ANALYSIS OF THE EFFECTS OF POLICY ON THE DEVELOPMENTOF AGRO-BASED MICRO-ENTERPRISES IN THE INFORMAL SECTOR OF BAYELSA STATE NIGERIA

ABSTRACT

This study was conducted to analyze the effects of policy on the development of  Agro-based  micro-enterprises  in  the  informal  sector  of  Bayelsa  State  of Nigeria. Structured questionnaires  were used to collect  data from 150 micro- enterprises   that   were   randomly   selected.   Descriptive   statistics,   multiple regression, Access model and the t- statistics were employed for data analysis. Among the major findings were that the agricultural micro-enterprises span the entire agricultural sector of  crop production, animal, fisheries, processing and trading.  The  age  range  of  the  entrepreneurs  were  between  31-65  years (85.4%), with women  dominating  the sector (58.0%). The level of education was  appreciable   with  44.0%   having  more  than  primary   education,   the enterprises were relatively new with experience range of 1-10years and 80.7% employed between 1 and 10 persons. The average income was N100,000 per annum and an asset holding of N100,000 to N150,000. Econometric estimation showed that experience, size, income level, value of asset-holdings and credit history affected  the amount  of micro-credit  obtained  significantly.  Also, age, gender of entrepreneur  and level of  education  did not affect the amount  of credit  obtained  significantly.  Further  findings  showed  that  only  23.3%  had access  to  training  and  only  9.3%  have  benefited  in  government  market facilities. The access index of micro-credit was 0.26 representing 26.0% in the entire state. The survey also showed that tax policy also significantly affected the development of urban and rural micro-enterprises. Also poor transportation, poor road network,  poor electricity  supply,  inadequate  market  infrastructure, inadequate subsidies and micro-credit were the identified constraints to micro- enterprises  development.  It is therefore  recommended  that the government, NGOs multinationals should re-address the infrastructural policies, micro-credit policies,   tax,  training   programmes   and  if  possible   partner   with  private companies for a total over-haul of the sector.

usually distinctively specialized in scope, but effectively isolated in technological span and capacity (Osuala, 2004).

CHAPTER ONE

INTRODUCTION

1.1     Background Information

Micro-enterprises are generally small–to–medium scale economic units, organizations,  ventures  or  enterprises  which  activities  are  systematic  and purposeful, with many usually distinctively specialized in scope, but effectively isolated in technological span and capacity (Osuala, 2004).

The  Federal  Government   small-scale  Business  Development   Programme (SBDP)  also  defines  micro-enterprise   as  “any  manufacturing,  processing, trading  and  service  industry  with  a  capital  investment  not  exceeding  one hundred and fifty thousand naira  (N150,000) in machinery,  stores and other equipment and employing not more than fifty (50) workers.” The United States Agency  for International  Development  (USAID,  2003)  also  defines  a micro- enterprise  as one  that  comprises  10 or fewer  employees,  including  unpaid family workers, in which the owner or operator is considered poor.

Micro-enterprises in Nigeria fall into four classes within which there are more  than  35  identifiable  categories  or  typologies  (Olomola,  1991).  They include  the  production,  manufacturing,  trading  and  service  providing micro- enterprises.  In  Bayelsa  state,  all  these  categories  of  micro-enterprises  are found in the rural, peri-urban and urban centres. Production micro-enterprises (especially in the farming and fishing categories) are common in rural areas but are not exclusive to them. Micro-enterprises involved in activities like furniture- making  are  typically  more  in  urban,  while  those  in  firewood,  tooth  pick production, garri  processing and oil-milling are more common in rural areas. Also the non-agriculture-based and trading micro-enterprises are about equally distributed between the three locations but with a higher volume concentrated in the Peri-urban and urban centres. However, this study was focused on agro- based micro enterprises.

Micro-enterprises in the informal sector of Bayelsa State Span the entire agricultural production (ie processing, distribution, marketing and consumption) spectrum.  Most  of these  micro-enterprises  are  proprietorships  with a single owner-operator.  In more than 90 percent of  the cases, they are usually not

officially registered with the Corporate Affairs Commission (Ikpi, 2001).  They usually require very little initial investment and much less operating capital than do their larger corporate counterparts. These informal sector micro-enterprises are  generally  characterized  by  low-level  technologies,  low-to-medium  level managerial  capacity  and low-level  linkage  with  modern  technology  (Nwaka,

2005).  Consequently, their output capacity is small and often limited.

