LECTURE NOTE3 FOR ND1 COMPUTER AND STATISTICS

UNDERSTANDING GOVERNMENT INVOLVEMENT IN SMALL SCALE ENTERPRISES

 Government Policies And Impacts

 Specific Institutions
 Specific Incentives Provided By Government

Government Policies

A policy can be defined as a plan of action agreed and chosen by a group of people, organization, or
political party. In business, policies can be categorized as internal or external. The internal policies guide
and spell out how business activities are run. The internal policies, also known as business policies, are
set by the owners and management of a business, and determine their scope of operations (Oviatt &
McDougall, 2005). But these business policies are dependent and often influenced by the overall
government policies within the economy in which entrepreneurs operate. The government policies
therefore, are external policies which are not within the direct control of the entrepreneurs within the
economy.

REsearch has shown that government policies relating to taxes and business regulations often affect
entrepreneurial activities (Acs & Szerb, 2007; Bygrave & Timmons . The taxes, tariffs, and monetary
policies have rippling effects on entrepreneurial activities. When government, for instance, decides to
mop up funds from the economy, they sell treasury bills to the public. This invariably reduces the money
in circulation, affect investors’ willingness to release funds, and ultimately cripple entrepreneurial
activities. On the other hand, when money is pumped into the economy, more funds are made available
for investments and entrepreneurial activities. Entrepreneurship and small business development are the
heart of many countries economy and any country giving its entrepreneurs special attention has a better
chance of an improved economy. In recognition of the need for entrepreneurship policies, many countries
have implemented both general and specific policies to promote entrepreneurial activities. General
policies such as tax rates, labour laws, and market regulations have shaped the entrepreneurship climate to
a great extent in different economies. Also, some specific policies have been specially targeted to promote
entrepreneurship. For instance , In Nigeria, structures and programmes such as the Small and Medium
Enterprises Development Agency (SMEDAN), N-Power programme, Government Enterprise and
Empowerment Programme (GEEP) and the You-win programme were designed to promote
entrepreneurial activities by facilitating access to funds and other resources needed for SMEs (Oliyide,
2012; Today.ng, 2018). All these policies and much more are targeted towards promoting
entrepreneurship.
Some policies are targeted to specific businesses while others affect entrepreneurs directly. For instance,
in Nigeria, agro allied businesses are often exempted from tax during the first five years of operation
(Ngerebo & Masa, 2012; Odusola, 2006). Some businesses are also being subsidized

while small businesses enjoy tax exemption. Also, policies implemented to discourage the importation of
manufactured goods often protect indigenous industries and encourage entrepreneurial activities.

WHY POLICIES MAY NOT HAVE THEIR INTENDED IMPACT IN NIGERIA

Policy evaluation often indicates that policies do not achieve the intended goals. A variety of factors may
impede the attainment of policy goals according to Adebayo (1995). They are:

i. Multiplicity of causes of problem: Policy problems are quite often caused by multiple factors; negative
practices of sellers like commodity trade unionism cause inflation. Uncontrolled wage/salary increase
time and time again has also caused inflation etc. Therefore, any policy made to control inflation should
take into consideration these extraneous variables. Policy formulated to encourage entrepreneurship
should at the same time take the issue of electricity, water, good road network into consideration.

ii. Public policies have incompatible goals: When policies are made argues Onyishi (2004) without
taking into consideration incompatible goals it tends to affect the impact of the policy. For instance,
Olusegun Obasanjo administration (1999-2007) adopted the policy of poverty alleviation and promotion
of socio-economic development and at the same time pursued a policy of retrenchment of thousands of
workers from paid employment. The situation increased cases of crime and poverty.

iii. Resources: Greater percentage of good policies formulated in Nigeria according to Clark (2000) is not
well funded and thus lead to their failure. For instance, most, rural development policies failed due to
inadequate funding. Also entrepreneurship is not thriving in Nigeria properly due to inadequate fund to
pursue the appropriate models and strategies

iv. Cost of problem solving: Most public problems are so complex that the cost of ameliorating the
problem may be higher than the benefit that could accrue from such policy.

v. Emergence of new problem: Sometimes in the course of policy implementation, a new problem may
arise which automatically divert attention from the existing problem. For instance, in the course of
implementing rural development programs and industrialization in Nigeria, it stemmed up the rate of
armed robbery in the rural areas, which constituted another big problem for the government to control.
vi. Insolubility of some problems: Some policy problems de ed conclusive solution for example
education for all program has not been achieved in Nigeria because of the orientation of the Islamic
communities where women education is not encouraged (Adebayo,1995).

