Challenges Hindering the Growth of Nigerian SMEs

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Challenges Hindering the Growth of Nigerian SMEs Image Credit: connectnigeria.com

The central bank of Nigeria in one of it's researches, published a report titled "SME: Issues, Challenges and Prospects" written by Prof. Banji Oyelaran-Oyeyinka Director

Monitoring & Research Division (UN-HABITAT). The presentation highlights the plights experienced by the common Nigerian, if such a term called "common Nigerian" do exist. A caption of that report states "In countries at same levels of development with Nigeria, SMEs contribute a much higher proportion to GDP than currently observed in Nigeria." Compared to other emerging markets, Nigeria has historically shown lack of commitment to building a strong SME sector; These economies have shown consistent commitment to the development of SMEs by implementing: access to finance and financial incentives, basic and technological infrastructure, adequate legal and regulatory framework, and a commitment to building domestic expertise and knowledge. In light of recent events in the Nigerian macroeconomic environment, SMEs have compelling growth potential and like other emerging economies are likely to constitute a significant portion of GDP in the near future.

The economist recently published a report titled "Enabling a more productive Nigeria: Powering SMEs". Adam Green of the Economist Intelligence Units took to Financial Times to write on Nigerian's SMEs: feeling every bump. Adam Green wrote this on June 2015. While there was nothing spectacular about Adam Green's writeup because the Nigerian SME problem is a well known problem to the common but Mahesh Sachdev a former Indian High Commissioner to Nigeria goes ahead to make interesting comment which am merely republishing it verbatim here:

As former Indian High Commissioner to Nigeria and author of a recently published book titled 'Nigeria: A Business Manual', I found this curtain raiser on the forthcoming EIU (Economist Intelligence Unit) Report on Nigerian SMEs to be very interesting on an important and often ignored aspect of the Nigerian economy. I wish to add a few points:

1. Nigerians, in general, and Igbo community, in particular, have great propensity for entrepreneurship which propels the growth of the country’s SMEs. They are mostly engaged in trading, retail and services (such as consumer delivery logistics and IT-enabled Services). Manufacturing is a small, but fast growing, component of Nigerian SMEs, even as it is often confined to assembling imported components and packaging them. If Nigeria is to address its formidable youth unemployment, SMEs and agriculture are likely to be the two main domains.

2. Despite grand and frequent announcements, the Nigerian official agencies such as Bank of Industry and SMEDAN have done little to render practical assistance to country’s SMEs. The funds earmarked for financing and training etc do not trickle down in large enough manner to make an impact. The incubation and facilitation activities are feeble at best.

3. Apart from well known strong headwinds faced by SMEs from rampant corruption, regulators, financers, poor logistics and infrastructure – some of them listed in the article – the SMEs face other difficulties too. These range from unreliable supply chains, dearth of trained manpower (which is also hard working, disciplined and honest) should be counted at the top. Further, fierce competition from low cost imports (mostly from China) has killed more Nigerian SMEs (esp. in textile-garments, food-processing and leather sectors) in last few decades than any other factor.

4. Surprisingly enough, recent expansion in large size enterprises in Nigeria in such sectors as cement, telecom, ICT, retailing, etc has not resulted in commensurate growth in ancillary activities - which would have boosted SME activity. In fact, most of the time, the big companies and the government fixation with top down growth have competed with SMEs to latter’s detriment.

5. Although SMEs face formidable odds in Nigerian eco-space, it would be wrong to profile them all as heroes waging a herculean struggle for survival and growth. Many of the ills that bedevil Nigerian economy today, from counterfeit medicines to sub-standard auto parts, illegal refineries, poor safety standards (which cause horrific accidents), frauds that sully Nigeria’s image, drug cartels, etc can be pinned to the widely prevalent tendency in some SMEs to make money at all costs and in shortest possible time. Nigerian authorities need to help the country's SMEs to help themselves rid of these tendencies.

Like they say every problem has a solution. My next article will try to look at how these problems can be solved.

Read 2620 times Last modified on Tuesday, 25 August 2015 06:22
Aniekan Okono

He is a Nigerian and African who wants to see an improved Nigerian society. Curious minded and always in search. More on about.me/aniekanokono .

5 comments

  • Comment Link Aniekan Okono Aug 26 2015 posted by Aniekan Okono

    @Bobmanuel, SMEs are typically small, medium sized and micro businesses where the medium sized company has up to 250 employees and around 250million Euros in turn over. This the European definition of SMEs. The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and number of staff employed. The criteria are an asset base between N5 million and N500 million, and a staff strength between 10 and 100 employees.
    I don't have much experience with respect to the workings of the stock market and how it can impact FDIs but am pretty sure empowering SMEs at its current definition is a great option.

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  • Comment Link Segun Segunpreneur Ogunlana Aug 26 2015 posted by Segun Segunpreneur Ogunlana

    @Bobmanuel; splendid points you have stated. Its a gradual change that will happen when there is real success from those who struggle through the startup phase to growth phase and achieve massive success in the technology space. Most don't try to invest as they want to hear of those stories of successes and now decide to go there. The reason (or some will argue that its part of the reasons) why we have so much problems in Africa is that we don't chase problems as people & stakeholders, we rather chase opportunities that will allow us make money very fast. Even if all the investments should come, it will still not have a remarkable impact except the right mindset of solving problems is imbibed. Cheers!!!

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  • Comment Link Bobmanuel Alakhume Aug 26 2015 posted by Bobmanuel Alakhume

    Brilliant points but Africans don't need to be forced or tailored to pick up SMEs we're natural survivors but good though. We need more of start-ups that can attract foreign investments but I feel our older rich fellows don't want growth for the younger generations. Bill Gate or Peter Thiel don't go empowering hair-dressers or barbers nor seeking small potato peeling factories in rural America so why do almost our billionaires are concerned with SMEs that should be the problem of micro-finance banks.

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  • Comment Link Segun Segunpreneur Ogunlana Aug 26 2015 posted by Segun Segunpreneur Ogunlana

    @Bobmanuel; Certainly as there are various classes of enterprises. Although the SMEs will employ a lot of people in small units but there are some core businesses driven by technology et al that will need financing that the capital market can provide to do this. The issue available sourcing of finance. Either debt capital from the financial institutions like banks or the capital market providing capital. But when we look at the situation on ground, the financing basically go to established big businesses with proven track record of many years. Asides from the developed stock market protected by the rules of the securities and exchange commission of various economies in Africa that have strong enough stock exchange markets, we will also need private equity and venture capital in numbers too to plough in funds into such enterprises. The other thing beyond that also is the right education for those who are with this finance to understand what works and what will work in Africa. Cheers!!!

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  • Comment Link Bobmanuel Alakhume Aug 26 2015 posted by Bobmanuel Alakhume

    Empowering the SMEs is great but we should also realize that we would remain a 3rd world country if all we concentrate on are SMEs because they are mostly retailers and subsistence producers of goods and services. If you want to attract FDIs into your country you empower your stock market.

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