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JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
130
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A
STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
GUSHIBET SOLOMON
DEPARTMENT OF ECONOMICS UNIVERSITY OF JOS
JOS - NIGERIA
ABSTRACT
The globalisation of business has increasingly drawn SMEs into global value chains
through different types of cross-border activities. Many entrepreneurs are recognising
the opportunities that this process offers, and gaining access to global markets has
become a strategic instrument for their further development. Access to global markets
for small businesses can offer a host of business opportunities, such as larger and new
niche markets, possibilities to exploit scale and technological advantages, upgrading of
technological capability, ways of spreading risk, lowering and sharing costs, including
R&D costs, and in many cases, improving access to finance. This paper focuses on
how small and medium enterprise activities can be integrated properly into the
mainstream of the economy and thus, to determine how policies can be utilised
effectively to foster the development of small and medium scale enterprises and as
such, enhance economic growth and development. Socio-economic development of
Nigeria can only be achieved by aggregating all the relevant and important sectors and
sub-sectors of Nigeria. Nigeria as a nation exhibits some measures of sectoral
disaggregation and this has affected the ability of the country to properly account for
factors contributing to changes in national income and economic growth. This has led
to dearth of information and data necessary for good and effective policy formulation.
The paper recommends that government should direct all its agencies to patronise
local manufacturers for their daily needs, and ensure adequate power supply. If SMEs
had been given its rightful place, the country would have since joined the league of
developed nations.
INTRODUCTION
Small and Medium Enterprises (SMEs) occupy a place of
pride in virtually every country or state. Because of the significant
roles SMEs play in the growth and development of various
economies, SMEs have aptly been referred to as “the engine of
growth” and “catalysts for socio-economic transformation of any
country”. SMEs represent a veritable vehicle for the achievement
of national economic objectives of employment generation and
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
131
poverty reduction at low investment cost as well as the
development of entrepreneurial capabilities including indigenous
technology. Other intrinsic benefits of vibrant SMEs include
access to the infrastructural facilities occasioned by the existence
of such SMEs in their surroundings, the stimulation of economic
activities such as suppliers of various items and distributive trades
for items produced and or needed by the SMEs, stemming from
rural urban migration, enhancement of standard of living of the
employees of SMEs and their dependants as well as those who
are directly or indirectly associated with them. Supporting these
facts, Ajose (2010) states that, SMEs are the pivot of economic
growth and first point of contact for the business world.
Small and medium-sized enterprises (SMEs) are a very
heterogeneous group of businesses usually operating in the
service, trade, agri-business, and manufacturing sectors. They
include a wide variety of firms such as village handicraft makers,
small machine shops, and computer software firms that possess a
wide range of sophistication and skills. Some are dynamic,
innovative, and growth-oriented while others are satisfied to
remain small and perhaps family owned. SMEs usually operate in
the formal sector of the economy and employ mainly wage-
earning workers. SMEs are often classified by the number of
employees and/or by the value of their assets. The size
classification varies within regions and across countries relative to
the size of the economy and its endowments. It is important to
note that there is a minimum as well as a maximum size for SMEs
(Inegbenebor, 2006).
SMEs have played and continue to play significant roles in
the growth, development and industrialization of many economies
the world over. In the case of Nigeria, SMEs have performed
below expectation due to a combination of problems which ranges
from attitude and habits of SMEs themselves through
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
132
environmental related factors, instability of governments and
frequent government policy changes. The supportive business
environment for SMEs is still weak in Nigeria. The SME support
programmes are poorly coordinated and lack the necessary
coverage to reach all sectors of the small business community.
Almost all micro-finance institutions (MFIs) are supposed to cater
for those enterprises with credit lending. However, project lending
and risk capital for SMEs is virtually unavailable. The private
equity and venture capital funds established in Nigeria are few
and cater primarily to the needs of expansion of established
business and privatized companies.
However, as Hallberg (2000) observes, government
assistance strategies in both developed and developing countries
often try to achieve a combination of equity objectives (alleviating
poverty and addressing social, ethnic and gender inequalities) and
efficiency objectives (raising the productivity and profitability of
firms). Likewise, Ojo (2003) argues that all these SME assistance
programmes have failed to promote the development of SMEs.
This was echoed by Tumkella (2003) who observes that all these
programmes could not achieve their expected desires due largely
to abuses, poor project evaluation and monitoring as well as moral
hazards involved in using public funds for the purpose of
promoting private sector enterprises.
