Causes Of Failure Of Small –Scale Industry In Nigeria

The Causes Of Failure Of Small –Scale Industry In Nigeria


        The aim of this research work is to highlight the problems facing Small-Scale industries in Nigeria. I have briefly in the introductions examined the definitions and roles of Small-Scale industries in Nigeria and the major problems facing them.




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I have also endeavored to offer feasible solution to these problems. This study has been divided into five main chapters, in chapter 1, I discussed & briefly the importance of industrialization in fast growing economy like Nigeria. The causes of failure of Small-Scale industries in Nigeria were highlighted.  Chapter two tries to drew attention to the views of different writers, scholar as well as seasoned, and experienced industrialist who wrote or expressed their opinion on the use (causes of failure of small-scale industries in Nigeria.



Different countries of the world have different basis of defining industry. Some define it in terms of manpower, some prescribe a limit on capital investment while other defines it on the basis of management structure.

In Nigeria, various criteria are used for its definition. The small-scale industries in 1973 defines such enterprises as those having investment capital, (ie land building, machinery, equipment  and working capital of up to N60,000 and employing not mere then 50 persons. But according to the federal ministry of commerce and industry, to the Nigeria Bank for commerce and industry (NBC) in 1981/82 (for the purpose of the revolving loan scheme for industries). Such enterprise were regarded as those costing not more than N500,000 (including the cost of land but excluding working capital). This definition has been slightly modified by NBCI. The bank now says that resignation of industries in its guide excess N750,000 including the cost of land.

But the industries research unit of university of Ileife defines a small-scale industry as one whose total assets in capital equipment plant and working capital are less than N250, 000 and employing fewer than 50 full time workers and in 1984, the Central Bank of Nigeria credit guideline to commercial and merchant banks, small-scale enterprise were resided as establishment whose turnover (sale figure) does not exceed N500,000. At a recent workshop on industries held at the Administrative staff collage of Nigeria (ASCON) Badagry, participants agreed that a small-scale industry should be defined as an enterprises whose cost does not exceed N750,000 (total cost excluding land). ASCON wants the definition to remain in force until 1990.

Nigeria industrialist have set up business in the Agro Based and Allied industries, Rubber Base industries as well as heather, stone, chemical, the metallurgical, electrical, electronics and service industries etc.

Industry occupies a significant place in industrial sector like presidential Hotel. However, proper guidance is needed for and the country as a who. This sector provides the consumer goods and services and helped in the development of artisans and managers, given Nigerians greater opportunity to gain experience in factory works and to study the simpler machines imported from abroad. It is evident that the quickest and most efficient method of industrialization especially in developing nations such as USA Britain etc. continue to encourage by all possible means for growth of this class of industry.

But in our own case the official attitude both in the national and state level have been lukewarm. However, the federal government is aware of awakening of Nigerians to be fully economy which would not be permanently left in the hands of foreigners. Therefore, in 1972, the Nigeria enterprise promotions decree other wise known as industrialization decree was promulgated.

The decree was aimed at affording Nigerians greater participation in economic activities especially in industrial sector of the economy, this sector in this organization- industries in Nigeria are principally concentrates in some part of the country like here in Enugu and other places in Nigeria including some local government area’s that have a number of units engaged in transitional industries and it is estimated that over 5000 small-scale units are accounted to exist in this state according to the official published in 1987 by the Anambra State ministry of finance and Economic development (statistics Division) Enugu.

Industries although have received very little government assistance, occupies a significant position in the nations asset which has the greatest alteration for and is indeed the prime mover in any manufacturing industry, is the existence of a large market.

The federal government and various state governments are now emphasizing the need for rural industrialization. This is mostly because we have perceive the need to diversity our economy thereby receiving our dependence on crude oil which for sometimes now has been hit by the oil glut. Industries play a vital role in the economic development of this state. The decree gave great scale industries. These industries include those of bakery, footwear, agriculture textile, printing, furniture and fixtures publishing and allied produce jewelry, saw milling fabricated metal product etc. in presidential Hotel, from 1995/2000 to my own understanding, the government are not doing well in aspect of management and funds in that organization, many official statement in the pasty four  years consisted paying lip serve without removing the  encumbrances facing the small and probably medium scale industries in the state.


The small industries like presidential Hotel apart from being hampered by finance technical and managerial, marketing and economic problems and so on, have the problem of lack of trust among the industrialists, they are not always ready to share ownership of other business even when it involves their own relations. We used to forget that this is the class of industries needed in our rural areas if we hope to cope with the problem of unemployment and continued population drift from the rural areas to urban cities.

