TOWARDS IMPROVED STANDARDS FOR CONSUMER PRODUCTS WITH THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
The common saying is that the consumer is ‘king’, much like the mantra that the customer is always right. In practice, sadly, the reverse is the case in Nigeria. There have been several cases of injurious consumer products in many sectors of commercial enterprises, despite governmental intervention to check the menace. Indeed, the challenge, it seems, is as much in the inadequacy of legislation to guide the production processes of Small and Medium Scale Enterprises (SMSEs) and protect consumers, as well as in the effectiveness of the legal process in ensuring that manufacturers and service providers adhere to laws and are also held responsible for violations of these laws. The objective of this work, therefore, is to make a case for improved consumer protection through improved legislation and regulation of the activities of SMSEs. The work examines the extant provisions of the law on consumer protection and the relevant regulatory agencies on consumer protection as well as the effectiveness of these laws in protecting the Nigerian consumer. The work equally examines the extent of consumer protection in the statutory provisions of other jurisdictions such as the UK, India and South Africa as compared to the Nigerian position. The primary sources of materials include statutes, case law, policy documents, international conventions, and experience garnered from participating in projects aimed at encouraging the development of SMSEs through training in entrepreneurship; while the secondary sources include available literature on consumer protection in Nigeria, small businesses, journal articles, magazines and online materials. This work is essentially analytical and comparative in approach. The work analyses the extent of consumer protection in relevant statutory provisions as well as judicial interventions in consumer protection cases. It is equally comparative in that a comparative study of consumer protection laws in three jurisdictions vis-à-vis what is prevalent in Nigeria is undertaken. The work concludes that there is a multiplicity of laws, albeit inadequate, to regulate the activities of business enterprises and indeed SMSEs in the production of consumer goods in line with desirable consumer protection standards in Nigeria. There is, as such, a need for improvement in certain areas of the law in this regard, especially in terms of the enforcement of consumer rights in court and more importantly, the need for a more comprehensive legislation for the regulation of the activities of SMSEs in pursuance of the protection of consumers. This will ensure that applicable standards for consumer goods are met by manufacturers.
1.1. Background to the Study
Small businesses are normally privately-owned corporations, partnerships, or sole proprietorships, whose staff strength vary from country to country. Small businesses can also be classified according to other methods such as sales, assets or net profits. Small businesses are usually run by entrepreneurs.
The growth of Small and Medium Scale Enterprises (SMSEs) and entrepreneurship in Nigeria, now even more widely supported by non-governmental organisations, governmental agencies initiated programmes, faith-based organisations and community-based organisations has thus occasioned a diversification in the market trends and production mechanisms, for locally manufactured goods and provision of services. Indeed, the regulation of business activities for the protection of consumers has been controlled by various government regulatory agencies. The idea of controlling and regulating business activities by these agencies is for the purpose of regulating the establishment, methods and operation of the business activities and also ensure an improved and sustained quality of life for consumers.
It is indeed a uniform idea among scholars that consumer protection amongst producers leaves much to be desired, the question then is what impact if any have the regulatory mechanisms had on the growth of these cottage industries in relation to consumer protection in Nigeria. Have these regulatory laws been rendered redundant and ineffective in their application? In the face of increasing influx of substandard and fake products into the Nigerian market, abuse of patent and copyrights, passing off, refusal to register products and subjecting manufactured products to relevant testing and standardization, what really is the effect of consumer protection regulatory standards on the existing and expanding small business enterprises in Nigeria. As the government in partnership with various stakeholders battle the scourge of unemployment, the question still remains; how government policies and interventions has affected the growth of small businesses in terms of compliance with regulatory standards in their business activities.
The growth of small and medium scale enterprises through private efforts by individuals in a bid to become self reliant is known as Entrepreneurship. Entrepreneurship is derived from the Latin word entreprendre which direct translation means entrepreneur, meaning to undertake or to start a business. An entrepreneur is therefore a business adventurer; a business explorer. One who takes advantage of an opportunity, real or perceived. As the decision maker, decides what, how, and how much of a good or service will be produced. Someone who exercises initiative by organizing into a business, or an enterprise.