However, the purpose of this study is to determine how
policies can be utilized effectively to foster the development of
small and medium scale enterprises and as such, enhance
economic growth and development. Socio-economic development
of Nigeria can only be achieved by aggregating all the relevant
and important sectors and sub-sectors of Nigeria. Nigeria as a
nation exhibits some measures of sectoral disaggregation and this
has affected the ability of the country to properly account for
factors contributing to changes in national income and economic
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
133
growth. This has led to dearth of information and data necessary
for good and effective policy formulation.
OBJECTIVES OF THE STUDY
The overall objective of this study is to determine how
small and medium scale enterprises can be used as a catalyst for
economic growth and development.
Specific objectives include the following:
1. To examine the constraint affecting small and medium scale
development in Nigeria
2. To evaluate the financial services and incentives available to
SMEs
CONCEPTUAL AND THEORETICAL FRAMEWORK
The performance of small and medium enterprises (SMEs)
is of interest to all countries. The enterprises have a big potential
to bring about social and economic development, by contributing
significantly in employment generation, income generation and
catalyzing development in urban and rural areas (Hallberg, 2000;
OECD, 2004; Williams, 2006). In many of the newly industrialised
nations, more than 98% of all industrial enterprises belong to the
SMEs sector and account for the bulk of the labour force (Sanusi,
2003). It is estimated that SMEs employ 22% of the adult
population in developing countries (Kayanula and Quartey, 2000),
and provide more employment per unit of capital investment than
large-scale enterprises (Inang and Ukpong, 1992). In Nigeria, the
SMEs account for about 70% of industrial employment
(Adebusuyi, 1997) and well over 50% of the Gross Domestic
Product (Odeyemi, 2003). The ability to find out the factors which
improve the profitability of SMEs so that they are successful and
grow into conglomerates is of considerable concern to the
entrepreneurs and the Nigerian government. Recognising the
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
134
importance of SMEs in economic development, government in
Nigeria has set up various programmes and institutions aimed at
developing the SME sector (Olutunla and Obamuyi, 2008).
A new approach to Small and Medium-scale Enterprise
(SME) development began to emerge due to a number of factors.
First, there was growing concern over low employment elasticity
of modern, large-scale production. It was claimed that even with
more optimal policies, this form of industrial organisation was
unable to absorb a significant proportion of the rapidly expanding
labour force (Chenery et al, 1974). Second, there was widespread
recognition that the benefits of economic growth were not being
fairly distributed, and that the use of large-scale, capital-intensive
techniques was partly to blame (Chenery et al, 1974). Third,
empirical diagnosis showed that the causes of poverty were not
confined to unemployment, and that most of the poor were
employed in a large variety of small-scale, low-productivity
activities. Thus, it was thought that one way to alleviate poverty
could be to increase the productivity of those engaged in small-
scale production (Aftab and Rahim, 1989).
Definition of Small and Medium Scale Enterprises
There has not been universally accepted definition of a
small business. This is because the classification of businesses
into large-scale or small-scale is a subjective and qualitative
judgment. And again, in the bid to give a general definition of
SMEs will definitely leave out some components and
characteristics that are peculiar to each country.
Ekpenyong (1992) tries to identify different features in
classifying SMEs in various countries. In countries such as the
USA, Britain, and Canada, small-scale business is defined in
terms of annual turnover and the number of paid employees. In
Britain, for instance, small-scale business is defined as that
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
135
industry with an annual turnover of 2 million pounds or less with
fewer than 200 paid employees. In Japan, small-scale industry is
defined according to the type of industry, paid-up capital and
number of paid employees. Consequently, small and medium-
scale enterprises are defined as: those in manufacturing with 100
million yen paid-up capital and 300 employees, those in wholesale
trade with 30 million yen paid-up capital and 100 employees, and
those in the retail and service trades with 10 million yen paid-up
capital and 50 employees.
In Nigeria, there is no clear-cut definition that distinguishes
a purely small scale enterprise from a medium-scale enterprise.
