UNIT 1 MANAGEMENT OF SMALL SCALE BUSINESS

INTRODUCTION Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc. The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the International Finance Corporation). The term "mom and pop business" is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners. When judged by the number of employees, the American and the European definitions of a microbusiness are the same: under 10 employees. There is a notable trend to further segment different-sized microbusinesses; for instance, the term Very Small Business is now being used to refer to businesses that are the smallest of the smallest, such as those operated completely by one person or by 1-3 employees The sole proprietorship is a simple, informal structure that is inexpensive to form. It is usually owned by a single person or a marital community. The owner operates the business, is personally liable for all business debts, can freely transfer all or part of the business, and can report profit or loss on personal income tax returns. DEFINITIONS OF SMALL SCALE BUSINESS A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. The legal definition of "small" varies by country and by industry The Small Business Act states that a small business concern is "one that is independently owned and operated and which is not dominant
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in its field of operation." The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately In Nigeria, the Third National Development plan defined a small scale business as a manufacturing establishment employing less than ten people, or whose investment in machinery and equipment does not exceed six hundred thousand naira.

The Central Bank of Nigeria in its credit guidelines, classified small scale business as these businesses with an annual income/asset of less half a million naira (N500, 000). The Federal Government Small Scale Industry Development Plan of 1980defined a small scale business in Nigeria as any manufacturing process or service industry, with a capital not exceeding N150, 000 in manufacturing and equipment alone. The small scale industries association of Nigeria (1973) defined small scale business as those having investment (i.e. capital, land building and equipment of up to N60, 000 pre-SAP Value) and employing not more than fifty persons. The Federal Ministry of Industries defined it as those enterprises that cost not more than N500, 000 (pre-SAP Value) including working capital to set up. The Centre for Management Development (CMD) definition of small industry in the policy proposal submitted to the federal government in 1982 defined small scale industry as, a manufacturing processing, or servicing industry involved in factory of production type of operation, employing up to 50 full-time workers. Lastly, in the United States, the small business administration defines a small business as one that is independently owned and operated is not dominant in its field, and meets employment or sales standard develop by the agency. For most industries these standards are as follows. This also shows the same trend as in Nigeria, although the exchange value makes the financial criteria to be different.
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Alternative Definitions:

World Bank since 1976 - Firms with fixed assets (excluding land) less thanUS$ 250,000 in value are Small Scale Enterprises. Grindle et al (1989:9-10) - Small scale enterprises are firms with less than or equal to25 permanent members and with fixed assets (excluding land) worth up to US$ 50,000. USAID in the 1990s - Firms with less than 50 employees and at least half the output is sold (also refer to Mead, 1994). UNIDOs Definition for Developing Country Large - firms with 100+ workers Medium - firms with 20 - 99 work Small - 5 - 19 workers Micro - < 5 workers UNIDOs Definition for Industrialized Countries: Large - firms with 500+ workers medium - firms with 100 - 499 workers Small 99 workers

UNIT 2 Advantages and disadvantages of small businesses Small businesses are carried out with minimum investment. These businesses are run with the plan to produce more income with the least amount of money invested in a business. While most people run their small businesses from their neighbourhood localities, many small businesses are now also being run from the home. Perfect for those who want to do business without taking a lot of risks, small businesses are also for those people who are unemployed, or who want to spend quality time with their family. Since small businesses are trade mechanisms which are run on a low budget, they are extremely advantageous for people who want to earn a decent earning by operating an inexpensive business which they can afford. However there are some disadvantages of small businesses as well. Some of the advantages and disadvantage of small businesses include:

One of the major advantages of small businesses is that the investment for running the business is not a major issue. Small business grants, financial aid and economic support is readily available to persons owing a small scale business. These grants are issued to business owners from government run programs to banks and other big business corporations. In fact there are several industries that are willing to provide small business grants. Due to this a person can start his own small scale business by applying for loans and/or credits via a hassle free process. Another advantage of small businesses is that it is very easy to record business transactions. Keeping track of business dealings in a small business can be easily maintained and updated regularly. A business owner can setup an accounting system on his PC and store all the transactions that the business makes. Most accounting responsibilities in a small business are easily manageable, however a qualified accountant can be useful in helping business owners make the reports and financial statements to better manage their business. An advantage of small businesses is that the management of assets and liabilities is not a difficult task. Assets include checking and savings accounts while liabilities include the money you owe to others. Additionally keeping a cash transaction record is easily maintainable in a small business. DISADVANTAGES

The disadvantage of a small business is that since it is run on a low budget, it requires tremendous marketing and the planning and implementation of proper strategies. The improper handling of loans or investments can often lead to the downfall of a small business very quickly. It is very necessary that all the planning of a small business is firmly kept in mind when a person opts to start a small business. One of the major disadvantages of a small business is the lack of authenticity. Most people prefer to do business with established industries rather then to put their trust in small businesses which have several risk factors. To make the name for a small business in the big industry is the major obstacle that most small businesses face. Much marketing effort and references are required to firmly establish and authenticate a small business. A disadvantage of small businesses is the non-payment of loans or grants undertaken by the business owner, when he is not capable of
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running a business properly. Beside government loans the majority of loan providers have debt associated with the financial aid. Such firms readily provide loans to people regardless of his inconsistency in running a proper small scale business. If the small business crashes it imposes serious economic consequences on a person who is liable to be sued by the loan providers. CLASSIFICATIONS OF BUSINESSES A business ventures falls into three major categories i.e. small, medium and large-scale. They all have different definitions depending on a number of factors, but the most commonly used are the number of employees and the rates of returns per year. Other factors that may be used to define the size is the location of the enterprise and also its ownership type. A small business is defined as one that is owned by an individual and it operates privately. It could be based at the owners home or at a location that does not occupy so much space. The number of employees for such an enterprise is small, but this again depends on the country. In United States for example, the number of employees has to be less that 100, while in the European Union, they have to be less than 50. In Australia, a small enterprise is qualified as one with less than 20 employees in terms of workforce. When it comes to classification according to the rate of returns, the value of assets or the net profit may be looked at, either in isolation or in a mixed definition. A small business may not have much to show for and the annual earnings are normally less than $5000 per annum. However, this amount differs in accordance to where the enterprise is located. Many of the ventures that qualify as small businesses and which are typical examples in many nations include convenience stores, small shops, hairdressing points, restaurants, guest houses, photography shops and small scale manufactures. Others are home-based and they mostly operate online from the convenience of their homes. They are referred to as microbusinesses. They all come with their own varied advantages, which all become evident during operation depending on how their owner decides to run the enterprise.

UNIT 3 Historical Development and Orientation of Small Scale Industry in Nigeria Small scale industry orientation is part and parcel of Nigeria. Evidence abound in our respective communities of what successes our great grand parents made of their respective trading concerns, yam barns, iron smelting, farming, cottage industries and the likes. So the secret behind their success of a self reliant strategy does not like in any particular political philosophy, so much as in the peoples attitude to enterprise and in the right to which the right incentive is adequate enough to make risk worth taking are provided. In concrete terms, small scale industries constitute a greater percentage of all registered companies in Nigeria, and they have been in existence for a quite long time. Majority of the small scale industries developed from cottage industries to small enterprises and from small-scale to medium and large scale enterprises. Pre-Independence Historical Development Prior to Nigerian Independence, the business climate was almost totally dominated by the Colonial and other European Multinational companies like United African Company (UAR),GB Olivant, Unilever Plc, Patterson Zechonics, Leventis, etc. These companies primarily engaged in bringing into Nigeria finished goods from their parent companies overseas. These companies have vast business experience and strong capital base, and dominated the Nigerian economy. The government of those days encouraged them to become stronger by giving incentives as favourable traffics and tax concessions. Towards the tail end of the 1950s, the Nigerian Industrial Development Bank (NIDB) was founded to assist potential entrepreneurs to get involved in Agriculture exploration of national resources, Commerce and Industrial production. This time and the early 1960s saw the massive increase in Nigeria import market, while the Nigerian economy became largely dominated by very few large foreign firms.

