For both developing and developed countries, SMEs plays important role in the process of industrialization and economic growth. Aside from increasing per capital income and output, it’s create employment opportunities, enhance region economic balance through industrial dispersal and generally promote effective resources utilisation considered to engineered economic growth and development.
Small and medium scale enterprise (SME’s) have played and will continue to play a remarkable role in the growth, development and industrialization of many economies in the world. In the case of Nigeria, SME’s has performed below expectations due to a combination of factors which ranges from the attitude and habits of SME’s themselves through economic related factors, inconsistency in the policy of government, and somersaults.
In Nigeria today; SMEs represent about 90% the industrial sector in terms of number of enterprises, however they contribute a meagre little of GDP which makes it insignificant when compared to countries like Indonesia, Thailand and India where SMEs conducted by International Finance Corporation (IFC) during the same period estimated that 96% of all business in Nigeria is SME’s compared to USA and EU with SME’s in both places acting for over 50% of their respective country GDP.
Small and medium scale enterprise in Nigeria have not performed estimably well and hence, it has not played the expected vital role in the economic growth and development in the country. This situation however has been of great concern to the government, operators, citizens, practitioners and the organised private sector. We discover that year in year out, government at all levels through budgetary allocations, policies and pronouncements have signified interest and acknowledge the crucial role SME’s plays in the sub-sector of the economy. Hence, they have made policies for energizing the same.
In spite of the enormous effort put in by the government through various programmes and policies to revive and establish a relevant foundation for SME’s in Nigeria, yet there has been no substantial improvement realized from them.
PROBLEMS/CHALLENGES OF SME’s IN NIGERIA
High cost of doing business: One of the major challenges faced by small and medium scale enterprise in Nigeria is the high cost of running their business operations. Some of these problems can be attributed to poor state of infrastructure. In Nigeria, poor infrastructure is a major factor in the country. We find out that most of our local investors have eloped the country due to the poor infrastructure in place. Example of these are physical infrastructures like roads, power supply, communication system, and good health care system. Majority of the foreign investors have left the country to pitch their tents elsewhere in neighbouring countries like Ghana. Some of these reasons boils down to the issue of ‘epileptic’ power supply, and the high cost of running gasoline generators for their businesses.
High cost of legal documentation: The high cost of legal documentation of credit facilities at both state land registries and the corporate affairs commission’s (CAC) land use charge has been a major issue of SME’s in Nigeria, and as a result of this; it has discouraged so many investors in the private sector of the economy. It was discovered that most small businesses were faced with the problem of high cost of obtaining legal documents from CAC (corporate affairs commission).
Multiple taxation system: The multiple taxation system has impeded the growth of SME’s in Nigeria. As enterprise takes investment decisions based on long run returns on capital. The cost of multiple taxation however, reduces the size of the stock-up capital, and aggregate output in the economy which in turn discourage investment.
Lack of continuity: Another major problem faced by small business owners or sole proprietors, is the issue of continuity. At times, you will discover that some businesses fail either due to financial problems, death of the owner, lack of interest, or bankruptcy. All these reasons are the major set-backs that small business owners encounter on a daily basis.
Inadequate capacity building: The effect of inadequate capacity building has been a major issue when it comes to entrepreneurship development in Nigeria. Despite the fact that training institutions exist in the country, they rarely address the relevant needs of SME’s especially in the area of marketing, accounting, information technology, administration and management of small and medium scale enterprise. Essentially, SME’s are often left to survive on their own amidst the avalanche of operational difficulties inherent in the Nigerian economy
Difficulties encountered in obtaining credit facilities: The reluctance of banks to extend credits to SME’s can be traceable to inadequate documentation of business proposal, lack of appropriate collaterals, high cost of administration, as well as high interest rates and fixed charges on loans.
Corruption: The wide spread of corruption and harassment of SME’s by some government agencies over unauthorized levies and charges imposed on small and medium business owners is quiet alarming.
Unstable government policies: constant change in government policies is one of the major problem disrupting the growth of SME’s in Nigeria. The inability of the government to make policies and implement them is a major constraints of SME’s in Nigeria, and the end result of this is that it discourages investment.
SOLUTIONS TO THE PROBLEMS/CHALLENGES OF SME’s IN NIGERIA
Provision of adequate capacity building: Capacity building is arguably one of the major constraints of MSE’s in Nigeria. However, efforts should be made to address the issue of marketing, accounting, administrative, information and technology, and technical problems in order to further enlighten entrepreneurs.
Provision of accessible credit facilities: Government should make sure that entrepreneurs have easy access to credit facilities, either through government agencies like SMEDAN (small and medium enterprise development agency of Nigeria). This will eliminate the hassle associated with obtaining high interest loan from banks.
Provision of adequate infrastructure: Inadequate infrastructure is no doubt the major constraints militating against the progress and development of SME’s in our nation. Efforts should be made by government to ensure that adequate physical infrastructures like: good road network, adequate supply of electricity, good health care system, and good communication system are all in place in a bid to further encourage small and medium enterprise in participating actively in the sub-sector of the economy. In the long run, it will reduce the cost of doing business and also attract foreign investment.
Elimination of multiple taxation system: Government should endeavour to eliminate multiple taxes and levies imposed on small and medium enterprise, in order to further encourage business owners to participate actively in the private sector of the economy. Furthermore, effort should be made to remove any sort of unnecessary dues, levies and taxes which is aimed at frustrating small business owners, and replace them with single tax system.
PROSPECTS OF SME’s IN NIGERIA
Economic development: The role of SME’s in economic development cannot be overemphasised. This is owing to the fact that the profits made by these entrepreneurs flows as an increase into the national income and thereby increases the nation’s Gross Domestic Product (GDP). The contribution of SME’s in industrial sector to the Nigerian Gross Domestic Product (GDP) was valued at 37% thereby, making it the second largest contributor to the nation’s GDP after the oil sector – according to SMEDAN in 2009.
Encourage technological innovation and Development : SME’s will produced specialized items in small quantity to meet current and diverse demands in the market.
Encourage investment: The introduction of an enabling environment for SME’s in the sub-sector will further attract both local and foreign investors into the private sector of the economy.
Healthy competition: The emergence of SME’s will bring about healthy competition in the market among several competitors.
Creation of employment opportunities: Entrepreneurship encourage the creation of employment opportunities for the Nigerian citizens, which in turn increases the participation of small business owners in contributing to the nation’s development, by drastically reducing unemployment in our society. The existence of small businesses in the country has provided her citizens with more jobs than the multinationals.
Structural balance: SMEs’ will enhance structural balance in terms of small and large scale sectors of the industry as well as bring about rural-urban development.
in order to build an independent economy which is developed in a multi-furious and comprehensive way, it is necessary to follow the line of giving preference to the development of heavy industry and development of industries and agriculture simultaneously, for adequate supply of raw materials to the SME’s sector.
In conclusion, in spite of the massive challenges confronting SME’s in Nigeria, they still continue to strive at their very best as their existence is the key to economic development. However, if policy implementation programme is enhanced through effective monitoring and supervisions, SME’s will be empowered thereby engineering economic growth in Nigeria.
Consequently, SME’s should be clearly defined while policies should not lead to several bottle necks thereby limiting their capacity to make meaningful contribution to the economy.