The Central Bank of Nigeria, in its Monetary Policy Circular No. 22
of 1988, defined small-scale enterprises as having an annual
turnover not exceeding 500,000 naira. In the 1990 budget, the
federal government of Nigeria defined small-scale enterprises for
purposes of commercial bank loans as those with an annual
turnover of not exceeding 500,000 naira, and for Merchant Bank
Loans, those enterprises with capital investments not exceeding 2
million naira (excluding cost of land) or a maximum of 5 million
naira. The National Economic Reconstruction Fund (NERFUND)
put the ceiling for small-scale industries at 10 million naira.
Section 37b (2) of the Companies and Allied Matters Decree of
1990 defines a small company as one with:
(a) An annual turnover of not more than 2 million naira;
(b) Net asset value of not more than 1 million naira.
Similarly, Ajose (2010) views that the Central Bank of
Nigeria (CBN) had defined an SME as an enterprise that has
asset base (excluding land) of between 5 million naira and 500
million naira, and labour force of between 11 and 300 in its
employment. Small and Medium Enterprises (SMEs) as defined
by the National Council of Industries refer to business enterprises
whose total costs excluding land is not more than two hundred
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
136
million naira (N200, 000,000.00) only. Nevertheless, definitions of
SMEs vary significantly, usually in line with the scale of the
economy concerned, its degree of development and the economic
structures that are present.
Characteristics of SMEs in Nigeria
According to Onugu (2005), a major characteristic of
Nigeria‟s SMEs relates to ownership structure or base, which
largely revolves around a key man or family. Hence, a
preponderance of the SMEs is either sole proprietorships or
partnerships. Even where the registration status is thus that of a
limited liability company, the true ownership structure is that of a
one-man, family or partnership business.
Other common features of Nigeria‟s SMEs include the
following among others; labour-intensive production processes,
concentration of management on the key man, limited access to
long term funds, high cost of funds as a result of high interest
rates and bank charges, high mortality rate especially within their
first two years, over-dependence on imported raw materials and
spare parts, Poor inter and intra-sectoral linkages - hence they
hardly enjoy economies of scale benefits, Poor managerial skills
due to their inability to pay for skilled labour, poor product or low
quality output, absence of research and development, little or no
training and development for their staff, Poor documentations of
policy, strategy, financials, plans, information systems, low
entrepreneurial skills, inadequate educational or technical
background, Lack of adequate financial record keeping, poor
capital structure, i.e. low capitalisation, poor management of
financial resources and inability to distinguish between personal
and business finance. Others are, high production costs due to
inadequate infrastructure and wastages, use of rather outdated
and inefficient technology especially as it relates to processing,
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
137
preservation and storage, lack of access to international market,
lack of succession plan and poor access to vital information
Current Policy Intervention
Various interventions have been made in different
countries to cater for the peculiar needs of SMEs. These
interventions include institutional support, training in the relevant
skills, tax concessions, technological acquisition and liberalised
access to credit and innovation schemes (Obadan and Agba,
2006).
Attempts made to address the problem of SMEs in Nigeria
include direct lending by various financial institutions, specification
of credit guidelines by the Central Bank of Nigeria to banks
lending to SMEs, the establishment of rural banking programmes
and indirect lending to SMEs at concessionary rates through
participating banks (Inang and Ukpong, 1992; Inegbenebor,
2006). Other schemes include the establishment of the Second-
tier Securities market, the merger of the Nigerian Bank for
Commerce and Industry, the Nigerian Industrial Development
Banks and the National Economic Reconstruction Fund into the
Bank of Industry to provide cheap financial and business support
services to SMEs. All these have not been as successful as
anticipated. Studies on lending experience of five major banks in
Nigeria from 1990-2006 showed that non-performing loans and
advances range from 40-50% among commercial banks. The poor
attitude of Nigerians to loan repayment led to unwillingness of the
banks to lend to the real sector in preference for the trade sector
(Feese, 1994; Inegbenebor, 2006).
The latest attempt by the Central Bank of Nigeria and the
Banker`s Committee to tackle the financial problems of SMEs is
the establishment of Small and Medium Enterprises Equity
Investment Scheme (SMEEIS). The Scheme requires all banks in
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
138
Nigeria to set aside 10% of their profit before tax annually for
equity investment in small and medium enterprises operating in
the productive sector of the economy. The scheme commenced in
June 2001 and is aimed at: facilitating the flow of funds from
banks for the establishment of new viable small medium industry
projects, stimulating economic growth, developing local
technology, promoting indigenous entrepreneurship, generating
employment (UBA, 2001).