Austrian economist Joseph Schumpeter’s definition of entrepreneurship placed emphasis on innovation, such as:
a. new products
b. new production methods
c. new markets
d. new forms of organisation
Israel Kirzner states that the entrepreneur recognizes and acts upon market opportunities. In contrast to Schumpeter’s viewpoint, the entrepreneur moves the market toward equilibrium. Gartner defines entrepreneurship as the creation of new organizations. The Entrepreneurship Center at Miami University of Ohio has an interesting definition of entrepreneurship thus: “Entrepreneurship is the process of identifying, developing, and bringing a vision to life. The vision may be an innovative idea, an opportunity, or simply a better way to do something. The end result of this process is the creation of a new venture, formed under conditions of risk and considerable uncertainty.” Entrepreneurship appears in different sizes. It can be found in large corporations as well as small retail shops. It can present itself under various forms. Entrepreneurship has also been defined as the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods and services. It is indeed from the activities of an entrepreneur that Small and Medium Scale Enterprises grow.
Indeed with the decline on reliance on white collar jobs especially in governmental departments, and the saturated influx of unemployed applicants competing for limited opportunities in the private sector of banking and multinational corporations to mention a few, the importance of entrepreneurship in all facets of human endeavour becomes a viable economic and sustainable alternative to grapple with the challenges of the twenty first century in market indices development not just in Nigeria but the world over.
Entrepreneurship as a form of business organization cuts across various economic sectors such as manufacturing, service provision, food and beverages and production. The provision of goods and services is undoubtedly essential to the day to day activities of man and the Blacks Law Dictionary, defines ‘goods’ as “a term of variable content.” It further defines ‘Goods, Wares and Merchandise’ as “a general and comprehensive designation of such chattels as are ordinarily the subject of traffic and sale.”
The concept of entrepreneurship and growth of small businesses in Nigeria encompasses its establishment and registration, regulation of its production methods and sales practices. It therefore becomes necessary for the law to regulate these business enterprises by ensuring full compliance with the law in providing a level playing ground for market competition, protecting innovation, ensuring compliance with regulatory standards and enforcing transactional obligations, which falls within the domain of Commercial law and Consumer Protection. Consumer protection law covers product liability, private rights, unfair business practices, fraud, misrepresentation and other business transactions, including credit repair, debt repair, product safety, service and sales contracts, pricing, utility turnoffs, consolidation and personal loans that may lead to bankruptcy.
In keeping with the focus of directing and engineering the continued growth of the Small and Medium Scale Enterprises (SMSEs), the Standards Organisation of Nigeria (SON) in 2012, had announced plans to involve 5,000 Small and Medium Scale Enterprises (SMSEs) through capacity building by 2015, an initiative to create about eight million jobs in the country from this sector. At the same occasion, the President AFRICAN Regional Organisation for Standardization (ARSO) observed that for Africa to facilitate more trade among African countries, Africa can stop buying substandard goods coming into the continent from Asian countries by harmonizing the issues of standard, conformity assessments that are in place and making them more useful to their countries. At present there are a plethora of Small and Medium Scale Enterprises springing up by the active support of various stakeholders in the bid to drive positive economic growth in Nigeria.
The importance of the growth of Small and Medium Scale Enterprises run by emerging entrepreneurs in Nigeria cannot therefore be overemphasized. The question then is whether our legal regime is practicable enough to grapple with the growth of this industry especially as it relates to ensuring the protection of consumer rights and whether the emerging propellers of this industry are legally equipped with the knowledge to run same, in line with global best practices.
1.2. Statement of the Problem
In spite of various legislative enactments to regulate the production of goods and the regulatory agencies set up to enforce these laws, Nigeria still faces a great challenge in consumer protection. The growth of the Nigerian economy is at present dependent largely on contributions of SMSEs towards job creation, and local production of goods and services. This by implication results in the production of more consumer goods but without adequate regulatory mechanism in place to protect the local consumer and ensure that the products of the growing small business sector do not become an additional menace in our commercial sector. As shall be seen in the course of this work, instances of consumer rights abuses are on the increase. According to an evaluation conducted in 2008 by the World Health Organisation (WHO) on the quality of anti-malarial drugs in circulation in 14 African countries, it was discovered that Nigeria had the worst situation among all the countries that were evaluated, with 64 per cent of the anti-malarial drugs in the country at that time were either fake or substandard. Also, between November 2008 and February 2009, 84 Nigerian children died from acute kidney failure brought on by the industrial solvent diethylene glycol in teething syrup. In 1990, importation of drugs from Nigeria was banned by some West African countries as a result of the death of some children who were administered with adulterated paracetamol syrup. This statistics does not portray Nigeria in good light in international commercial circles and results in loss of great revenue which ordinarily would be derived from export products.