However, few Nigerians mostly the Semi-illiterates benefited from the generous government attitude of this time. The educated Nigerians then were not interested in entrepreneurship mainly because their focus was on the positions being vacated by the expatriate staffs, who were leaving the civil service to return home because of the imminent independence in 1960.Even then, Nigerians considered the civil service to be more prestigious than business despite the creation of the colony development loans board, by the colonial administration. 1970 1976 A major/remarkable break through in small scale business came about through the indigenization Decree 1972 and later in Nigeria Enterprises Promotion Act 1977. These were genuine attempts by the Federal Government to make sure that Nigerians play inactive and worthwhile role in the development of the economy. In its 1970-74 National Development Plan, the Federal Government gave special attention to the development of small scale industries particularly in rural areas. This was in recognition of the roles of small and medium scale industries, as the seedbeds and training grounds for entrepreneurship.The cardinal point of the development plan was: (a) Accelerating the pace of industrialization and dispersal of industries. (b)Generating substantial employment opportunities. (c) Promoting individual initiatives and entrepreneurship among the populace. (d) Developing and increasing export traders, and (e) Complementing large scale industries. 1980 89 Within this decade, the government policy measures placed emphasis on the technological aspects of industrial development of small scale industries in Nigeria. Various Nigeria governments within this decade embarked on corrective measures to divert efforts towards the maximum exploitation or natural resources, and tried to discourage capital intensive mode of production in the light of the abundant resources available. In this regards, the industrial policy tried to focus its attention mainly on local resources utilization through various forms of incentives worked out by governments.

Some of the basic policy revitalizing the industrial sector included the:

strategy

aimed

at

(a) Encouragement in the use of more local materials in our industrial development activities. (b)Encourage greater capacity utilization in Nigerian industries. In addition, both the third and forth national development plans, the government then tried to increase her support for and contributions on;(i)The establishment of research products development company to provide a bridge between research and commercial development of results and cooperate with manufacturing establishment to adopt imported machines to Nigerians conditions and eventually develop the capability for fabricating such machines;(ii) The federal institute of industrial research and other institutions as the project development agency, Enugu.(iii)The industrial development centres (iv)The provision of funds to implement feasible projects emanating from policy paper, prepared by the Nigerian Councils for Science and Technology (v) The Industrial Research Council of Nigeria to get organized for coordinating industrial research efforts. The focal point of these policy measures place a great emphasis on the technological aspects of industrial development and development of small scale industries inNigeria.It is worthy of note that the introduction of the Structural Adjustment Programme (SAP)during the Babangida regime made matters worse for employers of labour and created averitable ground for selfemployment. 1990-99 The federal and state government have both contribute to the growth of small scale industries in Nigeria especially in the rural areas. Of recent time, various fiscal and non-fiscal incentives have been established for investors and entrepreneurs in the small scale sectors of the economy. Of special mentioning was the strategy adopt by the federal government towards the training and motivation of the unemployed graduates, to be gainfully employed in out of school entrepreneurship development programmes. The Peoples Bank of Nigeria (PBN) was also in the vanguard of granting of soft loans to unemployed youths and artisans, and this aimed at diverting the attention of youths from government salaried jobs, to that of gainful self

solely employment. NDE and the People Bank of Nigeria were solely charged with the responsibility of generating employment through their various programmes for thousands of unemployed Nigerians. To show its seriousness, the Federal Government through its educational agencies like the National Board for Technical Education (NBTE), the Nigerian University Commission(NUC), and the National Youths Service Corps (NYSC) programme give a directive that entrepreneurship development courses be incorporated into the curricular of tertiary institutions and NYSC programme. Small scale business, small scale industries and small scale entrepreneurship are used interchangeably to man a small scale industry firm. Its deliberation was to refer to the operational definition. In Nigeria and worldwide, there seems to be no specific definition of small business. Different authors, scholars, and schools have different ideas as to the differences in capital outlay, number of employees, sales turnover, fixed capital investment, available plant and machinery, market share and the level of development, these features equally vary from one country to the other.

UNIT 4
MANY NATIONS ECONOMY DEPENDS ON THE RECOGNITION OF SMALL SCALE ENTERPRISES Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium scale businesses controlled the economy of Europe. The industrial revolution changed the status quo and introduced mass production. The twin oil shocks during the 1970s undermined the mass production model, which triggered an unexpected reappraisal of the role and importance of small and medium sized enterprises in the global economy. Findings by economists over the years show that small firms and entrepreneurships play a much more important role in economic growth and development. Importance of SMEs Many economies, developed and developing have come to realise the value of small businesses. They are seen to be characterised by dynamism, witty
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innovations, efficiency, and their small size allows for faster decisionmaking process. Governments all over the world have realised the importance of this category of companies and have formulated comprehensive public policies to encourage, support and fund the establishment of SME's. Developments in small and medium enterprise are a sin quo non for employment generation, solid entrepreneurial base and encouragement for the use of local raw materials and technology. Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam Mohammed Hayatu, titled "Stakeholders Roles and the Development Benefits in a Virile Small Enterprise Sector", pointed out that small business operations are propelled by the dynamic theory, which makes them efficient and prone to constant change. He gave a comparative statistic using 9 developed countries on how SMEs create employment, increase job growth; induce change, innovation and competition. Benefits of the SME The benefits of SME's to any economy are easily noticeable, they include: contribution to the economy in terms of output of goods and services; creation of jobs at relatively low capital cost, especially in the fast growing service sector; provide a vehicle for reducing income disparities; develop a pool of skilled and semi-skilled workers as a basis for the future industrial expansion; improve forward and backward linkages between economically, socially and geographically diverse sectors of the economy; provide opportunities for developing and adapting appropriate technological approaches; offer an excellent breeding ground for entrepreneurial and managerial talent, the critical shortage of which is often a great handicap to economic development, among others. Challenges faced by SME s in Nigeria The challenges facing SME's in many developing countries are monumental. The most worrying among these challenges is funding. Most new small business enterprises are not very attractive prospects for banks, as they want to minimise their risk profile. In Nigeria, the situation is not very different, until recently when the Banker's Committee intervened in 2001 with a scheme themed the Small and Medium Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the background government credit schemes that are not well thought-out and implemented.

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The SME Scheme The Banker's Committee is a body constituted by representatives of banks in Nigeria. The scheme was approved at their 246th meeting on December 21, 1999. According to them, this was a response to President Obasanjo's concern and policy measures for the promotion of small and medium industries (SMI) as a vehicle for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation. The scheme requires all banks in Nigeria to set aside 10% of their profit before tax (PBT) for equity investment in small and medium scale industries. The scheme commenced on June 19th 2001. The scheme aims among other things to assist the establishment of new, viable SMI projects, thereby stimulating economic growth, development of local technology, promote indigenous entrepreneurship and generate employment. The funds will be available for projects in the real sector of the economy which include: agro-allied, information technology and telecommunication, manufacturing, educational establishments, services (directly related to production in the real sector or to enhance production), tourism and leisure, solid minerals, construction, and any other activity as may be determined from time to time by the Bankers Committee. To qualify for the scheme, an enterprise, in addition to being engaged in any of the activities listed above, must have a maximum asset base of N200 million excluding land and working capital; with the number of staff employed by the enterprise not less than 10 and not more than 300. The enterprise must be registered as a limited liability company with the Corporate Affairs Commission and comply with all relevant regulations of the Companies and Allied Matters Act (1990) such as filing of annual returns including audited financial statement. Comply with all applicable tax laws and regulations and render regular returns to the appropriate authorities. Timing of investment exit shall be a minimum of 3 years. There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Central Bank of Nigeria (CBN), Bankers Committee and the individual banks, each playing a unique role to ensure the success of the scheme. Available data as at February 2003 indicate that 80 banks have set aside N13.07 billion with 28 banks investing around N2.87 billion based on 67 investments in 47 enterprises.

