University of Nigeria Vivian Ifeoma_94_17111.… · 1.6~1 Rosche Nigeria Limited 1.6.2 Dens Cook Reference CHAPTER TWO REVIEW OF RELATED LITERATUflE 2.1 Definition of Small Scale

University of Nigeria Research Publications

NWOKO, Vivian Ifeoma

A

utho

r

PG/MBA/92/17111

Title

Impact of SAP on Small Scale Industries: A Case Study of Den’s Cook and Rosche

Nigeria Limited

Facu

lty

Business Administration

Dep

artm

ent

Management

Dat

e

June, 1994

Sign

atur

e

CERTIFICATION

T h i s t h e s i s h a s been r e a d - a n 3 approved as having

s a t i s f i e d the. pa r t i a l r aqu i r emen t f o r t h e award of

MBA Degree i n M a r - e m e n t .

3 P r o j e c t Supervisor

Head o f Depar tment

DEDICATION

To t h o s e who c o n t r i b u t e d t o t h e growth and t e a c h i n g s \

To my p a r e n t s P r i n c e and Mrs. A.N. Nwoko f o r a l l

t h e y have done f o r me*

To Almighty God, f o r h i s gu idance and mercy d u r i n g

t h i s t r y i n g pe r iod and fiAally t o my b r o t h e r s , Leonard ,

Gregory , Tony, G a b r i e l and Fred .

I am i n d ~ b t e d t o many people and o r g a n i s a t i o n s

who have helped me i n t h e p r e p a r a t i o n of t h i s p r o j e c t

/ - and from whom I have r e c e i v e d much in format ion .

They i nc lude r

- My s u p e r v i s o r , Chief John Ezeh, f o r h i s f a t h e r l y #

c a r e and adv ice .

- P r o p r i e t o r o f Rosche Niger ian Limited and N r Aso o f

Den's Cook, bo th i n Enugu S t a t e f o r t h e i n f o r m a t i o n

reneered which I used i n t h e p r e p a r a t i o n o f t h i s

t h e s i s .

- My cous ins , M r G a b r i e l Aghuno and Chidirna Nwoko f o r

t h e i r a s s i s t a n c e .

- My s p e c i a l thanks t o Chinelo A z i e f o r h e r s u p p o r t

and ca re .

Den's Cook a l t h o u g h a f t e r much p r i c e i n c r e a s e s of i t s

p r o d u c t s , ach ieved 145.09% r e t u r n on i n v e s t m e n t ,

i n f l : a t i o n d e f i ~ i t e l y has become a l i v i n g member of our

s o c i e t y . P r i c e i n c r e a s e s has become a major s t r a t e g y

adop ted by Den's Cook and cven Rosche N i g e r i a Limi ted

I n o r d e r t o s t i l l s t a y i n b u s i n e s s .

However t h e impact of SAP on small s c a l e i n d u s t r i e s

which Den 's Cook and ~ o g c h e N i g e r i a Limi ted be long

is a measure t h a t can be c o r r e c t e d w i t h i n t h e g e n e r a l

economy. P o l i t i c a l s t a b i l i t y and removal of c o r r u p t i o n

If e s t a b l i s h e d w i l l a l l o w SAP t r u l y r e s t r u c t u r e our

economy.

TABLE OF CONTENTS

Ded ica t i on

Acknowledgement

A b s t r a c t

CHAPTER ONE

1.4 Ganera l I n t r o d u c t i c n

1 .2 Problem D e f i n i t i o n

1.3 O b j e c t i v e s o f t h e Study

1 .4 S i g n i f i c a n c e of The Study

1.5 Scope, L i m i t a t i o n and C o n s t r a i n t of

t h e S tudy

1.6 Background of t he Study Area

1 . 6 ~ 1 Rosche Niger ia Limited

1.6.2 Dens Cook

Reference

CHAPTER TWO

REVIEW OF RELATED LITERATUflE

2.1 D e f i n i t i o n o f Small S c a l e I n d u s t r i e s

2 .2 An Overview of SAP

2.3 Elements o f SAP

2.4 Exchange !?ate P o l i c y

2.5.4 Trade L i b e r a l i z a t i o n

2.6 F i s c a l and Monetary F o l i c i e s under SAP

2,7 P u b l i c S e c t o r Reform

2 .8 P o s i t i v e Impact of SAP on t h e Niger ian

i

ii

iii

1

7

8

8

9

10

10

10

12

13

13

16

18

I?

23

24

27

Economy 29

Page

2.9 Negative Impact of SAP on t h e Yigerian

Economy 31

2.10 Problems M i l i t a t i n g Against t h e S u c c e s s f u l

Implementation of SAP i n Nigeria 36

?. 11 Qovernment and small Scale I n d u s t r i e s 39

2.12 E f f e c t of SAP on Small Scale I n d u s t r i e s 43

References 45

CHAPTER THREE I

RESEARCH DFS I G N AND MPTHODO ?XGY

3.1 Research Me thodology

3 .2 Empirical Inves t iga t ion

313 Method of Sampling

3.4 Sources of Data Col lec ted

3.5 R e l i a b i l i t y of Data Col lec ted

CHAPTER FO UR

Data P r e s e n t a t i o n and AhaLaysis

Refer ence5

CHAPTFR FIVE

SUMMARY, RECOFVENDATION AND CONLUS IOR

References 86

LIST OF TABLFS

C o s t of F r o d u c t i o n Trend (Den's Cook:

Den's Cook O u t l e t s

Sales Wend fr en's cook)

#

Table

LIST OF APPENDIRES

Apnend ix R e s e a r c h Q u e s t i o n s

Income S t a t e m e n t of Den's Cook

G r a p h i c a l Cas t o f D r o d u c t i c ~ Trend (Den's

c o o k ) .

P r i c e I n c r e a s e s (Den's Cook) , #

Graphical Sales Trend (Den's Cook)

CHAPTER ONE

1.1 GENEdAL I N T R O D U C T I O N

The S t r u c t u r a l Adjustment Programme (%#)is one even t

i n t h e economic h k s t o r y o r N ige r i a which gave r i s e t o a

fundamental consequence i n t h e manner we have ende7 - .~u red

t o e a r n our 1iveli ' :hood and p r o s p e r i t y .

The importance of small scale' i n d u s t r i e s i n t h e

economic development of any n a t i o n cannot be over-

emphasized. The growth of small scale i n d u s t r i e s under t h e

S t r u c t u r a l Adjustment Programme s i g n i f i e s tremendous

improvement i n t echnology and g e n e r a l economic w e l l be ing

of t h e c i t i z e n s o f Niger ia .

However, i t should be noted t h a t ~ o n e t a r y and

f i s c a l p o l i c i e s have become o f l a t e a n impor t an t t o o l f o r

moderating o r s t a b i l i z i n g the f r e q u e n t f l u c t u a t i o n i n t h e

world economy - boom and recession. Although, it was not

t he case i n t he e a r l y par t of this cen tu ry , b u t due t o

t h e g r e a t d e p r e s s i o n of t h e 3 0 1 s , t h e p o s t war i n f l a t i o n

i n Europe i n t h e 4 0 ' s and ~ O ' S , financial p o l i c i e s of

government have come t o ,play an important r o l e i n t h e

a l l o c a t i o n of r e s o u r c e s . I n Niger ia , t h e s t r u c t u r a l

adjus tment programme i s an outgrowth of t h e economic and

p o l i t i c a l f a c t o r .

2 .

A u s e f u l p o i n t o f d e p a r t u r e i n this s t u d y is a r e v i e w

of dew1-pmen t o f t he economic c r i s i s which l ed t o t h e

i n t r o d u c t i o n o f SAP i n 1986.

he 1 9 7 0 ' s witnessed the t r a n s f o r m a t i o n o f Niger ian

economy from one denendent an a g r i c u l t u r e t o one dependen t

on o i l . : - 1 u e l t o t h e c o l l a p s e of t h e o i l market, i n 1981,

N i g e r i a exper ienced serious f o r e i g n exchange problems

which v i r t u a l l y b rought a c m o m i c a c t i v i t i e s t o a h a l t .

The c i v i l i a n a d m i n i s t r a t i o n o f Alha j i Shehu Shagar i

worsened t he a l r e a d y deplorable s i t u a t i o n , through

u n r e s t r i c t e d impor ts . The r e s u l t was that between 1980

and 1983, N i g e r i a ' s ba l ance of payment p o s i t i o n grew t o

a t e r r i b l e p o s i t i o n ; from a s u r p l u s of over W2 b i l l i o n

i n 1980, t o a d e f i c i t of R3 b i l l i o n i n 1981. Fore ign

r e s e r v e s a l s o went down s imu l t aneous ly . Oshinde (1987) .

Because o f this Nige r i a found i t ex t r eme ly

d i f f i c u l t t o pay i ts impor t b i l l s . Even as f o r e i g n

d e b t p i l e d up, i t could q o t redeem o l d d e b t s which

f e l l due . Regre tabPy~ Nige r i a is 705 or more dependent

on o v e r s e a s c o u n t r i e s f o r I n d u s t r i a l raw materials and

because of t h i s problem of c r e d i t , r a w m a t e r i a l s ,

s p a r e p a r t s and medicament could n o t be imported. Due

t o t h i s , f a c t o r i e s c losed down o r j u s t ope r a t ed a t

marginal c a p a c i t y , hundreds of workers were r e t r e n c h e d

and t h e r e was a s p a t e of unprecedented unemployment

i n t h e labour m a r k e t - t h e genes i s of un to ld hardsh ip .

Ayagi (1987) .

By the end o f 1983, the Niger ian economy had been

v i r t u a l l y des t royed . So by 1983, t h e t hen e i v i ~ i a n

government l e d by Alhaji Shehu Shaga r i i n v i t e d f o r e i g n

s p e c i a l i s t s c o n s u l t a n t s * to come' t o the r e s c u e o f

Nigerian economy. These c o n s u l t a n t prompted f o r t h e

IMF ( I n t e r n a t i o n a l Monetary Fund) loan. However, t he

IMF loan c o n d i t i o n a l l t i e s appeared t o o ha r sh and too

i n human f o r Niger ians and would t u r n Niger ians t o

mere vege tab l e s . While s t i l l over t h i s d e b a t e , t h e

Buhari a d m i n i s t r a t i o n , a m i l i t a r y government t a k i n g

over from the c i v i l i a n government seemed a b i t undecided

over the IMF issue b u t t i l t e d p o s i t i v e l y towards t he

loan.

I t is t r u e t h a t when the nex t government l e d by

Bgbangida took over power i n August 27, 1985, t h e r e

was no q u e s t i o n t h a t t he economy had ~ t a g n a t e d , and

w a s i n very bad shape. The bad economic s i t u a t i o n

thus l e d the p r e s i d e n t t o put i n p lace the t o u g h e s t

economic p o l i c i e s ever adopted by any Niger ian government,

Babangida i n July 1986, in t roduced "home grownw

b u t r e a l l y IMF and world bank adv ised and supe r -

v i sed s t r u c t u r a l ad jus tment programme. SAP d e f i n e d

a s a FUNDAMENTAL REFORMULATION !IF AND RE-OR IENTATION

OF : .THE N I G L H I A N ECONOMY. ~qyagi (1987) . SAP w a s &he

d i sman t l i ng and complete o v e r h a l l o f t h e N ige r i an

economy from what i t w a s by t he end o f 1985.

I n f a c t i n Babangida 's add re s s t o t h e n a t i o n on 26 th

June 1986, he s a i d , *our s t r u c t u r a l ad jus tmen t

invo lves new uses o f wea l th , new p r o p e r t y r e l a t i o n s ,

new produc ts , new a t t i t u d e s t o work, new consumption

h a b i t s , new i n t e r a c t i o n w i t h t he r e s t of t h e world.

A Y W (1987).

It should be noted t h a t SAP w a s a bold s t e p i n

t h e r i g h t d i r e c t i o n , which aimed a t r e d i r e c t i n g t h e

economic programmes and p o l i c i e s t o aeh i eve t h e d ~ s i r e d

o b j e c t i v e s of growth and development of t h e economy.

S ince t h e i n t r o d u c t i o n of SAP, t h e small s c a l e

i n d u s t r i a l s e c t o r has witnessed a n unprecedented

growth both i n number and i n s i z e .

En t r ep reneu r s a r e f a c i n g the c h a l l e n g e s po ised by

SAP wi th a l l t h e enthusiasm and v igour t h e s i t u a t i o n

demands. S ince t h e i n t r o d u c t i o n of SAP, t h e r e is a

g e n e r a l awareness t h a t t he s o l u t i o n of our economic

problem l i e s i n the e s t ab l i shmen t and encouragement of

small s c a l e i n d u s t r i e s t o f i l l t h e gap c r e a t e d by our

main source of revenue.

Although i t is e i g % t years s i n c e t h e programme was

launched, b u t it is s t i l l p e r t i n e n t f o r u s t o examine

t o what e x t e n t SAP has been able t o t u r n t h e b a t t e r e d

economy around and of course its e f f e c t on small s c a l e

i n d u s t r i e s , which i s the main s t a y of any v i b r a n t

economy, which t h i s stzdy entails t o examine. Has SAP

t r u e l y been p r o f i t a b l e ? Should i t be con t inued?

Although SAP has made a remarkable achievement

i n some a r e a s , but h a s l e f t a dep lo r2b le s i t u a t i o n I

i n some o t h e r areas,

It has succeeded i n s o f t e n i n g t h e hard l i n e s t a n c e

of f o r e i g n c r e d i t o r s towards Niger ia . This is t r u e

because Niger ia has rescheduled some o f i t s f o r e i g n

d e b t s , example between h e r and F a r l s and London c lubs .

Infact one m ~ r i t o f SAP is t h e remarkable improvement

i n t h e a r e a of s e l f r e l i a n c e . Ths t i s l ook ing i n w a r d s .

I n f a c t i t is on t h i s phrase, " looking inwardsw that

prompted t he commencement of one of t h e c a s e s o f this

s tudy , Dens cook i n Encgu S t a t e .

Our i n d u s t r f e s a r e us ing l o c a l i n p u t s f o r t h e i r

p roduc t ion more than ever be fo re .

