By Charles Nwaoguji
ALTHOUGH the Small and Medium Enterprises (SMEs) are seen as the backbone of the Nigerian economy and a key source of economic growth, dynamism and flexibility, the environment for their survival has remained quite challenging.
A study done by the National Bureau of Statistics shows that 97 per cent of all businesses in Nigeria employs less than 100 workers, implying that 97 per cent of all businesses in the country are “small businesses”. The SME sector provides, on average, 50 per cent Nigeria’s employment and 50 per cent of its industrial output.
Indeed, there appears to be an agreement that the development of SMEs in Nigeria is a step towards building a vibrant and diversified economy.
This is so because apart from SMEs’ potential for self-reliant industrialisation using local raw materials, they are in a better position to boost employment, guarantee even distribution of industrial development and facilitate the growth of non-oil exports.
Those spoke to the Daily Sun recently said that SMEs employ 22 per cent of the adult population in developing countries while they observed that small firms are major sources of employment opportunities for a cross-section of the workforce: the young, old part-time workers and the cyclically unemployed. They submitted that, “SMEs have contributed greatly to the growth of Kenyan economy, accounting for 12-14 per cent of GDP through creating employment opportunities, training entrepreneurs, generating income and providing a source of livelihood for the majority of low income households in the country.”
According to the Managing Director of Swiss Biostadt Limited, Mr. Emma Ajayi, the promotion of such enterprises in developing economies like Nigeria will bring about better distribution of income and wealth, economic self-dependence, entrepreneurial development and a host of other positive economic benefits.
He said SMEs are veritable engines for attainment of national objective in terms of employment generation at low investment cost, development of entrepreneurial capabilities and indigenous technology.
They reduce the flow of people from rural to urban areas and can easily be established with minimal skills. They also contribute substantially to the country’s GDP, export earnings and development of employment opportunities.
Ajayi noted that most SMEs in Nigeria die within their first five years of existence, a smaller percentage goes into extinction between the sixth and 10th year while only about five to 10 per cent survive, thrive and grow to maturity. Many factors have been identified as contributing to this premature death of SMEs. Key among them include insufficient capital, irregular power supply, infrastructural inadequacies (water, roads, among others), lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of proper records or lack of any records at all, inability to separate business and family or personal finances, lack of business strategy, inability to distinguish between revenue and profit, inability to procure the right plant and machinery, inability to engage or employ the right caliber of staff and cut-throat competition, among others. Ajayi argued that most of the problems of SMEs are external to them, among which are capital shortage, taxation and regulations, product liability patent and franchising abuses. The internal problems of SMEs in Nigeria include inadequate working capital, stiff competition from larger companies, difficulties in sourcing raw materials, low capacity utilisation, lack of management strategies, poor educational background of operators, and huge financial problems while the external problems include policy inconsistencies, multiple taxation, harsh regulatory requirements and trade groups.
Financial problems
About 80 per cent of SMEs are stifled because of poor financing and other associated problems. The West African Institute for Financial and Economic Management (WAIFEM) boss, Prof. Akpan Ekpo, said the problem of financing SMEs is not so much the sources of funds but its accessibility. He stated that the factors inhibiting funds accessibility are the stringent conditions set by financial institutions, lack of adequate collateral and credit information and cost of accessing funds. He observed that financing working capital needs was the most frequently mentioned problem, expressing the view that the funding problem of SMEs is primarily due to the behaviour of banks and imperfection of the capital markets.