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Alternative Sources of Funding For small businesses shopping for funding can be quite a Herculean experience. But, recent development like the SMIEIS and some other funding sources are now open. One of such is the independent fund manager called the SME Manager Limited (SML), which is an investment advisory company established by African Capital Alliance (ACA) to promote SME sector-led investments in Nigeria by making equity investments in Nigerian SMEs. Also, available are: the Bank of Industry, the New Partnership for African Development (NEPAD) initiative and the African Growth and Opportunity Act, AGOA, of the United States. Way Forward and Conclusion Much is expected from the government to provide basic social and infrastructural facilities to assist small businesses. Nigeria s economic terrain is very constraining with the focus being concentrated on the big firms which are constantly down-sizing. Business people that fall in the SME category have frequently accused the banks of providing funding to only their cronies and favoured companies. But the banks have denied such allegations saying that many of the SMEs cannot meet up with banks requirements. With services sector having 73.1% investments in number and 64.6% of value and Lagos-based investments accruing 86.6% of total number and 87.7% of value, the banks are advised to spread their funds wider. Also, the CBN should monitor closely some of the defaulting participating banks in the SMIEIS scheme. On the part of government, policies that promote inward induced investment should be encouraged far and above

UNIT 5 THE POLICY ENVIRONMENT FOR PROMOTING SMALL AND MEDIUM-SIZED ENTERPRISES IN GHANA & MALAWI The dynamic role of small and medium enterprises(SMEs) in developing countries as engines through which the growth objectives of developing
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countries can be achieved has long been recognised. It is estimated that SMEs employ 22% of the adult population in developing countries. The sector employs about 15.5% and 14.09% of the labour force in Ghana and Malawi respectively(Parker et al, 1994), has experienced higher employment growth than micro and large scale enterprises (5% in Ghana and 11% in Malawi). In Ghana, the sectors output as a percentage of GDP accounted for 6% of GDP1 in 1998. Although Ghanas per capita income declined between 1965 and 1991, the country has a relatively well educated population, a capable bureaucracy and abundant natural resources. While Malawi showed a positive growth in per capita income, its per capita income is less than $200, it also has a thin industrial base, a limited educated class and has a population density well above the Sub-Saharan average of 21 persons per square kilometre (Parker et al, 1994). In the late 1970s and early 1980s, both countries experienced severe economic crises arising from internal and external factors. Externally, the oil price hikes and declining world prices for major exports depleted foreign reserves, thereby reducing the import capacity of many industries. Both countries faced a deterioration in their terms of trade due to weak market conditions for key export commodities besides the increases in their import prices. Another significant external factor peculiar to Ghana was the expulsion of a million Ghanaians from Nigeria in 1983. In the case of Malawi, the civil war in Mozambique(from 1979 to 1981) also disrupted the traditional trade route of land-locked Malawi. These developments had repercussions on the countries balance of payments; in Malawi, the cost, insurance and freight (CIF)/free on board(FOB) margin rose from an average of 15 percent in the early 1970s to 40 percent during the early 1980s, following the re-routing of the countrys external trade through the ports of Durban in South Africa and Dar-esSalaam in Tanzania. Both countries also suffered the adverse effects of the global debt crisis of the early 1980s. Since both countries had contracted some commercial debt in the 1970s, particularly for infrastructural investments, they experienced a massive increase in their debt obligations (Aryeetey et al, 1992; Parker et al, 1995). Internally, problems such as large inefficient public sectors, policy biases that favoured industry over agriculture, overvalued exchange rates and inflation were dominant. In the 1980s, the deteriorating economic conditions led to the implementation of Structural Adjustment Programmes (SAP) with similar
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but distinct emphases, tailored to address specific economic issues. Ghana embarked on its reforms in 1983 and they included elements of stabilization and liberalisation. Prominent among them was the liberalisation of the exchange rate and greater access to foreign exchange. This was achieved through a series of devaluations and the setting up of auction markets aimed at fostering market-based exchange rate setting and the licensing of foreign exchange bureaux to trade in the currency (Dordunoo, 1988). In short, the country operated the Dutch Auction system. Other important measures contained in the programme included: (i)rationalisation of the tax structure and the broadening of its base; (ii) cut in subsidies to public enterprises and a shift in emphasis towards education and infrastructure;(iii) abolishing of price controls; (iv) decontrolling of interest rates; (v) reduction in tariff and abolishing of import licensing; (vi) revision of the investment code; The SAP embarked upon by Malawi consisted of two elements: between 1981 and 1985 the country sought to restore macroeconomic stability and encourage economic growth. The authorities initially responded by maintaining aggregate demand and income through deficit financing supported by external commercial borrowing (Parker et al, 1995). This resulted in a rapid increase in the fiscal deficit and a widening of the current account deficit. To deal with these emerging balance of payments and fiscal deficits, the authorities adopted several policies that resulted in a more inward oriented economy and a deterioration in competitiveness. The policies included an introduction of quantitative restrictions on imports, and an increase in the level and spread of tariff rates, partly intended to raise revenue and close the fiscal gap. The second component of the SAP consisted of the following:(i) measures to establish fiscal discipline such as tax reforms, reduction in government expenditure and improved budget planning; (ii) agricultural sector reforms mainly in producer prices, increasing the role of small private farmers and greater incentives for large scale production. (iii)trade liberalisation. The implementation of the SAP and the degree of commitment to reform varied between the two countries. Ghanas reform is said to be the most extensive and its implementation has been thorough. Malawi on the other hand, undertook at least partial measures in almost all sectors. Below is a summary of the policies and achievements.

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UNIT 6
THE CHARACTERISTICS OF SMEs IN GHANA & MALAWI There is no single, uniformly acceptable, definition of a small firm (Storey, 1994). Firms differ in their levels of capitalisation, sales and employment. Hence, definitions which employ measures of size (number of employees, turnover, profitability, net worth, etc.) when applied to one sector could lead to all firms being classified as small, while the same size definition when applied to a different sector could lead to a different result. The first attempt to overcome this definition problem was by the Bolton Committee(1971) when they formulated an economic and a statistical definition. Under the economic definition, a firm is regarded as small if it meets the following three criteria: (i) it has a relatively small share of their market place; (ii) it is managed by owners or part owners in a personalized way, and not through the medium of a formalized management structure; (iii) it is independent, in the sense of not forming part of a large enterprise. The Committee also devised a statistical definition to be used in three main areas: (a) quantifying the size of the small firm sector and its contribution to GDP,employment, exports etc.; (b) comparing the extent to which the small firm sectors economic contribution has changed over time; (c) applying the statistical definition in a cross country comparison of the small firmseconomic contribution. Thus, the SME sector is comprised of enterprises (except agric, hunting, forestry and fishing) which employ less than 500 workers. In effect, the EC

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definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firms upper limit is more appropriate given the increase in productivity over the last two decades (Storey, 1994:13). Finally, the EC definition did not assume the SME group is homogenous, that is, the definition makes a distinction between micro, small, and medium-sized enterprises. Employment implications of small scale industries in developing countries: evidence from Jordan, Science, Technology and Development, From the various definitions above, it can be said that there is no unique definition for a small and medium scale enterprise thus, an operational definition is required. Small Scale enterprises have been variously defined, but the most commonly used criterion is the number of employees of the enterprise. In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources. As contained in its Industrial Statistics, The Ghana Statistical Service (GSS) considers firms with less than 10 employees as Small Scale Enterprises and their counterparts with more than 10 employees as Medium and Large-Sized Enterprises. Ironically, The GSS in its national accounts considered companies with up to 9 employees as Small and Medium Enterprises. An alternate criteria used in defining small and medium enterprises is the value of fixed assets in the organization. However, the National Board of Small Scale Industries (NBSSI) in Ghana applies both the `fixed asset and number of employees criteria. It defines a Small Scale Enterprise as one with not more than 9 workers, has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Cedis (US$ 9506, using 1994 exchange rate). The Ghana Enterprise Development Commission (GEDC) on the other hand uses a 10 million Cedis upper limit definition for plant and machinery. A point of caution is that the process of valuing fixed assets in itself poses a problem. Secondly, the continuous depreciation in the exchange rate often makes such definitions out-dated), Osei et al (1993) in defining Small Scale Enterprises in Ghana used an employment cut off point of 30 employees to indicate Small Scale Enterprises. The latter however dis-aggregated small scale enterprises into 3 categories: (i) micro -employing less than 6 people; (ii) very small, those employing 6-9 people; (iii) small -between 10 and 29 employees. In the case of Malawi, the official definition of enterprise sizes dates back to 1992. The definition is based on three criteria, viz.: the level of capital investment, number of employees and turnover. An enterprise is defined as
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small scale if it satisfies any two of the following three criteria, that is, it has a capital investment of US$2,000 - US$55,000, employing 5 - 20 people and with a turnover of up to US$110,000 (using 1992 official exchange rate). For manufacturing enterprises, capital investment is taken to mean the cost of plant and machinery, including working capital and the cost of land and buildings. It may be observed that since this official definition was given in 1992, the economic situation in the country has changed drastically, with the value of the kwacha falling from an official rate of MK3.60 to US$1 in 1992 to MK15.30 to US$1 in 1996 and to MK43.15 as of January 1999. The implication is that the existing official definition is out of date and needs to be revised.