Furthermore, if given a proper environment and  guidance, industries in that are capable of accelerating the tempo of the states industrial development which eventually will make food shortage a thing of the past.

Industries in most cases make use of the local raw materials and labour rather than capital intensive, this encourage the development of local technologies  and I believe that the aim of the proposed organization by our present GOVERNOR SULLIVAN IHEANACHO CHIME will be achieved through rural industrialization.

There is no guarantee of any long rang continuity of existence of a small-scale industry.


        My research work reveled that the continuous failure of these small-scale industries negates the struggle by the government to revamp the economy. The effect of this on the economy are food scarcity, unemployment, increase in social imbalances, adverse balance of payment positions experienced by the country, reduction in per capital income tax etc. These problems if not adequately checked may result to a total collapse of the economy. I almost every country, small-scale industry constitutes a greater part of all industrial establishments, it has a strategic role to play in the economical development of industrialized nations. However, industries like presidential Hotel are finding it difficult to grow because of the operational problems confronting them, and lack of trust financing, management deficiency, marketing etc. these are the major problems for most small-scale industries and one that are best attacked by collective effort.

For the survival of any business, what is produced must be sold and at a reasonable price marketing is a managerial function and a very important tool in the operation of a business or organization. The place and role of marketing in any organization is indispensable and cannot be over emphasized. It embrances the activities we engaged in order to satisfy economic needs and wants.

Nevertheless, good marketing has not always been easy to attain in many of our small-scale industrial organizations because there are certain internal and external factors that always militates against marketing activities.

Internal forces may include product quality, design promotions, complexity and inefficiencies of the existing distribution channels, but in the case of external forces, we have limited market, inadequate marketing structures, changing consumer life styles etc.

Some of these problems should be systematically studied so that they could be solving once and for all. But whatever is the case, the question to be answered in this study is that problems to small-scale industries like presidential Hotel, what factors influence them and what should be done so as to alleviate these problems. If these problems should be properly looked into, they can provide opportunities to small-scale industries in the state in particular and country in general.


This study is carried out basically to proper into the causes of failure of small-scale industries in Nigeria with particular references, like presidential Hotel.

The study also aimed at enlightening the very many Nigerians who engage in small-scale industries and those who intend to go into these industries the right step to take for the economic survival of their enterprise. I also wished to make some recommendations with regard to the following:

  1. What could be done by government agencies or associations to help small-scale industries in the tasks facing them.
  2. What can be done by way of better management to help the individual small-scale industries to improve their operations and increase the productivity and profitability.

I wish to make small-scale industrialist in the state who lack the marketing knowledge realize the problems facing them and offer some prescription for putting the acting patient back on its feet.


The government of this country are encouraging people to establish their own small enterprise to reduce the problem of unemployment in the country and also reduce the rate of importation of goods, more so to produce exportable products, all these would help the country earn foreign exchange. This study is to take care of some problems limiting the performance of small-scale industries, such as: poor management, high rate of business failure productivity, under capitalization, poor accounting standards, shortage of skill, indiscipline and restricted access to institutional credit etc.


The study also will help the small-scale industrialist to look back to know whether their resources are efficiently utilized in achieving the organizational roles and the country at large.

Finally, the study exposes what could be done b government agencies or associations to help small-scale industries in the tasks facing them and what can be done by way of better management to help the individual small-scale industries to improve their operations and increase the productivity and profitability.


The hypothesis that will be tested in the course of this study are mainly derived from the research questions asked.

Hypothesis I

Ho:   Inadequate financing has not contributed to the failure of small-scale industries.

Hi:    Inadequate financing has contributed to the failure of small-scale industries.

Hypothesis II

Ho:   Congestion’s of industries to a particular project has not contributed to the failure of small-scale industries.

Hi:    Congestion’s of industries to a particular project has contributed to the failure of small-scale industries.


This work is limited to the causes of failures of small-scale industries. The scope of this study would have been unlimited but for the complex nature of the research work which ordinarily involved getting in touch with the respondent who often times are reluctant to wards giving information needed.

One can agree that a research in small-scale industries is very extensive and cumber some hence a singular sample. Industry will be used to carryout the study and the result obtained is generalized since the industries operate within the same economic bounds.


This study would have been more extensive in the absence of the following constraints from:

  1. Cost and finance estimates a student I depend solely on the merger amount of money got from parent and relatives.
  2. Time schedule and the denial of personal comfort also the areas involved in the collectives of data and administration of questionnaires was vast and this created financial constraints as regard transport fares.
  3. There was unco-operative attitude amongst some of the respondents and officials of the various federal and state ministries of industry. On several occasions, I had to book appointment to see one officer or the other.
  4. Low response rate as regards questionnaires more over, some of the questionnaires were not returned.
  5. I cannot claim of insufficient literature on the topic to review but I could only review the ones which I could lay hand on.



