Abstract
The study aims at assessing the problems and prospects of small and medium
enterprises (SMEs) in Nigeria. The objectives of the study are to: identify and assess
the key factors responsible for the relatively low performance and failure of the SMEs
survival; investigate the reasons why programmes designed by government to boost
manufacturing SMEs performance do not effectively achieve its role; make appropriate
recommendation towards alleviating the problems facing SMEs; identify ways and means,
which will establish and sustain the vibrancy for Nigerian SMEs. Primary sources of data
collection where questionnaire was distributed to respondent which was used to
test the hypothesis of the study using chi-square. The study revealed that policies
implemented for SMEs have a positive relationship on the survival of SMEs in Nigeria and
there is prospect in SMEs in Nigeria. It is recommended that: the government should
establish SME clusters in relevant sectors in areas that have comparative advantage for such
sectors such as Auto Parts Cluster in Nnewi, Leather Products Cluster in Kano, Apple
Processing Cluster in Plateau, Export Clusters for Cocoa in Ondo, Cashew Crushing Plant
in Oghe, etc; the government through the Central Bank of Nigeria should establish the muchawaited
National Credit Guarantee Scheme for SMEs, which should guarantee at least 80
percent of loans needed by small and medium enterprises in Nigeria; the government should
tackle accelerated development and upgrade of rural/urban road and rail network, water
and air transport system and other infrastructural facilities head on and review tariff in
favour of local manufacturers especially the SMEs.
Table of Contents
Title Page ———————————————————————– i
Declaration ——————————————————————— ii
Certification ——————————————————————– iii
Dedication ———————————————————————- iv
Acknowledgement ————————————————————- v
Abstract ————————————————————————- vi
Table of Content ————————————————————— vii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study ———————————————- 1
1.2 Statement of the Problem———————————————- 3
1.3 Objectives of the Research ——————————————– 4
1.4 Research Questions —————————————————- 4
1.5 Research Hypothesis ————————————————— 5
1.6 Significance of the Study ———————————————- 5
1.7 Scope of the Study —————————————————– 5
1.8 Definition of Terms/Acronyms—————————————– 6
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction————————————————————- 9
2.2 The Concept of SMEs————————————————– 9
2.3 Role of the SMEs Sub-Sector in the Economy———————– 12
2.4 Significance of the SMEs Sub-Sector in the Nigerian Economy—- 14
2.5 Characteristics of SMEs in Nigeria———————————— 16
2.6 Prospects of SMEs in Nigeria—————————————— 17
2.7 Problems and Challenges of SMEs in Nigeria———————— 20
2.8 The Importance of SMEs access to Finance for Nigeria‟s—– Devt24
2.9 The State of Microfinance in Nigeria———————————- 25
2.10 The State of SMES Finance in Nigeria——————————– 26
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction ———————————————————— 31
3.2 Research Design ——————————————————- 31
3.3 Population of the Study———————————————— 32
3.4 Sample Size and Sampling Technique——————————– 33
3.5 Sources of Data Collection——————————————— 33
3.6 Method of Data Analysis ———————————————- 35
3.7 Justification of Method Used —————————————– 36
CHAPTER FOUR: DATA PRESENTATION, AND ANALYSIS
4.1 Introduction ———————————————————— 37
4.2 Data Presentation and Analysis ————————————— 37
4.3 Testing of Hypothesis ————————————————– 48
4.4 Summary of Findings ————————————————– 57
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary—————————————————————- 59
5.2 Conclusion ————————————————————– 63
5.3 Recommendations——————————————————- 67
References—————————————————————- 69
Appendix I————————————————————— 77
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
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 million naira(N200,000,000.00)only. It has been argued that SMEs are effective
instrument for economic growth and development in Developed and Less Developed
Countries (Beyene, 2002; Nitani, 2005). This is because SMEs contribute significantly to
the Gross Domestic Product (GDP) and produce substantial amounts of locally consumed
products (ECA, 2000; Wattanapruttipaisan, 2003; Tagoe et al, 2005; Saleh and Ndubisi,
2006). According to Mojmir (2000), SMEs play an important role in the economic
growth of any country including industrialised countries because they account for more
than half of a country’s output and employment (Hussain et al, 2008). In the same vein,
Udechukwu (2003) asserts that the development of SMEs is an essential element in the
growth strategy of most economies, which holds particular significance for developing
countries like Nigeria. SMEs are a vital part of any market economy because they are
represented in all major branches of manufacturing and service sectors (Obokoh, 2008c).
