The Role of Small Industries in the Economic Development of Nigeria


In the early 60’s, what was in vogue in Nigeria was the transfer of technology from the industrialized world. Mostly, this transfer of technology was seen through the establishment of large-scale industries that would entail the importation of foreign materials and employment of expatriates. After about a decade and half of adopting this industrialization strategy, Nigeria has achieved only a fragile industrial development (Agbo 1978:10) the large-scale industrial, which were floated, tended to be capital intensive and inappropriately given the country’s resources endowment and funds. Their capital equipment and manpower have continued to be largely imported. This has resulted to failure to achieve its set objectives for establishing these large-scale business ventures, which includes.

  1. Saving of foreign exchange
  2. Acquisition of transfer of advance technology etc.

The plans as it were have not achieved up to 10% in local material sourcing. The so called expatriates had neither the will nor the capacity to transfer any meaningful technology in a way of remedying the above weakness, the government started to promote small scale industries as a strategy for self reliance.

Thus, the second National Development plan (1969-1974) both the federal and state government were involved in promoting the development of small-scale industries.

In the third National Development plan 1975 – 1980), government explicitly started the main objective of a programme for the development of small scale industries as measures for creating job opportunities, mobilization of local resources, reduction of rural urban migration.

The government tried to achieve these through complementary assistance to small and medium sale entrepreneurs in both technical and financial aspects. This was the major reason why government set up the industrial development center (IDC) and the state small-scale industries credit scheme (SSICS)


It will be of immense importance to note that the definition of small scale enterprises differ from country to country, institution to institution and from individual to individual. These differences in its definition make it clear that there is no general acceptable definition of small-scale industry.

The difference between countries can be attributable to different level of development among countries of the world. This phenomenon arises as a result of certain criterica such as:

  • Mode of operation
  • Industrial capital outlay
  • Ownership structure
  • Profit level
  • Size of the business
  • Sales volume.
  • The technical know how of the entrepreneur concerned.
  • Number of the employees
  • Type of industry.

From the above, you will agree with me that what would mean small scale enterprise in advance country will not be the same in developing country. However, some of these proliferated definitions of small-scale enterprise in Nigeria are as follows:

From central bank of Nigeria (CBN) credit guidelines to commercial and merchant banks since 1979 defined small-scale enterprise as an establishment whose annual turnover does not exceed five thousand Naira (N500, 000.00) (CBN 198: 25)

Also the central bank of Nigeria monetary policy circular No. 28 of 1994 defined small scale enterprise of the purpose of commercial banks loans, as those enterprises with total cost of about N1Million but not exceeding N10Million (excluding cost of land but including working capital)

The World Bank M1993 defined small-scale enterprise as

  • Total capital outlay (excluding land) of N100, 001 to N2Million as small-scale industrial.
  • Total capital outlay (excluding land) of N1 to N100, 00 as cottage industry.
  • Total capital outlay (excluding land) of N1 to N100, 00 as cottage industry.
  • Total capital outlay (excluding land) of N2million to N5million as medium size industry.

In the same 1979, the small scale industry unit of the federal ministry of industries defined small scale enterprise as enterprise having investment capital of up to sixty thousand naira (N60, 000.00) and employing not more than fifty persons. This was later changed to embrace any manufacturing processing and service enterprise with capital not exceeding one hundred and fifty thousand naira (N150, 000.00) federal ministry of industry small scale industries guide 1979.5

In their definition the National Directorate of employment (NDE) guideline for establishment to small-scale industry (1987:14) defines small-scale industries as one whose total assets in capital equipment and working capital are less than two million (N2, 00,000) employing more than twenty persons.

Federal government in support of the NDE in 1990 came up with another official definition of small-scale industries, which was given under 3.376 (27) of the companies and Allied matter Decree not exceeding three million naira (N3, 000,000.00) Ujam 1990:6)

The Nigeria industrial development bank (NIDB) defined enterprise with project cost (investment and working capital) not exceeding seven hundred and fifty tousand naira (750, 000.00) as small scale and those business with capital investment ranging from N750, 000 to N3, 000,000 as medium enterprises.

Section 376 (2) of the companies and Allied Matter Decree of 1990 defined a small-scale company as one with annual turnover of not more than N2million, net assets value of not more than N1million

National economic reconstruction fund (NERFND) placed it an N10million.

However, the Nigeria bank for commerce and industry (NBCI) had in 1982 recommended that, the investment ceiling in machinery and equipment should be raised to N750, 000 because of the high rate of inflection in the economy. The National Workshop on small scale and medium later adopted this amount enterprises development (SMED) in March 1985 held at Topo Badagry.