Any organization that is engaged in the manufacturing of product.


The transactions of materials like new product. He transformation may be effected by machine or by manual labour in a factory or in the home.


A small-scale industry is a manufacturing processing or service industry involved in a factory or production type of operations, employing up to fifty (50) full time worker.


There are employees who on the payroll of the establishments, who are part time casual or full time workers.


Is communication that informs potential customers of the existence of product and persuade them that the products have satisfying capabilities.


This is amount liquid (cash) funds that a businessman needs to pay in the short term e.g payment of wages and the creditors.


This is the systematic objective search for analysis of information to guide managers in making planning and problem solving.


This simply means the willingness or ability of individual to seek out investment opportunities establish and run an enterprise successfully.


Nigeria Association of chamber of commerce, industry, mines, and Agriculture.


A department that is responsible for providing useful information to our small-scale investor on financial matters.

        FINANCIAL MARKETS: There exists market for all sorts of commodities, as economics may have it. Such markets include: consumer goods market, capital goods market, labour market, financial market, etc. In this chapter we shall concern ourselves with the financial markers as they obtain in Nigeria.


        A financial market may be defined as a market for the exchange of financial resources. That is, a market where sellers and buyers of financial resources come into contact. Thus a financial market provides an avenue for surplus/idie cash balances to be employed in areas of deficit finances, as it makes short, medium, and long-term surplus funds available to areas of need. To do this assignment effectively, there has to be some media, and these are the financial markets.


Financial markets are readily classified into money market capital market, foreign exchange market, insurance market, real estate/mortage market etc. hence market determined rates.



These are short term securities issued by the federal government of Nigeria. They are similar to treasury bills but are issued at par or face value and pay fixed interest rates (coupon rates). Hence, every issue promises to pay a coupon rate of interest and the investor collects this interest amount by tearing coupons containing naira valve, off the edge of the certificate and cashing same at a bank, post office or other specified federal office, at a specified future time. However, in Nigeria, their rates have become market determined.

Following interest rates deregulation, thus  treasury certificates are medium term government securities, which mature between one and two years and are meant to bridge the gap between the treasury bills and long-term government securities, like treasury bills they can be discounted at the central bank of Nigeria.


These are promissory notes in various deriominations, issued by the central Bank of Nigeria, with maturity period of 50 may 270 days. Commercial bills may also be sold by major companies (blue –chips) to obtain a loan. In thus case, such notes are not backed by collaleral; rather they rely on the high credit rating of the issuing companies.

In Nigeria, there are two types of commercial bils-ordinary trade. Bill and marketing Board Bills. This former is usually drawn by ordinary reputable business firms and accepted by a bank or any other stock in trade. They are however, not eligible for  rediscount at the Central Bank of Nigeria and so, not popular with banks accept. When secured on export produce.

The marketing Board Bills originated with the inception of the Bill market scheme in 1962 under such scheme the marketing Board usually  drew go-day commercial bill of exchange supported by a sales contract on the Nigeria produce marketing company, the then sole exporter for all.


This is the financial market where short and medium term financial instrument are sold and bought. The major reasons behind the establishment of the money market in Nigeria are the indigenization of our credit base; a money market was considered necessary to implement this stated objective by providing local investment outlets for the retention of funds in Nigeria and for the investment of funds repatriated from abroad, consequent upon government persuasions to that effect. Again, a money market was found necessary to provide the much-needed machinery for government short term financing requirements.

Also term money market was considered apart of a modern financial and monetary system that will enable the country to establish the monetary autonomy, which is part and parcel of state and the basis for our very prosperity and progress as a nation.

Summarily, the Nigeria money market was established to performs one of which is to provide the basis for operating and executing and effective monetary policy.


The financial instruments or articles of trade in the money market include; treasury bills, treasury certificates commercial bills, call money, certificates of deposits, bankers unit trust funds, stabilization securities, etc. The Central Bank of Nigeria is at the apex of the participants in the money market overseeing and directing the activities of other banks and non-bank financial institutions.


        These are short term securities issued by the federal government of Nigeria. They mature within 90 days from the date of issue and are default promissory notes are sold at a discount. While providing a reasonable degree of security for dealings in the money market they at the same time provide the government with very relative cheap and flexible means of borrowings cash. Prior to the deregulation of interest rates in Nigeria, their rates were fixed but since. 1989 they have been offered on auction basis and

The Causes Of Failure Of Small –Scale Industry In Nigeria


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