UNIT 7 Why Small and Medium Scale Enterprises? The choice of small and medium scale enterprises within the industrial sector is based on the following propositions: (a) Large Scale Industry(i) has not been an engine of growth and a good provider of employment; (ii) already receive enormous support through general trade finance, tax policy and direct subsidies; (b) Small and Medium Scale Enterprises (i) Mobilize funds which otherwise would have been idle; (ii) Have been standardized as a seed-bed for indigenous entrepreneurship; (iii) Are labour intensive, employing more labour per unit of capital than large enterprises (iv) Promote indigenous technological know-how; (vii) are able to compete (but behind protective barriers); (viii) Use mainly local resources, thus have less foreign exchange requirements; (ix) Cater for the needs of the poor and; (x) Adapt easily to customer requirements (flexible 17tandardizatio). Characteristics of SMEs In Ghana & Malawi A distinguishing feature of SMEs from larger firms is that the latter have direct access to international and local capital markets whereas the former are excluded because of the higher intermediation costs of smaller projects. In addition, SMEs face the same fixed cost as Large Scale Enterprises(LSEs) in complying with regulations but have limited capacity to market products
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abroad. SMEs in Ghana and Malawi can be categorized into urban and rural enterprises. The former can be sub-divided into `organized and `unorganized enterprises. The organized ones tend to have paid employees with a registered office whereas the unorganized category is mainly made up of artisans who work in open spaces, temporary wooden structures, or at home and employ little or in some cases no salaried workers. They rely mostly on family members or apprentices. Rural enterprises are largely made up of family groups, individual artisans, women engaged in food production from local crops. The major activities within this sector include:soap and detergents, fabrics, clothing and tailoring, textile and leather, village blacksmiths, tin-smithing, ceramics, timber and mining, bricks and cement, beverages, food processing, bakeries, wood furniture, electronic assembly, agro processing, chemical based products and mechanics It is interesting to note that small scale enterprises make better use of scarce resources than large scale enterprises. Research in Ghana and many other countries have shown that capital productivity is often higher in SMEs than is the case with LSEs. The reason for this is not difficult to see, SMEs are labour intensive with very small amount of capital invested. Thus, they tend to witness high capital productivity which is an economically sound investment. Thus, it has been argued that promoting the SCE sector in developing countries will create more employment opportunities, lead to a more equitable distribution of income and will ensure increased productivity with better technology .

Constraints To SME Development Despite the wide-ranging economic reforms instituted in the region, SMEs face a variety of constraints owing to the difficulty of absorbing large fixed costs, the absence of economies of scale and scope in key factors of production, and the higher unit costs of providing services to smaller firms. Below is a set of constraints identified with the sector. Input Constraints: SMEs face a variety of constraints In factor markets (also see Levy, 1993). However, factor availability and cost were the most common constraints. The specific problems differed by country, but many of them were related, varying according to whether the business perceived that their access, availability or cost was the most important problem and whether they were based primarily on imported or domestic inputs (World Bank, 1993; Parker
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et al, 1995). SMEs in Ghana and Malawi standardized the high cost of obtaining local raw materials; this may stem from their poor cash flows found that 5% of their sample cited the input constraint as a problem. However, Daniels & Ngwira (1993) reported that about a third of Malawian SMEs reported input problems. This can also be contrasted with only 8.2%, 7.5% and 6.3% of proprietors in Botswana, Swaziland and Lesotho. It was also found that input constraints vary with firm size. Finance: Access to finance remained a dominant constraint to small scale enterprises in Ghana and Malawi. Credit constraints pertaining to working capital and raw materials were cited by respondents ( between 24% and 52% in Parker et al, 1995). Aryeetey et al(1994) reported that 38% of the SMEs surveyed mention credit as a constraint , in the case of Malawi, it accounted for 17.5% of the total sample. This stems from the fact that SMEs have limited access to capital markets, both locally and internationally, in part because of the perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms. As a result, SMEsoften cannot obtain long-term finance in the form of debt and equity. Labour Market: This seems a less important constraint to SMEs considering the widespread unemployment or underemployment in these countries. SMEs generally use simple technology which does not require highly skilled workers. However where skilled workers are required, an insufficient supply of skilled workers can limit the 19tandardizatio opportunities, raise costs, and reduce flexibility in managing operations. Aryeetey et al(1994) found that 7% of their respondents indicated that they had problems finding skilled labour, and 2% had similar problems with unskilled labour. However, only 0.9% of Malawian firms were reported to have had labour problems. Equipment & Technology: SMEs have difficulties in gaining access to appropriate technologies and information on available techniques. This limits innovation and SME competitiveness. Besides, other constraints on capital, and labour, as well as uncertainty surrounding new technologies, restrict incentives to innovation. 18% of the sampled firms in Aryeetey et al (1994) mentioned old equipment as one of the four most significant constraints to expansion (18.2% in Parker et al, 1995), this is in contrast to the 3.4% reported in Malawi (Daniels & Ngwira, 1993; Makoza & Makoko, 1998).

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 Domestic Demand: 24.9% of Malawian proprietors indicated they had marketing constraints, while 5% of respondents was the figure quoted in the Ghanaian case (Aryeetey et al, 1994; Daniels & Ngwira, 1993). The business environment varied markedly among SMEs in Ghana and Malawi, reflecting different demand constraints after adjustment. There were varying levels of uncertainty caused by macroeconomic instability and different levels of government commitment to private sector development. Legal: High start-up costs for firms, including licensing and registration requirements, can impose excessive and unnecessary burdens on SSEs. The high cost of settling legal claims and excessive delays in court proceedings adversely affect SME operations. In Malawi, prohibitive laws like The Business Licensing Act, The Electricity Act, The Control of Goods Act, and The Export Incentives Act, have severely constrained SME development. 5.3% of proprietors in Malawi mentioned this as a constraint. In the case of Ghana, the cumbersome procedure for registering and commencing business were key issues often cited. However, Aryeetey et al (1994) found that this accounted for less than 1% of their sample. Meanwhile, the absence of antitrust legislation favours larger firms, while the lack of protection for property rights limits SME access to foreign technologies. Managerial Constraints Lack of Entrepreneurial & Business Management Skills: Lack of managerial know-how places significant constraints on SME development. Even though SMEs tend to attract motivated managers, they can hardly compete with larger firms. The scarcity of management talent, prevalent in most countries in the region, has a magnified impact on SMEs. The lack of support services or their relatively higher unit cost can hamper SME efforts to improve their management because consulting firms often are not equipped with appropriate cost effective management solutions for SMEs. Furthermore, absence of information and/or time to take advantage of existing services results in weak demand for them.