NAFDAC observed that counterfeit drug is one of the greatest problems of the industry with an estimated 50 per cent of drugs and food drinks sold in Ariaria Market in Aba, Onitsha Market, Alaba Market, Lagos and other markets across the country being counterfeits. It lamented that many families had been wiped away due to the after effects of these deadly medications and consumable goods on human health.
Most judicial intervention in consumer protection cases have not served the desired purpose of deterring errant manufacturers. The Nigerian regulatory framework in the area of consumer protection is equally inadequate to cope with the menace of fake, substandard and adulterated products prevalent in the Nigerian market. For example, the Consumer Protection Council Act, does not provide for strict liability in product defect offences, neither does it specify the remedies available to the consumer in cases of abuse of consumer rights by manufacturers. Penalties specified in our legislation on consumer protection are not stiff enough to deter errant manufacturers. The problem of both inadequacy and ineffectiveness of the existing laws has led to continued complaints of prevalence of fake, substandard and adulterated products in the Nigerian commercial sector.
In brief, therefore, the major problem set to be addressed in this work is how to improve on consumer protection laws to ensure that the Nigerian consumer is adequately protected in the fast growing commercial sector by product manufacturers. Put simply, how can the rights of the consumer in Nigeria be better protected under the legislation and through judicial intervention.
1.3. Research Questions
The following research questions are addressed:
1. Whether locally manufactured goods and services in Nigeria meet applicable quality standards.
2. Is there an adequate consumer protection regime in place to ensure compliance with regulatory standards by SMSEs?
3. Are emerging entrepreneurs adequately equipped with knowledge of the relevant laws to ensure quality of goods and services produced?
4. What improvements can be made to the relevant consumer protection regulatory regimes to ensure that consumer rights are protected by SMSEs?
1.4. Aims/Objectives of the study
In an age where there is great clamor for the growth of Small and Medium Scale Enterprises especially with regards to locally produced goods and services, it becomes imperative to ensure that the development of local industries and the goods and services they offer to the public comply with regulatory standards and afford a quality level that could compete in the world market, to boost economic growth.
The main aim of this study is therefore to assess the growth of SMSEs in Nigeria, and the legal framework for consumer protection by these enterprises to ensure quality standards of production.
The specific objectives however are to;
i. examine the growth of SMSEs in Nigeria over the years and appraise Government’s efforts to encourage the growth of these SMSEs;
ii. assess the adequacy of the legal regime to protect the Nigerian consumer;
iii. assess global efforts in relation to SMSEs and consumer protection; and
iv. propose the improvements that can be made to ensure that consumer rights are protected by SMSEs in Nigeria.
1.5. Scope of the Study
This research work in terms of scope is centered on the growth of Small and Medium Scale Enterprises (SMSEs) in Nigeria and the status of consumer protection in the light of this growth. This work equally appraises the efforts of the Government in the growth of SMSEs and examines relevant legislation aimed to protect the Nigerian consumer. Although this work examines global efforts in other jurisdictions to ensure consumer protection by business enterprises, a comprehensive study of the consumer protection regime of such jurisdictions is not undertaken in this work. The examination of improved standards of consumer protection in some aspects of consumer protection laws in other jurisdictions is, however, to draw lessons from such jurisdictions from which the Nigerian sector can benefit from in advocating for an improved standard of consumer protection.
1.6. Organisation of the Study
This dissertation is divided into six (6) chapters. Chapter one examines the general introduction and definition of SMSEs in Nigeria, growth of entrepreneurship as it relates to increase in the number of small business operators in Nigeria, including a brief insight into the agencies that regulate the operations of SMSEs in Nigeria. Other preliminary issues including objectives of the study, review of literature and scope of the study are discussed in this chapter.