Methodology
This study makes use descriptive analysis in analyzing
how SMEs have been funded both by private sector and the
Government. Data on loan to SMEs and total bank credit were
sourced from Central Bank of Nigeria Bulletin, 2008 edition, as
contained in the table below.
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
139
Table 1. Ratio of Loans to small and Medium scale Enterprises to Commercial bank Total Credit
Period loans to SME
(N ‘M’) total bank
credit bank loan to SMES as % of total credit
1992 20,400 41,810 48.8
1993 15,462.90 48,056 32.2
1994 20,552.50 92,624 22.2
1995 32,374.50 141,146 22.9
1996 42,302.10 169,242 25
1997 40,844.30 240,782 17
1998 42,600.70 272,895.50 15.5
1999 46,824 353,081.10 13.3
2000 44,542.30 508,302.20 8.7
2001 52,428.40 796,164.80 6.6
2002 82,368.40 954,628.80 8.6
2003 90,176.60 1,210,033.10 7.5
2004 54,981.20 1,519,242.70 3.6
2005 50,672.60 1,899,346.40 2.7
2006 25,713.70 2,524,297.90 1
2007 41,100.40 4,813,488.80 0.9
2008 13,383.90 7,725,818.90 0.2
Source: CBN, 2008
The graph below shows the availability and the movement
of total bank credit in the Nigerian economy from 1992 to 2008.
This shows a slow upward trend of bank credit.
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
140
Fig. 1
Source: CBN, 2008
The graph in fig.1 shows that total bank credit to the entire
real sector was extremely low between 1992 and 1997. Loan
support to the real sector started growing at an insignificant pace
from 1998 to 2004. An upward trend of bank credit shows a
significant improvement from 2005 to 2008, and it is expected to
keep growing. This implies that both government and commercial
banks are gradually paying attention to the real sector of the
economy.
Distribution of Loan to Small and Medium Scale Enterprises
in Nigeria
The graph in fig. 2 below shows the distribution of credit
facilities especially bank loan to SMEs in Nigeria from 1992 to
2008. In 1992, a proper framework for financing SMEs in Nigeria
was established by monetary authorities in Nigeria. There was a
mandatory 20% of total bank credit to be allocated to SMEs
owned by Nigerians.
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
141
Fig. 2
Source: CBN, 2008
This mandatory allocation of loan facility to SMEs was in
operation up till 1996. During this period, there was up-rising of
number of small scale industries in the country because the loan
provided a rescue channel for development of this sub-sector.
However, following the abolition of the mandatory bank credit
allocations of 20% of its total credit to SMEs wholly owned by
Nigerians in 1996, there was a drastic fall in total bank credit
available to SMEs. As it can be seen from the graph above, there
was 85% decline in bank loan to SMEs between 2003 and 2008.
This shows that banks are not ready to grant credit facilities to
SMEs nor were they committed to the growth of small scale
enterprises. While there was increase in total bank credits
available from 2005 as noticed in fig. 1, SMEs witnessed a fall in
credit that was available for loan as shown in fig. 2
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
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Fig. 3
Source: CBN, 2008
The percentage ratio of SMEs‟ loan to total credit shows
clearly and explicitly the downward trend in bank loan to SMEs in
Nigeria. Bank loan to SMEs in early 1990s shared about 50% of
the total bank credit availability. However, this was not the case in
the 2000s after the abolition of mandatory 20% bank credit
allocation to SMEs. As a matter of fact, the percentage has fallen
to inimical 0.2% of the total bank credit. This is absurd, 0.2% is
nothing but non-availability of loan to SMEs.
Many challenges have been identified to be confronting
SMEs in Nigeria but the main problem of SMEs is finance
because all smaller firms live under tight liquidity constraints (Da
Silva et al 2007). Finance, whether owned or borrowed, is needed
to expand investment so as to maximize profit. Many reasons
have been adduced for the inability of SMEs to access funds from
financial institutions in Nigeria. These include poor attitude
towards external financing by Nigerian entrepreneurs, poor quality
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
143
of project proposal presented by the SMEs to financial institutions,
unreliable and outdated database and inability to access the
database of the SMEs by financial institutions.