However,  Nwaka  (2005)  indicated  that  in  spite  of  these  constraints, micro-enterprises are estimated to contribute on the average between 40 and

70% to the gross domestic product (GDP) of Nigeria. They have acted as an important  agent  of  economic  and  social  transformation  in  the  state.  The economic contributions according to Ikpi (1995) relates to growth of the GDP, employment   generation,   domestic   savings   accumulation/capital  formation, structural definition of the economy. The socio-political contributions include the satisfaction, peace, security and happiness they bring to the owner-operators and the larger society they  serve (Oladuntau, 1997). For instance in Nigeria, micro-enterprises account for about 50% of the employed workforce and about 45% of all goods sold (Osuala, 2004).

Furthermore, micro-enterprises have a good prospect to contribute more to society if encouraged by a suitable policy. Ogbonnaya (2003) defined policy as  a  clearly  published  statement  by  a  national,  state  or  local  government authority with measurable goals, timeliness and commitment plus budgets for action.  USAID  (2003)  also  referred  policy   to  include  appropriate   legal, regulatory and administrative practices governing the business environment in which micro-enterprises operate. Although micro-enterprises might be seen as private sector concerns, but government action through its agencies is crucial to  facilitating  the  smooth  operation  of  these  enterprises.  Such  policies  are needed  in  the  areas  of  infrastructural  development,  micro-credit,  poverty alleviation,  business  development   services  policies  and  gender   sensitive polices.  Also  an assessment  of the  efficiency  and  effectiveness of existing assistance and support services is crucial to the development of these micro- enterprises (CTA, 1997).

Therefore, an overall supportive policy including a favourable business and  investment   climate  is  critical  to  successful   and   sustainable   micro- enterprises development in Nigeria as obtained in other countries. For instance USAID  support  reforms  of  laws,  regulations  and  policies  to  facilitate  the creation and operation of micro-enterprises and to expand access to financial and other support services by the underserved poor (Simmons, 2004).

In Nigeria, both the Federal, state and local government authorities have formulated  policies  and  programmes  at  different  periods  to  boost  micro- enterprise development. The Federal government National Poverty Eradication Programme (NAPEP), the National Economic Empowerment and Development strategy   (NEEDS),   and   the  establishment   of   small   and  medium   scale enterprises   Development   Agency   of   Nigeria   (SMEDAN)   are   all   micro- enterprise development initiatives. The  Federal Government  recent supply of fifty billion  naira (N50bn)  for the  Agricultural  Loan scheme  is also a micro- enterprise development initiative (FGN, 2006).

The Bayelsa State government  through its agencies  have also put  in place policies, programmes and support mechanisms  geared towards  micro- enterprise   development.   The   government   of   Bayelsa   State   through   its employment centre has trained and settled 600 youths for mobile phone repairs (BSEC, 2006). The Bayelsa State owner-driver urban taxi scheme, the Ministry of Agriculture and Natural Resources N400m Agricultural Loan scheme, tractor hire services,  distribution  of rice and cassava mills and  construction  of cold rooms at strategic places in the State are all geared towards micro-enterprise development in the State (MANR, 2006). The State Ministry of Commerce and Industry is also having micro-enterprise loan scheme (MOC 2006). The NAOC, SPDC, NDDC, youth empowerment programmes are all geared towards micro- enterprise development.

However, the extent to which these policies, programmes and Business support Mechanisms have affected micro-enterprise development is yet to be determined in the State. Therefore, it is the interest of this  study to analyze these policies to ascertain their effects on the development of micro-enterprises in the informal sector of Bayelsa State.

1.2     Problem Statement

Micro-enterprises   in  the  informal  sector  constitute   the  majority   of businesses  in  the  rural  and  urban  areas  which  are  important  for  poverty alleviation   and  account   for  a  substantial   share  of  the  GDP   and  total employment in Nigeria. However, studies by Ikpi (2001) in Nigeria revealed that this all important sector seems to be neglected, considering  the low level of intervention of government and is characterized  by  low-level technology, low access  to credit,  low-to-medium  level  managerial capacity,  thus constituting impediment to the development of these enterprises. A few of such constraints

include policy disincentives, institutional and market infrastructure constraints, lack of capacity building, technical and operational constraints that are defined by the type, scope and efficiency of support services in the sector.

The policy disincentives are principally centred on the negative impacts of some government  deliberate actions with respect to fiscal,  monetary, tax, income and micro-credit  and infrastructural  development  policies that hinder the   smooth   operation   of   micro-enterprises.   For   instance,   the   federal government tax policy, health insurance scheme and the contributory pension scheme all reduce the take-home pay of civil servants thereby affecting their capital base to develop micro-enterprises. This also affects the buying-power of the civil servants who constitute the major market of these micro-enterprises.

