STRATEGIES FOR OFFERING SUPPORT SERVICES TO ENTREPRENEURS IN NIGERIA: A CASE STUDY OF FIIRO O I Wale-Awe & S O Ajayi

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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