ECONOMIC DATA USAGE AND THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA.
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ECONOMIC DATA USAGE AND THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA.
Chapter one
1.1 Introduction
Small and medium-sized companies (SMEs) are businesses with a workforce that is less than the size specified by a country’s global or national trading arm.
The abbreviation “SME” is used by reputable international institutions such as the European Union (EU), International Monetary Fund (IMF), United Nations (UN), Economic Community of West African States (ECOWAS), African Development Bank (AfDB), United Nations Conference on Trade and Development (UNCTAD), and World Trade Organisation (WTO), among others.
Small and medium-sized businesses have proliferated more than huge and multinational corporations, employing many more people (Wikipedia Encyclopaedia).
The Central Bank of Nigeria defines small and medium-sized firms in Nigeria using criteria such as asset size and labour size. A small and medium enterprise is defined by the CBN as one with an asset size of less than or equal to 5 million naira and a workforce size of no more than 100 people.
Small and medium-sized firms make significant contributions to economic growth, particularly in developing countries. Thus, they serve as both an engine and a catalyst for long-term, inclusive growth.
SMEs are drivers of innovation and competition in key sectors of the economy; they create jobs, promote technological and industrial advancement, strengthen the use of local resources and technologies, and increase capacity utilisation (Fabayo, 2009; Adisa et al., 2014).
Furthermore, they are labour intensive, capital efficient, and capable of providing a large number of new jobs for the country’s burgeoning population. The operations and activities of SMEs are critical to the citizens’ living standards and help to drive the nation’s economic progress.
Even Fabayo (2009) adds that large-scale industries require SMEs to succeed. Thus, SMEs are agents of positive change, reducing absolute and relative poverty, creating job opportunities, and increasing national production.
Since the implementation of the economic reform programme in 1986, there has been a growing recognition of the need for a decisive shift away from grandiose, capital-intensive, and large-scale industrial projects based on import substitution and towards small-scale industries with enormous potential for developing domestic linkages for sustainable industrial development.
Aside from the potential for self-sufficient industrialization utilising local raw resources, SMEs are better positioned to increase employment, ensure equitable distribution of industrial development, and assist the rise of non-oil exports.
According to Fissaeha (1991), SMEs employ 22% of the adult population in developing nations, while Fabayo (1989) observes that small enterprises are a major source of job prospects for a diverse workforce, including the young, the elderly, part-time workers, and the cyclically unemployed.
The authors of Kombo et al (2011) claimed that “SMEs have contributed greatly to the growth of Kenyan economy, accounting for 12-14% 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” .
As a result, promoting such firms in developing economies such as Nigeria will result in greater income and wealth distribution, economic self-sufficiency, entrepreneurial development, and a slew of other good economic effects (Aremu 2004).
SMEs are true engines for achieving national objectives such as job creation at a reasonable cost, the development of entrepreneurial competencies, and indigenous technologies.
They reduce the movement of people from rural to urban regions and can be created with little skill. They also provide significant contributions to the country’s GDP, export revenues, and job creation.
Despite the promising outlook for SMEs, Nigerian SMEs have faced a number of challenges, including insufficient financing, excessive taxation, technical and managerial deficiencies, a lack of sound business management, a harsh economic environment, and a lack of functional infrastructure.
As a result, they have been unable to make major contributions to Nigeria’s economic progress. Successive governments have undertaken a variety of development plans, programmes, and strategies to improve the effective running of SMEs in Nigeria, but none have been successful in attaining their intended goals of improving SMEs.
1.2 Statement of the Problem
Shehu et al. (2013) proposed that small business owners account for around 75% of job prospects in Nigeria. Despite this, the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) stated that 80% of small and medium-sized businesses fail within five years of starting operations.
As stated by Aremu and Adeyemi (2011): “most SMEs in Nigeria die within their first five years of existence, a smaller percentage goes into extinction between the sixth and tenth year while only about five to ten percent survive, thrive and grow to maturity.”
Several reasons are responsible for the premature death of SMEs, principal among them: insufficient capital, irregular power supply, infrastructural inadequacies (water, roads, and other social amenities, etc.),
lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience of business management, lack of proper record documentation, inability to separate business and family or pers
The specific business challenge is that some small business owners have little or no knowledge of crucial aspects that can contribute to business sustainability for more than and beyond five years.
Internal problems for SMEs in Nigeria include insufficient working capital, stiff competition from larger companies, difficulties in sourcing raw materials, low capacity utilisation
a lack of management strategies, operators’ poor educational backgrounds, and massive financial problems, while external problems include policy inconsistencies, multiple taxation, harsh regulatory requirements, and trade groups.”
However, several external elements have been proven to be detrimental to the success of SMEs, such as capital shortages, taxes, laws, patent and franchising abuses, political instability, variable macroeconomic situations, and insecurity, among others.
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