UNIT 8 POLICIES FOR PROMOTING SMEs IN GHANA & MALAWI

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Small scale enterprise promotion in Ghana was not impressive in the 1960s. Dr. Nkrumah (President of the First Republic) in his modernisation efforts emphasized state participation but did not encourage the domestic indigenous sector. The local entrepreneurship was seen as a potential political threat. To worsen the situation, the deterioration in the Balance of Payments in the 1980s and the overvaluation of the exchange rate led to reduced capacity utilisation in the import dependent large-scale sector. Rising inflation and falling real wages also forced many formal sector17 employees into secondary self-employment in an attempt to earn a decent income. As the economy declined, large-scale manufacturing employment stagnated. According to Steel and Webster (1991), small scale and self employment grew by 2.9% per annum (ten times as many jobs as large scale employment) but their activities accounted for only a third of the value added. What is evident from the Malawi governments development policies for the period 1964-1980 is the lack of a coherent and comprehensive policy framework for SSE development. The post-colonial development policy in Malawi, at least up to 1980 exhibited a large scale sector bias, rather than the urban bias. The un sustainability of the large scale sector policy stance was clearly demonstrated by the dismal performance of both public/quasipublic enterprises in the late 1970s. It is the poor performance of the economy in the late 1970s which brought about a policy re- orientation, in favour of SMEs, in the early 1980s; this constituted two main forms: the provision of industrial estates in the main cities of Blantyre and Lilongwe and the secondary town of Liwonde, and the formation of a number of specialised institutions GHANA (i) Government Government, in an attempt to strengthen the response of the private sector to economic reforms undertook a number of measures in 1992. Prominent among them is the setting up of the Private Sector Advisory Group and the abolition of the Manufacturing Industries Act, 1971 (Act 356) which repealed a number of price control laws, and The Investment Code of 1985 (PNDC Law 116) which seeks to promote joint ventures between foreign and local investors. In addition to the above, a Legislative Instrument on Immigrant Quota which grants automatic immigrant quota for investors has

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been enacted. Besides, certain Technology Transfer Regulations have been introduced. Government also provided equipment leasing, an alternative and flexible source of long term financing of plant and equipment for enterprises that cannot afford their own. A Mutual Credit Guarantee Scheme was also set up for entrepreneurs who have inadequate or no collateral and have limited access to bank credit. To complement these efforts, a Rural Finance Project aimed at providing long term credit to small scale farmers and artisans was set up. In 1997, government proposed the establishment of an Export Development and Investment Fund (EDIF),operational under the Exim Guarantee Company Scheme of the Bank of Ghana. This was in aid of industrial and export services within the first quarter of 1998. To further improve the industrial sector, according to the 1998 Budget Statement, specific attention will be given to the following industries for support in accessing the EDIF for rehabilitation and retooling: Textiles/Garments; Wood and Wood Processing; Food and Food Processing and Packaging. It was also highlighted that government would support industries with export potential to overcome any supply-based difficulty by accessing EDIF and rationalise the tariff regime in a bid to improve their export competitiveness. In addition, a special monitoring mechanism has been developed at the Ministry of Trade and Industries. In a bid to improve trade and investment, particularly in the industrial sector, trade and investment facilitating measures were put in place. Visas for all categories of investors and tourists were issued on arrival at the ports of entry while the Customs Excise and Preventive Service at the ports was made proactive, operating 7-days a week. The government continued supporting programmes aimed at skills training, registration and placement of job-seekers, training and re-training of redeployees. This resulted in a 5% rise in enrolment in the various training institutes such as The National Vocational and Training Institute (NVTI), Opportunity Industrialisation Centres (OIC) etc. As at the end of 1997, 65,830 out of 72,000 redeployees who were re-trained under master craftsmen have been provided with tools and have become self-employed. The Economic Recovery Programme instituted in 1983 has broadened the institutional support for SMEs. The National Board for Small Scale Industries (NBSSI) has been established within the Ministry of Industry, Science and Technology to address the needs of small businesses. The NBSSI established an Entrepreneurial Development Programme, intended to train and assist persons with entrepreneurial abilities into self employment.
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In 1987, the industrial sector also witnessed the coming into operation of the Ghana Appropriate Technology Industrial Service (GRATIS). This is a move by the government of the day to reduce the dominance of foreign nationals in the ountry . upervise the operations of Intermediate Technology Transfer Units (ITTUs) in the ountry. GRATIS aims at upgrading small scale industrial concerns by transferring appropriate technology to small scale and informal industries at the grass root level. (iii) Financial Assistance ccess to credit has been one of the main bottlenecks to SME development. Most MEs lack the necessary collateral to obtain bank loans. To address this issue, the entral Bank of Ghana has established a credit guarantee scheme to underwrite loans ade by Commercial Banks to small scale enterprises. Unfortunately, the scheme did ot work out as expected. It was against this background that the Bank of Ghana btained a US$ 28 million credit from the International Development Association IDA) of the World Bank for the establishment of a Fund for Small and Medium nterprises Development (FUSMED). nder the Programme of Action to Mitigate the Social Cost of Adjustment PAMSCAD), a revolving fund of US$ 2 million was set aside to assist SMEs. MALAWI (i) Government here was no consolidated policy on industrial development in Malawi until The raft Integrated Trade and Industrial Policy of 1996. Even though government recognize the need for the SME sector, there have never been policies and strategies specifically designed for the development of the SCE sector. The sector had to operate within a policy framework created for the large scale enterprise sector. recently, government has taken steps to make the policy environment more conducive for the sector. A competition policy has been adopted for the sector and a Bill to that effect is in the final process of drafting ( Makoza & Makoko, 1998). The Competition policy was put in place to prohibit anti-competitive trade practices, regulate and monitor, protect consumer welfare, strengthen the efficiency of production and distribution of goods and services. Besides, an investment policy is in place; it is aimed at promoting both local and foreign investment. In addition, a number of Acts which hindered SME development have been repealed (the Industrial

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Development Act was repealed in 1991) to allow easier entry into the manufacturing sector. under the current Industrial Licensing Act (1991), SMEs no longer require an Industrial License to start a manufacturing enterprise. It is only required if the manufacturer intends to produce firearms, ammunition, chemical and biological weapons, explosives, radioactive or hazardous wastes. In addition to the above, the Department of Customs and Excise gives tax rebates on certain imported inputs. A Duty Drawback Scheme is also in operation, it is meant for goods manufactured or processed in Malawi from any raw materials specified in the Customs and Excise Regulations. An example of raw material which qualifies for drawback is raw materials used in manufacturing agricultural machinery and tools. Last but not the least, the Control of Goods Act which gave the Ministry of Commerce and Industry the right to control the prices of goods in Malawi went through a series of Amendments between 1983 and 1994. Presently, there is no policing of prices except for petroleum products and motor vehicle spares, which is also under review. the Malawian Rural Finance Company, World Vision(Malawi), PLAN International and Malawi Union of Savings and Credit Co-operatives (MUSCCO) have credit programmes for rural SMEs. As at December1996, MUSCCO had mobilised domestic savings to the tune of MK 49 million and granted credit worth MK 41 million. The Small Enterprise Development Organisation of Malawi (SEDOM) also provided credit to the SME sector financing mainly rural enterprises. To date, SEDOM has guaranteed loans worth K 40 million.

UNIT 9 Definition OF MULTINATIONAL CORPORATION(MNC) A multinational corporation (MNC) or transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined an MNC as a
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corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries. The first modern multinational corporation is generally thought to be the East India Company. Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located. Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization. Economists are not in agreement as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.) The following is an excerpt from Franklin Root (International Trade and Investment, 1994) Ownership criterion: some argue that ownership is a key criterion. A firm becomes multinational only when the headquarter or parent company is effectively owned by nationals of two or more countries. For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational. The ownership of most MNCs are uninational. (see videotape concerning the Smith-Corona versus Brothers case) Depending on the case, each is considered an American multinational company in one case, and each is considered a foreign multinational in another case. Thus, ownership does not really matter.

