Osmund Osinachi Uzor Clusters, Networks, and Innovation in Small and Medium Scale Enterprises (SMEs) The Role of Productive Investment in the Development of SMEs in Nigeria PETER LANG Internationaler Verlag der Wissenschaften
Tables xiv Figures xviii Acknowledgement xxi Dedication ; xxiii Preface xxv Chapter 1: Introduction.'...:..7 1 1.1 Research Problem 1 1.2 The Research objectives 2 1.3 Motivation of the study 3 1.4 Theoretical Assumptions and Hypotheses 4 1.5 Methodology 6 1.5.1 The Analytical Steps 6 1.5.2 Data collection and field survey challenges 8 1.5.3 Design of Sample Representative 10 1.5.3.1 The Sample Procedure 10 1.5.3.2 Selected Sample of clustered and dispersed Enterprises 16 1.5.4 Methods of Data Analyses 16 1.6 The Study Plan 17 Chapter 2: The Nigeria's Economic and Social Performance 19 2.1 Introduction 19 2.2 The Geography and Nigeria's Political Economy 19 2.2.1 Geographical Facts and the People of Nigeria 19 2.2.2 Overview of Nigeria's Political Economy 1807-1999 22 2.3 Nigeria's Economic Performance and Problems 26 2.3.1 The Structure of Production and Economic Growth 26 2.3.2 The Structure of External Transactions 29 2.3.2.1 Exports of Oil and Non-Oil Commodities 29 2.3.2.2 Import of Oil and Non-Oil Commodities 30 2.3.2.3 Balance of Payment Current Account 31 2.3.3 The Structure of Demand and Federal Government Finance 32 2.3.3.1 The Structure of Demand 32 2.3.3.2 Federal Government Finance 33 2.3.4 Macroeconomic Performance 34 2.3.5 Nigerian International Liquidity and Aid Dependency 37 2.3.5.1 Nigeria's External Reserve and Debt Problems ; 37
2.3.5.2 Nigeria's External Debt 38 2.3.5.3 External Assistance and Aid Dependency 40 2.3.6 Relative Prices Changes and Interest Rate in Nigerian Economy 42 2.3.6.1 Inflation Rate in Nigeria's Economy 42 2.3.6.2 Food Price Index in Nigeria 43 2.3.6.3 Interest Rate 43 2.4 Labour Force and Unemployment in Nigeria 44 2.5 Structure of Nigeria's Industrial Output and Manufacturing Activities in Nigeria 46 2.6 The Poverty and Income Inequality in Nigeria 52 2.6.1 Poverty in Nigeria 52 2.6.2 Income Inequality in Nigeria 55 2.6.3 Health care and Economic Development in Nigeria 56 2.6.4 Interdependency of Education and Economic Development in Nigeria 60 2.6.4.1 Nigeria's Education Outcome 60 2.6.4.2 Primary school enrolment 61 2.6.4.3 Federal Government Commitment to Education 63 2.6.5 Environment and Economic Development in Nigeria 64 2.6.5.1 Trends and Inplications of Environmental Problems in Nigerian Economy 64 2.6.5.2 The Role of SMEs in the Environmental Management 65 2.7 Poverty Reduction Strategies in Nigeria and Industrial 67 Development 67 2.8 Summary and Conclusion 71 Chapter 3: SMEs in Economic Development and Growth Discourse 73 3.1 Introduction 73 3.2 Definitions and theoretical conceptual of small enterprises 75 3.3 Literature review on SMEs in Developing Countries 77 3.4 The political economic weaknesses in the promotion of SMEs in Africa 82 3.4.1 Market failure and small enterprises development problems 82 3.4.2 Institutional failure and small enterprises development problems in Africa ; 84 3.4.3 Good governance and small enterprises development 86 3.4.4 Mobilisation of domestic capital for the promotion of SMEs 88 3.5 Foreign direct investment (FDI) and Small Enterprises Development 93 3.5.1 FDI in economic development discourse 93 3.5.2 FDI and SME development 96
3.5.2.1 FDI and SME development through linkages 96 3.5.2.2 FDI and SME development through franchising and joint ventures... 100 3.5.3 The determinants of FDI inflow 101 3.5.3.1 Economic Performance and Micro-determinants of FDI 101 3.5.3.2 Macro management as determinants of FDI 103 3.5.3.3 Human capital development as a determinant of FDI 104 3.5.3.4 FDI and SMEs in Nigeria's Economic Development 105 3.6 SMEs in Nigeria's economy 107 3.6.1 Review of some studies on Nigerian SMEs 107 3.6.2 Definition of SME in Nigeria '. -...