On t h e o t h e r hand, t he impact of SAP seems t o have

weighed some i n d u s t r i e s down because of i ts s t r i n g e n t

measures. Cost o f import ing r a w m a t e r i a l s and spare

p a r t s is very h igh because of t he value o f t h e Naira

a g a i n s t t h e d o l l a r which SAP made s o high. This o f

course , l ed t o h igh &st o f manufactured goods. Even

i n c a s e s where t h e raw materials a r e sourced l o c a l l y ,

companies spend heavi:Ly on r e s e a r c h , t echnology and

development. I n f a c t the high exchange r a t e made a mockery

of t h e whole system. Xnfact Shonekan [I987 ) is o f

t he o p i n i o n t h a t as a r e s u l t of low buying power

of t h e consumer i n t h e face of s h a r p l y i nc rea sed

f o r e i g n exchange r a t e , c o s t of p roduc t ion of goods has

i nc rea sed and p r o f i t rnargins o f companies have

. d e w eased . He b e l i e v e s t h a t c a p a c i t y u t i l i z a t i o n is

running below : 25% i n i n d u s t r i e s . Companies i n t e r n a l

r a t e o f r e t u r n i s f a l l i n g l e a d i n p t o mass re t rench~2ment

o f s k i l l e d and u n s k i l l e d workers.

Even though SAP has made a remarkable achievement

i n some o f i t s aims, it s e e m SAP has not found its r,ceL

i n many o f t h e aims. There seem t o be a g e n e r a l

d i s s e n s i o n f o r t h i s programme due t o t h ~ ~ i a r d s h i p

i t has imposed on the c i t i z e n r y . There is t h e argument

as t o whether there is any v i s i b l e a l t e r n a t i v e t o SAP

which w i l l r e d u c e t he amount of s u f f e r i n g ~ e o p l e are

undergoing and a t the same t ime , p u t t h e economy back

t o i t s e n v i a b l e pos i t i on . This is why d u r i n g t h e I

p r e s i d e n t i a l debate of t he annuled June 1 2 e l e c t i o n ,

t h e two aspirants were asked of t h e i r op in ion o f SAP

and i f it would be cont inued. The argument by Bashorun

M . K . 0 Abiola was that t h e f o r m u l a t o r s o f SAP s a i d

it w a s n o t c3nducive i n our e n v i r o m e n t , s o why

con t inue w i t h such a programme. However, A l h a j i Tofa

is of t h e op in ion t h a t he would p ick o u t t h e bad

a s p e c t s and con t inue with t h e good a s p e c t . Here in

l i e s t h i s stud.yQs view p o i n t o f s t udy ing the impact

o f SAP on small s c a l e i n d u s t r i e s .

1.2 PROBLt?M DEFINITION -- A l o t o f nove l ecor-omic p o l i c i e s have been

i n i t i a t e d by t h e Fede ra l Gove rnme~ t s i n c e t h e i n t r o d u c t i o n

o f SAP, some of which i nc lude e f f o r t s t o make our

industries look inwards for their i n p u t s d e v a l u a t i o n

of t he n a i ~ a and new tariff s t r u c t u r e s among o t h e r s .

C e r t a i n l y , t h e s e p o l i c i e s would a f f e c t the small s c a l e

i n d u s t r i e s ' one way or another .

It is on t h i s no t e t h a t this stucly i n t ends t o f i n d

out t h e e f f e c t o f SAP an small s c a l e i n d u s t r i e s

e s p e c i a l l y or! "p,ns Cook 4.n Enugu urban and Rosche Niger ia

Limited, a l s o i n Enugu Urban.

/ 1.3 OBJECTIVES OF THr' STUDY

The o b j e c t i v e s o f t h i s s t u d y a r e t o c r e a t e knowledge

abou t the i n f luence of t h e environment on a b u s i n e s s

o r g a n i s a t i o n . I n t e r e s t i s cen t f ed on unders tanding t h e

s t r a t e g i c responses of a bus iness o r g s n i z a t i o n towards

environmental c o n s t r a i n t s and cont ingencies .

1 4 S I G N I F I C A N C E OF THE STUDY

The s i g n i f i c a n c e o f this s t u d y i s t h a t i t can c r e a t e

t h e knowledge t h a t will influence t h e m m a g e r i a l

behaviour t h a t w i l l be responsive t o t h ~ l i m i t a t i o n s o f

t h e environment o f Dens Cook and Rosche Niger ia Limited . To o t h e r r e s e a r c h e r s I n this a r e a , t h e d i s c u s s i o n s i n

t h e l i t e r a t u r e review w i l l be h e l p f u l i n p lanning o t h e r

r e s e a r c h s t u d i e s i n t h i s a r e a s .

This s tudy is i n t e ~ . d e d t o provide sugges t ions

and reLulnmendations t o management o f o r g a n i s a t ions i n view

of potraying the importance r e s e a r c h can have on t h e

a c t i v i t i e s o f any organisation.

1.5 SCO- r , LIMITATION AND CONSTRAINT - OF THr' STu.Y -

The scope o f t h i s si;udy is c p t r e d on small s c a l e I

i n d u s t r i e s , b u t t h e r e s e a r c h e r is l i m i t i n g h e r s e l f t o

t he e f f e c t o f SAP on a f a s t food smal l scale i n d u s t r ~

Dens Cook and a marketing company Rosche N ige r i a Limited.

The r e s e a r c h e r would have given the work a wider

coverage, b u t is limited by time a n h o s t c o n s t r a i n t s .

Another irnpor t a n t c o n s t r a i n t experienced by t h e

r e s e a r c h e r , was i n the c o l l e c t i o n o f d s t a from Rosche

Niger ia Limited. Infact Rosche Niger ia Limited is a

named phrased by t h e r e s e a r c h e r . Althoy2gh t h e r e is a

company i n ex i s t ence i n Enugu urban with a l l q u a n t i t a t i v e

in format ion under Rosche b u t t h e p r o p r i e t o r f o r r ea son

best known t o him would p r e f e r t o k e e p the a c t u a l name

of t h e company i n suspence. I n f s c t i n $he d a t a analysis,

o n l y q u a l i t a t i v e i n f o r n a t i o n were made a v a i l a b l e t o

t h e r e s e a r h c e r . The p r o p r i e t o r r e fused t o g i v e o u t any

quantitative d a t a . Thus these were some o f t h e

c o n s t r a i n t s wi tnessed by the . r e s e a r c h e r as f a r as

i n Nigeria , shown an the map bells.

In 1989, its n e t a s s e t was #l,820,651.)3 with authorlzed

s h a r e c a p i t a l of #4. AS a t 1993, its c a p i t a l base was

#2,53?,237,4? but presently in 1994 i t is a t H4.690,

MAP OF N I G E R I A SHOWING IOCATION OF DENS COOK OUTLETS.

REFEREKCE

Ayagi, I .A., SAP, New Nigeria Publication

January 19 alad 20 p . 7 , 1987.

Babangida, I.B., Why SAP was i n t roduced .

Daily Chaapion Decembsr 15, 1988. f

Oshinde Adebaya, Nigerian Economy. Newswatch

P u b l i c a t i o n Vol. 6 , No.1, Sept.14.1987.

Shonekan E r n e s t , SAP Implication f o r t h e Manufacturers;

Business Concord Fr iday S s p t . 18, 1987

Vo1.4, No 331 , P.7.

CHAP'ITR TWO

R E V Z W OF RELATED LITZMTURE

Many a u t h o r i t i e s have written ex tens ive ly on SAP,

which is one of the most c o n t r o v e r s i a l economic mat t e r s

of our time. This chapter would among o the r th ings

examine literature on the concept o f small s c a l e 1

i n d u s t r i e s , o b j e c t i v e s and elements of SAP and how t h e y

a f f e c t smal l s c a l e i n d u s t r i e s . A c r i t i c a l overview o f

the p o s i t i v e and negat ive impacts of SAP on the g e n e r a l

Nigerian economy and on small scale i n d u s t r i e s .

2.1 D d F I N I T I O N OF SMALL SCALE I N D U S T R I E S

There is no b a s i s or y a r d s t i c k f o r grouping a

business u n i t a s small or b ig , thus the re is no

g e n e r a l l y accepted definition ~f small s c a l e i n d u s t r i e s . The c l a s s i f i c a t i o n depends on t h e country, the s e c t o r

of the economy, purpose far s e t t i n g the bus iness ,

amount invested and t ime c l a s s i f i c a t i o n .

According t o Ekpenyoung (1089) a small s c a l e

business comprises "Those e n t e r p r i s e s t h a t have r e l a t i v e l y

l i t t l e c a p i t a l investment, that produce i n small

q u a n t i t i e s and as a r e s u l t c o n t r o l a small sha re o f the

market, t h a t employ not more than 50 workem, and i n

which managemsnt, marketing and e n t r e p r e n e u r a l f u n c t i o n s

a r e ves t ed i n t h e p rop r i e to r " .

The above d e f i n i t i o n however d i d n o t fix the amount

of minimum o r maximum fund needed t o s t a r t a small

s c a l e bus ines s . However, t h e v o l a t i l e exchange r a t e makes i l

imperative t o p r o f f e r ( p r e f e r ) a f l o a t i n g d e f i n i t i o n as

the one above. *

Never the less , t h e Nat ional D i r e c t o r a t e of Employment

(WE) i n 1989 de f ined small s c a l e i n d u s t r i e s t o embrace

" p r o j e c t wi th c a p i t a l investment as low as #5,000 and

employing as few as 3 persons". Th i s d e f i n i t i o n however

l a cks m e r i t because a shoe maker can s e t up h i s

bus iness w i t h l e s s than #5,000.

The most f u n c t i o n a l d e f i n i t i o n acco rd ing to Nzelibe

(1990) is t h e one by UNLIIO, United Nations I n d u s t r i a l

Development Organisa t ion (1989) which s t a t e s t h a t a small

bus iness f i r m is c h a r - x t e r i s e d by a t l e a s t two o f t h e

fo l lowing f e a t u r e s :

1. Ownership and management are u s u a l l y ves ted i n t h e

same i n d i v i d u a l ( s ) - t h a t i s management is n o t

independent and t h e managers are u s u a l l y a l s o t h e

owners.

The small b u s i n e s s c o n t r o l s a small s h a r e o f t h e

market and therefore c o n s t i t u t e s a l i t t l e q u o t a

i n the l a r g e s i z e market.

C a p i t a l is made available by t h e owner and p o l i c y

d e c i s i o n s a r e i n the hands o f t h e i n d i v i d u a l o r

small groups of en t repreneurs .

The a r e a of o p e r a t i o n is l o c a l i z e d and workers and I

owners c o n c e n t r a t e i n t he l o c a l community. O f 1

course sooe do have branches i n o t h e r town b u t

most o f such branches s e r v e as mere d e p o t s .

The owner p a r t i c i p a t e s very a c t i v e l y i n a l l d e c i s i o n

making on a day-by-day basis, with a h igh degree

of rigid c o n t r o l .

However, t h e companies and A l l i e d matters dec ree o f

1990 de f ined small b u s h e s s as fo l lows t -

(a) The amount of i ts turnover is n o t more than

#2 mi l l i on .

( b ) Its net a s s e t va lue is n o t more than #I m i l l i o n .

The central Bank o f Niger ia , CBN, monetary and

c r e d i t p o l i c y g u i d e l i n e s f o r 1991 f i s c a l yea r de f ined

small s c a l e i n d u s t r i e s as "one whose capital investment

16.

does n o t exceed #5 miLlian ( i n c l u d i n g land a ~ w o r k i n g

c a p i t a l ) o r whose turnover i s n o t more t han #25

m i l l i o n annua l lym. This d e f i n i t i o n would s e r v e as the

o p e r a t i o n a l d e f i n i t i o n of small scals i n d u s t r i e s f o r

the purpose of t h i s s tudy .

7 7 AN OVERVIEW OF SAP

DEFINITION

According t o Egwin ( 1 ~ 8 9 ) the "Structural

Ad justment Programme (SAP) i n t he c o n t e x t of developing

c o u n t r i e s , r e f e r s t o a programme of comprehensive

economic measures designed t o ach ieve wide range of

macro-economic goals s u c h a s i n c r e a s e i n t he growth

o f n a t i o n a l o u t p u t of goads and services (GDP), a

s u s t a i n e d improvement in t h e balance of payments

and a r e d u c t i o n i n domestic i n f l a t i o n . I n g e n e r a l

terms, t h e fundamental o b j e c t i v e of such a programme

is to achieve a suitable r e l s t i o n s h i p between r e s o u r c e

a v a i l a b i l i t y and needs t h a t cuase minimum s t r a i n

on t h e i n t e r n a l p r i c e l e v e l and a l a o produce a d e s i r e d

balance of payments r e s u l t n .

To Ndebbio ( 1988 ) SAP may be r e f e r r e d t o as a

r a t i o n a l cconomic policy reform imposed on a coun t ry

which is on t h e edge of soc io- economic p r e c i p i c e o r

c o l l a p s e . . . .SAP e p i t l m i z e c t h e concept of g r e a t e r

r e l i a n c e on t h e market f o r c e s as t h e b e s t o p t i o n t o ach-

ieve e f f i c i e n t a l l o c a t i o n of r e s o u r c e s , goods and s e r v i c e s .

Ob jec t i ve s O f SAP

Ogbon-m (1988). i n h i s own c o n t r i b u t i o n on SAP s t a t e d

t h a t t h e o b j e c t i v e s o f SA? inc lude :

To r e s t r u c t u r e and d i v e r s i f y t h e a r o d u c t i v e base o f

t h e economy i n o rde r t o reduce dependence on the

o i l s e c t o r and on imports .

To achieve f i s c a l and balance o f payments v i a b i l i t y

over t h e per iod . To l a y t h e basis f o r substainable non-inf l s t i o n a r y

o r minimum i n f l a t i o n a r y growth.

To l e s s e n t h e dominance o f unproduct ive inves tments

i n t h e p u b l i c s e c t o r , improve t h e s e c t o r s e f f i c i e n c y

and i n t e n s i f y t h e growth p o t e n t i a l s o f t h e

p r i v a t e sector.

As conta ined i n t h e SAP document and quoted by

Olashore (1987), "The programme aims a t a l t e r i n g and

r e a l i g n i n g agg rega t e domes t ic expend i tu re and

produc t ive p a t t e r n s ao as t o minimize t h e dependence

on impor t s , enhance t h e non-oil e x p o r t base and b r i n g

t h e economy back t o t h e p a t h of steady and balanced

growth". #

The achievement o f o the rwi se of t h e s e o b j e c t i v e s

is y e t t o be akalysed, however one should n o t e h e r e

t h a t t h e a t ta inment of t h e s e t a s k was a h e r c u l e a n task

for t h e Eabangida Admin i s t r a t i on . The a d m i n i s t r a t i o n

should however be commended f a r t a k i n g t h e bold s t e p

t o r e s t r u c t u r e t h e Niger ian economy.

