book – keeping principles nor could be afford to employ qualified accountants.  Therefore, he can not distinguish between periodic gains and losses nor between personal and business funds.  The over all consequence of poor record keeping is mismanagement of the small business (Seminar/Workshop) in industrial Revolution of Anambra State, 11th -13th May, 1988, P. 95).

USE OF OUT-MODED MACHINES

Ijere found that small-scale manufacturing enterprises in Nigeria have been so unfortunate that they are compelled to engage in production with out-modeled machines. When such machines break-down or develop faults they may not be replaced nor can spare parts be obtained for necessary repairs and maintenance (Seminar/Workshop on Industrial Revolution of Anambra State, 11th – 13th May, 1988, P. 119)

DISREGARD OF BACKWARD INTEGRATION

Anazodo noted that large manufacturing firms Nigeria do not have and maintain small-scale manufacturing outfits that can provide them with intermediate products or outputs.  (Seminar/Workshop on Industrial Revolution of Anambra State, 11th – 13th May 1988, P. 128).

OTHER PROBLEMS

Fryer opined that problems of Small-Scale manufacturing enterprise include crudity of their furnished products, lack of economics of large-scale production, dependence on imported foreign products, lack of technical innovations, low level of efficiency and power supply constraints (Fryer, 1965, P. 258).

CAPACITY UNDER-UTILIZATION

          As a result of other problems of small-scale manufacturing enterprises produces well below their installed capacities so that unit cost prices are higher than what they should have been (Njoku 1985, P. 31 and Onuoha and Udensi, 1996, P. 146).

Onuoha and Udensi (1996, P. 333) cited some problems of small-scale manufacturing industries from some literature.

The problems are as presented below.

  1. Environmental Problems

The environmental constraints include inadequate infrastructural facilities and lack of tolerable monetary and fiscal measure (Oggra, 1994, P. 44).

  1. Poor rating of locality Made products

          Whether or not locally made products are superior there is the tendency for local buyers and consumers to late them poorly (Onuoha, 1993, P.200).

  1. Financial Constraints

Aja identified bank credit squeeze that prevent manufacturers from obtaining adequate financial set-backs include high default rate of loan repayments, poor keeping of accounting records, lack of tangible collateral  security, lender’s preference of big borrows to small borrower, inability to raise funds by selling shares to the public and misapplication of bank loans (Onuoha, 1993, P. 29 – 30).

  1. Problems Associated with use of Imported Technology

          Where a manufacturers uses machines, spare parts, and raw materials that are imported he may be forced into closing down where he cannot afford the foreign exchange necessary to acquire the inputs when they are badly needed.  Even replacement of machines in the event of obsolescence may prove difficult if not impossible.

 

2.4     PROSPECTS OF MANAGING SMALL-SCALE MANUFACTURING ENTERPRISES

          In this section available literature on prospects of managing small-scale manufacturing enterprises is to be reviewed.  By this review the researcher is enabled to have an idea of what he hopes to find out on this subject matter when goes into the field to collect information from his targeted respondents.

  1. DEVELOPMENT OF LOCAL RAW MATERIALS AND MACHINERY

          Government and private investors have taken far- reaching actions to develop locally made raw materials and machinery.  These efforts are aimed at saving manufacturers, especially small ones in Nigeria from over-dependence on imported raw materials and machinery as this has caused intermittent closures or even permanent winding – up of important factories.  Through raw materials Research and Development Council, National director of Employment Agency.  Government has been able to reduce dependable of local factories on imported raw materials and machinery. It is common place today to find locally fabricated machine for garri processing, palm-kernel cracking, palm oil extraction, soap-making, polythene bag production and others.  Also local raw materials have been developed for production of soap, pomade, beverages, vegetable oil, and so on. Finally, spare parts are made locally for the locally fabricated and existing imported machines. Thus users of the locally made machines, spare parts and raw materials have averted some problems relating to foreign exchanged needs, delay in arrival of imported inputs and search for foreign sources of necessary inputs no longer confront them.

 

 

  1. FOREIGN EXCHANGE MARKET AND BORDEAUX CHANGE.

For manufacturers coho have the money to import and hence need foreign exchange they can easily obtain foreign exchange market and bureauixde change.  They have been in since 1986.  And so the manufacturers can import the machines, spare parts and raw materials that they need for their industrial operations (Aja, 1991, P. 40).

  1. BIGGER MARKET FOR MANUFACTURED GOODS

There is beiger and increasing market for locally manufactured gods as a result of heavy reduction in the importation of foreign manufactured product.  This is due to serious difficulty in sourcing foreign exchange.

  1. SMALL-SCALE INDUSTRIES CORPORATION
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          Babangida Administration proposed to put in place small-scale industries corporation to promote investments in small-scale industries, develop policies and programmes for rapid geographical development and dispersal of industries and to provide extension services, technical/management assistance, easy access to credit facilities and training service for small-scale industrialists. (Giant strides. Vo12 1988, P. 95).  It is hoped that Obasnajo Administration which tool off on 29th, May 1999 will adopt and implement the proposed small scale industries corporation policy.