This is in addition to their role in job creation for the unemployed, provision of goods and
services within and across national boundaries of countries (Saleh and Ndubisi 2006;
Woldie et al, 2008).
Due to their small size, SMEs are flexible and are more able to adapt to changes within
the market environment than large firms (Mazzarol, 2000; Udechukwu, 2003; Aryeetey,
2005). However, the small size of SMEs and their small capital base also constitutes an
obstacle to their access to funds for their operations (Obokoh, 2008). It is expected that
SMEs, with ready and willing entrepreneurs, can succeed in an increasingly competitive
world, especially if there are enabling and supportive government policies (Briggs, 2007).
In this vein, Berry (2002) asserts that the flexibility of SMEs operations persuades
business analysts to believe in their strategic role towards future industrial growth of
developing nations. Despite this flexibility, SMEs are also exposed to external
environmental risks such as government policies and competition from MNCs (Watson
and Everett, 1999; Abonyi, 2003). Some of these environmental factors often hinder
SMEs from gaining the necessary international exposure for achieving large scale
production for the efficient utilisation of resources (Mambula, 2004). Given favourable
policy environment and support, it is believed that SMEs can achieve an efficient
production process that would enable them to compete successfully in the global market
(Briggs, 2007). Therefore, government policies should be directed towards improving the
economic environment in which SMEs operate (Fredland and Morris, 1976; Everett and
Watson, 1998). There is now a re-newed emphasis on the development of SMEs
especially in LDCs (ECA 2001). This is in view of LDCs governments‟ formulation of
policies that would create the enabling environment for the establishment and the
operation of SMEs (Agboli and Ukaegbu, 2006).
This research is thus intended to critically appraise the circumstances of SMEs in Nigeria
with a view to actually identifying and assessing the bottlenecks militating against the
effective performance of SMEs and also seek to investigate the reasons why programmes
designed by government to boost SMEs performance are yet to fully achieve their desired
objectives (Mambula 2002).
1.2 Statement of the Problem
Small and Medium scale enterprises play an important economic role in many countries
including Nigeria. However, it appears that considering the enormous potentials of the
SMEs sector, and despite the acknowledgement of its immense contribution to
sustainable economic development, its performance still falls below expectation in many
developing countries. This is because the sector in these developing countries has been
bedeviled by several factors militating against its performance, and leading to an increase
in the rate of SMEs failure. SMEs are faced with the threat of failure with past statistics
indicating that most SMEs die within their first five years of existence. Another smaller
percentage goes into extinction between the sixth and tenth year thus only about five to
ten percent of young companies survive, thrive and grow to maturity. A 2004 survey
conducted by the Manufacturers Association of Nigeria (MAN) revealed that only about
ten percent (10%) of industries run by its members are fully operational. Essentially, this
means that 90 percent of the industries are either ailing or have closed down. furthermore,
the small size and limited capital of SMEs are challenges to access fund for operation.
The above Situations have been of great concern to the government, citizenry, operators,
practitioners and the organized private sector groups. Also it will seek to determine the
key factors militating against the survival and effective performance of SME in Nigeria
especially the manufacturing sub- sector. It also intends to explore and investigate the
reasons why programmes designed by the government to boost manufacturing SMEs
performance do not effectively achieve its role.
1.3 Objectives of Study
The main objective of the study is to assess the problems and prospects of SME’s in
Nigeria. The specific objectives are to:
i. Identify and assess the key factors responsible for the relatively low performance and
failure of the SMEs survival.
ii. Investigate the reasons why programmes designed by government to boost SMEs
performance do not effectively achieve its role.
iii. Make appropriate recommendation towards alleviating the problems facing SMEs.
iv. Identify ways and means, which will establish and sustain the vibrancy for Nigerian
SMEs.