Chapter two appraises the efforts of the Government in ensuring the growth of small businesses in Nigeria and production of locally made goods and services. The roles of SMSEs in economic development and consumer protection are equally examined.
Chapter three examines the regulation of SMSEs in Nigeria through various legislation, the legal framework to ensure consumer protection in Nigeria as provided for in the regulatory statutes and under the general law, and the rationale for the protection of consumers in commercial enterprises is also examined in this chapter.
Chapter four reviews the enforcement of the rights of victims of consumer offences in Nigeria, relating to efforts of the various regulatory agencies to ensure enforcement of consumer rights, the challenges of recourse to the judicial process and activities of voluntary consumer organizations in consumer protection.
Chapter five, reviews global trends in Consumer Protection laws in other jurisdictions in comparison to the Nigerian commercial sector.
Chapter six concludes by summarizing the research findings, challenges and prospects for improvement in consumer protection laws in Nigeria with the continuous increase in the number small business ventures. Recommendations are equally offered on how best to ensure the compliance of SMSEs with best practices in consumer protection.
1.7. Literature Review
The twenty first century has seen the emergence of small and medium scale enterprises in Nigeria, in a bid to curb the debilitating unemployment challenges facing the country and encourage self reliance and economic growth through local production of goods and services. However with the growth of these small businesses, there has been a concern regarding the production of substandard and fake products, which calls into question the extent of the protection given to consumers in Nigeria in the manufacture and distribution of these items. Indeed, Kanyip puts it thus: “…with the mass production of increasingly complex goods and provision of services, Nigerian consumers, like their counterparts around the world, are faced with a bewildering array of choices, and subjected to all manner of representations from many businessmen who, by sophisticated mass marketing techniques, seek to attract consumers to their products and services. Against such powerful traders and their sophisticated products/services, the individual consumer is often uninformed, weak and powerless.”
There have been commentaries and a number of discourse in written texts, articles and academic papers on consumer protection, the rights of consumers under the regulatory agencies established to fight the scourge of fake and substandard products in Nigeria, the adequacy or otherwise of these laws and their effectiveness in aiding consumers to initiate actions against prohibited products and services. The relevance of the expositions on consumer protection as above stated is invaluable to our jurisprudence but to the writer’s knowledge, there has not been any topic discussing exclusively and comprehensively “Towards Improved Standards for Consumer Products with the Growth of Small and Medium Scale Enterprises in Nigeria.” The growth of the Nigerian market in terms of local production prompted this research work and the query by the writer as to whether the proprietors of these Small and Medium Scale businesses are indeed adequately exposed to knowledge of the Regulatory laws and their relevance in their production and distribution processes, especially as it relates to unfair commercial practices in Nigeria, abuse of patent and copyrights, unfair terms in contracts, risk coverage for consumers etc.
In his work, Smith states that ‘consumption is the sole end and purpose of production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production and not consumption as the ultimate end and object of all industry and commerce.
In a bid to address the overwhelming outcry against fake and substandard goods and the reckless abuse of consumer rights, the government has put some machinery in place through regulatory agencies to check this menace. Indeed, as Boma indicates “there is a conscious legal policy by the government inspired by the recognition of the vulnerable position which the consumer occupies in the market place. The government has sought to ensure the protection of consumers by assigning specific functions to some government agencies.”
These government regulatory agencies include among others, the National Agency for Food and Drug Administration and Control (NAFDAC), the Standards Organisation of Nigeria (SON), the Consumer Protection Council (CPC), the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
As rightly pointed out by Ayojimi , the purpose of the laws governing consumer protection regulated by the agencies above listed, is to impose requirements on suppliers of goods and services to consumers in addition to those normally implied in contractual relationships so as to safeguard consumers’ interest in respect of matters where they are particularly vulnerable.
In the same vein, according to Holwells the following functions are paramount in the policies regulating the activities of small businesses: first, that consumer policy must ensure that the market place is competitive. Secondly, consumer policy must enhance the competitive forces of the market place by rules against unfair trade practices and positive disclosure requirements. Thirdly, consumer policy should protect the weak from market-determined outcomes, which are considered to be unfair. Fourthly, consumer policy should serve as a distribution tool for the creation of a more equitable society. Fifthly, consumer policy can converge with environmental policy in the protection of the environment. Lastly, consumer policy must coincide with public health objectives of society.