ROLE OF SPECIFIC INSTITUTIONS IN PROMOTING SMALL ENTREPRISES

The National Economic Reconstruction Fund (NERFUND)

Was set up to provide needed medium – to long-term financing to viable Small and Medium
scale production enterprises. The grand objectives are to increase the quantum of goods and
services available for local consumption and export, provide needed employment, expand our
production base and add value to the economy. In order to bridge the observed gap in banks'
lending to SMEs, the Federal Government set up the National Economic Reconstruction Fund
(NERFUND) through the NERFUND Decree No. 2 of 9th January, 1989. NERFUND is aimed
at providing soft, medium to long term funds for who N"igerian owned small and medium scale
enterprises. SMEs are defined as those wi cost of new investment up to, but not exceeding Nl0
million. SMEs through NERFUND, local and foreign loans over a period of five to ten years.
Specifically, the aims of NERFUND are to ~

(i) correct any observed inadequacies in the provision of medium or long-t financing to small and
medium scale industrial enterprises (SMEs), especially man cturingand agro-allied enterprises,
mining, quarrying, industrial support services,· eq . pment leasing and other ancillary projects.

(ii) provide medium to long term loans to participating commercial and me chant banks (PB~)
for on-lending to SMEs;

(iii) facili.:ate the provision of loans with 5-10 years maturity including a grace riod of 1-3 years,
depending on the nature of the enterprises or project; and

(iv) provide loan in local and/or foreign cwrency depending on the funds available to NERFUND
and the project being funded

Industrial Development Centers (IDCs)

Industrial Development Centers (IDCs) were among the agencies set up by the Federal Government to
render assistance to small- scale businesses in Nigeria. The IDCs were set up to provide assistance to
small-scale businesses in the following areas: Selection of machinery and equipment for small-scale units,
guidance on choice of technologies of production, guidance on choice of raw materials, advice on plant
layout, installation of machinery and equipment, training of plant personnel on handling of improved
machines, advice on product improvement, quality control and standardization , assistance on plant
maintenance and repairs, advice on diversification of product mix, assistance to resolve operation
problems, conduction of industry outlook surveys, feasibility studies and market surveys, identification of
new small-scale businesses opportunities, designing of sales promotion and advertising campaigns,
designing of book-keeping system for small-scale businesses, assisting of small-scale businesses owners
on accounting and cost analysis, financial counseling, credit arrangement, and provision of training on:
marketing management, personnel management, and product management and conduction of research
studies on specific topics or problems. The IDCs are also to assist the states in the management and
supervision of small-scale businesses throughout the federation free of charge .

The Ministry of Trade & Industry is the lead policy advisor to government on trade, industrial and
private sector development with responsibility for the formulation and implementation of policies for the
promotion, growth and development of domestic and international trade and industry

Centre for Management Development (CMD)

The Centre for Management Development (CMD) is a resource institution established in 1973 by the
Federal Government of Nigeria. It is the operational arm of the Nigerian Council for Management
Development (NCMD). As a resource institution under the National Planning Commission, CMD has
responsibilities to simulate, promote and co-ordinate management education, training, research and
consultancy in Nigeria. Specifically, CMD pursues its role of capacity building and economic
management by:

• identifying the type and quality of programmes required for the development of the country’s
managerial manpower;

• developing resources for management research, training and consultancy;

• institution building to meet the needs of national development; and

• improving the quality and enhancing the use of management research, training and consulting.

In addition to these roles, CMD undertakes the management development component of small and
medium scale industries development through the design and provision of suitable training packages for
industrialists and officials of Federal/State agencies.

TARGET AUDIENCE CMD’s

scheduled programmes are designed primarily for: • entrepreneurs and managers in the public and private
sectors of the economy;

• management educators, trainers, consultants, industrial extension officers, researchers, human resource
specialists in institutions and agencies;
National Directorate of Employment (NDE)

The National Directorate of Employment (NDE) was established in November 1986. It began
operations fully in January 1987. It was established as a direct response to the rising trend of
unemployment,. It was designed and implemented for job creation programmes that will
promote attitudinal change, employment generation, reduce poverty and enhance wealth
generation . specifically , the Directorate is empowered to operate as an employment creation
agency statutorily charged with the following mandate: –

To design and implement programmes to combat mass unemployment

To articulate policies aimed at developing work programmes with labour intensive potentials

To obtain and maintain a data bank on employment and vacancies in the country with a view to acting as
a clearing house to link job seekers with vacancies in collaboration with other government agencies and

To implement other policies as may be laid down from time to time by the board established under
section 3 of its enabling law.