2.3 ELEMEMTS OF SAP

The elements of SAP are t h e strategies f o r a c h i e v i n g

t h e o b j e c t i v e s of SAP and i n c l u d e among o t h e r s t h e

fo l lowing:

- EXchange r a t e p o l i c y

- Trade l i b e r a l i z a t i o n

- F i s c a l and monetary p o l i c y under SAP

- P u b l i c sector reform.

It is worth s+-'ing here t h a t t he p r e s e n t m i l i t a r y

government i n Nigeria under General Sanni Abacha h a s

made some modi f ida t ions i n view of some of the e lements

formed by t h e Babargida Adminis t ra t ion . These changes would

be h igh l igh ted i n " y e course.

Exchanqe Rate P d i r 3 ~ -

Since t h e i ~ c e p t i a n of t h e second T ie r Foreign -

Exchange P a r k e t (SFETJI), it has undergoye s e r i e s of

metamorphosis. Its name has change from SFEM t o t h e

Foreign Zxchange Mzrket (Fm) t o In te rbank f o r e i g n

Exchange Market (IFEM).

One s h o u l d n o t e here t h a t t h e succes s or f a i l u r e

o f SAP l i e s s i g n i f i c a n t l y on t h e f o r e i g n exchange mar-

k e t . The consequences of FEM had and has tremendious

consequences on our i n d u s t r i a l s e c t c r ,

The argument behind t h e estblblishrnent of SFEM was

t h a t t h e n a i r a was over *-valued and as an a l t e r n a t i v e

t o o u t r i g h t deva lua t ion n f t h e n a i r a , a forum f o r

de te rmin ing t h e exchange r a t e of t h e m i r a was p u t

i n p lace i n t h e name o f SFEM.

When SFEM was introduced i n Septemeber 1986,

according t o Ogunlaye (1988) i t s oh j ec t ives inc3 uded r

To g r a d u a l l y reduce the degree of Naira 's over

va lua t ion .

To c o r r e c t systema-kically the s t r u c t u r a l distor-

t i o n s i n the domestic economy.

To discourage t h e hfgh impart dependence

To e f f i c i e n t l y r a t i o n t h e inc reas ing ly sca rce fo re ign

exchange among competing national users .

To progress ive ly strengthen the i n t e r n a t i o n a l comp-

e t i t i v e n e s s of our nan-oi l p r o d u c t s .

SFEM a l s o sought t o el iminate resource leakage,

a d m i n i s t r a t i v e corrupt ion, p r i c e distcr t i o n and

d i s c r e t i o n a r y a l l o c a t i o n .

I n the words of &pan (1987) "The g r e a t e s t relief

of SFEM t o importers has been ease of access t o f o r e i g n

exchange without being bagged down by long queues a t

the t r ade Minis t ryn . It is w o r t h y to no te t h a t p r i o r

t o F'ET4, t h e r e was fore ign exchange r a t i o n i n g and racket -

eer ing which made it almost impossible f o r small scale

i n d u s t r i e s to o b t a i n fo re ign exchange.

Still commenting on t%e b e n e f i t s of FEM, Iwok (1~87),

observed t h a t "SFEM has however, recorded one huge

success . Niger ian consumers a r e now more conser-

v a t i v e and d i s c r irninating i n t h e i r buying h a b i t s ". On t h e 0 t h -r hand, t h e adverse e f f e c t s o f FEM

far outweigh its b e n e f i t s .

Sann' (1987) opined that "No nat ion w o r t h of

c a l l i n g , would su r r ende r her cur rency which is a major

i n d i c a t o r and dete rminapt of he r economic s t a b i l i t y

t o t h e p r e c a r i o u s , s o c a l l e d , market f o r c e s . It

should be dawned on us by now t h a t the n a i r a is h i g h l y

undervalued. What "market f o r c e s n e x p l a n a t i o n could

we g i v e t o a s i t u a t i o n where t h e d o l l a r t h a t is

fast d e p r e c i a t i n g i n t he international market is

a p p r e c i a t i n g a t a faster r a t e against our d e a r n a i r a m .

A s it a f f e c t s t h e m a l l scale i n d u s t r i e s , Oljon

(1987) observed t h a t *A fall-out of t h e e x e r c i s e was

the winnowing o u t of small s c a l e enterprisesu.

According t o manufacturers Assoc i a t i on o f N ige r i a ,

average c a p a c i t y u t i l i z a t i o n i n i n d i s t r i e s dropped .

from 30% i n 1086 t o 25% while employment went down

by 14%.

The negative e f f e c t s of FEM a r e summed up by

Omosegbom (1988) i n t h e fo l lowing s t a t emen t s .

"The SAP wi th r e s p e c t t o t h e d e t e r m i n a t i o n o f t h e

t r u e value of t h e n a i r a is a wrong model. The rern;:ts

are t h e r e for us all ta s e e ; t h e vslue of t he n a i r a

has n o t s t a b i f i z e d , no e x p o r t s have been s t i m u l a t e d ,

imports i n c l u d i n g those OF r i d i c u l o u s a r t i c l e s have

n o t been c u r t a i l e d , no jobs a r e being c r e a ~ e d , p r iced

a r e s t i l l c reep ing an6 t h e list is unending. A l l

t h i s is not surprising: as SAP is looked up i n its

own pe rp l ex ing paradox or what i n radical l i t e r a t u r e

could have been c a l l e d " c o n t r a d i c t i o n s n .

The n a i r a has l o s t tremendous ~ l u e . It has

been b l eed ing p r o f u s e l y since 19%, and needs a n

i n j e c t i o n of blood from t h e government.

S i n c e the i n c e p t i o n of SAP, A j i b o l a (1994) had

argued r e l e n t l e s s l y that exchange r a t e for t h e

n a i r a i n a f r a g i l e economy such as ours could not

and t h e r e f o r e should not be l e f t i n the hands o f

market f o r c e s , Any way, the p r e s e n t M i l i t a r y

government o f Abacha is starting from somewhere,

w i t h the pegging of the exchange r a t e a t #22 t o a

d o l l a r and Sanning of black market o p e r a t i o n s , as

part of i ts budget f o r t h e f i s c a l year.

2 .5 . 'Prade L i b e r a l i z a t i o n

A s s t a t e d by Onah (1988) t r a d e l i b e r a l i z a t i o n

imp l i e s , "Removing q u a n t i t a t i v e c o n t r o l s , t a r i f f

r e d u c t i o n s , t a r i f f e q u a l i z a t i o n be tween s e c t o r s and

r e l a x a t i o n o f exchange c o n t r o l s ". He o b ~ e r v e d t h a t

vh i le tar iff r e d u c t i o n removes disparotezt ion f o r

t h e e x p o r t s e c t o r , e q u a l i s e d e f f e c t i v e r a t e s o f pro-

t e c t i o n engenders compet i t ion and promotes e f f i c i e n c y .

I n a d d i t i o n , i t encourages e f f i c i e n c y through

i n c e n t i v e (by p e n a l i s i n g dependence on imported

r a w m a t e r i a l s ) f o r l o c a l sou rc ing of i n p u t s . I t

a l s o i n c ~ e a s e s t h e p r i c e o f expor t s i n domes t ic

cu r r ency and thus p rov ides supnly e l a s t i c i t i e s .

On t h e o t h e r hand, some pundi t s on economic

affairs a r e n o t hapny with t h e t r a d e l i b e r a l i z a t i o n .

Agbachi (1987) opined t h a t "The n e t e f f e c t o f t r a d e

l i b e r a l i z a t i o n , t i g h t monetary and f i s c a l measures,

d e p r e c i a t i o n of n a i r a , has been i n f l a t i o n and

consumer r e s i s t a n c e r e s u l t i n g i n t h e p r e v a l e n t

problem of i d l e and under c a p a c i t y u t i l i z a t i o n i n

the manufacturing s e c t o r . The l o g i c a l consequence

is t h a t most b u s i n e s s e s e s p e c i a l l y small and

medium s c a l e e n t e r p r i s e s a r e unable t o breakeven,

t a l k l e s s of making p r o f i t " .

The above o b s e r v a t i o n w a s alsc supported by -

Ogbuigwe (1987) when he s t a t e d t h s t "The most

unfor tuna te t h i n g about SAP is t h s t Niger ia is now

a dumsing ground far goods manufactured i n Europe

and A111erica. This is t h e g r e a t e s t undoing o f SAP.

Our markets a r e now f looded with goods from abroad.

It is most p a i n f u l t o know t h a t some o f t h e s e #

J imported goods are also manufactured i n Niger ia .

2.6 F i s c a l and Monetary P o l i c i e s under SAP

SAP has as one o f i t s o b j e c t i v e s , t o has ten

t h e recovery of t he economy by fiscal and monetary

p o l i c i e s through t h e f i n a n c i a l I n s t i t u t i o n s . These

i n s t i t u t i o n s were expected t o i n t roduce innova t ive

c r e d i t p o l i c i e s , i nnova t ive sav ings m o b i l i z a t i o n ,

development o f e n t r e p r e n e u r s h i p and above all

prov i s ion of f o r d i g n exchange.

The Federal Government o f Nigeria as r e g a r d s

f i s c a l po l i cy in tended t o trim down p u b l i c expendf-

t u r e and improve t h e r e s o u r c e base o f t he economy.

A s r egards t o monetary policy under SAP, 0 jo

(1989) f u r t h e r s a i d that "Monetary P o l i c y measures

under SAP were designed t o s t a b i l i s e t he economy and

t o induce t h e emergence o f a market-oriented

f i n a n c i a l system f o r e f f e c t i v e mobil: -:tion o f

f i n a n c i a l s av ings and e f f i c i e n t r e s o u r c e a l l o c a t i o n " .

The achievement of the monetary p o l i c y o b j e c t i v e s

i n t h e first two years o f SAP were a r t i c u l a t e d

by Osakwe (1988) when he observed that,. . Y t is

q u i t e c l e a r from t h e growth in^ c r e d i t and money

suD*ly during the f i ' sca l yezr 1987 t h a t t h e

r e s t r i c t i v e effects o f monetary p o l i c y have been

l a r g e l y ach ieved . Also t h e moderate up-surge i n total

d e p o s i t apnea r s t o have been t h e outcome of t h e

economy's responses t o t h e more favourabae r e t u r n s

t o s av ings and time d e p s i t s . "

However, as Fatunde (1987) co~men ted n e g a t i v e l y ,

' t h e f i n a n c e and economic analysts , i n Nigeria,

a r e convinced that i n d u s t r i e s are being g r a d u a l l y

des t royed through both trade l i b e r a l i z a t i o n and

new i n t e r e s t ra tes which a r e inirnLcal t o bo th

i n d u s t r i a l expansion and employment o p p o r t u n i t i e s .

It shou ld be noted that t h e b e n e f i c i a r i e s of

the new i n t e r e s t r a t e s a r e foreign m u l t i n a t i o n a l

c a p i t a l i s t companies and a t i n y g r o u p of p o l i t i c a l l y

powerful and rich Niger ians who a r e t h e genuine f r i e n d s

of t h e s e mul t i .nat iona1 c~mpaniss, once aga in , N i g w ia

h a s l o s t a n economic ba t t l e " .

The e f f e c t o f f i s c a l 2nd monetary p o l i c i e s are summed

up by Umesi (1987) when s h e said t h a t , "The h igh i n t e r e s t

r a t e had reduced borrowing and investment which was

capable o f b r i n g i n g t h e economy t o a h a l t . The

presen t p o l i c y does n o t give room f o r r i s k t a k i n g , but

r a t h e r makes r i c h peop le richer without add ine any

input t o t he economy. The p r e s e n t s i t u a t i o n also p r o t e c t s

the r i c h p e o ~ l e who e v e n t u a l l y lodge t h e i r money i n

t h e i r banks w i t h a v iew t o ea rn ing hlgh i n t e r e s t . In

t h i s way, it is more p r o f i t a b l e t o d e p o s i t money

i n t he bank as opnosed to i n v e s t i n g i n t h e p roduc t ive

bus iness " . The foregoing is c l e a r i n d i c a t i o ~ that our

f i n a n c i a l i n s f i t u t i o n s which a r e the i n s t rumen t s f o r

implementing t h e m o n e t a r y and f i s c a l p o l i c i e s have

f a i l e d t o ach ieve t h e o b j e c t i v e s of SAS. Thus one

would be tempted t o s a y that 8 years is enough f o r

any reasonable economic r ecove ry e f f o r t s t o start

y i e l d i n g t h e d e s i r e d d iv idends and r e t u r n s .

The recovery is s o s low and ardous. Something c e r t a i n l v

has t o be done. In t he l i g h t of t h i s , t h e Abacha

Adminis t ra t ion i n the 1994 budget, is making s h i f t

i n p o l i c y dimension from a deregula ted system t o a

somewhat r e g u l a t e d one. I n the 1994 budget, i n t e r e s t

f o r d e p o s i t s are betwnan 12-15% while f o r l o a n s is

a t a c e i l i n g o f 21%. This is supposed t o provide

some s a n i t y i n t h e financial s e c t o r , reduc ing i n t e r e s t 6

on d e p o s i t s and loans .

2.7 P u b l i c Sec to r Reform

It is g e n e r a l l y be l ieved t h a t t h e p u b l i c s e c t o r

e s p e c i a l l y t h e p u b l i c e n t e r p r i s e s a r e l a r g e l y

unproduct ive v i s - a v i s t h e l a rge amount of money

inves t ed i n them, This is why the p r i v a t i z a t i o n and

commercia l izat ion of t h e s e e n t e r p r i s e s were embarked

upon by t h e Fede ra l Government, as p a r t o f t he e lements

o f SAP. These measures where r a d i c a l reforms aimed

a t reduc ing government i n t e r e s t and c o n t r o l and

i n j e c t p r i v a t e s e c t o r fund and e x p e r t i s e i n t o t hese

o r g a n i s a t i o n s aimed a t ach iev ing e f f i c i e n c y and

e f f e c t i v e n e s s .

