CONTRIBUTION OF SME’S TO SUSTAINABLE ECONOMIC DEVELOPMENT IN NIGERIA
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CONTRIBUTION OF SME’S TO SUSTAINABLE ECONOMIC DEVELOPMENT IN NIGERIA
Chapter one
INTRODUCTION
BACKGROUND FOR THE STUDY
Small and Medium Enterprises (SMEs) in Nigeria have not performed admirably, and so have not played the crucial and lively role in Nigeria’s economic growth and development that was anticipated of them.
This situation has caused tremendous worry among the government, citizens, operators, practitioners, and organised private sector groups. Year after year, governments at the federal, state
and even municipal levels have demonstrated interest and recognition of the critical significance of the SME sub-sector of the economy through budgetary allocations, policies, and pronouncements, and have thus implemented strategies to energise it.
There have also been fiscal incentives, grants, bilateral and international agency support and aid, as well as specialised organisations, all aimed at revitalising the SMEs sub-sector.
The World Bank (1988) defines SMEs as businesses with total fixed assets (excluding land) plus working capital that do not exceed N10 million in constant 1988 prices. This indicates that a general rise in the price level will typically result in an increase in the upper limit of the Small-Medium Enterprises capital outlay under this definition.
Most countries focus on small-scale industries. There is evidence in our communities of the success that our great grandparents had with their separate trading businesses, such as yam barns, iron smelting, farming, cottage industries, and so on.
As a result, the secret to their success with a self-sufficient strategy lies not in any particular political philosophy, but in the people’s attitude towards enterprise and the right to which suitable incentives are offered to make risk worthwhile.
The majority of small-scale industries evolved from cottage industries to small firms, and then to medium and large-scale enterprises (Ogechukwu, 2011).
Small and Medium Enterprises (SMEs) are crucial to the growth of any economy. The importance of SMEs in the development of any nation’s economy is highlighted when considering the economies of emerging countries. Small and medium-sized enterprises have played critical roles in the growth of many Asian countries, including the Asian giants.
The economic development in some of these Asian countries, which is linked to SMEs, has lifted hundreds of millions of people out of poverty and generated tens of millions of new middle-class consumers (Tanzer, 2005).
Small and medium-sized enterprises (SMEs) drive innovation and competition in many economies. In India, SMEs account for around 39% of industrial output and 33% of overall exports. SMEs have a high potential for creating jobs, improving local technology, diversifying output, developing indigenous entrepreneurship, and integrating with large-scale businesses (CBN, 2011).
According to Fadahusi and Daodu (1997), SMEs are a very important sector of the Japanese economy because of well-articulated services and programmes in support of the sector, such as legislation, financial support, consultancy, technological, marketing, subcontracting, and modernization advice provided by government and non-governmental organisations.
According to Vem (2011), there are 4.69 million SMEs, which account for 99.7 percent of all firms and 70 percent of total employment in the Japanese economy.
In the United Kingdom, SMEs have no investment ceiling but can employ up to 199 people (Oyekamni, 2003). According to the Enterprise Directorate analytical section of the Department of Business Enterprise and Regulatory Reform (BERR), SMEs account for 99 percent of the UK economy.
Less than 1% of the UK’s 4.8 million firms are huge enterprises (those with more than 250 employees). Except for one-man bands, which account for 73% of all UK enterprises but only 7.4% of GDP. UK SMEs employ 14.23 million individuals out of a total working population of around 30 million (Vem, 2011).
According to a survey conducted by the International Finance Corporation (IFC), small and medium-sized enterprises (SMEs) account for around 96% of Nigerian firms. Small and medium-sized firms (SMEs) account for approximately 90% of the manufacturing/industrial sector in Nigeria.
Between 1970 and 1979, when Nigeria chose the SMEs subsector as a driver for economic growth and development, the sector made a little contribution to employment levels due to a lack of a favourable business climate.
Several attempts were made by succeeding governments to revitalise the sector, but to little result. In 1994 and 1999, the sector accounted for 25.15 percent and 32.40 percent of Nigeria’s employment, respectively.
When the Small and Medium Industry Development Agency (SMIDA) was founded in 2003, and then renamed the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) in 2004, the sector’s performance improved.
It accounted for around 41.10 percent of total employment during this time period. The establishment of microfinance policy, regulatory, and supervisory frameworks in Nigeria in 2005, with the goal of establishing a legal framework for microfinance banks to channel money to the SME subsector, increased the sector’s employment level to 44.80 percent.
In 2006, 2007, and 2008, SMEs generated around 46.80 percent, 47.81 percent, and 48.39 percent of total employment. Other initiatives, such as the Small and Medium Equity Investment Scheme (SMEEIS) in 2009 and the 200 billion Small and Medium Enterprise Credit Guarantee Scheme in 2010, were established to benefit SMEs.
This endeavour increased SMEs’ employment performance, generating 48.41 percent, 48.43 percent, and 48.60 percent in 2009, 2010, and 2011, respectively (CBN, 2011). According to the 2012 enterprise baseline survey, Nigeria has over 17,284,671 SMEs, which employ approximately 32,414,884 people.
Based on the foregoing, we may conclude that the SMEs sector has been considerably contributing to Nigeria’s employment levels as additional incentives, policies, and initiatives are implemented.
However, despite the fact that SMEs account for more than 90% of Nigerian firms, their GDP contribution is only about 1%. In general, SMEs have been seen as a bulwark for job creation and technological growth in Nigeria; yet, the sector has also suffered from neglect, with negative consequences for the economy.
In a seminar titled “Career Crisis and Financial Distress-The Way Out,” the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his paper the following as the main problems of SMEs, which are however not insurmountable:
low level of entrepreneurial skills, poor management practices, constrained access to money and capital markets, low equity participation from the promoters because of insufficient personal savings, This is why SMEs have not been able to achieve their objectives in Nigeria.
Sustainable development is the continuous improvement of the quality of human life in the present and the future.
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