To fulfill her statutory mandate, the NDE introduced four (4) major areas of intervention for mass job
creation for the unemployed as follows: –

Vocational Skills Development

Entrepreneurship Development

Agricultural Skills Training and

Public Works Programme

DEVELOPMENT BANKING

Development banking in Nigeria was established, as a result of strong needs to close the gap created by
the inability of the operating banks in Nigeria such as commercial banks, central bank and merchant
banks to provide the needed funds to finance some special sectors of the economy such sectors which
must be financed mainly with long-term and sometimes with medium term funds, need finance from
specialized banks such as development banks. These banks were established for the purpose of providing
medium and long term loans for capital projects in Agriculture commerce, industry and other essential
projects that are necessary for economic development of the country, such loans are usually provided
from the banks internally resources.

THE INCENTIVES PROVIDED BY THE GOVERNMENT ARE AS FOLLOWS:

The goal or desire of of any nation is to achieve economic growth and development. For Nigerian
government , employment provision and reasonable development of all localities are certainly not
feasible within the limited government structure and establishment . The federal government therefore
consider the active participation of the private sector especially the grass root level as the most viable
means of achieving the development and job provision . Hence , in its second and third term national
development plan , the federal government adopted the policy of giving active support to the promotion
and development of small and medium enterprises in the country.

Helping small businesses start and thrive is a win-win situation for the government. Local businesses help
support the tax base through businesses taxes and through the wages provided to employees. The
possibility of workforce expansion and economic growth prompts municipalities, counties, states and the
federal government to offer various forms of assistance, such as grants, research opportunities, beneficial
legislation and worker training programs.

Economic Development Programs

Some government programs help businesses start, grow and relocate to specific areas. In some ways,
local, county and state governments compete with each other for jobs. They do this by offering start-up
incentives and taking steps to create a “business-friendly” environment. These steps include tax credits,
worker training, free land, zoning changes, low-interest loans, infrastructure improvements and help with
fast-tracking licensing and permitting.

Loan Guarantee Programs

Government agencies such as the U.S. Small Business Administration provide loan guarantees to small
businesses and encourage local banks to work with start-ups or established companies that want to
expand. Talk to your banker about state or federal loan programs that offer low interest rates. If you are a
woman, minority or operate a business in select industries, additional loan opportunities also may be
available. Contact your state's economic development office to learn if it has loan programs.

Research and Development

The federal government provides grants to academic institutions working to develop new
technologies that will benefit industry with the caveat that the institutions share the technologies
with industry. In some instances, the government provides grants to private companies making a
new product or service that will improve a vital area of an economy, such as transportation,
energy, agriculture or communications. Some states also fund research and development projects
and work with private investors and the federal government to raise funds.

Infrastructure Improvement Funding

Business does better when it can move raw materials to factories efficiently and get finished
goods to plants and markets quickly. Governments help improve the infrastructure needed for
businesses to succeed. This includes building and maintaining roads, bridges, rail lines, airports,
seaports, energy transmission lines and telecommunications systems.

Education and Training Programs

To ensure businesses have access to trained workers, governments provide free schooling for
primary and secondary students, grants and loans for higher education and worker training
programs. Governments often work with trade schools, community colleges and universities to
provide free worker training.

More specifically the government provides incentives in the form of the following to encourage small
scale enterprises :

1. Land.: Developed Tots are offered by every state for establishing industries.
2. Power: Some states supply power at a concessional rate of 50%, while some give it free of cost during
the initial years.
3. Water : Water is either supplied at 50% concession or is totally free for a period of 5 years.
4. Finance : Small business units are offered loans at a very low rate of interest i.e. 10 to 15% subsidy is
given for building capital assets.
5. Sales tax: Exemption from sales tax is extended by some states for a period of 5 years while all muon
territories provide full exemption from sales tax. It is also known as Value Added Tax (VAT).
6. Raw material: Units located in backward areas get preferential treatment in the matter of allotment of
scarce raw materials like cement, iron, steel, etc.