SME development: Path to becoming Nigeria’s engine of growth

Small and Medium Enterprises (SMEs) contribute nearly half of Nigeria’s GDP and are central to its future prosperity and social balance. Yet too little is known about Nigeria’s SMEs and what obstacles stand in their way. A new, Pathbreaking study carried out by SMEDAN, Nigeria’s apex body for small and medium enterprise development policy in collaboration with the German Agency for International Co-operation (GIZ), highlights some of their challenges in Nigeria and also possible ways to help their businesses grow.

The survey interviewed nearly 10,000 entrepreneurs, in both the formal and informal sector, in 19 local government areas (LGAs) in five states, carefully selected to provide a representative mix of urban, rural, and semi-urban businesses across a whole spectrum of economic activity, ranging from agriculture to education and numerous branches of manufacturing. Detailed responses from these entrepreneurs form an unprecedentedly rich database. The Enterprise Baseline Survey (EBS 2012) report was unveiled on December 10, 2012, in Abuja.

It is anticipated that this report will give policy makers, bankers and other stakeholders an in-depth understanding of the challenges faced by enterprises, in general, and small business owners, in particular, thereby giving them a tool to guide them on priority areas to be considered when developing policies that affect small businesses.

Highlights of the EBS:

• Poor access to finance is seen as the most critical business constraint by 82 percent of all enterprises. The biggest problem in accessing finance is ‘collateral requirements’ followed by ‘documentation requirements’ and ‘cumbersome and time-consuming procedures.’

•Most MSMEs source their inputs within Nigeria; only 23 percent import them from abroad. An even smaller share of enterprises exports directly (10 percent). There is great potential for MSMEs to contribute to trade and regional integration – if they have the capacity and tools to do so.

• There is a much larger share of women owners in the informal sector than in the formal sector.

• Most small businesses still operate at low levels of technology – the largest share work with hand-operated tools. There is great scope for applying new and more productive technologies and utilize IT tools for business, and for innovation in general, in the sector.

• Due to the low propensity to invest and innovate, particularly by informal businesses as well as micro and small enterprises, their inadequate technical and management skills, their competitiveness on domestic and even more on export markets is low.

• The main problems with regards to tax payments are ‘poor information on tax regulations’, ‘complexity of the system’, ‘weak support by tax authorities’ and ‘taxes are not used for security and enabling business environment reforms’.

The key policy recommendations are:

• Enterprises and businesses need to invest to expand their operations and innovate to become competitive on national and international markets