1.4 Research Questions
The main interest of this research and the questions it intends to answer are;
i what are the key problems militating against the survival and effective performance
of SMEs?
ii. To what extent has government developmental programmes designed to boost SMEs
performance effectively towards achieving its desired goals?
iii. What can be done to curb the problems faced by SMEs and ways to improve their
performance to enable them play a major role in economic development?
iv. What are the ways and means which will establish and sustain the vibrancy of
Nigerian SMEs?
1.5 Research Hypothesis
Ho1: Policies implemented for SMEs have a negative relationship to the survival of
SMEs in Nigeria.
Ho2: There is no prospect of SMEs in Nigeria.
1.6 Significance of the Study
The study of SMEs Problems and Prospects is of relevance or great concern to the
various governments (federal, state and local), SME promoters and operators, Banks as
well as the civil society; It is said that a clear and precise definition of a problem
represents half the solution – hence, identifying and crystallizing the key problems of the
SMEs would lay a solid foundation for mitigating if not solving them out rightly. The
time is now to do something to the situation of our SMEs given the aggravating level of
poverty in Nigeria and the need to meet up with the Millennium Development Goals.
1.7 Scope of the Study
The study focuses on SMEs in the manufacturing sector because of the importance of the
manufacturing sector to economic development in Nigeria. Due to budget and time
constraints, the study was restricted to manufacturing SMEs operating in Kaduna State of
Nigeria. The study traces the SMEs programme from which has affected SMEs in the
manufacturing sectors with particular focus on the period of 2009 to 2014.
1.8 Definition of Terms / Acronyms
Various bodies, organizations and institutions have defined SMEs differently depending
upon their purpose, objective and use. For this research, the following definitions have
been adopted:
Micro Enterprise: A firm, whose total cost including working capital but excluding cost
of land is not more than ten million naira (N10,000,000) and/or with a labour size of not
more than thirty (30) full-time workers and/or a turnover of less than two million naira
(N2,000,000) only.
Small Enterprise: An enterprise whose total cost including working capital but
excluding cost of land is between ten million naira (N10,000,000) and one hundred
million naira (N100,000,000) and/or a workforce between eleven (11) and seventy (70)
full-time staff and/or with a turnover of not more than ten million naira (N10,000,000) in
a year.
Medium Enterprise: A company with total cost including working capital but excluding
cost of land of more than one hundred million naira (N100, 000,000) but less than three
hundred million naira (N300,000,000) and/or a staff strength of between seventy-one (71)
and two hundred (200) full-time workers and/or with an annual turnover of not more than
twenty million naira (N20,000,000) only.
Large Enterprise: Any enterprise whose total cost including working capital but
excluding cost of land is above three hundred million naira (N300,000,000) and/or a
labour force of over two hundred (200) workers and/or an annual turnover of more than
twenty million naira (N20,000,000) only. Other abbreviations/acronyms, terms and
notations used in this study include;
NASME: Nigerian Association of Small and Medium Enterprises, which is an umbrella
association of all SMEs
MAN: Manufacturers Association of Nigeria is the official association of manufacturing
companies in Nigeria
NACCIMA: Nigerian Association of Chambers of Commerce, Industry, Mines and
Agriculture is an association of various Chambers of Commerce in Nigeria
NASSI: Nigerian Association of Small Scale Industries is the umbrella association of all
the Small Scale Enterprises in Nigeria
DFIs: Development Finance Institutions are companies involved in project and
development finance such as the Bank of Industry (BOI)
SMEs: Small and Medium Enterprises are those firms, which satisfy the definitions
given above
SMEDAN: Small and Medium Enterprises Development Agency of Nigeria
BOI: Bank of Industry, which provides medium to long-term loans to enterprises
CBN: Central Bank of Nigeria, the apex bank in Nigeria, which supervises other banks
NACRDB: Nigerian Agricultural Cooperative and Rural Development Bank
NEEDS: National Economic Empowerment and Development Strategy
SEEDS: State Economic Empowerment and Development Strategy
NDE: National Directorate of Employment
CMD: Centre for Management Development
NAPEP: National Poverty Eradication Programme
MSME: Micro, Small and Medium Enterprises
NGO: Non-governmental Organization
SRS: Simple Random Sampling
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