The reform o f p u b l i c e n t e r p r i s e s were t o take

the fo l lowing forms t F u l l y p r iva t i s ed , par t i a l l y

commercialized and wholly public enterurises. Ojo

(1989) has t h i s t o s a y on this i s 2 u s , ' E n t e r p r i s e s

which a l r e a d y f u n c t i o n i n a f u l l y commercial way a r e

to be f u l l y p r i v a t i s e d through t h e s a l e of p a r t o f

government e q u i t y holding, will o n e r a t e as p r i v a t e

companies w i thou t any ope ra t ing subvent ions from

t h e government. E n t e r p i i s e s t o be cornmer c i a l i z e d

will con t inue t o be government owned b u t w i l l be

reformed t o enable them r a i s e p r i v s t e c a p i t a l .

Those t o be f u l l y commercialized w i l l o p e r a t e w i t h -

o u t f i n a n c i a l supnor t while those t o be p a r t i a l l y

commercialized w i l l generate a fair oropor t i o n o f

t h e i r f i n a n c i a l r e s o u r c e s independent ly , b u t w i l l

con t inue t o r e c e i v e government subvent ions t o cover

p a r t of o p e r a t i n g costs and c a p i t a l investment . Those

e n t e r p r i s e s t h a t w i l l continue t o be whol ly p u b l i c

i n s i t u t i o n s w i l l be f insnced by t h e government but

w i l l 5 e required t o impese user c h a r g e s a s may

be apprap r i a t e" .

The above reform is b u t t r e s s e d by one p o i n t i n

which v a r t u a l l y all Niger ians w i l l agree t h a t s t a t e

owned e n t e r p r i s e s over t h e yea r s have performed poorly .

2.8 P o s i t i v e Impact O f SAP on t h e Nigerian Economy

To a l a r g e e x t e n t SAP has reduced the propens i ty

t o impor t eve ry th ing from tootp ick t o the l a r g e s t

goods, which most Nigerians would na t envisage pre-

SAP pcriod could be made l o c a l l y a t home, This view

was confirmed by manna (1990) when he observed t h a t

fl . . . t he o b j e c t i v e of reducing imports t o a s u s t a i n a b l e w

l e v e l has aleso been achieved, d e s p i t e the in t roduc t ion

o f t r a d e l i b e r a l i z a t i o n which c r i t i c s claimed would

open the import f hod-ga te . Available d a t a reveal

t h a t imports fell from $7.5 b i l l i o n i n 1985 t o $4.3

b i l l i o n i n 1986, o r by 43% i n nominal terms; and

to $4.1 billion o r a f u r t h e r drop o f 5% i n 1987".

Also, more expor ters have joi'ned the expor t

market. Nigerian goods are now seen i n markets o f

neighbouring West A f r icsn countr i e s . The improvement

i n the expor t is due l a rge ly t o the expor t incen t ives

which t h e Federal Government have g iven t o both

t h e exuor te r s and f i n a n c i a l i n s t i t u t i o n s . Worthy

of note , is 2he export promotion decree which s e e k s

t o d i v e r s i f y our export base.

Natewor thy, is t h e maintenance culture t h a t have

p e r T - % 'ed our economic and s o c i a l l i f e . S ince the

incept ion pf SAP, t h e Nigerian c i t i z e n s have l e a r n t

t o maintain their worn-out equipments, Manufacturers

have revived some o f t h e i r broken down plants,

The i r , a u i t y of our technicians and engineers

have been t e s t e d by SAP and it is now proved that

Nigerians are r e a l l y c5eative.

On t h e p a r t o f i n d u s t r i a l i s t s , linkage i n d u s t r i e s

have been s p r i n g i n g up since t h e i n c e p t i o n o f SAP.

Most of them have l e a r n t t o look inwards f o r l o c a l

sources of raw materials.

Most important ly , is the rural development

t h r u s t , like t he establishment of t h e D i r e c t o r a t e

of Food, Roads and R u r a l I n f r a s t r u c t u r e (DFRRI) , which have opened up the rural areas, a s p c i a l l y

the cons t ruc t ion and recons t ruc t ion o f f u r a l

a reas , e s p e c i a l l y t h e cons t ruc t ion and recons t ru -

c t i o n of rural feeder roads Js most commendable,

The establ ishment of r u r a l d e v e l o p ~ e n t a u t h o r i t i e s

by S t a t e governments which have also e s t a b l i s h e d

i n d u s t r i a l l ayou t s in r u r a l areas, 2nd provided

these l ayou t s w i t h modern amen&*ies is also worthy

of note.

Ndebbio (1988) pos i ted t h a t " th rough SAP, we have

seen g r e a t e r progress being mzde t o revamp and

r e - i n t e g r a t e the r u r a l economy i n t o t h e mainstream

of economic developmentw.

Also before SAP, every educated Niger ian always

be l i eved t h a t he would g e t a paid employment somewhere.

Now t h e g e n e r a l be l i eve is towards s e l f employment.

SAP has made a l o t o f ybung unemployed g r a d u a t e s more

enterprising, adventurous, a l b e i t and s e l f r e l i a n t .

The infusion o f white c o l l a r job at a l l c o s t seems

t o be on thedecreass . A l o t of young people seem

t o have formed their own small scale i n d u s t r i e s .

p i d e g b e (1988) says he has l e a r n t never t o throw

away empty tins of milk as waste. He t u r n s s n a i l s

and s e a s h e l l s , raffia and bamboo and even crowns

of b o t t l e s of s o f t d r i n k s i n t o money. He says t h a t

SAP has made him th ink , made him p r a c t i c a l , e n t e r -

pr i s i n g and s e l f - r e l i a n t . No more n a i d employment

f o r him, b u t now an employer of l abour .

Negative Impact o f SAP on t h e Nicer ian Economy

Anugboba (1987) b e l i e v e s t h a t SAP is not t h e answer

t o our economic problem, he went f u r t h e r , needs

no a rgu ing the p o i n t t h a t SAP has n o t been a success -

f u l s t o r y . By allowing the Naira t o f l o a t , as i t

w e r e , i n t h e name of SAP h a s been t h e wors t harm

t h a t has ever happened t o this count rym.

This is suppo7:ted by Omarseye (1994) who b e l i e v e s

that a t t h e end of every, F i n a n c i a l year, something

away always happend t o SAP. C o s t of food soa red ,

housing grew e lus ive , mAre people thrown o u t o f

jobs, t h e naira i n s o r r y nose-dive, t h e f a m i l y u n i t

i n d i s a r r a y , t he n a t i o n i n more disarray. He f u r t h e r

went on t o s a y , "Eight yea r s and sundry m i s e r i e s

a f t e r , what is l e f t today is a l imb d e b a t e , a l l k inds

o f grand projects were declared w'gent D F H R I , MAMSER,

B e t t e r l i f e , NDE, gFEM i n t h e ao rn inq FEM i n t h e u

af te rnoon and IFEWI i n t he evening,

Looking a t the f i n a n c i a l system of our count ry ,

Ogunniyi (1991) is of t he opinion t h a t our banks

have pe r fo rmed very poor ly as far as i n d u s t r i a l

f i nanc ing is concerned. He b e l i e v e s that t h e banking

i n d u s t r y t h a t is supposed t o be a v i b r a n t agent for

implementing government economic p o l i c i e s have failed

t o perform t h a t a l l important func t ions . He s t a t e d

bewildering numbers, d o not serve as c a t a l y s t s f o r

development. The banking indus t ry should s e e i t s ' e l f as

a s u s t a i n e r of socio-economic growth, not t h e plunders

o r suckers of the system, Those sectors ,ike Agric~l:lture,

manufacturing, t r a n s p o r t , housing, education, technology

and health; mining t h a t s w t a i n theeconomy should be

the r e c e i p t s o f bank landing, But because o f the "quick

killn syndrome that motivates t he banking industry

today* they have abd ica ted t h e i r roles i n preferenc f o r

short-term g e s t a t i o n pro3ectsm.

What we a r e c u r r e n t l y witnessing is t h a t t h e r e is no

s i g n i f i c a n t change i n t h e operat ions of merchant and

commercial banks t o accomodate the vas t innovat ive

banking chal lenges which the SAP has thrown on them.

This view was confirmed by D i k a (1991) when he opined

t h a t "it is obvious now t h a t our f i n a n c i a l system lacks

both depth and breadth . This apparent shallowness

discourages foreign investment and demoralises l o c a l

investors ",

The d i r e c t o r g e n e r a l of manufacturers a s s o c i a t i o n

of Nigeria, Pafowura (1991) f e a r s that the government

has not provided t h e enabl ing environment for r e a l

i n d u s t r i a l development of the country. He s t r e s s e d

t h a t . . . . . "government r e p u t a t i o n makes manufacturing

a n m p r o f i t a b l e venture and banks cannot be blamed

f o r t h e i r inability t o finance manufacturing,

The c r 7 t o f fur.; is g e n e r ~ l l y high and banks cannot

be expected t o give loans t o manufacturer8 a t Z$

when t h e i r c o s t o f funqs is much higher .. . . t h e r e

i s no pa t r io t i sm when it comes to business., . gover-

nment has t o c rea te a n enabl ing environment".

The much publ icized d i v e r s i f i c a t i o n o f the

economy has not been achieved, Nigeria is s t i l l

hanging on o i l revenue. The e f f o r t s made t o d i v e r s i f y

the economy via expor t promotion and encouraging

a g r i c u l t u r e have remained a mirage.

The i n f l a t i o n a r y t rend has taken an alarming

dimension. There has been s t r i d e n t c r i e s by economic

and f i n a n c i a l pundi ts on the need t o f ind remedy to

the i n f l a t iona ry trends . Ukpong and Iniodu (1988)

remarked t h a t . . , , " d e s p i t e t h e p o s i t i v e effects of

SAP, some problem have been created by i ts i n f l a t i o n -

a r y pressures exerted on the economy. Although

t h e rate of increase i n pr ice l e v e l d i f f e r s *om

one s e c t o r t o t h e o t h e r , the s t r o n g e s t pressure

h~ been ob-rrved i n t h e import s e c t o r of consumer

d u r a b l e s and food. The p r i c e s of v e h i c l e s and household

app l i ances , f o r example have tended t o move with t he

new exchange ra tew.

The r a t e o f unemployment s t i l l leaves obse rve r s

o f t h e economic t rend i n t he country i n d o u b t as t o #

whether SAP, is improving the standard of 1 . iv ing o f

Nigerians . A l l t he se c r i t i c i s m s are a p o i n t e r t o t h e

a s s e r t i o n t h a t a l l is no t wel l wi th the implementation

o f t h e elements of SAP. This has l ed the i n t e r n a t i o n a l

o r g a n i s a t i o n of consumers unions t o say t h e world

bank is c o n t r i b u t i n g t o t h e worsening economic s i t u a t i o n

of Af r i can S t a t e s through its SAP. The p a r t i c i p a n t s

o f t h e four day a l l Af r i can consumers conference say

t h e programme had plu-xed Africa i n t o p o v e r t y and t h a t

t o o o f t e n t h e programme implemented with l i t t l e regard

f o r f a c t o r s s u c h a s t h e governments-capacity o r

w i l l i n g n e s s t o implement them the s t r e n g t h o f domestic

i n t e r e s t groups and t h e e x i s t i n g s t r u c t u r e of t h e economy

(Nyambuya, 1994).

2.10 PROBLEMS MILITATING AFALNST THE SUCCESSFUL

IMPLEMENTATION OF SAP IN N I G E R I A

There is no r e s t r u c t u r i n g without pain and s a c r i f i c e s .

However, a cancerous tumor t h a t s h o u l d be c o n t r o l l e d

i n N ige r i a if we should eve r grow and dsvelop is

c o r r u p t i o n . By whatever baptismal name it is c a l l e d

such as "Nigerian Factof" cor rup t ion is a canker worm,

and t h e g r e a t e s t bane of our soc i e ty .

That SAP is ach iev ing l i t t l e success is because

some men of q u e s t i o n a b l e i n t e g r i t y a r e implementing it.

SAP is a laudable programme if i t is al lowed t o s tay,

Never i n t h e history of Nigeria have we wi tnessed such

i n g e n u i t y among Niger ians be tween 1986 t i l l p r e s e n t .

However E j i o f o r (1987) had observed that - t h e worst

enemy o f t h e public is a c o r r u p t pub l i c servanta.

Some o f our pub l i c s e r v a n t s have f a i l e d t h i s nation.

It is very unfo r tuna t e t h a t nothing w o r l d i n Nigeria.

Virtually a l l laws are thwarted by some h i g h l y p l aced

men of q u e s t i o n a b l e integrity. The poor are r u l e d by

the laws while t h e rich and affluent r u l e t h e laws.

SAP would have been a tremendous succes s but f o r

the a c t i v i t i e s o f some c o r r u p t Nigerians who f e s t o o n t h e

c o r r i d o r s of power.

Druker (1979) p o s i t s t h a t "it can be said wi thou t

too much ove r - s imp l i f i ca t ion t h a t t h e r e a r e no

underdeveloped c o u n t r i e s . There a r e on ly under managed

ones... i n few cases where we have been a b l e t o

generate management enereies . . . we haT.e genera ted

r ap id developmentu.

This view is suppor ted by E j io fo r (1987) who

a s s e r t e d t h a t " the re is no doubt t h a t mismanagement

is r e spons ib l e f o r mst o f t h e i l l s of our na t ionm.

It is axiomatic t h a t our economy is undermanaged.

Nigeria has super-abundant s p e c i a l i z e d manpower t h a t

it is now wi tness ing "bra in-dra inm - a s i t u a t i o n

where i ts c i t i z e n s go t o t he developed and deve lop ing

economies outside the count ry and exce l1 i n t h e i r

p ro fe s s ions , If t h e s e p r o f e s s i o n a l s a r e e f f e c t i v e l y

mobilized and u t i l i z e d t o r e l e a s e f u l l y t h e i r e n e r g i e s ,

Nigeria would i n no d i s t a n t time be a t e chno log ica l

g i a n t .

T h i s d i s t u r b i n g situation l e d Ezeani (1991)

t o observe t h a t " the re is s o much crookedness i n

t h i s society. It stinks from a l l angles", The above

assertion implies t h a t men o f i n t e g r i t y a r e l a c k i n g

i n our body p o l i t i c s . How can we grow and develop

w i t h ~ . t men of i n t e g r i t y .

