Structural Adjustment and Small-Scale Industrial Entrepreneurs in South-Eastern Nigeria

This Paper examines how small-scale informal industrialists in two of Nigeria’s rapidly growing cities have coped with economic crisis and structural adjustment policies. Contrary to the myth of a dual industrial system operating in developing economies that are undergoing crisis and adjustment, the informal sector is found to be organically linked to the formal economy. Thus, both have been affected by key structural adjustment policies in broadly similar ways. The adjustment strategies of formal sector entrepreneurs also tend to impact upon the fortunes of informal industrial entrepreneurs in diverse and complex ways. It is difficult, therefore, to conclude on the basis of conventional theories alone about the likely effects of adjustment on the informal sector.

The paper reveals that recession and adjustment provided an enabling environment for the growth of small-scale industrial entrepreneurs: more than 40 per cent of the firms surveyed were established after the adjustment programme was launched in 1986. Enterprises took advantage of the recession to pay very low wages and subject their employees to long working hours. Indeed, there has been considerable new investment in the sector, with 70 per cent of entrepreneurs having made new investment in machinery, physical structures and land for new workshops; while 90 per cent have refurbished old machines or physical structures. About 60 per cent of the firms have also diversified investment in urban and rural land holdings or activities.

Most firms are said to be heavily dependent upon the formal sector for machinery and, to some extent, raw materials, though the degree of dependence varies across sub-sectors. However, dependence on the formal sector to service or repair machinery and equipment was very low: instead, there was greater reliance on internal staff or other informal sector technicians for these activities. Fairly strong direct forward linkages were found to exist between the informal enterprises and formal businesses; and linkages within the informal sector itself were particularly strong, with roughly 80 per cent of the output of all firms being consumed in, and more than half of the raw materials, machinery and labour requirements of firms being provided by, the informal sector. Rather heavy input-output linkages are also reported between the informal industrial firms and the rural economy. However, sub-contracting arrangements between formal and informal firms were noticeably absent, suggesting very weak vertical integration in the industrial sector.

The paper highlights a number of constraints that are likely to affect the future growth of the informal industrial sector: the over-exploitation of the labour force, which may undermine the morale of employees; the rising cost of new machinery and equipment in the formal economy; the erratic supply
of electricity, water and other basic infrastructure; diversion of financial savings into the rural economy for food provisioning; and the adulteration of products to increase sales, which might weaken consumer confidence. The paper concludes with a set of proposals for policies that could help offset these constraints.