Globalization and multinational corporations Since the end of the Cold War, globalization has led to an unprecedented expansion of multinational companies. During the ten years that followed the fall of the USSR, these companies collective headcount surged from 24 to 54 million while their turnover doubled. Multinationals have become the

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biggest players in world trade (1). The international economy, with a political and diplomatic sphere, will be replaced by a multinational economy as these companies play an increasingly decisive role in globalization changes. Statistics show that the influence of multinationals is replacing that of States (over two thirds of the 100 largest economic entities are now companies and not States) (2). The international economy, with a political and diplomatic sphere, is being taken over by a multinational economy governed chiefly by financial concerns (the adjective global was first used in global finance). The dominance of the multinational and global economy continues to grow worldwide. Worried about the possible repercussions of an extensive jurisprudence and in particular for companies in danger of being sued, Australia, Great Britain, Switzerland and the European Commission filed amicus curiae briefs (7). The Supreme Court is set to incorporate the proposed criteria in its decision, such as the seriousness of the violation and the principle of subsidiary jurisdiction. Justice Breyer once again underlined the importance of international harmony as a matter of increasing importance in an ever more interdependent world. (8)Such is the basis of a future, universal civil responsibility. This responsibility could be strengthened with a moral argument if a legal system were to incorporate the company responsibilities set out by the UN Sub commission of Human Rights in the future. While we wait for international soft law and domestic hard law to unite, this first possibility presented by the American courts remains a predominantly unilateral one. Hence, the importance of the second option, which allows for expanding responsibilities within the framework of conventional and customary international law. This option could guarantee greater legitimacy because of international laws basis on the multilateral adoption of shared norms, although its prerogative is restricted to areas like the fight against international corruption (9). According to the preamble of the United Nations Convention against Corruption (2003), the conventions objective is to protect national interests (state resources, political stability and sustainable development) and so-called universal values (democratic values and institutions, moral values and justice) from what have become global practices: corruption is no longer a local matter but a transnational phenomenon that affects all societies and economies. Likewise, the preamble of the OECDs convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) had already
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underscored that corruption...undermines good governance of public affairs and economic development, while distorting international competitive conditions. In other words, if trade is be carried out freely and smoothly, competition must not be distorted, but requires a set of regulations to take the place of power struggles. We come back, then, to Durkheim and his analysis of contracts, which he says are not sufficient by itself since they are made possible by a regulation of contracts of social origin. (10) However, this regulation does not only refer to organic solidarity and restitutive sanctions, as Durkheim believed. Today, criminal law is at the forefront of global economics. However, this expansion of criminal responsibility by conventional means results in the consolidation of private economic powers. We note again that one of liberalisms strengths is directly related to its capacity to adapt and react quickly. This is how a private-public partnership in the very lucrative arms trade was envisaged. Faced with the threat of tightened ethics and greater responsibility, economic players do not contest the need for unified front against corruption. On the contrary, they present several arguments in favour of unified norms, i.e. that controls based on a principle of territoriality are becoming outdated in an era of globalization and electronic transactions, and that the various national practices and growing number of international legal proceedings make it impossible for companies operating on a global scale to take them into account. Yet, they consider it wishful thinking to believe that any control, however tight it might be, could be effective in the long-term if companies do not accept the principle and cooperate explicitly. This gives rise to the idea of associating economic players under one legislative, executive, and even judicial power. In the absence of supra-state institutions representing the will of all on the global level, that idea is not absurd. However, such a sharing of powers (which would certainly entail some loss of sovereignty would manipulate responsibility and could promote the major players to a position of market dominance. From the predominance of economic players, we would drift towards the pre-eminence of the economic system, or even towards economic totalitarianism., citing the American Justice Posner who, a few years ago, advocated the notion of buying and selling babies on the free market to circumvent black market adoptions. From the black adoption market to the black torture market a part of the fight against terrorism in
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this post 9/11 era we see the dangers of the sort of globalization that brings political and economics closer and close together. In Conclusion, global powers, i.e. multinational corporations, must be made aware of their responsibility. In order to achieve this, an option that combines states guarantee of rights and flexible governance networks, must be found. In other words, it must be an option that, without separating powers divided among the network of institutional (state and international) entities and economic players, would improve the objectivity and predictability of legal norms as well as the independence and impartiality of the authorities who enforce them (judicial or jurisdictional guarantee). ARGUMENT AGAINST FREE TRADE There are many arguments against free trade, though mostly they are invalid and the disadvantages or risks cited can be reduced or mitigated by other measures than abandoning free trade. Much of the dispute over free trade is semantic. The official U.S. interpretation of free trade is opposed to the Vietnamese interpretation, but both governments claim to be in favour of free trade. Similarly, advocates of fair trade criticize free trade as unjust, although their criticisms tend to be directed at neomercantile protectionist policies of the First World rather than the theory of free trade itself. Economic arguments against free trade criticize the assumptions or conclusions of economic theories. Sociopolitical arguments against free trade cite social and political effects that economic arguments do not capture, such as political stability, cultural diversity, and national security. Economic arguments against free trade are: 1. Free trade in raw materials retrogrades development The argument that a country could get 'locked in' to serving the needs of the world market in raw materials, and therefore not develop industrially 2. International trade requires more resources to distribute Delivering food produced on the other side of the world to a supermarket has an environmental impact because it requires the use of fossil fuel in delivery from overseas, as compared to local delivery. However, this critique is dependent upon the productivity of local markets relative to that of foreign markets'. A foreign market's greater productivity may offset the fuel expended for delivery. Conversely, local markets may use resources so inefficiently that importing goods constitutes a more energy-efficient per unit alternative. However, the lower prices achieved therein may beget more consumption, a result not necessarily favoured by "greens." In a perfectly
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efficient market, the costs of the fossil fuels would include the externalities associated with their consumption. Thusly the full impact of their transportation costs would be reflected in the market price of the good. Deep Green thinkers strongly oppose Free Trade in the hope of discouraging the immediate depletion of the earths resources. 3.Sheltering young industries may pay-off later or Infant industry argument : New Trade theorists challenge the assumption of diminishing returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market. Less quantitative forms of this "infant industry argument" against totally free trade have been advanced by trade theorists since at least 1848. 4. Free trade favours developed nations in certain areas Some services exported by developed nations are intangibles, such as medicinal formulae, trademarks, software, and entertainment. The value of this intellectual property is derived from legal protection against unauthorized reproduction. 5. Influence of foreign firms Within developing countries, the local populace often eyes multinational corporations with suspicion. [citation needed] Many feel that once allowed free reign they will use their superior resources and experience to sway the political establishment of a country in favour of excessive concessions (tax holidays, underpaying for property, etc.) and try to influence the political system in their interests, which may or may not be shared by the citizenry. 6. Free trade benefits only the wealthy within countries The wealthy own more corporate equity, which increases in value as companies are able to produce at the lowest cost in the world. As the world's markets merge into a single global market the number of market-leading companies worldwide drops, with international take-overs of local champions by giant corporations. This process concentrates wealth in fewer corporations. Free trade replaces low-skilled jobs often done by the poor easier than high-skilled jobs. This implication of the Stolper-Samuelson theorem is challenged on the basis that technology makes offshoring high value-added work feasible and more profitable than moving low-skilled jobs. 7. Free trade increases offshoring:Free trade allows companies the possibility of outsourcing the production of goods for domestic sale. Environmental and labour standards imposed upon these companies can be less in foreign production. Labour and environmental advocates argue that free trade thereby creates conditions that allow companies to circumvent
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domestic regulations, by producing elsewhere. As free trade increases, the balance of power shifts in favour of companies and away from governments. This is considered to pose a threat to democratic self-determination by antiglobalizes and authoritarian control by totalitarian states. Free trade supporters argue that all countries have the right to opt out of the world market through isolationism and that companies are fictional persons who are taxed without representation and that the balance of power should shift away from the governments that exploit them. It has also been argued that free trade hurts developed nations because it causes jobs from those nations to move to other countries, and accelerates the "race to the bottom". 7. Free trade causes excess dislocation and pain Free trade may change careers too fast. Once, a farmer could expect to finish his or her life as a farmer, although his or her children may have been forced into mining or manufacturing instead. Now, changes happen on a subgenerational level, faster than natural attrition. Coping with these transitions can be difficult, especially for the middle-aged and the elderly due to age itself or age discrimination. 8.Dependency theory; Weaker countries would develop areas, typically in raw materials and agriculture, that would be economically dependent on the mother country. In the post-imperial world, this criticism changed. Imperial powers that controlled capital flows could maintain their economic status vis-a-vis their former colonies by using this dependency to their advantage. Imperial powers would have more choice (more competitive market) in countries from which they could acquire raw materials than those countries would have in buying final goods, particularly as imperial countries had the bulk of the world's financial resources and chose to behave oligopolistically. 9.Free trade undermines national security: God knows how? China freely exports to US and Singapore exports and imports freely. 10Free trade creates an economic incentive for a race to the bottom in regulatory institutions; countries with lax, lenient, non-enforced, or selectively enforced regulatory legal structures will have a competitive advantage in attracting investment to their countries, and not merely in wages. From the capitalist's point of view, an ideal legal environment would have these features:, Weak or un-enforced labour and environmental protection laws. ,Low or uncollected taxes. Strong legal protection for property rights. 11. financial consequences of mobile capital The diversity of legal systems the world over and the limited degree to which those bureaucracies coordinate their regulatory and tax-collecting efforts can create loopholes to the benefit of corporations and private
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individuals, who can seek out havens from regulation and tax collection, even if they obey the letter of the law. The freedom of capital to move outside the purview of a single authority has other harmful effects, even where it is not invested in the real economy. The following are common abuses of the free trade in capital: 13.Stability: Free trade implies specialized industries and economic change. Economic changes can lead to strains and considerable changes to traditional economic and political systems. Social changes that Europe passed through over centuries - urbanization, development of national infrastructure, development of property rights, secular and national government, centralized administration, the development of financial sectors, and regulatory systems - can happen quickly in an economy exposed to free trade and capital flows. Criticism of multinationals The rapid rise of multinational corporations has been a topic of concern among intellectuals, activists and laypersons who have seen it as a threat of such basic civil rights as privacy. They have pointed out that multinationals create false needs in consumers and have had a long history of interference in the policies of sovereign nation states. Evidence supporting this belief includes invasive advertising (such as billboards, television ads, ad ware, spam, telemarketing, child-targeted advertising, guerrilla marketing), massive corporate campaign contributions in democratic elections, and endless global news stories about corporate corruption. Anti-corporate protesters suggest that corporations answer only to shareholders, giving human rights and other issues almost no consideration. Films and books critical of multinationals What is Globalization?