-...: Ill 3.6.3 Structure and geographical distribution of Nigeria's industrial establishments 112 3.6.3.1 Distribution of Industries in Nigeria 112 3.6.3.2 Constraints surrounding Nigeria's small enterprises 115 3.6.3.2.1 Business Environment for SME development 115 3.6.3.2.2 Government 116 3.6.3.2.3 Access to Financial Capital and Limitations 117 3.6.3.2.4 Capacity building and the need for capacity building programme for SME development 119 3.7 Summary and Conclusion 121 Chapter 4: SME Clusters in Nigeria: Performance and Constraints 123 4.1 Introduction 123 4.2 The theoretical framework on SME Clusters 124 4.2.1 Definitions 124 4.2.2 Terminologies and classification of the term enterprise clusters 125 4.2.3 Determinants of cluster growth-paths 127 4.2.3.1 Size of the market and nature of products 127 4.2.3.2 The stock of economies of scale and scope 128 4.2.3.3 The rate of upgrading 129 4.2.3.4 The nature of collective efficiency existing in the cluster 130 4.2.3.5 The nature of institutions supporting the cluster 131 4.2.3.6 The role of the state 132 4.2.4 SME Clusters and Poverty Reduction 133 4.2.5 Arguments against firm clustering 135 4.3 Literature review on SME Clusters in developed and developing countries 135 4.4 Small scale enterprise clusters performance in Nigeria 141 4.4.1 Introduction 141 4.4.2 Aba small scale footwear Enterprises Cluster 142 4.4.2.1 Introduction 142
4.4.2.2 Methodology 143 4.4.2.3 Informality Characteristics 144 4.4.2.4 Competitive factors 145 4.4.2.5 Firm Performances in Clustered and Dispersed Aba Small Scale Footwear Enterprises 147 4.4.2.6 Constraints faced by Aba Small Scale Footwear Enterprises Cluster.. 153 4.4.2.7 Remarks...: 154 4.4.3 Aba small and medium scale garment enterprises cluster 155 4.4.3.1 Introduction 155 4.4.3.2 Methodology ':...,..r..v. 156 4.4.3.3 Informality characteristics 156 4.4.3.4 Competitive Factors in Aba small and medium scale garment enterprises cluster 157 4.4.3.5 Average monthly cash earnings in Aba small and medium scale garment enterprises cluster 159 4.4.3.6 Factors Affecting the Growth of Aba Small and Medium Scale Garment Enterprises Cluster 160 4.4.3.7 Remarks 161 4.4.4 Enugu Small Scale Wood and Furniture Enterprises Cluster 162 4.4.4.1 Introduction 162 4.4.4.2 Methodology 162 4.4.4.3 Sample structure 162 4.4.4.4 Informality Characteristics 163 4.4.4.5 Linkages in Enugu small scale wood and furniture enterprises clusters 164 4.4.4.6 Competitive factors in Enugu small scale wood construction and furniture enterprises clusters 165 4.4.4.7 Constraints in Enugu small scale wood construction and furniture enterprises Clusters 167 4.4.4.8 Remarks 168 4.4.5 Nnewi small and medium scale light engineering enterprises cluster.. 169 4.4.5.1 Introduction 169 4.4.5.2 Methodology 170, 4.4.5.3 Informality characteristics 170 4.4.5.4 Competitive factors in Nnewi small and medium scale light engineering cluster 171 4.4.5.5 Constraints Identified in the Cluster 175 4.4.5.6 Remarks 176 4.4.6 Enugu small scale palm kernel extraction enterprises cluster 177 4.4.6.1 Introduction 177 4.4.6.2 Methodology 178
4.4.6.3 Informality characteristics 180 4.4.6.4 The competitive factors in Enugu small scale PKO extraction, enterprises 181 4.4.6.5 Small firm performance in Enugu small scale PKO extraction industries 182 4.4.6.6 Constraints identified in PKO extraction enterprises 185 4.4.6.7 Remarks 188 4.4.7 Comparative Analysis of the clusters 188 4.4.7.1 Comparative analysis of the clusters 188 4.4.7.2 Competitiveness problems across the clusters by sector 191 4.5 Summary and Conclusion 192 Chapter 5: Networks in Small and Medium Scale Enterprises in Nigeria 195 5.1 Introduction 195 5.2 Theoretical Conception 196 5.2.1 Definitions 196 5.2.2 Forms of Networks 197 5.2.3 Network structures 199 5.2.4 Functions of networks 200 5.2.5 Networks and Economic Development 203 5.3 Review of literatures on SME networks in developed and developing countries 204 5.4 Networks in small and medium scale enterprises in Nigeria: Empirical Evidence 207 5.4.1 Methodology 207 5.4.2 The structure of business related associations the entrepreneurs belong 208 5.4.3 Network functions and their effect on firm performance 219 5.4.4 Comparative analysis of Networks effects 225 5.5 Summary and Conclusions 227 Chapter 6: Innovation in Nigerian Small and Medium scale Enterprises 229 6.1 Introduction 229 6.2 Theoretical concepts 230 6.2.1 Definitions and theoretical explanation of innovation 230 6.2.2 Innovation in small enterprises and poverty alleviation 232 6.2.3 Factors influencing innovative milieu in Africa 234 6.3 Review of literature on innovation in SME in developing countries... 235 6.4 Empirical analysis of innovative activities in small enterprises in Nigeria 241 6.4.1 Methodology 241