The  Bayelsa  state  Business  place  Registration  Edict  of  1998  which empowers the Ministry of Commerce and Industry to tax micro-entrepreneurs (MOC,  1998),  the  local  government  business  tax  and  the  environmental sanitation  policy  that  saw  micro-enterprises  as  constituting  environmental hazard,  thereby  taxing  and  shifting  them  from  one  place  to  another,  all constitutes policy disincentives. Despite the fact that recent research by Nwaka (2005) suggests that slums and  irregular settlements grow not only because the people who live in them are poor, but due to over-regulation, sluggishness of government to provide adequate and affordable land, and failure to harness the energies and resources of the poor in the right direction. Studies by Steel (2000)  in  western  Nigeria  also  identified  market  fragmentation,  scarcity  of collateral, poor information  system, poor to non-existent-micro-enterprise  law enforcement   system   and   low-level   literacy   of   the   entrepreneurs.   The consequences of these have been the creation of artificial barriers against the

majority of operators which are mainly women and the ordinary man in society. For instance in Bayelsa State social class barrier is seen during allocation of government   market  stalls  and  accessing  micro-credit   and   other  support services.

However,   in  an  effort   to  minimize   these   constraints   government agencies and others have put in place mechanisms  and  policies like micro- credit,    adult    literacy    progrmmes,    youth    empowerment    programmes, infrastructural  development  policies  and  micro-enterprise  regulation  systems but  the  extent  to  which  these  mechanisms/policies   have  affected  micro- enterprises positively (Particularly in Bayelsa state) is yet to be determined. For the purpose of this study, the researcher wishes to focus analysis on the effects of  micro-credit,  infrastructure,  tax,  business  place  Registration  and  poverty alleviation policies on micro-enterprise development in Bayelsa State.

1.3     Objectives of the Study

The major objective of this study is to analyze the effects of policy on the development  of  micro-enterprises  in  the  informal  sector  of  Bayelsa  state. Specifically, the study will seek to:

i)        describe the distribution of agro-based micro-enterprises in the study area.

ii)       describe the socio-economic  characteristics  of  micro-entrepreneurs and determine the effects of these variables on the amount of credit obtained in the state.

iii)       describe the effects of micro –enterprises  settlement policy on  the development of micro-enterprises in the state.

iv)      assess  the  effects  of tax  policy  on the   development  of  informal sector  micro-enterprises in the urban and rural areas of the state.

v)       assess the effects  of market infrastructure  on the development  of micro-enterprises in the state.

vi)      determine the extent of access to micro-credit facilities provided  by agencies under study.

vii)      identify  factors  constraining  micro-enterprise  development  in  the state.

viii)     make policy recommendations based on the findings of this study.

1.4     Hypotheses of the study

The following hypotheses were tested at 0.05 level of significance

Ho1:   Socio-economic characteristics of micro-enterprises have no significant effect on the amount of credit obtained in the state

Ho2:   There  is  no  significant  effect  of  micro-enterprise  tax  policies  on  the development  of micro-enterprises  in the urban and rural areas  in the state.

1.5     Justification of the study

There is now realization of the need on the part of Nigerian government and citizenry on the contributions  of micro-enterprises  in the  informal sector; after a long-standing neglect as the bedrock of national and state development (SME’S  Report  2005).  This  is  evident  as  they  account  for  a  substantial percentage in rural and urban labour  employment and to the gross domestic product (GDP)

Lack of awareness has been a serious constraint of micro-enterprises in the  informal  sector  and  also the capacity  to access  facilities  or  assistance

provided by government or other agencies. It is expected that this study  will provide awareness and the basis for existing micro-enterprises  and  potential investors to be able to run viable enterprises in the state. For  instance, the government disbursed N150 million as loans and advances between 1990 and

1992 to private SME’S. Unfortunately, recent studies by Nwaka (2005) suggest that only about 10% of informal sector workers interviewed were aware of how to take advantage of the new facilities offered by the banks and the Directorate of Employment.

The  study  is  also  important  because  a  significant   percentage   of Nigerians  in the organized  private sector is involved in  micro-enterprises as either employees or entrepreneurs. The data this study will provide, would go a long way in enhancing the performance of these sector, thereby contributing to the overall improvement of the economy; especially in providing information to agencies  like  the  poverty  Eradication  Board,  Bayelsa  State  Employment Centre, Ministry of Commerce and Industry and SEMEDAN.

Finally, this study will contribute to the conducting of household or ad- hoc surveys through which the collection of detailed information and data on the  many  aspects  of  micro-enterprises  existence  and  development  in  the country can be strengthened.  This implies that the  study will be a source of literature for future micro-enterprise researchers.

Assumptions of the Study

The study assumes that most of the micro-enterprises  are owned  and operated  under  sole-proprietorship.  Therefore  it is assumed  that  the  socio- economic  characteristics  of  the entrepreneurs  are the same  as  that  of  the

micro-enterprises. Also the services provided by agencies under focus include credit and training.

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