The 1994 budget should however be commended

for the a t t e n t i o n given t o the f i s c a l i n d i s c i p l i n e

o f the ~ a s t , the corrupt t endenc ies i n pub l i c m d

p r i v a t e lines and above all t h e economic miseries

o f the populace which it intends c o r r e c t i n g v ia

a r e a l i s t i c budget ( ~ ' j i b o l a . lo9b).

It is not poss ib le t o review a l l l i t e r a t u r e on

SAP, Perhaps , SAP seems t o be one o f the most

con t rovers i a l programmes i n Niger ia. The- search

continues f o r s o l u t i o n t o our economic woes, The

s o h t i o n largely l i e s i n sustained i n d u s t r i a l

revolu t ion and increased p roduc t iv i ty i n the

Agricul tura l s e c t o r , The r o l e of smzll scale indust-

ries cannot be overs t ressed in this dispensa t ion .

That China, Japan and South Korea a re success fu l

count r ies today is l a r g e l y because they ernbar ked

on the development of small s c a l e i n d u s t r i e s a s

t h e cent re piece of t h e i r industrial development.

2 , I l GOVERNMENT AND SMALL SCALE INDUSTRIES

As far back as 1988, the Federal Government according

to Okongwu (1088) es tab l i shed a small bus iness r e l i e f

fund i n 1988. The fund then , a p p l i e d o n l y t o e n t e r p r i s e s

w i t h an annua' s a l e s tur.tover of #500,000 or below. i c

gave a lower rate of company taxa t ion of 20%. t o cover

the f i rs t 3 years of the o p e r a t i o n of the e n t e r p r i s e s .

The measure was enviaaged t o boost the establishment

of small and medium s c a l e businesses aimed a t increasing

3mployment and encouraging t h e development of en t rep reneura l

s p i r i t . I

Perhaps t h e a r e a i n which bo th t h e s t a t e and Federa l I I

Government have made tremendous progress is i n t h e

development o f i n d u s t r i a l e s t a t e s . I n Enugu S t a t e f o r

example, industrial e s t a t e s have been c a r t e d o u t i n local

government areas, t he reby g iv ing small scale i n d u s t r i e s

the o p p o r t u n i t i e s and challenges to establish t h e i r

bases i n t h e rural areas. A typical example is that at

Uzo-Uwani Local Government Area of Enugu S t a t e . These

industrial e s t a t e s are supnosed to prov ide t h e indmstr i a l

sites fo r potential. entrepreneurs. However, in most

cases, t h e necessary facilities f a r t h e smooth opera t ion

of t h e s e en t repreneurs a re not p u t i n place or provided

i n these indvl?$rial estates t h e r e b y i n c r e a s i n t ..3e

o p e r a t i o n a l cos t of t h e s e en t r ep reneu r s , This led

Ogunsheye (1986) t o point out t h a t "the p re sen t situation

where p o t e n t i a l investors still spend a l o t of money

and "me t o pr;:-ide water, e l e c t r i c i t y and waste

d i s p o s a l S Y S ~ E ~ S at the supposedly developed i n d u s t r i a l

e s t a t e s needs to be corr$ctedw,

As regards f inding of small s c a l e i n d u s t r i e s , t h e

NDE i n co l l abo ra t ion with t h e Nigerian Bank f o r Commerce

and Industry (NBCI) have advanced var ious amounts o f

loans t o b e n e f i c i a r i e s o f t h e i r industrial programme

e s p e c i a l l y those t h a t are rural based, NDE in 1994

is giving o u t loans t o unemployed g radua te s giving

them opnor tun i t i e s t o form their own bus iness , and

be s e l f employed,

Another important fund , Na t iona l economic Recons-

t r u c t i o n Fund (NERFVND) which was es t ab l i shed by

d e c r e e 2 of 1989. The i d e a is t h e p r o v i s i o n by the

Federal Government o f medium t o long term funds, thus

bridging the gap i n t h e s h o r t term type of bank

l e n d i n g t o small and medium e n t e r p r i s e s (SME),

41.

Information from Emmanuel (1991) show t h a t u d e r

the NERFUND scheme, t o t a l o f i, p r o j e c t s worth

8104 mil l ion were approved i n May 1990. Disbursement

under the scheme as a t May 1990 amounted t o #45

m i l l i o n .

The 1994 budget promised t o s h u t t h e pre- tes t ing

voices of i n d u s t r i a l i s t s i n what many analyst ca l l

t h e nmanufacturers budggtM. Government promised t o

reawaken t h e countr ies dead i n d u s t r i e s by easing

access t o fore ign exchange by i n d u s t r i e s . The budget

went f u r t h e r t o provide t h a t of all t h e fo re ign

exchange made ava i l ab le by CBK, manufac tu re r s a r e

e n t i t l e d t o 60% of the allocation, and the s e t t i n g

up o f f o r e i g n exchange a l l o c a t i o n committee which

has members from the brivate sector. However,

i n d u s t r i a l i s t s a r e upse t by t h e mode of a l l o c a t i o n

of the scarce foreign exchange. Al loca t ion p resen t ly

as the budget stipulates is on a pre-rata bas i s

where each appl icant rece ives only a percentage o f

h i s r e q u e s t bzsed on quantum of foreign exchange

provided by the government. The percentage was

16 a t f irst , but is now 8% ( ~ l u k o - ~ l o k u n , 1994).

Also a credit guarantee scheme, aimed a t

reducine the r i s k s involved i n funding sma l l and

medium e n t e r p r i s e s w i l l take o f f t h i s year , as intended

by t h e budget . The Minister o f Indus t ry Alha ji

k i ?-.&a Tukur says t h e a r e a s include p r o j e c t

i d e n t i f i c a t i o n , p repara t ion of f e a s i b i l i t y s t u d i e s ,

provision of p a r t loan ex tens ion s e r v i c e s , t r a i n i n g ,

technology and adapta t ion (Bakare, 1994).

AS a t 1993, t h e GNP had been on a s t e a d y d e c l i n e

the p o s t few yea r s s ince SAP, while the phenomenal

growth i n money supnly ' fuel led by expansionary f i s c a l

policies have p i l e d pressure on the r e a l sector.

The p r e s e n t M i l i t a r y Government thus i n i ts budget

pramfsed t o provide funding f o r p r o j e c t s wi th

economic m u l t i p l i e r effect i n addition t o t he r e g u l a r

m i n i s t e r i a l a l l o c a t i o n s i n small s c a l e i n d u s t r i e s and

i n r e s e a r c h and development.

In s u p ~ o r t of t h e above, Alha j i Saidu Kasimu,

Managing D i r e c t o r NIDB, said t h e bank with t h e robus t

suppor t o f t h e Federa l Government and U N D O have

j o i n t l y packaged about 30 v iab le p r o j e c t s f o r

funding by t h e world bank under the SME scheme.

The boss says as soon as they a r e apnroved by the

world bank, t h e p r o j e c t s w i l l be implemented by NIDB.

Never the l e s s , much is s t i l l l e f t for t he

government. Every government comes up with beautiful

promises 2nd p a l i c i e s , however implementation becomes

a d i f f i c u l t t a s k i n Nigeria.

2.13 EFFECT OF - SAP ON S M A U SCALE INDUSTRIES

Product ion i n small s c a l e i n d u s t r i e s have been

s e v e r a l y cons trained by h igh and uns tab le i n t e r e s t

r a t e s , fast deprec i a t i on o f t h e n a i r a and r i s i n g r a t e

of i n f l a t i o n , i n t e r p l a y of t h i s s e c t o r a f f e c t e d

bo th t h e supply and demand of raw material for manufact-

ur ing as import ~r ices of ' imports and final goods

increased and the purchasing power of eonsumers continued

t o d e t e r i o r a t e . Also the i n d u s t r i a l output has continued

t o be adve r se ly a f fec ted by low anddecreasing c a p a c i t y

u t i l i z a t i o n a s a result of t h e i n a b i l i t y of firms t o

refurbish or r e ~ l a c e age ing machinery and procure

s u f f i c i e n t r a w material.

This view was expressed by Shonekan as fa r back as

1987. He is of the op in ion that "as a r e s u l t o f t h e law

buying power of the consumer i n t h e face o f s h a r p l y

increased f o r e i g n excharge r a t e , c o s t of production of

goods has increased and p r o f i t margins o f com~anies has

decreased . Capacity u t i l i z a t i o n is r u r n i n c below 25%

i n i n d u s t r i e s n . Continuing he wrote, "Even a t t h i s

low capac i ty , the com~anies cannot even s e l l t he

products because e i t h e r t h e p r i c e is t o o high or the

consumers have d o money t o buy them".

S ince the incep t ion of SAP, the major p o l i c i e s of SAP

have c e n t a i n l y - h a d a s a l u t o r y e f f e c t on some s e c t o r s o f

the economy, y e t it must be a d r i t t e d that the o v e r a l l

n a t i o n a l economy remains i n a poor s t a t e , s t i l l heav i ly

weighed down by the seemingly i n t e r a c t a b l e problems o f

mass unemployment, i n f l a t i o n , law i n d u s t r i a l and c a p a c i t y f

u t i l i z a t i o n .

However, w i t h the 1994 budget pegging the exchange

r e t e and i n t e r e s t rate, hope o f Niger ians seem t o r e s t

on t h e budget .

But s i n c e i n d u s t r i a l product ions have returns

accu r ing from such ventures a r e slaw, genuine incen t ives

would r e q u i r e more than mere p r e f e r e n t i a l t reatment

i n t h e a l l o c a t i o n of r e sou rces t o t he manufacturing

s e c t o r .

I b e k i s (1994) says the manufacturers Associa t ion

o f Niger ia expressed d e l i g h t of the government t o peg

i n t e r e s t r a t e , keeping d e p a s i t e r a t e low and placing

c e i l i n g on leflding r s t e s t o promote investment. However,

t h e manufactuiiers Associa t ion o f Niger ia have the f ea r

t h a t t h e i n t roduc t ion o f the modified va lue added tax

(VAT) will s t i f l e therecovery of small and medium

s c a l e i n d u s t r i e s .

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Kovember 23, 1987.

Ajibola Olusegun J.; "1994 budget commendedw F i n a n c i a l

Guardian March, Monday 21, 1994.

A:r:!an Okon: *One Year of FJ3Mm, Guardian F inanc ia l Weekly

October 19, 1987.

~y~ Aluko-Olakun, T h e budgetm National Concord Monday,

Narch 21, 1994.

Anugboba, S l y t "SAP is not the answer t o our problemw,

Smday Guardian, April 23, 1987, ~ . 6

Aridegbe Ladipor "SAP The Way Out", New Nigeria, Tuesday

December 13, 1988,

Bakare Yinka; "Credit Scheme t o small and medium enterprisew,

National Concord March 22, 1994.

CBN Monterory and Credit Policy Guidl ines for 1991

Company and A l l i e d Matters -Decree, Publicat ion - Vol.5, No.2 May 19, 1990.

Dike Onuoha; "Banking Whatever happened t o innovation?*

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No 1, Misters Publisher Ltd. Lagos, September

1991 . Druker P .F. Technology, Management and Socie tx London

Wilkan Heingman 1979:

Bgwin, Christ "The Experience of developing courb-

t f i e s under SAP; Monetary and F inanc ia l

Aspectsw In CBN Economic and financial - review 1989.

E j i o f o r , P.n Managelent i n Nigeria theories and

Issues. 2nd edit ion, Ibadanr Africana

PEP pub l i she r s l t d . 1987.

Pkpenyoung, S. 'Ca t t o n fndus tryw Poundation of Business

Administration; Africana- FEP pub l i she r s

L td . 1989.

Emmanuel, A.M.; "Financing of SSI". The F inanc ia l Post

Vol. 3 , No. 17 A p r i l 13, 1991.

Ezeani Andy Ike; "Crookedness and Injustice ", - Daily

Champion, Monday A q u s t 12, 1991.

Fafowura Oladapo "Quick k i l l Bankersm, The F inanc ia l

P o s t , V0l.3, IW .25, July 21 - August 3 , - 1991 a

Fatunde, Tundet n P o l i t i c s of I n t e r e s t R a t e s w , Guardian

Financial WeekXy, November 23, 1987

I b e k i e Ada, "Manufacturers Association o f Nigeria Reactsw,

National Concord. Monday, Jan. 31 1994.

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Vol. 15, No 2, J a n 14th. 1989.

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Adjustment Programmest I w r l i c a t i o n s +v

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Tn Str uctural Ad justment' Programme ahd

the Nigerian Pconomy, The Nigerian

Economic Society -'.nnaal Co 1 d e n c e

Nnannag. J, , "Managing SOPa An e'conomy i n transitionM,

CBK Economic Review: Bullion, January/

Ma&ch 1990

Nyembuya Muchaneta; "International News 8 SAP on Africans"

International News, National Concord March

22, 1994.

Nzel ibe , T . , "UNIDOU African Guardian P. 5 . June 10,

1990.

Ogbuigwe, Pat. 1 "SAP and the Irnpor tatian of Foreign

Goodsn, Business Times December 12, 1987.

Ogbunna, M.N., "SAp through export promotion - where a r e

t h e mrkets l from p r o d u c i ~ to marketing

In Structural Ad justrnent Programme and the

Higer ian Economy, The Nigerian Bcommic

Society Annual Conference, Ile -1fe May

Ogunniyi Omo toshor "Quick K i l l Bankers?" The Financia l

Ogunsheye A * , "SFFM i s a necessary ~ u t by no means

sufficient road t o economic rev iva lu .

Business Concord October 44. In Business

Government Relat ions -- i n - Nigeria by

M b u z o r A.M. Macmillian Publ isher Ibadan

1989,

Oguntonye A .O . , *A Report on Financing o f small s c a l e

i n d u s t r i e s in Nigeriau by a subcommittee

of t h e national advisory committee on

small scale industries development i n

CBN Economic and Financial Review 1988.

0 jo, M.O.; "An a p p r a i s a l of the soc io economic impact

of SAP p o l i c i e s i n Nigerian CBN Ecom6mic

r e v i e w , Bullion June 13, Nos. 3 and 4 July/

December 1989.

Okoh Akpan, "one year of FEMn Guardian Financ ia l Weekly

October l9,!98?.

