CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The economy is a complex dynamic factor requiring greater

attention in terms of its analysis and efficient management for

productivity stability growth and increased standard of living of people

operating Nigeria.

Since 17th century efforts was made to promoting economic

growth and have focused on the small and medium scale industries

(SMIS) as the keys and the development of an economy and

manufacturing sector in general. The role of small and medium scale

industries in the overall growth and development of an economy‟s

manufacturing sector in particular and the economy in general cannot

be over emphasized. Small and medium scale industries are indeed

high potentials for development in term of employment generation and

wealth creation in any economy. Empirical studies have shown that the

small and medium scale industries (SMIS) have in many state has

enhanced greater employment opportunities per unit of capital in vested

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and aided the development of local technology. This explains the deep

interest which developing nation has shown in the promotion of small

and medium scale industries since the 1970s.

Moreover the potentials of small and medium scale industries in

contributing substantially to the economic growth and development of

Nigeria has been hampered by various constraints inducing long term

capital inadequate financing unavailability of information for potential

investors poor management practices and low entrepreneurial skill

over bearing regulatory and operational environmental unfavorable

tariff policy and infrastructural deficiencies such as inadequate power

supply.

These constraints also limit the performance of small and medium

scale industries in Nigeria.

Although it is a widely held view that the availability of credit as

the most critical to the performance of small and medium scale

industries (SMIS) but some studies have shown that a large number of

small and medium scale industries fail because of non financial reasons

such as infrastructural deficiencies (Liedhorm et al 1994). One of the

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infrastructual facility affecting the performance of the SMIS in Nigeria is

power supply (electricity). Due to inadequate provision of power supply

constitutes one of the greatest constraints in SMIS development. The

current situation whereby each investor is too provide electricity is to

say the least tasking to the SMIS investors who generally lacks

adequate capital for the business and the result of this is low return on

investment due to high operations cost. Therefore adequate power

supply is necessary to ensure cost effectives in vestments in small and

medium scale industries (Charles Soludo 2005).

It is however noteworthy there is need to objectivity access the

Nigeria and impact of power supply on the performance of the SMIS

sub-sector of the Nigeria manufacturing sector.

1.2 Statement of Research Problem

Small and medium scales industries in both developed and

underdeveloped nations plays an important role in the process of

economic development and industries. In spits of the relevance of the

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small and medium scale industries to Nigeria economy and industrial

development on that sector faces a lot of problems.

Although there are various factors affecting the performance of

small and medium scale industries sub sector ranging from inadequate

capital to unfavorable tariff policy however the poor state of power

supply in Nigeria is one of the significant factors militating against the

performance of small and medium scale industries.

The equality and quantity of a country‟s power supply determines

its ability to create competitive industries. Since the performance of

SMIS in any state is greatly influenced by the electricity supply. Given

the pathetic state of power supply in Nigeria it is no wonder that the

contribution of the development the state manufacturing sector and the

economy in general is very negligible or unsupported by the

government.

An overview of the performance of the small and medium scale

industries in Nigeria shows that past policies made limited impact on the

sector for example it is estimated that SMIS account for about 80

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percent of the total industries employment in Nigeria but only contribute

15-20 percent of total manufacturing output.

Power supply has remained unreliable and power out-age load

shedding and rationing have become very frequent. Power supply had

been erratic and unreliable that many businesses have resorted to

purchasing private generators at prohibi

-ost. The substantial investment in private generating plants is

estimated to be of capacity of over 250mm which is almost half of

power holding company of Nigeria (PHCN) available capacity.

1.3 Research Questions

The study would therefore provide answers to the following

fundamental questions.

(1) How does power supply affect the performance of small and

medium scale industries in Nigeria?

(2) Are there linkage between power supply and the performance

of small and medium scale industries in Nigeria?

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(3) What contributes to failure of power supply and manufacturing

sector?

1.4 Objective Of The Study

The objectives of this research study are to provide a clear picture

on the activities of effects of power on the performance of small and

medium scale industries. The specific objectives of the study are:

(i) To examine the impact of power supply on the performance of

small and medium scale industries in Nigeria

(ii) Solutions polices options and recommendation

(iii) To identify the problems of that might be against the

effectiveness of small and medium scale industries in Nigeria.

1.5 Hypotheses

The broad objective of this study is to assess the performance of

power supply to small and medium scale industries in the state. The

specification objectives of the study a

re as follows:

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(1) (Ho; No significant dependence) the performance of small and

medium scale industries is not dependant on the quality and

availability of adequate power supply in Nigeria.

(2) (H1; Have significant dependence) the performance of small

and medium scale industries is dependent on the quality and

1.6 Justification of Study

This study is significant of selected growths. It will add to the

available literature on the study area. Power supply is a problem to the

state government and its citizens. From experiences our various

industries there is no doubt that the small and medium scale industries

over the year have been at the receiving end of the economic

environment in the state. Infact the contributions of the sector has

been declining over the years. Hence this study will create awareness

to the government to see the extent to which neglect of infrastructural

facilities such as electricity is hampering the performance of SMIS in

meeting their potentials of the providing employment per unit

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investment capital facilitating the development of indigenous

entrepreneurships enhancing local resources utilization and value

added expanding non oil exports at competitive prices improving

balance of payment position and bring about disagreed overall growth

and development of the state economy.

The lack of power supply in the state serves as external dis-

economics for SMIS adversely affecting their performance productivity

and profitability.

1.7 Scope of the Study

The research work is concerned basically with the roles to lay

emphasis on power supply and the performance of small and medium

scale industries in the state and will cover those SMIS in state that have

electricity as relevant infrastructural for their production process. The

analysis covers a period of 1986-2010.

The basic limitation of this study is the completing nature of

sources of statistical inputs. The data obtained from the annual bulletin

journal and statistical data text books magazines and seminars reports

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etc. consequently the information given is extracted from the CBN and

others sources of secondary data.

1.8 Plan of the Project

This study will be structured into chapters. Chapter one will cover

the introduction of study statement of the problem objectives of study

hypothesis justification of the study scope and limitation of the study.