The study sought to find of capital and survival strategy encountered by SMEs operating in Eleme LGA Rivers State. Related literature was received in this study and Convenience sampling was used to select 120 SMEs. The data were collected using questionnaires. The questionnaires were filled by the owners of the SMEs and their managers. The study established that SMEs were facing several financial challenges in Eleme LGA. The challenges included shortage of liquidity in the economy which resulted in low sales due to depressed consumer demand. In turn low sales negatively affected the profitability of the SMEs. High interest rates constrained the ability of SMEs to raise finance through bank loans and overdrafts. The use of personal savings and retained profits as sources of finance implies that SMEs could only raise limited amounts of capital. The financial position of the SMEs was also worsened by high operating expenses and lack of trade credit. In light of these financial challenges the study recommends that the Nigeria government should adopt a long-term policy on the use of the foreign currency. It is also imperative that the government of Nigeria swallows its pride and officially makes arrangements with South Africa or the United States of America in order to have an increased supply of the rand or US dollar. The SMEs should also devise survival strategies such as formation of strategic alliances and voluntary chains.
1.1 Background to the Study
Business is defined as all the commercial and individual activities that provide goods and services to maintain and improve our quality of life. Small scale business in Nigeria was not pronounced until the emergence of the white men. Until recently the concept of small scale business was taking seriously in Nigeria due to the fact that most people depended on working in the offices after graduating from school.
Small scale businesses are known to be a major tool for rural industrialization and equitable distribution of income. It also serves as a “nursing bed” for entrepreneurial growth, development and maturity. Note that one factor that has been identified as militating against rapid industrialization of Nigeria, is poor supply of management talent and professionalism. Small scale business also plays a very crucial role in the generation of employment because most of the firms are labour intensive. Small scale industries contribute towards a more equitable distribution towards a more equitable distribution of income in the economy through the provision of livelihood and low cost goods and services which satisfies the demand or need of low income consumers.
Since Nigeria attained independence in 1960, considerable efforts have been directed towards the nation’s industrial development. The initial efforts were government-led through the vehicle of large industry, but lately emphasis has shifted to Small Scale Industries (SSIs) following the success of SSIs in the economic growth of Asian countries (Ojo, 2003). Thus, the recent industrial development drive in Nigeria has focused on sustainable development through small business development. Prior to this time, particularly judging from the objective of the past National 4-Year Development Plans, 1962-68 and 1981-85, emphasis had been on government-led industrialization, hinged on import-substitution.
Since 1986, government had played down its role as the major driving force of the economy by a process of commercialization and privatization (Beyene, 1999). Emphasis, therefore, shifted from large-scale industries mainly to small scale industries, which have the potentials for developing domestic linkages for rapid and sustainable industrial development. Attention was focused on the organized private sector to spearhead subsequent industrialization programmes. Incentives given to encourage increased participation in these sectors were directed at solving and/or alleviating the problems encountered by industrialists in the country, thereby giving them greater leeway towards increasing their contribution to the national economy.
Interest in the role of Small Scale enterprises in the development process continues to be in the forefront of policy debates in developing countries. The advantages claimed for Small Scale enterprises (SSEs) are various, including: the encouragement of entrepreneurship, the greater likelihood that SSEs will utilise labour intensive technologies and thus have an immediate impact on employment generation (Ayozie, 2010); they can usually be established rapidly and put into operation to produce quick returns; SSIs development can encourage the process of both inter- and intra-regional decentralization (Ogujiuba, 2004); and, may become a countervailing force against the economic power of larger enterprises (Salami, 2003). More generally the development of SSIs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation (Safiriyu, 2012; Ayozie 2010; Udechukwu, 2003).
The role of finance has been viewed as a critical element for the development of Small Scale enterprise Previous studies have highlighted the limited access to financial resources available to smaller enterprises compared to larger organisations and the consequences for their growth and development (Hossain, 1998; Wattanapruttipaisan, 2003 & Ogujiuba., 2004). According to Valverde (2005) bank credit play a crucial role in providing external financing to Small Scale Industry (SSIs). But in Nigerian context, this crucial source of finance for Small Scale Industry is apparently non-functional (Kadiri, 2012). This is evident in the ratio of loans to Small Scale Industry to Commercial banks’ total credit, which shows that a meager 0.16% of commercial banks’ total credit was granted to Small Scale Enterprises in the last quarter of 2011 (CBN, 2011). More worrisome is the fact that this ratio has been falling over the years and continued unabated in the post-consolidation era (Iorpev, 2012).
Typically, smaller enterprises face higher transactions costs than larger enterprises in obtaining credit (Olorunshola, 2003). Poor management and accounting practices have hampered the ability of smaller enterprises to raise finance. Information asymmetries associated with lending to small-scale borrowers have restricted the flow of finance to smaller enterprises. In spite of these claims however, some studies show a large number of small enterprises fail because of non-financial reasons.