Components of the Proposed Policy That Can Be Adopted In
Nigeria
There are a number of areas where, directly or indirectly,
the Government has to adopt concrete measures to achieve its
objectives in SME development, although many steps are to be
taken by the private sector, NGOs and local authorities. Effective
support will often require different programmes, tailor-made for
specific SME target groups. Research and more detailed planning
about such support packages will be the responsibility of SMEs, in
close co-operation with donors and other relevant stakeholders. A
number of policy proposals have been pointed out by Calcopietro
and Salaam (1999) in „Small and Medium Scale Enterprise Policy
Proposals‟. These include:
Creating an Enabling Legal Framework
The Government should commit to pass a new enabling
legislation in order to formalise the importance of SMEs in the
overall economy. This legislation should include special provisions
to facilitate empowerment of indigenous entrepreneurs, women
businesses and the youth, and the preservation of the
environment. Empowerment policies reinforce the chances for
market forces to succeed by extending opportunities to compete
to previously disadvantaged categories of entrepreneurs.
Streamlining Regulatory Conditions
It is recommended to simplify and standardise procedures,
including business registration and licensing, loan applications,
purchasing, sub-contracting and tender documents, export
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
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documentation and other commercial papers, registration of
contracts, simplified tax return forms for SMEs, etc. There is need
for regulations to strengthen SME access to raw materials and
other inputs controlled by monopolistic suppliers. Facilitation of
feasible avenues of legal assistance that could help leveling the
playing fields for SMEs, with particular attention to women and
young entrepreneurs must be also supported.
Establishing Differential Taxation and other Incentives
The number of taxes must be reduced and adjusted to
avoid tax evasion. The central and local governments must work
together to device a tax collection system that reduces the level
and overall burden of taxation on the business community. Higher
write-offs could be granted for expenses incurred, including
training, research, technology transfer and export marketing
expenses. Tax incentives should be granted to large firms and the
banking sector to stimulate subcontracting and greater volumes of
loans to small enterprises. Tax incentives have been included in
some countries such as Tanzania, to help overcome the gender
bias of larger firms and service establishments towards SMEs
owned by women. This implies that a more in-depth research
needs to be done to determine what would be the best course of
action to support SMEs through tax incentives in Nigeria.
Easing Access to Credit, Equity and Guarantees
The rural and micro finance policy is addressing the need
of creating a sound and sustainable financial sub-sector
specialised on savings and credit facilities for very small
entrepreneurs. However, two important areas deserve the
attention of SME Policy, namely credit guarantees and long term
equity finance. Guarantees help in building linkages between
small non-bankable borrowers and formal financial institutions. In
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
145
some countries (e.g. Argentina) innovative credit guarantee
schemes have emerged as a potential financial product when it is
combined with tax breaks and risk capital.
Improving the Physical Infrastructure and Business Facilities
The limited resources and the consequent weakness of
SMEs could, to a significant extent, be overcome by grouping of
SMEs within the same sectors. The spontaneous development of
clustering of SMEs from specific sub-sectors creates opportunities
to support efforts focused on promoting flexible specialisation.
Supporting SME Exports
Exporting is a market opportunity that has been explored
by local SMEs in very rare cases. Nigeria requires the expansion
and modernisation of the exporting sector, in order for it to take on
a significant role in the national economic development. Unless
effective export-promotion policies are implemented, Nigeria
SMEs will not be able to compete internationally. SME Policy
should encourage the establishment of export promotion
mechanisms with national coverage.
Promoting Rural Industrialisation
Improving the physical infrastructure is fundamental to
attract SME investment in earmarked rural areas. Supporting
training, credit delivery, marketing and the provision of extension
services to rural primary producers willing to engage in value-
adding activities is also necessary. The creation of private trading
companies in regional centres to help rural SMEs to
commercialise their produce and basic manufactures in national
urban centres and foreign markets should also be supported.
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Training in Entrepreneurship, Skills and Management
The acquisition of relevant vocational, technical and
business skills is one of the critical factors for success in small
enterprises. The Government has a central responsibility for
education, training and experience transfers, which is shared with
a wide range of institutions, including churches, NGOs, and the
private sector. SME Policy should make specific provisions to
complement existing training initiatives with new strategies aimed
at facilitating access to training by SMEs. Training must become
more sector-specific, focusing on the particular needs and
practical problems of SMEs.
