PROBLEM OF FINANCING SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
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PROBLEM OF FINANCING SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
Chapter one
INTRODUCTION
1.1 Background of the Study
Small and medium-sized firms (SMEs) are often considered as the driving force behind any country’s economic success, and they are seen as justifiable way of propelling global development. Small and medium-sized enterprises (SMEs) require both labour and money.
They have the potential to empower people and create billions of new employment around the world (Abeh, 2017a, b; Kadiri, 2012). They are also identified as significant drivers of economic progress and poverty reduction (Agwu & Emeti, 2014).
SMEs play an important role in linking, strengthening, and enhancing national development. Their performance and expansion in industry, agriculture, and services, among other things, have been seen as key drivers of the Nigerian economy.
Sustainable growth and improved SMEs’ performance provide competitiveness, which opens up multiple options for employment, tangible and intangible assets, and environmental investment (Eniola & Ektebang, 2014).
Historically, Nigeria’s independence in 1960 was a watershed moment in the growth and development of SMEs, prompting much of the focus on SMEs as a panacea for reducing poverty and joblessness or unemployment in Nigeria as a whole.
Small and medium-sized firms have been identified as a critical driver of economic growth and development in all economies, whether developed or developing. Several research have verified this. (Ogujiuba et al., 2004; Onugu, 2005; Ihua, 2009).
Data from Nigeria’s federal office of statistics confirms this importance, revealing that around 97% of all operations in the country are SMEs, which employ an average of 50% of the working population and provide 50% of the country’s industrial production.
According to Ariyo (2009) and Ihua (2009), SMEs in Nigeria not only drive economic growth and development, but also serve as the nation’s foundation. Although small business activities have existed in Nigeria since the country’s independence
conscious efforts to promote small and medium-sized enterprises as a tool for economic and national development began in 1970-1979, when Nigeria implemented an indigenization policy through its national development plan programme.
In a seminar titled “Carer Crisis and Financial Distress- The Way Out,” Mr. Oluseyi Oluboba, the General Manager of Enterprise and Financial Support Company Limited, 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 due to The problems and obstacles that SMEs face are significant, no question, but it is interesting to note that certain SMEs are able to overcome them.
This creates hope and should serve as a foundation for optimism that there is a way out. There must be some survival methods that are unknown to many SME promoters. This study also aims to investigate and unravel some of the major company survival methods that have proven effective for a select thriving SMEs.
The benefits of this may be enormous, as other SMEs experiencing extinction threats, as well as new and proposed ones, could learn from them. Many other countries have been able to energise and transform their SME sub-sector into one that is so dynamic that they have been able to decrease unemployment and poverty to an absolute minimum as a result of the sub-sector’s enormous contribution to economic growth and development.
The findings of this study are likely to contribute significantly to the turnaround of Nigeria’s SME sub-sector. The 31% contribution of SME to industrial growth is concerning given Nigeria’s high unemployment rate and poverty level, as measured by the following indices and figures on Nigeria’s Human Development Indicators: illiteracy rate, infant mortality rate, life expectancy at birth, and GDP growth rate as compared to other countries
as shown in Tables I to VIII from the Development Data Group, World Bank. These developmental indices are likely to rise as Nigeria’s SME sub-sector improves, as has been the case in other economies where SMEs have expanded and risen steadily over time. iii) Contribution to Industrial Production in particular and GDP in general:
Despite the lack of well-documented, reliable, and up-to-date data, it is clear that SMEs’ contributions to Nigerian industrial output in particular and GDP in general are inadequate. The fact that most Nigerian manufacturing businesses have worked substantially below capacity over the previous two decades adds to the evidence of poor performance.
At times, capacity utilisation has been as low as 30%. Only multinational corporations thrived, with many small and medium-sized enterprises failing, exacerbating the country’s unemployment and crime levels.
The government’s Nigerian Vision 2010 initiatives envisioned an environment in which small and medium-sized enterprises would contribute approximately 34% (gross value of manufacturing to GDP ratio) to the national product, generate 60-70% employment, and have a low business mortality rate.
The envisioned future for SMEs in Nigeria is one of “a strong and virile small and medium-sized enterprise that enjoys strong institutional support and contributes significantly to the Gross National Product (GNP).”
1.2 Statement of the Problem
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.
The constraints to full industrial capacity utilisation have been enumerated as limited access to financing, high costs of funds and equipment, infrastructural inadequacies, unpredictable and inconsistent government policies, low purchasing power of consumers, low quality of manufactured goods
multiple taxes and levies on manufacturing inputs and manufactured goods, inefficiencies in customs and ports administration, dumping of cheap finished products on the Nig Some of the key Millennium Declaration Goals
such as halving the proportion of people living in extreme poverty, hunger, and lack of access to safe water, reducing maternal and infant mortality by three-quarters and two-thirds, respectively, and enrolling all children in primary school by 2015, may be a mirage unless our SMEs’ fortunes improve sooner rather than later.
Given Nigeria’s escalating poverty and the necessity to reach the Millennium Declaration Goals, now is the moment to take surgical action to improve the position of our SMEs.
It is concerning that, despite government incentives, favourable laws and regulations, and preferential support aimed at strengthening small and medium-sized firms, SMEs have performed below expectations in Nigeria.
While the obstacles faced by small and medium-sized businesses, as well as their failure, have received widespread attention. Some of these include inadequate planning, unfavourable government rules, bad marketing tactics, a lack of technical expertise, and a lack of finance.
However, some of the issues faced by SMEs are caused by the operational environment (government policy, globalisation effects, financial institutions, etc.), while others are the result of the nature and character of SMEs themselves.
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