Okongwu Chu A . ; "Statement on 1988 Budgetw Federal Minister

O f f inancfa l and Economic Development, Lagos

J. 4, 1988.

Omorseya Sam., "Nation in Disarray" Sunday Concord

Omosegbon, D e l e # "An evaluation o f t h e equilibrium

value of the naira under t h e SAP - A

Preliminary r e p o r t *

I n S t r u c t r u a l Ab,dstment Programme and t h e

w e r ian Economy. The Nigerian Economic

Socie ty Anfiual Conference I l e - I fe , May

3-7, 1988.

Onah S ,G. "Trade L i b r a l i z a t i o n " Sunday Concord

January 4, 1988.

Osakwe, J.U.t "Monetary and Fiscal P o l i c y Under SAPn I n

Structural Adjustment Programme and t he

Nigerian Bconom~, The Nigerian Economic

Society Annual Conference, Ile-Ife May I

3-6 1988. I

Saidu Kassiau ( A l h a j i ) "NIDB report" National Concord

Monday March 21, 1994.

Sanni Olusequnr "Need t o Overhaul Nigerians Economyn

Business Times December 14, 1987.

Shonekan Ernes t t SAP f o r Manufacturers Business Concord

Sept 18, 1987.

Ukpong, H, and Iniodu, Peter U.; "The Impact of SAP

on Nigerian Agricultureu, In structural

Adjustment Programme and the Nigerian

Economy, t h e Nigerian Economic soc ie ty

annual conference, Ile-Ife, May 3-7, 1388.

Umesi , Roseline "Reduce discount raten Business Times

October 19, 1987,

Umuka J.A.1 "Report o n small scale Industriesn

CBN Bconomfc and Financial Review 1991.

CHAPTER THRBE

RESEARCH DESIGN AND METHOD0 LCGY

3.1 RESEARCH METHODOLOGY

This study is d e s c r i p t i v e and i s based on answers t o

c e r t a i n r e l e v a n t r e sea rch in t e rv i ew q u e s t 4 n n s ( s e e

appendix I).

G e n e r a l l y i n management sciences, t h e r e a r e t h r e e

r e s e a r c h me thodology that can be employed a n a l y t i c a l

approach, systems approach and t h e a c t i o n approach.

With reference t o t h e r e sea rch methodology in t h i s

p r o j e c t , the systems approach is r e l e v a n t , s i n c e t h i s

r e s e a r c h is studying two small scale industries Dehs

Cook and Rosche Nigeria Limited i n Enugu and t h e i r

environmental interdependence. A system is d e f i n e d

as a s e t o f in te rdependent wrts working t o g e t h e r towards

a common purpose. The idea of a system methodology

is based on the concept that the whole is g r e a t e r

than some o f its parts . '

The aim o f t h e research ques t i ons i n this s t u d y is

t o l o g i c a l l y describe Dens Cook and Rosche Nigeria

Limited o r g a n i s a t i o n s from a gene ra l s y s tern p e r s p e c t .

This is what is c a l l e d system analysis,

303 METHOD OF - S.OITLI~~G

Tvo mall B C ~ C i n i u s t r i e s Dens Cook u.3 liosche Nicr:rfa

Linitclc', in Snub% urban were s e l e c t e d f o r t h i s study b a s e d

on convinienca I n o t h e r w o r d s , j u J ~ e u l e n t d n . a . ~ l i n ~ rocthod

was e m p l o y ~ d in t h i s p r o j e c t ,

(a) Primary Bources

These a r e methods by which d a t a a r e obtained as f i r s t

hand information. They a r e information obtained f o r t h e

aim o f theresearch. Such primary sources a r e d e s c r i p t i v e

which w i l l come from personal in terv iews h e l d wi th

o f f i c i z l s of the case o rgan i sa t ions . #

(b ) Secondary Sourcest

Secondary sou rces of data f o r this work inc ludet

( i ) Published mate r i a l s such as textbooks

(ii) Newspapers, Magazines and journals

(iii) O f f i c i a l documents published and unpublished.

3.5 RELIABILITY OF DATA COLLECTED

In the s o c i a l sc iences , i n the q u e s t i o n of r e l i a b i l i t y

one v i s u a l i s e s r e l i a b i l i t y of data from the perspect ive

o f contextua l v a l i d i t y . I n terms o f con tex tua l v a l i d i t y ,

i f t he ma te r i a l c o l l e c t e d by t h e r e sea rcher a r e those

r e l a t e d t o the ob jec t ive s tudied t h e da ta could be

seen as being r e l i a b l e .

I n cons idera t ion of t h i s r e sea rch p r o j e c t , t he

data co l l ec ted were those of Dens Cook and Rosche

Nigeria Limited i n Enugu, where empi r i ca l i n v e s t i g a t i o n

was centred on. In consideration o f t h i s , the data

cc.vY be viewed as being reliable.

In addit ion, the researcher ensured tha+ questions

were n o t ambigously presented to respondents as t o

give them the impression o f different meaning that

cou2- generate inaccuate and inconsistent responses.

Also interview guide were used to obta in data

from the owners or representat ive of owners o f the smakl

scale industr ies , and this ensured t h a t only data r e l e -

vant to the study were sought and obtained.

3ESEARCH U UESTIONS

1 , Background information on h is tory , c a p i t a l base

and number of employees.

2. To what extent has SAP a f f edbed your L s i n e s s with

r e s p e c t t o

- P r o f i t / ~ u t p u t solQ

- Price of products

- Cost of raw m a t e r i a l s , r e n t , remuneration,

spare p a r t s .

- Sourcing o f r a w ma te r i a l s .

3 . What kind o f competi t ion d i d you enjoy before SAP?

Did you enjoy monopoly and what i s your competi t ive

position now?

4. What e f f e c t do you think the f ixed exchange

r a t e and the pegged interest r a t e a w i l l have on

your bus iness?

5 . What s t r a t e g i e s a r e you using now t o combat t h e

e f f e c t of SAP on your business?

6. Do you have any o t h e r information t o g i v e , which I

have not touched on?

CHAPTPR FO Uii - --

DATA PRESENTATION - - AND ANALYS IS

The ob jec t ive of t h i s d a t a is to analyse and

i n t e r p r e t e t h e d a t ~ ~ o l l e c t e d . 2 o n the cn.se orgar.5-ations.

Data were c o l l e c t e d based on answers t o the research

ques t ions . a

One cannot be looking a t such raw d a t a s a y t h a t SAP

has a p o s i t i v e o r negative e f f e c t on the case organfsa-

t i o n s . For this reason, t h e yardstick used is an

assessment o f the companf e s performance while adapt ing

to t h e condi t ions s e t by SAP.

Den's Cook

Den's Cook commenced business i n 1989. It

s t a r t e d o f f because of the awareness c rea ted by SAP t o

look inwards. A t inception, this organ i sa t ion enjoyed

monopoly, being the biggest organized fast food in

Enugu S t a t e . However, some staffs trained by Den's

Cook l e f t t o form t h e i r own fast food j o i n t s and

t h u s serfing as competitors t o it. One of i ts major

competitor is s o l o Fast food. This shows a p r o l i f e r -

ation o f small s c a l e industries and c e r t a i n l y a pos i t ive

impact o f SAP on t h e economy,

SOU5 ' - NG ANL 6GST OF RAW MATZRIAIS

The resercher found t h a t Den's Cook sourced f l o w ,

which is its ma ja r raw material local ly. It purchased

ther,, i: jrn sunr ise Flour Mill i n Enugu S t a t e an.! Bendei

Flour M i l l .

However on t h e c o s t of raw material, there has been

a 60% increase in price of f lour and also eggs which

used t o c o s t #1 a s at 1090 now c o s t #4 i n 1994, a

3009 i nc rease i n price.

I t is important t o n o t e here t h a t f o r the purpose of t h i s s t u d y , a n increase i n pr ice means a negative

e f f e c t o f SAP and a decrease in pr ice i s a posi t ive

e f f e c t o f SAP. I n summation, t h e operating c o s t o f

production o f Den's Cook has been on the increase.

This can be seen i n the income statement of t h e firm

i n Appendix II.F'rom t h e income statement, c o s t of

product ion has been on t h e increase from i ncep t ion t o

the present s i t u a t i o n .

TABLE I

- Cost o f Production

Although cos t increased progress ively from i n c e p t i o n

t i l l 1992, between 1992 and 1993, c o s t fell from 229.81%

t o 95.465. Nevertheless , c o s t of production increase of

t h i s nature i5 certainly not a pos i t ive impact o f the

e f f e c t o f SAP. However, Den's Cook has survived - even

with these c o s t i n c r e a s e s . How has i t done this?

The s t r a t e g i e s adopted by " ? r i m s Cook h a s enibled i t

s u r v i v e t h e harsh e f f e c t of i n f l a t i o n . Thesa s t r a t e g i e s

would be considered l a t e r . Graph ica l ly , i nc reas ing

c o s t o f production;shown 2 s in Appendix I11

PRICE OF FINISHED GOODS

From t h e income statement of t h e f i r m i n Appendix 1

11, i t is s e e n t h a t between 1989 and 1990, the f i r m was I

o p e r a t i n g at a loss. This is a normal phenomenom s i n c e

t h e firm has t o cover t he c o s t o f its i n t roduc t ion

into t h e market. 1991, t h e f i r m started i ncu r r ing

p r o f i t . However, i n 1992, the company s t a r t e d running

a t a loss aga in . Th i s l o s s the r e s e a r c h e r l e a r n t was

because t h e f i r m was s e l l i n g below c o s t . Cos t of

p roduc t ion was t o o high and t h e company experienced f e a r

that i n c r e a s i n g the p r i c e might reduce t h e demand f o r

t h e i r product . However, t h e company f i m l l y decided

on August 18, 1993 t o have a p r i c e i n c r e a s e as shown

i n Apn endix iv.

Never theless w i t h c o s t o f p roduc t ion s t i l l on the

i n c r e a s e i n 1994, Dents Cook prompted t o a 20% p r i c e ia

i n c r e a s e , 15% due t o i n c r e a s i n g c o s t o f production and

55 due t o t h e new Value Added Tax, VAT, introduced

by t h e government t h i s f i s c a l year.

This fear o f p r i c e increases by e n t r e o r e n e u r s due

t o VAT was expressed by manufacturers A s s o c i a t i o n

of ~ i g e r i a i n t h a t t h e y be l i eve VAT might s t i f l e

t h e recovery o f small and medium s c a l e i n d u s t r i e s .

Pr ice i n c r e a s e might lead t o co l l apse o f small #

s c a l e i n d u s t r i e s . I b e k i e (1994). This p r i c e i n c r e a s e

is adopted by Den's Cook as i t s major s t r a t e g y

i n order t o combat t h e effect of r i s i n g c o s t o f

S O U i i C I N G OF FUNDS

Rising c o s t o f ~ r o d u c t i o n made Den's Cook n o t

l i q u i d enough t o meet rxp with its demand, t h u s

t u r n i n g t o l oans as t h e o n l y wag out.

i n f a c t i n 1992, the o r g a n i s a t i o n sourced a b o u t H1.5

m i l l i o n from Union Bank. This firm had no problem

r e c e i v i n g loans because they have t h e r e q u i r e d

c o l l a t e r a l needed by banks.

In f ac t when the f i r m reques ted for H1.5 m i l l i o n ,

the bank prompted f o r U2.5 million i n s t e a d . Den's

Cook however showed d e l i g h t i n the government pegging

lending i n t e r e s t r a t e a t a c e i l i n g of 21%. They

be l i eve t h i s would l e ad t o reductaon i n c o s t , i f

a c t u a l l y implemented,

SPARE PARTS

Den's Cook c o n t r a c t s w i t h engineers abroad t o

r e p a i r t h e i r machines and t o help i n t h e i r parts

a v a i l a b i l i t y . P r i c e s for t h e s e spa re s and s e r v i c e s has

increased a b o u t t h r e e t imes , and a l l t h e s e r e q u i r e

f o r e i g n exbhange. Den's Cook be l ieves t h a t pegging

t h e exchange r a t e is good, and i f implemented might

lead t o a g e n e r a l p r i c e reduc t ion , However, t he org-

a n i s a t i o n is n o t t o o hapby about t h e a l l o c a t i o n o f

f o r e i g n exchange, which they say is cumbersome. This

is j u s t i f i e d by Aluko-0lokun (1994) i n h i s s a y i n g

t h a t t h e i n d u s t r i a l i s t a r e upset by t h e present

f o r e i g n exchange a l l o c a t i o n ,

Never the less , Den's Cook is r a t h e r p e s s i m i s t i c

about t h e r e a l i z a t i o n of pegging the naira. It says

that a t present though the o f f i c i a l r a t e is W2 t o

a d o l l a r , a t the blac# market i t is s t i l l #45.

They based t h e u pessimism on the budget coming out

l a t e and tha t almost wi th in the quarter o f the year, the

effect bf the pegged naira has not been felt.

STRATEGLIS X I O P T X TO c ~ ~ ~ B A T THE EFFECT OF SAP

The firm is faced by rising cost o f production.

The f i r m adopted price increase as its major s t ra tegy .

The firm a l s o adopted s a l e s s t r a t e g y . The firm t o

be a b l e t o reach as many customers as poss ib le , has

o u t l e t s i n e i g h t s t a t e s o f the f edera t ion , Its o u t l e t s

are:

Den's Cook a l lows t h e s e o u t l e t s bear its name, but

these o u t l e t s are n o t owned by Den's Cook* Formed i n

l W l , t h e s e o u t l e t 9 are o n l y d i s t i b u t i o n c e n t r e s , whose

l i a b i l i t i e s a r e borne by t h e i r owners. These o u t l e t s g e t

10s reduc-f:;.n i n p r i z : and w i t h a c r e d i t of 1 week.

These o u t l e t s were allowed t o r e t u r n t h e i r unsold

products , b u t t he o r g a n i s a t i o n found t h a t number of w

unsold products r e tu rned incurred a l o t of l o s s on t h e

o r g a n i s a t i o n and a u t o m a t i c a l l y increased its c o s t o f

product ion, thus t h i s idea was scrapped.

Den's Cook i n a d 3 i t i o n to not a l lowing f o r r e t u r n o f

unsold products now cuts down on supnly of t h e i r

products t o t hese o u t l e t s . T h i s is p r e s e n t l y causing a

l o s t o f dissatisfaction among t h e o u t l e t s , b u t Den's

Cook f e e l s it is t h e only way t o reduce unsold products .