  1. CREDIT GUARANTEE INSURANCE SCHEME

The scheme is meant to ensure regular availability of credit to small scale industries, even without provision of collateral securities.  It does this by an arrangement whereby credit risks are distributed among guaranteeing institutions, insurers, financial institutions and borrowers.

  1. SMALL BUSINESS ASSISTANCE AGENCY

Federal Government established this agency. It is charged with the responsibilities of training and advising investors, repairing and processing loan applications, providing extension and advisory services in project articulation and implementation and in matter of production, technology, marketing, personnel management as well as research and development.

Ezeife identified some more prospects of managing small-scale manufacturing enterprise (Seminar/Workshop on industrial Revolution of Anambra State, 11th – 13th May, 1988, P.36) his view are summarized.

  1. SMALL – INITIAL AND WORKING CAPITAL

Capital needed to start and run small –scale manufacturing industries is usually small relatively, persons of some fortune are therefore encouraged to start and manage.  Such industries as individuals with two or more partners.  This factors is responsible for the existence of small businesses almost every where.

  1. OPPORTUNITIES FOR ACQUISITION OF SKILLS

In the course of carrying on small-scale business Small-scale manager enjoys an opportunity for acquiring entrepreneurial, managerial and technological skills.  These skills may be credentials for the owner-manager to become a manager of large-scale enterprises.

  1. USE OF LOCAL HUMAN AND MATERIAL RESOURCES

Local human and material resources are employed by the small-scale manufacturing enterprise.  Thus they raise personal income of local people, property value, resource value, government revenue and standard of living of the people.  Also they check rural – urban migration when they are established in the rural areas

  1. SUPERIOR ALTERNATIVE TO REAL ESTATE

It is said that small-scale industries are better investments than tenant buildings, especially in a period when there is nothing to trade on profitably.

  1. ATTRACTION OF AMENITIES TO RURAL AREAS

Small-scale manufacturing enterprises have the ability to succeed in rural areas where they are guarded jealously so that they may attract public amenities such as access roads, pipe born water power supply, telecommunications etc.

 

2.5     INDUSTRIAL BACKGROUND OF ARIWA SACHET WATER ACHARA LAYOUT ENGUGU

          Alloy international West African Ltd the markers of Alliwa Sachet water has it’s factory at n0 16b stan wood Avenue Awkunanaw Enugu, It started in 15th February 1999.  In starting the business one million naira was used excluding the land were the factory was built Alliwa sachet water was registered by NAFDAC on 13th July 2001 and it’s registration number is 01-0379L when it started they have only three (3) workers which later raise to fifteen (15) workers but as at that time they were using manual tools which was fifteen, (15) in number and this manual tools use to produce abut 200 bags a day but when they later change to comstar Automatic filling and sealing machines they were producing 3,000 (three thousand) bags per day and with the use of this comstar Automatic filling and sealing machines which they have two, the company’s workers reduce to eight (8) workers.  A bag of Alliwa sachet water is sold for fifty (50) naira when this company started it has only one but now it has about five (5) buses.  This company has it’s raw material as water and the packaging bag and they get the packaging ominic company based in Lagos and pollar pole company based at Nanka this two companies manufacture the packaging bags while the water is sourced from 9th mill borne hole using NAFDAC registered water producers tanker.

 

 

 

2.6     PURIFICATION OF WATER

PRODUCTION OF WATER

  1. The raw water is sourced from 9th mill Borehole using NAFDAC registered water producers tanker.
  2. The water is stored in PVC Gee pee tanks of capacity 2600 litres x 4 Nos and 2020 litres a 4 Nos.
  3. The water is allowed to sediments for 24 hours.
  4. With the aid of a water pump, the water is passed through stainless steel industrial sand and carbon filters.
  5. From there, the water passes through 3 x 5 micron filter arrange in series.
  6. Though another 4000 litres Gee pee tank.
  7. Then the water is been pumped to 2 x 2000 litres PVC over head tanks.
  8. By gravity, the water flows to a 5 micronfiltre to a 5 micron (carbon) and 03 micron.
  9. The water is finally sterilized by passing through the stainless steel industrial UV sterilizer.
  10. The sterilized water is sent to the comstar Automatic filling and sealing machine where the is filed and sealed for packaging.

In Alliwa sachet water, the services of a public analyst is used to carry out comprehensive analysis of their product.  Meanwhile the products are checked in process, for colour, taste, odor clarity/particles at the storage tanks and at the various sampling points.  Finished products are checked for leakages, correct fill volume, proper labeling, barch coding best before date and manufacturing date.

The packaging materials are also stored properly to prevent from contamination of sachets.  The production staffs are certified medically fit before employment. They are also provided with production attires to prevent any physical contamination.

 

2.7     SUMMARY OF RELATED REVIEW LITERATURE

Small –scale manufacturing enterprise in Nigeria can improve if the problems identified are looked into and the prospects or chances are applied.

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