In an attempt to resolve the problem of definition the central for management development (IMD) modified various definitions in its policy proposal on small industry services submitted to federal government in June 1982 as:

A small scale business in a manufacturing processing or service industry involve in a factory or production type of production, employing up to 50 full time workers. Investment in plant and machinery should exceed N500, 00 power plant and machinery are utilized in its operation.

More so, the small Business Administration (SBA) in the United State of America (USA) defined a small business as “ one which is independently owned by and operated some group of persons, and it is not dominant in its field of operation” Another problem is that, some economy like USA Canada, Great Britain etc use all inclusive term “small business” or small enterprise” to mean or cover manufacturing small activities, such as commerce, services, maintenance and repair, transportation, construction, manufacturing and excavation (ITF 1989: 101)

From the definition we have seen so far from the various school of thought, it can be deduce that there are only two major way of defining a small scale industry business. Thus.

  1. The quantitative approach and
  2. The qualitative approach

The quantitative approach has to do with the number of size of people employed or to be employed in the business and the sales volume while

The qualitative approach uses four characteristics to describe small-scale industry, which are:

  • Area of operation
  • Size of consideration with other industries
  • Capital supplied by one person
  • Owner supplier manages.

Therefore, when distinguishing between big business and small business, some of the criteria used are relative size, type of customers, financial strength and number of employees.

In a report on financing small-scale industries in Nigeria, the chairman of the sub-committee on National Advisory Committee, Dr. A.O Oguatony enumerated the following as the general traits of small-scale business for examples.

  1. The level of education of the proprietor is usually low compare to the level of management in the business.
  2. Managers do the financing and supervising of production.
  3. The enterprise is usually poorly equipped as the prejudice or fear that information about the enterprise might reach the tax authority or newly competitor.
  4. The rate of business mortality is very high
  5. The number of employees engaged in such business are usually below fifty (CBN 1986:25)
  6. The initial capital investment in such a business is usually low.
  7. The managers raises short or long capital of his market needs through personal saving, loans from friends, relations etc.
  8. The operation of such enterprise are usually confine to the local community in which the business is being carried on ignoring wide and more distant market.

The Committee of Economic Development (CED) of the United State has given a valuable list of characteristics of small business. The CED states that a small business will have at least two of the following characteristics.

  • Managers are also owners.
  • Area of operation mainly local
  • Small in size within the industry
  • Owners supplied capital



          In search for the school of thought relevant to the problem of study three major areas are identified, these are:

  • The government
  • The financial institutions (The commercial banks) and
  • The small scale enterprise themselves.

This division has been made in order to identify the origin of these problems (Thomas and Henry 1991:181)


The problem in the area of the government as regards the promotion and growth of small-scale industries are:

Lack of adequate infrastructure. There is lack of modern infrastructures in supply. Such as good, water, electricity, roads and other communication which are vital for efficient performance of small scale industries (The Courier P.42)

Lack of efficient supervision: the government most of the time does not monitor the activities of the enterprise to which loans have been given.

The funds available to government are faced with a lot of competition objectives. As this fund is limited, it is always hard for government to meet and promote the need of small-scale industries.

Foreign exchange: inability to provide the require naira equivalent for the procerment of foreign exchange needed to produce machinery, raw materials and other inputs and the disability in obtaining adequate foreign exchange from SFEM in competition with the branches of transnational corporations operating in the country is a stumbling block to the growth of small scale industry (CBN 1986:30)


          The problems associated with banks are mainly advancing loans to small-scale industries and they are summaries as follows.

  • High rate of failure: banks generally see small scale enterprise as high risk and thereby accord them low priorities in loan advancement. This is because of the failure and lack of financial integrity among the operators of small-scale enterprises.
  • Lack o adequate personnel: the paucity of qualified personnel or professional who can evaluate application for objectively and follow up business performances hinder loan advances for small scale industries (UBA 1996:28)


This is the most sensitive area of small-scale enterprise, which have mortality rate of small-scale business in Nigeria.