Globalization can usefully be conceived as a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions, generating transcontinental or interregional flows and networks of activity, interaction and power. It is characterized by four types of change: - First, it involves a stretching of social, political and economic activities across political frontiers, regions and continents.
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- Second, it suggests the intensification, or the growing magnitude, of interconnectedness and flows of trade, investment, finance, migration, culture, etc. - Third, the growing extensity and intensity of global interconnectedness can be linked to a speeding up of global interactions and processes, as the evolution of world-wide systems of transport and communication increases the velocity of the diffusion of ideas, goods, information, capital, and people. - Fourth, the growing extensity, intensity and velocity of global interactions can be associated with their deepening impact such that the effects of distant events can be highly significant elsewhere and even the most local developments may come to have enormous global consequences. In this sense, the boundaries between domestic matters and global affairs can become increasingly blurred. In sum, globalization can be thought of as the widening, intensifying, speeding up, and growing impact of world-wide interconnectedness. By conceiving of globalization in this way, it becomes possible to map empirically patterns of world-wide links and relations across all key domains of human activity, from the military to the cultural.

From the pre-modern, through to the early modern (1500-1800), modern (19th to early 20th century), to the contemporary period, distinctive patterns of globalization can be identified in respect of their different systemic and organizational features - uneven as they often are. These patterns constitute distinctive historical forms of globalization. By comparing and contrasting these changing historical forms, it is possible to identify more precisely what is novel about the present epoch. Accordingly, to advance an account of globalization it is necessary to turn from a general concern with its conceptualization to an examination of the key domains of activity and interaction in and through which global processes evolve.

. The Global Economy Trade

International trade has grown to unprecedented levels, both absolutely and relatively in relation to national income. In comparison with the
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late nineteenth century - an era of rapid trade growth - export levels today (measured as a share of GDP) are much greater for OECD states. As barriers to trade have fallen across the world, global markets have emerged for many goods and, increasingly, services. During the post-war period an extensive network of trade emerged in which most countries became locked into a multiplicity of trade relationships. Although there are major trading blocs in Europe, North America and Asia-Pacific, these are not regional fortresses; on the contrary, they remain open to competition from the rest of the world. Through the 1980s and 1990s, developing and transition economies have become significantly open to trade. Their shares of world trade, particularly of manufactures, have risen correspondingly. The growing extensity and intensity of trade has led to the increasing enmeshment of national economies with each other. A new global division of labour in the production of goods is emerging. The stages of the production process are being sliced up and located in different countries, especially in developing and emerging economies. Thus not only do countries increasingly consume goods from abroad, but their own production processes are significantly dependent on components produced overseas. The impact of this is that economic activity in any one country is strongly affected (through trade networks) by economic activity in other countries. Intra-industry trade, particularly amongst OECD economies, now forms the majority of trade in manufactures. This has intensified competition across national boundaries. Trade competition has also intensified because a greater proportion of domestic output is traded than in the past. Trade activity is now deeply enmeshed with domestic economic activity. This does not mean, however, that countries' fortunes are simply determined by their 'competitiveness': countries still specialize according to comparative advantage and cannot be competitive in everything or nothing. National economies can gain overall from increased trade. Nevertheless, the distribution of gains from trade are uneven. Increased trade with developing countries, for example, adversely affects low skilled workers in developed countries whilst increasing the incomes of higher skilled workers. There are clear winners and losers from trade. Social protection and the welfare state play an important role in ameliorating the impact of structural change arising from trade. However, increased demands on and costs of the welfare state tend to

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be resisted by employers in the tradable industries vulnerable to global competition. Although markets may be global, regulation remains largely national. Differences in regulation are causing international friction, as the EU versus USA banana dispute illustrates, whilst the World Trade Organization (a powerful advocate of de-regulation and trade liberalization) is in its infancy in harmonizing national regulatory regimes. Further, if market failures and externalities exist, they may be expected in global markets. However, we largely lack international systems of regulation to correct for these failures.

Finance

World financial flows have grown exponentially since the 1970s. Daily turnover on the foreign exchange markets exceeds $1.5 trillion and billions of dollars of financial assets are traded globally, particularly through derivative products. Most countries today are incorporated into global financial markets, but the nature of their access to these markets is highly uneven. International banking, bond issues and equities trading have risen from negligible levels to historically significant levels measured in relation to world or national output respectively. The level of crossborder transactions is unprecedented. Transactions are almost instantaneous with 24 hour global financial markets. Where once international financial markets operated to finance trade and long term investment, much of this activity is now speculative. The annual turnover of foreign exchange markets stands at a staggering 60 times the value of world trade. Levels of speculative activity can induce rapid and volatile movements in asset prices which increase risks to financial institutions, as the 1998 crisis at the Long Term Capital Management hedge fund showed. Countries' long term interest rates and exchange rates are determined within global financial markets. This does not mean that financial markets simply set the terms of national economic policy, although they can radically alter the costs of particular policy options. Perhaps the key difficulty for policy makers is the uncertainty surrounding, and the volatility of, market responses. This tends to induce a distinctly risk averse approach to economic policy and thus a more conservative macro-economic strategy.

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Financial flows to developing countries rose in the early 1990s, although they have fallen back since. This period saw heavy flows to East Asia, which later proved disruptive to these economies since they were often channelled into speculative activity. The outflows since the 1997 crisis have turned these economies from 'show cases' to 'problem cases', with their currencies falling heavily in excess of any real economic imbalances. The crisis highlighted the shifting balance between public and private power in global financial markets, as well as the limitations of the existing global financial regime (the IMF, BIS, etc.) in preventing global financial turmoil. It also demonstrated how enmeshed national fortunes have become as the collapse of the Thai baht triggered global financial disruption and highlighted the vulnerability of OECD economies to developments on the periphery. The 1990s exchange rate crises suggest that fixed exchange rates are ceasing to be a viable policy option, with countries facing a choice increasingly between floating rates and monetary union (notably EMU and discussion of dollarization in Latin America). UNIT 10 STRATEGIC PRIVATIZATION