I n summation, Den's Cook s u c c e s s f u l l y increased i t s a l e s

by increas ing its d i s t r i b u t i o n outlets and through

p r i c e i nc reases . From t h e income s t a t emen t of ApDendix

TABLE III

Sales

However although sales f i g u r e s has increased

p r o g r e s s i v e l y between 1990 t o 1992, i n 1993 the s a l e s

i n c r e a s e was a t only 68.37s. This was t h e year the

o u t l e t s were no more allowed t o return their unsold

p r o d u c t s and when t h e i r s u p ~ l y w a s c u t down. This r educed

its c o s t o f p r o d u c t i o n that year . (C3eck TaSle I ) ,

and with supply quantities reduced , sales f i g u r e s would

a l s o f a l l .

G r a p h i c a l l y , the s a l e s t rend can be ~ o t r a y e d as i n

Appendix v.

PROFITABILITY

The essence of any businesz i s t o make p r o f i t i n

order t o cont inue surv iv ing . Prom t he income s t a t emen t

i n Apn endix 11, between 1989 and 1990, the firm #

ope ra t ed a t a l o s s . This is a normal phenomenom s i n c e

the firm h a s t o vover i t s c o s t o f i n t r o d u c t i o n and

commencement. In 1991, Dents Cook showed a p r o f i t of

#187,389.41 however, due t o r i s i n g c o s t , i t incu r r ed

a l o s s of(#c1,878,746.09) i n 1992, about 903%

r e d u c t i o n i n p r o f i t . The company f i r s t worked on i ts s a l e s

s t r a t e g y , but n o t allowing f o r unsold u n i t s t o be

r e t u r n e d and c u t t i n g down on i ts u p ~ l y t o its distr i-

b u t o r s . Although this cut c o s t but a l s o c u t t i n g down

fhe percen tage increase in sa l e s over t h e prev ious year -

However, wi th pr ice increases, t h a t year, Den 's Cook

achieved a ~ r o f t t of #1,495,165.3?, ( 1 ~ 9 3 ) .

Den's Cook s t i l l adopts the s t r a t e g y of p r i c e

i n c r e a s e s adopt ing a 15% i nc rease in p r i c e and a 5%

i n c r e a s e due t o VAT i n 1994.

Increase in price surely means t h a t the objectives

of SAP is not being achieved. Consumers are get t ing

poorer and poorer. Snai?:ks in this country is now seen

as a luxury good for the rich along.

Using the firm's income statement i n Appendix XI,

return on investment (RoI) would be used to measure 0

the f i r& prof i t earning between 1991 to 1993.

RETURN ON INVESTMENT ( R O I )

T h i s means the return on total investment i n the

f i r m . I t i s u s u a l l y expressed as f o l l o w s : -

Net P r o f i t a f t e r Tax

Total asse t

R O I f o r 1991

R o I for 1092

R O I f o r 1093

P r o f i t mqrgin as a t 1091 was 9.12% i n 1992 reducing

t o -74.16% due t o escalting c a s t i n 1992. With

rice increases and reduced c o s t i n 1993, Den's Cook

had a ~ r o f i t margin of 145.09%.

From the above profit narg in of 145.09% one might

be tempted t o say that Den's Cook i s r e a l i z i n g t h e

objec t ive of SAP. On the other hand, a c r i t i c a l observer d

and analyst will s e e it i n another way. This study intends

t o f i n d out the impact o f SAP on t h i s company and the

major s t r a t eg i s , the company is adopting t o cope with

the adverse e f f e c t of SAP.

From the above data, Den's Cook increased its

p r i c e s as its major s t r a t e g y to cope w i t h the adverse

e f f e c t o f SAP. The economy g e n e r a l l y is d e ~ r e s s e d ,

i n f l a t i o n on the increase, thus l ead ing t o c a s t increasea .

Foreign exchange a l locat ion and cost i s a l s o one o f

the ~roblern of our economy. The t o t a l i t y of this would

d e f i n i t e l y a f f e c t any organisa t ion .

Although Den's Cook has o u t l ~ t s i n e i g h t s t a t e s , would

it be proper t o c r e d i t the company as being e f f i c i e n t

f o r skyrocket t ing the pr ice of i ts f i n i s h e d goods t o

make p r o f i t ? To the researchers own mind, the answer is No.

I n t e r a t i n g o r b r i n g up a l l t h e r e s e a r c h in format io i l ,

t h e company is a b l e t o cape w i t h t h e adverse e f f e c t

of SAP by i n c r e a s i n g its sales as seen i n t h e income

s t a t e m e n t through increased o u t l e t s and ale9 by

i n c r e a s i n g t h e rice of its f i n i s h e d goods.

Thus, the adverse e f f e c t gf SAP is s e e n through #

i n c r e a s i n g c o s t of raw materials, spare parts, funds

and even wages, With the minimum wage be ing increased

t o #200, workers on lower wages had t h e i r wages

i nc reased . O f f course t h e s e c o s t are borne on the

f i n i s h e d goods. T h i s adverse e f f e c t i s g r a p h i c a l l y

potrayed as i n Apnendix 111 showing t h e trend i n

o p e r a t i n g c o s t between 1089 t o 1993. The g r a ~ h shows

an i n c r e a s i n g r i s e i n c o s t o f production,rnwith c o s t

r educ ing i n 1993, due t o change i n p o l i c y by reduc ing

number of D ~ O ~ U C ~ S s e n t t o o u t l e t s and n o t a l lowing

unsold products t o be r e tu rned t o head o f f i c e .

I n a d d i t i o n with nrice i n c r e a s e s , t h e firm is a b l e

t o make a ~ r o f i t . It should be noted that p r i c e

increases certainly is not a peeitive e f f e c t of SAP,

it r a t h e r adds t o the i n f l a t i o n a r y t rend i n t h e

coun t ry .

ROSCHE N IGZR IA LIM ETED

The r e s e a r c h e r i n case. of Rosche Nigeria Limited was

l im i t ed t o on ly qual i ta t ive data. However, t he impact of

SAP i n this company would sti l l be a s s e s s e d . Rosche

Niger ia Limited, a marke t ing companj Geai ing r:! th

Yamaha produc ts was i n existence before the introduction

o f SAP i n 1986 and is st611 adjusting t o be ab le t o

withstand t h e e f f e c t o f SAP.

PRICE OF PRODUCTS

Rosche Niger ia Limited d e a l s w i t h assorted types of

power machines. &ices vary between products and the

percentage o f f l u c t u a t i o n is not t h e same. However, t h e

r e s e a r c h e r l e a r n t t h a t 100 motor cycles before SAP might

have t h e p r i c e o f 1 motorcycle today.

Certainly this is a p r i c e i nc rease , which is n o t a p o s i t i v e

impact c r ea t ed by SAP, and m i g h t be due t o i n f l a t i o n a r y

tendencies of the economy.

Theresearcher leant t h a t i n i t i a l l y i n t h i s f i r m ,

there was lay o f f o f staffs a t the e a r l y BAP period.

This was a na t iona l a c t i v i t y due t o t h e e f f e c t of

SAP. P r i ces w e r e on t h e inc rease , Cenand f e k l thus a lot

of staffs were- tagged-redundant. However, overtime

sales s t a r t e d plckfng up, and thus room fo r vacancy.

To r e t a i n the r: i l l ed sL'f was t h u s to ad j u s t these

pay packet s ince inflation was b i t i n g on everyone i n

t h e community. #

SOURCING OF FUNDS

T h i s business is c a p i t a l in t ens ive , needing f o r e i g n

exchange to procure t h e goads from t h e manufacturer.

Since i t is c a ~ i t a l i n t e n s i v e , dea le r sh ip cannot be on

the increase. People now a r e buying what they need, thus

dernznd f o r these moducts i s f a l l i n g while t h e i r p r i ces a re

r i s i n g .

Rosche t h u s has to depend on loan from banks and

o ther f i n a n c i a l i n s t i t u t i o n s t o meet up with i t s expenses.

The researcher l e a r n t t h a t from the experience of t h i s

company, w i t h the incept ion of SAP, boyrowing is no

longer easy, because the c o s t o f funds for the banks

is very high and they cannot lend below t h e i r cos t .

However, w i t h the in teres t rate pegged a t a ce i l ing ,

Rosche f e e l s t h i s might lead t o l c w ~ r cos t of ape ra t ions .

70

"ince tq f s company depends on i m p o r t a t i o n o f i t s

produc ts , d e f i n i t e l y it's f w d for impor t ing must be

i n f o r e i g n exchange. Rosche Nigeria Limited However is

n o t ve ry e x c i t e d about t h e p r e s e n t f c r e i g n exzhange

a l locz: ion, wnere CBN might only meet up w i t h 10% o f

foreign exchange demand. According t o Rosche, t h e r e is one

t h i n g t o m e e t f o r e i g n excharge demand and ano the r t h i n g

t o procure t h e f o r e i g n exchange. However, Rosche seems

t o t be waiting f o r the implementation of pegging t h e

naira a t #22 t o a d o l l a r .

STRATEGIES ADOPTED TO COMBAT THE EFFECT OF SAP

Before t h e i n t r o d u c t i o n of SAP, Rosche d e a l t w i t h

power D ~ O ~ U C ~ S and automobiles. However, with p r i c e

i n c r e a s e s , d e v a l u a t i o n of tbe naira and g e n e r a l i n f l a t i o n ,

Rosche c losed down its automobile u n i t , d ea l i ng wi th

Volkswagen, Peugeot, and t r a n s i t vehic les ' . Capital f l i g h t

was in t roduced due t o SAP with local cu r r ency d e p r e c i a t i n g .

Since t h e i n t r o d u c t i o n o f gAP, Rosche r e a l i s e d t h a t it

is no longer t h e s e l l e r s market, b u t the buyers market.

Rosche now has t o reach o u t t o the customers. Give sales

i n c e n t i v e s , main ta in high quality of produc ts and g ive

a f t e r - s a l e s - s e r v i c e s .

r n f a c t the researcher l e a r n t t h a t l a s t year January

a t e a m o f overseas trainers, serviced p a r t s and fitted

spare parts f r e e fo r customers.

Summing up the d a t a col lected f rom Rosche

Nigeria Limited, t he propr ie tor had t h i s t o say in

regard of SAP and i ts e f f e c t not j u s t on h i s o r g a n i s a t -

ion, but the whole n a t i b n a l economy.

In his own words "Unti l we have a s t a b l e government

and leadership, we cannot have a s t a b l e economyu. The

managing Director of Rosche bel ieves t h a t what SAP

w a s intended f o r would have been the b e s t f o r o m

economy, but due t o t h e pol i t i ca l i n s t a b i l i t y , s o far

SAP has not succeeded t o impact much p o s i t i v e e f f e c t

on the economy. SAP i s s u p ~ o s e d t o a t t r a c t f o r e i g n

inves tors , l i m i t our dependence on imported f i n i s h e d

goods and look inwards.

However with the p o l i t i c a l i n s t a b i l i t y , which

Nigeria is always faced with, SAP has been d i f f i c u l t

to implement. A government not c o n s i s t e n t wi th p o l i c i e s

and guid l ines d e f i n i t e l y SAP w i l l d e r a i l . According

t o the p r o p ~ i e t o r , t he Nigerian Government is based on

falsehood, t e l l i n g peovle to t igh ten t h e i r b e l t ,

A l s o , a l though SAP meant f r e e market , it s h o u l d

depressed it aldworsemd our s i t u a t i o n , According

to the m o p e r i t o r , i t fs wrong f o r t h e government t o

a l l o w our coun t ry to bb a dumping ground for fa i r ly

used wtokunbow cars csrtainly it is t h e same scarce

forex t h e y use i n this i m p o r t a t i o n . #

The n e b a t i v e impact of SAP was f e l t by Rosche

which used t o d e a l with a u t o m o b l i e s . It was a c t u a l l y

i n 1986 t h a t it c l o s e d down its motor d i v i s i o n , dealing

w i t h volkswagea, peugec t and trans it v e h i c l e s .

With inc reased c a p i t a l f l i g h t , l o c a l c u r r e n c y depre-

c i a t i o n , goods and services c o s t g o i n g higher t h u s

c l o s i n g some avenues i n the bus iress became necessary

i n o r d e r t o a t l e s s t breakeven,

PRICE INCREASES (DEN 'S COOK)

CROISSANT TECH, NIG. LIMITED .

PRCD UC TS AUGUST 1993 PRICE INC

1. Short Pastry meat Pie 12.00 15.00 #

2. Puff P a s t r y meat pie 12.00 15.00

3. Cheese Pie 12.00 15.00

4. Corn beef p a t r i e s

5. Sausage r o l l s

6 . Chicken p i e 12.00 15.00

7. P l a i n Doughnut 10.00 12.00

8. C r e a Doughnut

9. Cro i s san t

10. Chocolate roll 9.00 11.00

11. Broiche sugar 7.00 9.00

12. Broiche Swiss 10.00 12.00

13. Cheese Pizza

14. Su l t ana

15. Onion P izza

16. Sausage Pizza

Club meat @ e

Club Sausage rol ls

Club Doughnut

Club Sultana

Club Broiche su-r

Club Croicha Swiss

Club Cheese p i e #

Eclairs

Choux pastry

S h o r t bread b i s c u i t

Peaches

Butter r o l l s

Long cake

S l i c e d cake

Cup cake

Queens cake

Turkey cake

Pudding Cake

Duchess cake

Cream cake

Club Sandwich

Burger Sandwich

S/NO, PROD TXTS - - AUGUST 1993 PRICE INCii NEW PRICES BY 20% in

1994 W

39. Hot Dog

40. Scotch Eggs 10.00 12.00

41, C i ~ i :ran Far + 40.00 48. OC

Jumbo Chicken part

Full Chicken

Jumbo full ckicken

Burger ceef

Jumbo Burger beef

Chicken Varyland

Chicken i n batter

Swiss Roll

G i z z a r d

Danish pastry

Cream horn

English t a r t

Layered cake

pine-apole t a r t

Small long cake

Birth day cake (small)

Birth day cake (medium)

Birth day cake (large

PRODUCTS

B i r t h day cake Extra-large .