The challenge of this new trend in economic focus has been why these emerging small enterprises fail to conform to the available regulatory standards in the production of goods and services, to meet not only the local requirements but international best practices in consumer protection. Are they simply more interested in obtaining finance for the growth of their businesses, are they uninformed or inadequately informed of these regulatory standards, are they simply too concerned with breaking even or amassing profit? Anyanso observes that:
Although the impact of regulations varies among enterprises, a direct effect of government regulation has been to decrease negative business incentives to invest, through production or manufacturing of fake and inadequate materials for consumption. Likewise, regulations that are difficult to understand and seemingly arbitrarily imposed and administered tend to decrease business respect for the law.
Indeed as an aspect of corporate responsibility, views are polarized as to whether emphasis on business ethics as it affects the expectations of consumers and stakeholders is not a mere socialistic attitude as opposed to the views which consider business ethics as an integral part of business. The former is concerned with making a profit, paying taxes, providing employment and obeying the laws. The latter however, address the legal, ethical, commercial and other expectations the society has for the business, as such have a more holistic approach towards the impact of their business operations. The economic basis of business corporate responsibility focuses on the optimal long-term capital gains of the company in order to achieve goals, while the sociological basis of business corporate responsibility views business entities as integrate parts of the society and require corporate interests to be put under constraints of social benefits and consumers’ expectations.
We agree entirely with this sociological outlook given the role of business entities in the society. Certainly, a business enterprise ought to place the interest of its consumers as its paramount objective and set its goals in line with such expectations.
Undoubtedly businesses should take into consideration consumer protection policies which emphasize legal, regulatory and supervisory structures, responsible business conduct, disclosure and transparency, consumer education, fair treatment, adequate handling of complaints and enforcement policies.
Aremu , rightly points out the importance of the consumer protection and situates same aptly within the context of socio-economic growth and development when he states thus:
Since development is a fundamental human right, denial of any aspect of it through voluntary or involuntary actions by any economic agent is a violation of the Universal Declaration of Human Rights. It thus, follows that consumer protection is very crucial ensuring that fundamental human rights are not trampled upon intentionally or unintentionally.
Furthermore, Monye unreservedly states that:
It is a truism that there is high incidence of fake and substandard product. The problem, which cuts across various product fields including drugs is also noticeable in the supply of services. Most often, consumers find themselves saddled with shoddy services, or even non-performance. Unfortunately, they rarely seek redress due to a number of reasons, the most prominent reason being ignorance …. The supply of shoddy products and services constitutes a big problem to the consumer.
Ekanem also observes that:
In Nigeria, the incidence of fake, substandard, defective and adulterated product assumes an alarming dimension. The quality of services rendered by service providers leaves much to be desired. The consumer is left in a precarious position, having to pay for shoddy services, sometimes no services, and for goods that are below the regulated standards. Consumers of goods and services have been exposed to a myriad of problems including problem of safety and quality of product and service.
Another writer who has aligned himself with the concern for consumer protection in the light of emerging trends and development in technology is Igweike . His work deals with the appraisal of Nigerian laws, regulations and practices designed to protect the private consumer. He observes that the Nigerian consumer is in a precarious position as a result of largely ignorance and in the light of same, he stated that:
With the country venturing into the world of technology, particularly in the manufacturing or production of consumer goods and services, there has been a rapid increase in the volume of goods and services thrust upon the consumer market. Both the print and electronic media frequently carry reported cases of imperfect, sometimes dangerous products and services thrust upon the innocent consuming public. The producers and suppliers of these products more often than not take advantage of the fact that the Nigerian consuming public is largely semi-illiterate or uniformed. The result is that not only is the Nigerian consumer not getting value for his money but more importantly, he is exposed to personal injury, loss or damage arising from the use or consumption of such products. The volume of legislation designed to protect the consumer against not only fraudulent and dishonest commercial dealings and practices but also oppressive bargains and the supply of defective or dangerous products has not shown any significant change in the last quarter of the century…
Admittedly as pointed out by the author above, illiteracy and ignorance play a major role as reasons for the adverse effect of irresponsible business activities on the consuming public, however, it must be noted that other key factors which militate against consumer protection are poverty and encouragement of these substandard products by consumers themselves who sometimes find it convenient to protect unlicensed business operators within their locality.