  • Lack of management experience: Most small business manager lack experience on where to source fund and from to source for fund, myopic marketing activities. This also manifests planning.
  • Loan Default: Small-scale enterprises are well known for loan default (i.e. inability to pay back loan). Loans collected for business expansion are sometimes difficult to pay back most especially when there is low rate turnover.
  • Loan Diversion: It is well known case to see a businessman diverting the loan or fund advance to him for his business to other personal aggrandizement.
  • Lack of material: The truth is that, must entrepreneurs do not consider the amount of raw material before starting the enterprise. It is necessary to find out whether the relevant raw materials are locally sourced and in which quantity does it have substitute? Lack of raw materials and inadequate supply pose a challenge to small business.
  • Lack of storage facilities: Some proprietors of small scale industries lack the storage equipment, thereby causing spoilage to raw material and finished product that need to be stored.
  • Lack of planning: Many small business operators are in it because they believe that it’s the last bus stop. As a result, they go into the business without planning (UBA 1996:33)
  • Poor account and record keeping: There is also the problem of taking or recording the daily transation. Some of the small scale industries lack the material for book keeping and this can record in high rate of theft in their transaction.
  • Lack of Advice: since most small scale business are owned by a person, they therefore lack good and technical advice which could have been benefited in partnership and other forms of business.

Most indulge in this act so as to protect the secrete of the business (Ekene 1996:33)


          In appreciating of the important roles of the following main objectives of the government, the following were highlighted in the third National Development plan (1976 – 1980)

  • Mobilization of local resources.
  • Creation of employment opportunities
  • Moreven dispersal of industrial enterprise within steering these incentive were:

The state small-scale industries credit scheme (SSICS)

National extension training institute, establishing of industrial areas and estate and small-scale potential survey and promotion activities.

Apart from the above mechanisms, the government has also been making effort through its policy instruments, provisions and directives that would create a conducive atmosphere for the sustenance and growth of small and medium scale enterprises. During the second development plan (1970- 1974) the government set up Nigeria bank for commerce and industries (NCBI) in a financial institution for lending to small-scale enterprises.

The National Directorate for Employment (NDE) established in 1987 for granting of loans to graduates and other school leavers for the establishment of the export stimulation loan were also established for the aim of stimulating the proliferation of small scale industries.

The role of small scale enterprise according to Beacham and Williams (1961:51) states that a small enterprises are exped to and play a vital role in Nigeria’s industrial and economic development. In Japan, Indian and other countries of South East Asia have made good use of this awareness and a lot can be shown for the existence of sector, the theoretical underpinning of the role is based on the well-known small-scale industries.

Small-scale industries are entrepreneurs try to explain new ideas and favorable market opportunities. The history of industrial revolution in Europe rightly testifies that from the point of view of entrepreneurship in Nigeria. Small-scale business is the major areas where most businessmen concentrate on market opportunities. This is because the fund requirement is small when compare to large-scale industries.

From what we have seen so far, it is quite clear that the role of small-scale industry cannot be over emphases. Some of these roles include.

  1. Because of its nature, small-scale business was able to operate economically with very limited overhead costs. This makes the firm less vulnerable in period of depression. Because of this also, there are more flexibility in operating small business as it has chance of survival.
  2. Small-scale enterprise depends largely on local trades men utilizing locally solved raw materials for production. It will enhance the achievement of federal governments programmes of backward integration.
  3. According to Odo, the promotion development and enhancement of indigenous technology is one of the low financial requirements in setting up this business. Businessmen find it hard to provide heavy and sophiscte foreign machinery and technology with which to aid indigenous technology for production (Odo 1986: 17)
  4. Unreasonable importation has been the bane of Nigeria economy; it is unreasonable in the sense that, we can produce the things we are importing.

The promotion of small scale enterprises in Nigeria has help in the directing the minds of both the producers and consumers in this country, thereby impveiling our potentialities and business opportunities. The burden of our foreign reserve is gradually lifted and our balance of payment position equally becomes viable with the proliferation of small-scale industries with the federation. The rural areas, which hitherto have been experiencing neglect because of rural urban migration, is receiving a great boast. This favorable development is invaluable for even distribution of wealth through out the federation.

Above all, a lot of materials, which have been classified as industrial waste from large industries, are now being cycled for further production through small scale and medium enterprise. The poultry industry, which depends largely on waste products (corn and wheat chaff) from breweries is a good point (FMI 1990: 8)

2.5     SUMMARY

it was discovered that small scale industries played as a lot roles in economic national building especially in the area of unemployment where small scale business plays a vital role in absorbing school leavers, and even unskilled labour considering the production and distribution of REDIMA sachet water.

During the research, I discovered that some of the essential items like domestic goods and others are usually provided to the rural dwellers through the distributors of small-scale product. Data colleted should that REDIMA water makes high rate of turnover to during the dry season (i.e. from November to March)

Also, it was discovered that power failure, lack of government loans, and poor managerial ability the major problems facing small-scale business, REDIMA satchet water is included. The product from this Abakpa in particular, but also the people of Enugu State in general.

REDIMA water has covered wide range of areas in Enugu State because of its efficient delivery trucks that distribute the product to the most remotest part of the state.


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