Broiches of Paris

I'ruit Bread

Milk mead

S o f t Rol ls *

Small S l i c e

Super Golden

Round Fantazia

Big Fantazia

Burger Bread

Long Super Golden

Chocolate Bread

Res tauran t

Round Farmer

Long farmer

$kg Fammer

Fibger Rol l s

Wheat Bread

Ikg farmer

AUGUST 1993 PRICE I NEW PRICES BY 20%

#4 %-- u1,200.00 1,440.00

Emeka Akputa A g . General Manager

CHAPTER FIVE

SUMMARY, SECOM?.IENDATION AND CONCLUS I O N ---

This paner in g e n e r a l examined t h e major a s p e c t s o f

SAP and i n p a r ~ i c u l a r its impact on t h e o p e r a t i o n s o f

TlEN'S Cook and Rosche Niger ia Limited bo th i n Enugu

S t a t e which se rved as c a s e s t u d i e s of small scale

i ndus t r i e s . u

This work found o u t t h a t theessence o f l ook ing

inwards was t h e b r a i n behind the format ion of Den's

cook/ This c e r t a i n l y is a p o s i t i v e impact of SAP.

However, s i n c e Den's Cook e x i s t i n qq economic

environment, i t s a c t i v i t y c e r t a i n l y would be a f f e c t e d by

the g e n e r a l economy .with t h e i n t r o d u c t i o n o f SAP,

Naira exchange r a t e d e p r c i a t e d substantially against

o the r t r a d i n g c u r r e n c i e s l i k e pound s t e r l i n g and t h e

d o l l a r , c o s t of raw m a t e r i a l s and s p a r e p a r t s went

up, and t h u s i n f l a t i o n had become a p a r t o f living

i n Nigeria.

It should be noted here t h a t d e n r e c i a t i n g t h e n a i r a

was supnosed t o i n c r e a s e expor t and thus a t t r a c t f o r e i g n

inves to r s . Zncseased e x p o r t would be p o s s i b l e a l s o i f

we i nc rease our p roduc t ion capac i ty .

This would be possib!:e o n l y through p r o l i f e r a t i o n

o f I n d u s t r i e s , both small, medium and l a rge .

However, the devalued cu r r ency gave way t o

capital f l i g h t and money l a u n d e r i n g became the order

of the day s i n c e i n t e r e s t r a t e s werz l e f t t o be de t e rp ined

by market f o r c e s , Cwnmulatively, these caused

i n f l a t i o n , unemployment and inc reased c o s t of product ion. 0

Dents Cook which i s a p a r t of the economy thus

has t o look f o r s t r a t e g i e s t h a t could he lp i t cope wi th

t h i s harsh impact of SAP. It inc reased i ts o u t l e t s i n

o rder t o increase sales. Den's Cook a l s o increased p r i ce s

of its snaks i n order t o make a p r o f i t . I n f a c t a f t e r

t he p r i c e increase i n 1993, t h a t year i t made a p r o f i t

of ~6805267.44 about lQ5.095. Re t u r n on Investment.

Price inc rease is i t s major s t r a t e g y and c e r t a i n l y

would s t i m u l a t e the i n f l a t i o n a r y tendency i n t h e economy.

Summarizing the impact of S A P o n Rosche Nigeria

l im i t ed , I n f l a t i o n has had a bad h i f on t h i s company,

It had t o lay o f f i ts staff i n i t i a l l y , c lo se down

its a u t o m o b i l e u6ti and now h s s t o ca r ryout agg res s ive

marketing s t r a t e g y t o win customers. Foreign emchange

p r i c e s has been i t s main problem, since Rosche imports

t h e s e heavy d u t y machines.

However SAP h a s made f o r creativity of ollr l o c a l

i r idus t r i e s . SAP also c a l l s f o r e l imina t ion of gbvernment

c o n t r o l s and r e s t r i c t i o n s . Also t he l o c a l content of

Nigkrian I n d u s t r i a l output is on t h e ir.-~easem whit-h SAP

h a s achieved. SAP has come with wel l des igndpal ic ies and

s t r a t e g i e s but the poor wan on t h e s t r e e t s have '. become poorer. This has prompted the present m i l i t a r y

government led by General Sanni Abacha i n h i s 1994

budget t o have a review of some of the aspects o f

SAP.

He f i r s t egged the exchange rate at #22 d o l l a r and

created a c e i l i n g fo r i n t e r e s t rates. He has also imposed 1 ,

r e s t r i c t i o n s on imports and made i t very cumbersome. I

Yet t h e impact o f these changes has n o t been f e l t .

The b lack market is s t i l l booming since it holds the bulk

o f f o r e x ' . Investors and ~ r o d u c t i v e a c t i v i t y a r e on the

decline o r s t a t i c . Infact , t h e economic s e c t o r has been

o p e r a t i n g under austere c o s t cond i t ion w i t h consequence

h igh c o s t of production.

The impact of SAP although mixed i n its f i n d i n g s ,

our problem c e r t a i n l y 1 7 not on ':'.? p o l i c i e s of SAP

which I s e e as a bold step i n the right d i r e c t i o n which

aimed a t r e d i r e c t i n g the economic programmes and

p o l i c i e s to ach ieve t h e desired o b j e c t i v e s of growth

and deve 1opmen.c.

canker worm i n our s o c i b t y , where people f i n d loop-

holes i n e v e r y p o l i c y to self enrichment of themselves,

and p o l i t i c a l p I n s t a b i l i t y not a l lowing f o r p o l i c i e s to

be we l l desg ined and creating an Uninvesting

a t m o s ~ h e r e f o r foreign and loca l i n v e s t o r s .

Based on t h e r e s e a r c h findings, t h e fo l lowing --, -- - - -

recommendations a r e made. -- -- --

Although Den's 'Cook as a t 1993 ope ra t ed a t

145.0996 return on investment a f t e r i n c r e a s i n g its

p r i c e s and th rough the ef fan t o f i t s o u t l e t s , decided

n o t t o a l l o w f o r unsold products t o be r e t u r n e d to them

and also c u t down on t h e s u p ~ l y q u a n t i t e s t o t h e

o u t l e t s . These outlets however are no t happy about

t he ~ e d u c t i o n i n s u p p l y q u a n t i t i e s , I f e e l Den's Cook

should be concerned abou t the welfare o f t h e i r o u t l e t s .

It should establish a n understanding with these

o u t l e t s s o t h a t b o t h p 2 s t i e s f e e l satisfied abou t

t h i s r e l a t i o n s h i p . Den's Cook s h o u l d give t h e s e

o u t l e t s nore s u p ~ l f e s while not a l lowing for unsold

q u a n t i t i - t s s t o be r e tu rned t o them o r if they

c a n ' t keep up t o t h e s e supnlies, they should c r e a t e

a n atmosphere o f unders tand ing between it and i ts #

o u t l e t s . Customer satisfaction i s ve ry important

f o r t h e s u r v i v a l o f any bus ines s .

Recommendation t o RoscAe Nigeria Limited, i t

shoulc? enploy and send some eng inee r s t o t e c h n i c a l l y

advanced nations t o acquire t r a i n b g on how t o

m n u f a c t u r e c e r t a i n s w r e parts. This would enable

Rssche be a manager o f s e rv i ce parts as w e l l as a

dealer i n t h e machine i t s e l f . Cakasa Nigeria l i a i t e d

is a known example o f a s e r v i c i n g o i l Industry i n

Niger ia sending out some of its eng inee r s , who

cone home mnufac tu r ing c e r t a i n s e r v i c e p a r t s . D e f i n i t e l y , t h i s wculd r q s f r e F 1r< c f c s t i t a l .

This could be s o r t e d through 1oar.s o r by the a s ~ i s t -

ance ~f t he f e d e r a l government .

Rosche Nigeria Limited should k e r erninded

of t h e Importance o f r e s e q r c h t o h i s business .

The p rop r i e to r r e f u s e d t o d i s c l o s e q u a n t i t a t i v e d a t a

ab: : ; h i s bus: - :?s. An edonomy w i t h such organ i sa t ion

~ ~ u l c l n o t allow f o r i n v ~ s t i g z t i o n and g r o w t h . This

p r a c t i c e is not h e l p f u l t o our econorny.

Concluding, t h e S t r u c t u r a l Adjustment Frogramme

i n Niger ia i n t h e words of Okankwo, is perhaps the #

most v ~ r i s b l e e l t e r n a ' i v e to our economic predicament.

T h i s i s b u t t r e s s e d by Dr Achi, ir, h i s s ay ing that 'the

gains from SAP is seen i n that p r e s e n t l y i n d u s t r i e s

a r e strugg1ir.g +Jo r a k e %he contir.ued use of t he

e x i s t i n g f a c i l i t i e s ecor.oniically by i n c r e a s i n g :Fie

vclune o f he Local content i n running t h e i r

e q u i p ~ e n t s . This is true in m n y o f t h e product ion

i n d u s t r i e s .

The world bank 1994 r e p o r t a l s o sunports my

c o n c l ~ s i o n . From t h e report, i n 1980 , o i l p r i c e

d ropped and in l 5c7 pe r c a p i ~ a income was $300

with t h i s f5 l l i r . g be fc re 3XF. Betv r~sn :5?e7 - ! 9 9 2 ,

per capi ta income sr,d consumntion kas been on

the inc rease . However f o r t h e magnitude o f t h e people

t h i s was not no t iced because t he inceease was low,

about s. Also altholeh export; i r c r e a s e d after

SAP but :he increase hqs been very m i n i m 1 t o

e s t a b l i s h any felt change. The world bank r e y r t

is o f t h e o p i n i o n t h a t for these i n c r e a s e t o be f e l t ,

poli~;es over a period o f timc should b e maintained

and t h i s would also serve as an inducement tq

i n v e s t o r s , #

With p o l i t i c a l i n s t a b i l i t y i n N ige r i a , c e r t a i n l y

i n v e s t o r s would be on t h ~ d e c l i n e . P r i c e s would

definitely be on t h e increase since we have a d e f i c i t

where goods r r ~ d u c e d s r e n o t on t h e i n c r e a s e , ?#leney

supply h a s S e ~ r . on t h e i m r e s s a d l i r i n g S A F bz t 3e:ause

t he re has been few goods produced. I n f l z t i o n and

p r i ce i n c r e a s e s , with pleritg noney chg-sir& few

goods k s beer. t h e order of t h e day.

The wor ld kank repor? ~ S s o says why SAP'S

e f f e c t ha s n o t been f e l t is becsuse Government spends

too much on unproductive v m f u r e s thus c a u s i r ! a

d e f i c i t . D s c p l e giver , i s :ke A:zckuts. s t e e l p r o j e c t ,

where t h e r e p o r t s t a t e d t h a t t h e c o s t o f %is

p r o j e c t is rather 500 large and i n f a c t is t h e l a r g e s t

anywhere i n the w o r l d . The r e p o r t a l s o said t h a t

this ~ r o j e c t s and o t h e r such p rozec t s a r e s u p m s e d

t o be c o m ~ r c i s l p r o j e c t s snC wonbered why t h e

Fr i.mte s e c t o r is n o t ~ r r v c l v e d i n i t .

From t h e world bank r e p o r t by Kr Gerald F l o o r ,

activities must be on :he i n c r e a s e f o r

SAP o r whatever aconoriic n o l i c y t o wcrk ir- Nigeria.

We must i n c r e a s e our t e c h n o l o g i c a l b u i l d up. We must

s t a r t from t h e small s c a l e i n d u s t r i e s a t hone and *

then a t t r a c t i n v e s t o r s s o t h s t expor5s would be o n

t h e i nc rea se . We need a s i t e t i o n i n Niger iz where

mo3ey is ch-sing so much goods.

However f o r a l l t h e s e to work w e must f i r s t have

a o o l i t i c a l l y s t z b l e econoxy. A ccrducive environment

t o a t t r a c t i n v e s t o r .

Infzct t h e impact o f S A on sr::;tll s c a l e i r d u s r r i e s

which Den's cook and Rasche Nigerie Limited be longs is

a fleasure t h a t csn be c o r r e c t e d w i th in t h e genera l

econorly. On t h e e x t e r n a l ~ e c t o r , m o r e d e l i b e r a t e

e f f c r t shcu ld be made 50 b u i l d t ? . ~ nscessr,ry c o ~ f i d e n c ~

on tke s t a b i l i t y and relisnce o f N i ~ c r i a n eccnomy,

w i t h o u t which foreign i n v e s t o r s w i l l cont inue t o

be r e l u c t a n t t o invest, Fore ign i n v e s t o r s and s u p ~ l i e g

on s e e i n p t h s t our economy has slumped l o o s e conf idence /

i n our ecoromy ztxl declare K i g f r i ? a no go a r e z .

Investors should be assured of c o n s i s t e n t and s t a b l e

p o l i c i e s with-!*: t h i s , business i n v e s t r n ~ n t becomes

f r a ~ g h t w i t h h i g h d e g r e e o f . ' risk sr.d ~ n c e r t a i ~ f y

ar.d t h e r e f o r e h i g h l y d iscouragi rg ,

I t s h o u l d be noted t h a t a l t h o u g h SAF hss had some

short ,arm unp1:-sant s i d e e f f e c t s , i t s h o u l d be

emphasized t h a t t h i s c o u n t r y ' s f o r r r i d 2 b l e sxd intractable

economic problems w h i c h wEre aggravated by t h e pursuit

o f l a r g e l y a p n r o p r i a t e b u t wrongly implemented p o l i c i e s

over a ~ e r i o d o f a b o ~ t t w o decades neeeed t h e shock

t r e a t e d measures i n t h e ad justrnent p o l i c i e s . The

a r g u r r e n t is :hat s u c h prcb1eKs n s l f o r r t i a t i c n crea'ed,

cannot be done away within over n i g h t .

On t h e o p i n i o n o f t h e w r i t t e r , we are passing

t h r o % h a c r u c i s l s tage ir o m h i s t o r y .

The v e r d i c t o f h i s t o r y has been on t h e s i d e o f t h o s e

who took a comprehensive long term view of affairs.

On t h i s n o t e , t h e w r i t t e r implore a l l Nicerims t h a t

this c o u n t r y belongs t o 211 o f us , cor .s is ' -en+ p o l i t i c a l

i n s t a k i l i t y and c o r r u p t i o n w i l l do u s nc good, but

wcrs er? o u r economic s i t u a t i o n .

- ~

Achi P . B . U . "Grain From SAF" B u s i n e s s Times,

Gera ld p?oor Wnrld Bank Development r e p o r t

"SAP Nigeriam 1994

Okonkwo, Ubadisgbo "The m l e of 'Foreign direct

Investment in N i g ~ r i s n Industries "

Biz Times, Monday 3rd July,

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