Igweike equally recognized the need for legal protection of the consumer, but like other authors and academic scholars, did not treat the immense need for an incorporation of the legal obligations of businesses to its consumers in the training and retraining process of operators of these businesses. It is the need for an early exposure of small business operators to the legal processes imperative in operating their business ventures and their consequent obligations to the consuming public that this work intends to address.
As Summarily put by Belobaba :
The nature and extent of consumer protection regulation in a modern society says a good deal about the society, about its social and economic development, about its legal values, about its sense of justice.
The truth indeed is that it is not yet uhuru for Nigeria in its attempt to protect her consumers against the adverse effects of substandard goods and services and the continuous influx of a variety of products and services by reason of increase in the number of SMSEs has only called for an imminent need to review the consumer protection regime in Nigeria, in the sense of reviewing the process of the emergence of these small scale industries to ensure that the proprietors are adequately exposed as early as possible to their obligations under the law to ensure that they prioritize consumer protection best practices in the manufacture and production of their services, hence the need for this research.
Indeed, it is not enough for the government to encourage the growth of SMSEs as a means of addressing the current economic challenges of the country, by providing credit facilities at subsidized rates, tax exemptions and skills training to prospective SMSEs owners, without addressing the more serious challenge of ensuring that the proprietors of these SMSEs have the benefit of being exposed to their obligations to the ordinary consumer in their line of production, bearing in mind that an economy only develops when locally produced goods and services meet the requisite standards of production and exportation including the safety of its consumption.
1.8. Research Methodology
This work is essentially analytical and comparative in approach, the work relied on both primary and secondary sources. The primary sources include statutes, case law, policy documents and international conventions and agreements and experience garnered from participating in projects aimed at encouraging the development of entrepreneurship and small businesses in Nigeria; while the secondary source materials include available literature on consumer protection in Nigeria, journal articles, magazines, and online materials. This work is analytical in approach because it analyses the extent of consumer protection in relevant statutory provisions as well as judicial interventions in consumer protection cases. It is equally comparative in that a comparative study of consumer protection laws in three jurisdictions vis-à-vis what is prevalent in Nigeria is equally undertaken in this paper.
1.9. Definition of Relevant Terms
In the context of this work the following terms are defined accordingly:-
Small Scale Business
Section 351 (1) (b) of the Companies and Allied Matters Act 1990 defines a small company as one with:
(a) An annual turnover of not more than two million Naira;
(b) Net asset value of not more than one million Naira.
A small scale business is therefore, a business with few number of employees and low volume of sales. However, contrary to the definition of the CAMA of the small scale business, the 13th Council meeting of the National Council on Industry held in July, 2001, segmented the SMSEs sector and defined Micro, Small and Medium Enterprises (MSMEs) as follows:
An industry with a labour size of not more than 10 workers, or total cost of not more than N1.50 million including working capital but excluding cost of land.
An industry with a labour size of 11-100 workers or a total cost of not more than N50 million, including working capital but excluding cost of land.
Medium Scale Industry
An industry with a labour size of between 101-300 workers or a total cost of over N50 million but not more than N200 million, including working capital but excluding cost of land.
In relation to the definition of small scale business under the CAMA, the definition of MSMEs by the National Council on Industry appears more extensive, pointing to the size of this sector and the relative importance of SMSEs sector to the economic development of the country.
Consumer protection refers to all efforts made to ensure that products purchased by consumers are safe to use, will meet all express or implied performance standards, that consumers will have adequate information to make safe purchases and use decisions, that marketers are prevented from using fraudulent methods to sell their products, and that marketers compete fairly in the marketplace.
Indeed, from the foregoing, it is obvious that entrepreneurial activities aid the growth of Small and Medium Scale Enterprises, and the growth of these SMSEs are encouraged, even with the challenges being faced by the current economic situation in Nigeria. The focal point however is on the proper operations of these SMSEs to ensure adequate compliance with quality standards as it relates to consumer protection in the provision of goods and services to the consuming public, which will enhance local production and exportation of locally produced goods and consequently shore up Nigeria’s struggling economy.