Privatisation and Commercialisation in Nigeria As government could no longer continue to support the monumental waste and inefficiency of the public enterprise sector, the programme ofprivatisationandcommercialisation was developed to address the peculiar socio-economic and political conditions in Nigeria, being part of the Structural Adjustment Programme. The legal framework for the Nigerian programme is the Privatisation and Commercialisation Decree No. 25 of 1988, and the implementation agency is the Technical Committee on Privatisation and Commercialisation an eleven-member body drawn from both the public and private sectors. It was vested with wide powers to monitor and supervise the implementation of the programme. The full functions of the Technical Committee are to: advise on the capital restructuring needs of enterprises to be privatised or commercialised under this Decree in order to ensure a good reception in the Stock Exchange Market for those to be privatised, as well as to facilitate good management and independent access to the capital market; carry out all activities required for the successful

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public issues of shares of the enterprises to be privatised including the appointment of issuing houses, stockbrokers, solicitors, trustees, accountants and other experts to the issues; approach, through the appointed issuing houses, the Securities and Exchange Commission for a fair price for each issue; advise the Federal Military Government, after consultation with the Securities and Exchange Commission and the Nigeria Stock Exchange, on the allotment pattern for the sale of the shares of the enterprises concerned in accordance with Section 7 of this Decree; oversee the actual sale of shares of the enterprises concerned by the issuing houses in accordance with the guidelines approved by the Federal Military Government; submit to the Federal Military Government from time to time, for the purpose of approval, proposals on sale of government shares in such designated enterprises, with a view to ensuring a fair price and even spread in the ownership of the shares; ensure the success of the privatisation and commercialisation exercise taking into account the need for balanced and meaningful participation by Nigerians and foreign interests in accordance with the relevant laws of Nigeria; ensure the updating of the accounts of all commercialised enterprises with a view to assuring financial discipline; perform such other functions as may be assigned to it from time to time, by the President, Commander-in-Chief of the Armed Forces; advise the mode of disposal of an enterprise viewed by the Technical Committee as being unsuitable for disposal by the public issue of shares; seek and obtain the prior approval of the Federal Military Government for the price of any share issue in respect of any designated enterprise and the pattern of its allotment. and

Objectives of the Privatisation Commercialisation Programme

The objectives of the privatisation and commercialisation programme are: (i)to restructure and rationalise the public sector in order to lessen the dominance of unproductive investments in that sector;

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(ii)to encourage share ownership by Nigerians in productive investment hitherto owned wholly or partially by the Government, and in the process to broaden the Nigeria Capital Market; (iii) to re-orientate the enterprises for privatisation and commercialisation towards a new horizon of performance improvement, viability and overall efficiency; (iv)to ensure positive returns on public sector investments in commercialised enterprises; (v)to check the present absolute dependence of commercially oriented parastatals on the Treasury for funding and to encourage their approach to the Nigerian Capital Market; (vi)to initiate the process of gradual cession to the private sector of such public enterprises that by the nature of their operations and other socioeconomic factors are best performed by the private sector; (vii) to create a favourable investment climate for both local and foreign investors; (viii) to provide institutional arrangements and operational guidelines that will ensure that the gains of privatisation and commercialisation are sustained in the future. Distinction between Privatisation and Commercialisation The term "privatisation", narrowly defined, means the transfer of government-owned shareholding in designated enterprises to private shareholders, comprising individuals and corporate bodies. Broadly defined, privatisation is an umbrella term to describe a variety of policies which encourage competition and emphasise the role of market forces in place of statutory restrictions and monopoly powers. Commercialisation, on the other hand, can be defined as the re-organisation of enterprises, wholly and partially owned by the Government, in which such commercialised enterprises shall operate as profit-making commercial

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ventures without subvention from the Government. The main thrust of the Nigerian commercialization programme has been to: provide enhanced operational autonomy at enterprise level; evolve a more results-oriented and accountable management, based on performance contracts; strengthen financial/accounting controls at the enterprise level upgrade the management information system of the affected enterprises; ensure financial solvency of the public enterprises through effective cost recovery, cost control and prudent financial management; remove bureaucratic bottlenecks and political interference through clear role A critical component of the commercialisation programme, the performance contract is designed to govern the relationship between the government and the commercialised enterprise. Under it, the Board and management of the enterprises will guarantee the attainment of certain levels of financial and operational performance in return for enhanced operational autonomy. The system is intended to: help in giving a positive orientation and ensure that affected enterprises can efficiently fulfil their role in the national economy identify a number of performance and efficiency indices which the affected enterprises should, as a minimum, achieve annually; provide an independent monitoring process through the TCPC (or its successor) whereby the actual performance by both parties of their obligations under the agreement can be effectively monitored and evaluated.

Privatisation in Nigeria
Two types of privatisation are implemented by TCPC; full and partial privitisation. Enterprises to be fully privatised are those which are already incorporated and which produce goods, and those which are more "private" (consumptive) than "public" (essential) in nature. Such enterprises must show strong evidence of historical or future profits. Enterprises to be fully privatised would be owned 100 per cent by the private sector, i.e. by institutional, individual or core group investors, or a combination of such.

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Management decisions affecting the enterprises would derive from policy decisions reached by the boards constituted by the new owners. Government, having divested its entire equity holding, would have no hand in the running of the enterprises or in the decision-making affecting the enterprises, except in the provision of the general infrastructural and legal framework and the maintenance of a political and economic environment conducive to the operation of business. The fully privatised enterprises would be expected to source their funds from the capital market, from additional equity contributions or from reserves. Above all, they would be expected to pay reasonable dividends to the shareholders. Enterprises to be partially privatised are those which the government consider strategic because of the greater "public" nature of their goods. Government would still exercise some influence over those industries to the extent of its representation on the board. It is hoped that under the new regime of privatisation, managers would be made accountable to the Board, even where government had substantial interest. Ministerial control, as was the case in the past, would be chased out, as boards would be expected to operate autonomously. Partially privatised enterprises would be expected to operate like the fully privatised enterprises in terms of accountability, management, profit motivation, expansion, and diversification of production.

Commercialisation in Nigeria
Enterprises to be commercialised would also be expected to be better managed and to make profit. However, unlike those to be privatised, no divestiture is involved, although it is hoped that commercialisation, except perhaps in the case of utilities. It is important to distinguish between fully commercialised enterprises from those to be partially commercialised. A fully commercialised enterprise would be expected to be self-sufficient in both its recurrent as well as its capital expenditure needs. All the eleven enterprises slate for full commercialisation under the Decree (with the possible exception of the Nigerian Coal Corporation) are capable of independent existence. Where their normal operations could not generate the level of resources needed for capital development, they should be capable of raising such funds from the Capital Market on the basis of the quality of their balance sheets.

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Enterprises to be partially commercialised would be expected to operate like the fully commercialised ones in terms of better management and profit orientation, but because of the "public" nature of the goods or services provided by those enterprises, and in order to keep the prices of their products or services as low as possible for the public goods, government would still provide financial grants for the capital projects of the partially commercialised enterprise. The enterprise would, however, be expected to earn enough revenue to cover their operating costs. In some cases, subventions could be allowed on a time-bound programme of withdrawal. In both full and partial commercialisation, affected enterprises will enjoy considerable operational autonomy and, in accordance with the Decree, will have the power to operate on a strict commercial basis and, subject to the regulatory powers of government, be able to: fix rates, prices, and charges for the goods and services provided; capitalise assets; borrow money and issue debenture stocks; and sue and be sued in their corporate name.
REFERENCES Adegbite E. O. (1995), Effective Growth and Survival of Small and Medium Scale Enterprises in the 1990s and Beyond. The Role of Policy in Ade T. Ojo (eds) Management of SMEs in Nigeria (Lagos Punmark Nig. Ltd)

Anyanwu C. M. (2001): Financing and Promoting Small Scale Industries,

Concepts, Issues and Prospects. Bullion Publication of CBN Vol. 25 No. 3. pp 12 15. Ayozie. D. O. (1999), A Handbook on Small Scale Business for National Diploma Student. Danayo Inc. Coy Ilaro. Ayozie D. O. et all (1997), Principles and Practice of Marketing for Nigerian Students and Managers. Kinsbond Publishers Ilaro, Ogun State,Nigeria. Ayozie D. O., Asolo A. A. (1999): Small Scale Business for Nigerian Students (Danayo Inc. Coy) Ogun State Nigeria. Ayozie D. O. (1999), Small Scale Business and National Development Conference paper delivered at the CAB, Kaduna Polytechnic, Management Conference.

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