Fostering Linkages with Large Enterprises
Linkages between large and small enterprises should be
encouraged in Nigeria as part of future arrangements with foreign
investors that either benefit from existing incentive packages, or
establish themselves in the future in Export Processing Zones
(EPZs). SME Policy should recommend that the EPZ legislation
include provisions requesting that foreign investors that benefit
from tax exemptions reserve a percentage of their procurement to
Nigeria SME suppliers.
CONCLUSION
The globalisation of business has increasingly drawn
SMEs into global value chains through different types of cross-
border activities. Many entrepreneurs are recognising the
opportunities that this process offers and gaining access to global
markets has become a strategic instrument for their further
development. Access to global markets for small businesses can
offer a host of business opportunities, such as larger and new
niche markets; possibilities to exploit scale and technological
advantages; upgrading of technological capability; ways of
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
147
spreading risk; lowering and sharing costs, including R&D costs;
and in many cases, improving access to finance. Gaining access
to global markets can help prospective high-growth enterprises
realize their potential and; is often an essential strategic move for
SMEs with large investments in intellectual property.
To prosper, SMEs need a conductive business
environment and regulations, adequate basic infrastructure
services, access to short and long-term funding at reasonable
rates, equity and venture capital, advisory assistance, and
knowledge about market opportunities. However, the situation in
Nigeria is worrisome. Small business operators are perennially
complaining of poor business environment, leading to closure of
businesses daily. Business activities are now at a standstill, those
who are benefiting from overdraft before have nothing to fall back
on because there is hardly overdraft facility again from the banks,
and those with loans that are not yet to mature are often asked to
pay up (Kuteyi, 2010).
Many problems are inhibiting the growth of SMEs in
Nigeria. The major problem is lack of finance whether for the
establishment of new industries or to carry out expansion plans.
The inability to attract financial credit or resources has stifled the
growth of SMEs in the country. The problem of power supply
(energy of electricity) is a critical factor. Funds are spent on
running generators thereby increasing the cost of doing business
(cost of production). This can easily push SMEs out of business.
Also, they typically suffer from weak entrepreneurial skills as well
as deficiencies in accounting, production management, and
business planning.
Other constraints include poor infrastructure, inability to
communicate, multiple taxation, under-capitalisation with difficulty
in gaining access to bank credits and other financial markets,
corruption and a lack of transparency in the running of affairs of
JOS JOURNAL OF ECONOMICS, VOL.4, NO.1
148
the business, high bureaucratic costs, and a seeming lack of
government interest in and support for the roles SMEs play in
national economic development and competitiveness.
RECOMMENDATIONS
As SMEs grow, they increasingly need connectivity to
export markets and the world economy. So far, the lessons of
international experience show that very few government and
donor initiatives have succeeded in implementing sustainable
strategies for SMEs development. To succeed, sustainable SME
development will require concerted efforts among the various
parties concerned including commercial, micro and rural banks,
leasing companies and equity providers, consulting and training
firms, internet providers, as well as local business associations.
Government‟s role in the process should be limited to
providing the enabling environment for private sector
development, correcting potential market failures and creating a
level-playing field that will allow SMEs to compete with their larger
counterparts on an equal basis. Government does not have the
finances or the ability to get involved directly in economic activities
such as SME financing and service provision. Emerging
international experience is demonstrating that government is not
the appropriate vehicle to implement and coordinate such efforts,
and that public-private partnerships for SMEs development are a
critical element for the success of these efforts.
In view of the above submissions, the paper proffers the
following recommendations:
i. Government should direct all its agencies to patronise local
manufacturers for their daily needs. This will enhance the
growth of SMEs in the country.
ii. The Central Bank of Nigeria should urgently come up with
credit policy of sectoral allocation on what percentage of
BUILDING SMALL AND MEDIUM SCALE ENTERPRISE: A STRATEGY FOR ECONOMIC DEVELOPMENT IN NIGERIA
149
loan should go to agriculture, manufacturing, and Small
and Medium Scale Enterprises. This should be supported
by monitoring and enforcement to ensure compliance.
iii. Government should improve physical infrastructure in order
to promote rural industrialisation.
iv. Government should ensure adequate power supply
(constant electricity) nationwide. This will encourage the
expansion of small and medium scale businesses.
v. Small and medium scale business entrepreneurs should
constantly engage in capacity building, training, research
and development. This is to develop their competencies in
managing and sustaining their investments.
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Calcopietro, C. M., and Salaam, M.D (1999): “Small and Medium Scale Enterprise Policy Proposals”
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