6.4.2 The incentives small enterprises face 242 6.4.3 Innovative activity in footwear small scale enterprises in Nigeria as survival strategy 245 6.4.4 The innovative activity and the growth of small enterprises 254 6.4.4.1 Endogenous growth model and small enterprises development 254 6.4.4.2 Model and Data Specification 256 6.4.4.3 Descriptive analysis 259 6.4.4.4 Pearson linear correlation of output and the explanatory variables 261 6.4.4.5 Result of Regression Analysis ': -. 262 6.4.4.6 The Lead Equation and Results 266 6.5 Summary and conclusion 266 Chapter 7: The Synthesis of the Study 269 7.1 Introduction 269 7.2 Investment and SME Development (ISMED) Model 270 7.2.1 The motivation of the ISMED model 270 7.2.2 The ISMED Model 271 7.3 Decomposition of the empirical results and the ISMED -Model 7.3.1 Capability factor 281 7.3.1.1 Investment in Social Infrastructures 281 7.3.1.2 Investment in physical capital 283 7.3.2 Performance enhancement factor 284 7.3.2.1 Productivity per worker enhancement 284 7.3.2.2 Openness and Trade 285 7.3.2.3 The political governance and performance enhancement 286 7.3.3 Growth enhancement factor 288 7.3.3.1 Risk and uncertainty reduction 288 7.3.3.2 Capacity building 289 7.4 Remarks 290 Chapter 8: Industrial Policies and SME Development in Nigeria 293 8.1 Introduction 293 8.2 Review of Nigerian Industrial and Technological Policies 293 8.2.1 Nigerian Industrial Policies from 1900 to 1954 293 8.2.2 Nigerian Industrial Policies from 1954 to 1958 295 8.2.3 Nigerian Industrial Policies from 1958 to 1972 296 8.2.4 Nigerian Industrial Policies from 1972 to 1985 298 8.2.5 Nigerian Industrial Policies from 1985 to 1988 300 8.2.6 Nigerian Industrial Policies from 1988 to 1999 301 8.2.7 Nigerian Industrial Policies from 1999 to 2007 302
xi 8.3 Nigerian Technology Development 304 8.4 Lessons from Nigerian industrial and technology policies 307 8.5 The Dynamic Policy for SME Development in Nigeria 310 8.5.1 Policy on Promoting SMEs Clusters in Nigeria 310 8.5.1.1 General Policies on Promoting SME Clusters in Nigeria 310 8.5.1.2 Specific policies for Promotion of SME Clusters in Nigeria 312 8.5.2 Policy on SME Networks in Nigeria 314 8.5.2.1 General Policy Measures on SME Networks in Nigeria 314 8.5.2.2 Sector Specific Measures on SME Networks in Nigeria 316 8.5.3 Policy on Innovation and SMEs Capability Development in Nigeria..317 8.5.4 Policy Matrix for SME Development in Nigeria 320 Chapter 9: General Conclusion 323 9.1 The Resume of the Research Concept 323 9.2 The Empirical Conclusion 323 9.2.1 SME Clusters in Nigeria 323 9.2.2 SME Networks in Nigeria 325 9.2.3 Innovative Activities in Small Enterprises in Nigeria 327 9.3 Challenges and Prospects 328 Abbreviations 331 References 337 Appendix 373 Appendix 1: Map of Nigeria 373 Appendix 2: Map of Research Area 374 Appendix 3: Governance and Development 375 Appendix 4: Evalutation of Cluster Performance 376 Appendix 4.1: Calculation of arithmetic mean for monthly production output per worker and enterprises employment potential (EEP) in Clustered small scale footwear industry 376 Appendix 4.1a: Calculation of Standard Deviation (SD) of the production output per worker in clustered small scale footwear industry... 377 Appendix 4.2: Calculation of arithmetic mean for the gross sales per worker in Clustered small scale footwear industry 378 Appendix 4.2a: Calculation Standard Deviation (SD) of the monthly sales per worker 379 Appendix 4.3: Calculation of arithmetic mean for monthly production output per worker and enterprises employment potential (EEP) in dispersed small scale footwear industry 380