The panacea for solving problems of economic growth in developing countries often reside in the development of small scale industries. The establishment of those industries has been the centrepiece of industrial development of many countries such as India, Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the gains to be derived from the establishment of small-scale industries will be translated into the generation of employment at a low investment cost. These industries will also be able to harness raw materials locally and serve as raw inputs to the large-scale industries. Therefore, this study seeks to investigate the capital and survival strategies of small scale enterprise in Rivers State.
1.2 Statement of the Problem
The key problem facing most small scale enterprises is lack of finance whether for the establishment of new industries or to carry out expansion plans. The inability to attract financial credit or resources has hindered or stifled the growth of small scale enterprise. The reasons for the lack of fund include the followings:
· High rate of inflation that led to the vast depreciation of Naira exchange rate, thus making it difficult for most Small Scale enterprise to obtain required inputs for expansion.
· Low level of savings in the economy, which leads to low capital formation.
· High rate of interest charged on loans, which scares off potential Small Scale enterprise.
· The unwillingness of retail banks to grant credit to Small Scale enterprise because of the low creditworthiness of these enterprises has also hampered their growth over the years.
Bothered by the persistent decline in the performance of the industrial sector and with the realization of the fact that the small and medium scale enterprises hold the key to the revival of the manufacturing sector and the economy, the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in 2000 to agree that each bank should set aside 10 percent of its annual pre-tax profit for equity investment in small and medium scale enterprises. To ensure the effectiveness of the programme, banks were expected to identify, guide and nurture enterprises to be financed by the scheme. The activities targeted under the scheme included agro-allied, information technology, telecommunications, manufacturing, educational establishments, services, tourism and leisure, solid minerals and construction. The scheme was formally launched in August 2001. As at end-December 2009, the cumulative sum set aside by banks was N42.2 billion. The sum of N28.2 billion or 67.1 per cent of the sum set aside had been invested (CBN, 2009). But the fact still remains that with these provisions made are in most cases not accessible to the Small Scale Industries.
The main thrust of this study is to evaluate the capital and survival strategies of Small Scale enterprise in Eleme Local Government Area of Rivers State.
1.3 Objective of the Study
The purpose of this study is the capital and survival strategies of small scale enterprises and specifically, the study seeks to
- Examine the financing options available to SMEs are practically obtainable to support the capital required for their operation in Eleme LGA.
- Examine the extent to which SMEs contribute to economic development in Eleme LGA.
- Examine the problems SMEs encounter in sourcing out funds in Eleme LGA.
- Examine the survival strategies needed by Small scale industries in Eleme LGA.
1.4 Researcher Questions
This study was guided by the following research questions:
- What are the various sources of funds available to the small enterprise in Eleme LGA?
- To what extent do small scale enterprise contribute to towards economic development of a nation in Eleme LGA?
- What are the problems encountered by the small scale enterprise in sourcing for funds in Eleme LGA?
1.5 Statement of the Hypotheses
The following null hypothesis was given for this study
i. Ho: There is no significant relationship between the source of fund available to small scale enterprises and the funds available to them in Eleme LGA.
Hi: There is a significant relationship between the source of fund available to small scale enterprises and the funds available to them.
ii.Ho: There is no significant relationship between the development of small and medium scale industries and the economic development of that nation in Eleme LGA.
Hi: There is significant relationship between the development of small and medium scale industries and the economic development of that nation in Eleme LGA.
iii. Ho: There is no significant relationship between the problems encountered by the small scale enterprises in Eleme LGA.
Hi : There is significant relationship between the problems encountered by the small scale enterprises in Eleme LGA.
1.6 Scope of the Study
This research covers the area of capital and survival strategies of small-scale enterprises in Rivers State, paying special attention to Eleme Local government Area of Rivers State.
1.7 Significance of the Study
Small-Scale Enterprises in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance. This study will be of benefit to the operators of the Small and Medium Enterprise, the government, and the general public on the possible financing options and survival strategies available to the Small and Medium Scale enterprise and give the possible means of accessing them .
1.8 Definition of Terms
Capital: wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.
Survival: the state or fact of continuing to live or exist, typically in spite of an accident, ordeal, or difficult circumstances.
Strategy: a plan of action designed to achieve a long-term or overall aim.
SMEs: small to medium-sized enterprise, a company with no more than 500 employees.
Business Ownership: This refers to the different forms in which a business can be owned such as sole proprietorship, partnership, cooperatives, etc.
Economic Development: Isthe development of economic wealth of countries, regions or communities for the well-being of their inhabitants.
Poverty: Is about not having enough money to meet basic needs including food, clothing, shelter and medical treatment.
Entrepreneurship: The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit.