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Opportunities And Challenges Of Sustainable SME Development In Nigeria

Olayinka Dada

Small and medium enterprises (SMEs) are considered the engine room of any economy.  They are a major contributor to drive towards industrialization through production of goods and services and creation of employment. They are also engaged in skill development and in achieving the desired capacity building.

Nigeria’s economic environment has always been challenging for SMEs considering the absence of good social amenities that would support the development of small businesses in the country. Promoters of SMEs are faced with poor road network, little or no electricity power supply, thereby making business owners to spend more in providing their own power and other amenities. This adds to cost of doing business.

Working capital has also been a challenge, with scarcity of cheap and start-up funds. Lack of capital has killed many business ideas and inhibited expansion initiatives. Also, some government policies have not been favorable to SMEs, as they (SMEs) remain the worst hit in times of economic instability. It is noteworthy that government has begun to provide intervention funds through the Central Bank of Nigeria (CBN) and quasi-government lending institutions such as the Bank of Industry (BoI), Bank of Agriculture and Infrastructure Bank. It is however expected that the objectives will be achieved.

Originally, Nigeria has clusters of businesses around the country. There is the Alaba electronics market, Mile 12 food market, both in Lagos; leather market cluster in Kano and the shoe and leather clusters in Aba, Abia state. These are potential low hanging fruits for industrialization development initiatives. Well harmonized, they are capable of taking Nigeria to the level where foreign investors will rush to set up factories to boost local production.

Small businesses in Nigeria are categorized into Micro, Small & Medium Enterprises (MSMEs). The Micro units are defined as any organizational entity that has less than 10 employees and N5 million asset, while Small enterprises are units having between 10-49 employees and above N5m but less than 50m in asset. Medium enterprises are those having between 50-199 employees and above N50m and less than N500m in asset. (This write-up covers all the units.)

In Nigeria, 95 per cent of businesses are SMEs compared to 53 per cent in the United States (US) and 65 per cent in Europe. Manufacturing and industrial sector constitutes 90 per cent of SMEs in Nigeria. SMEs are very important to the economy, though their contribution to Nigeria’s gross domestic product (GDP) is not as high as in other emerging economies. Their relevance is noteworthy, all the same.

SMEs are also confronted with challenges in the areas of poor management and development of workable business planning initiatives. In addition to the challenge of limited or unavailable access to easy and cheap finance, access to market, poor book-keeping and low technology values remain hindrances to the development of small businesses in Nigeria.

Any country that intends to grow its SMEs must show commitment to offering financial incentives, provide basic infrastructure, efficient legal and other regulatory frameworks, and a passion for capacity building.

The segment continues to be a major area in the Nigerian economy that remains untapped, with strong potentials for foreign exchange earnings and mass employment. SMEs in some other economies are boosters of new frontiers in agriculture value chain, manufacturing, hospitality, entertainment and other areas.

To sustain SME development in Nigeria, promoters must have a compelling vision – one that goes beyond making money or building business empire, but creating an institution that will stand the test of time.

Entrepreneurs should not hesitate in developing their employees for fear of their leaving the organization.  They should endeavour to impact relevant knowledge to enable them to deliver on their job bearing in mind that even if they leave, they will become brand ambassadors to their former employers. They can start their own business or contribute to others’ thereby helping to grow the economy.

Business owners must know where their customers are, and make necessary efforts to meet with them. You do not have to be everywhere; you only need to be where your customers are, and customers remain the lifeblood of any business. Like other forms of business, promoters of SMEs need to continually network, both formally and informally. They must interact with suppliers, investors and other stakeholders as new businesses can only be discovered through strategic networking. They must show interests in attending capacity development events such as seminars, lectures, symposia and other relevant public functions.


  • Dada, an SME specialist with a commercial bank, wrote in from yinka.dada04@gmail.com


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