SMEs are the engine house for economic growth all over the world. SMEs account for the majority of businesses globally and are important contributors to job creation and global economic development. They efficiently provide and deliver goods and services to regions where they are needed, create job opportunities, develop their communities, and foster healthy competition across all sectors of their economies by always coming up with innovations.
Reports show that the world is progressing rapidly and 600 million jobs will be needed by 2030. This should make the support of the SMES a high priority for governments around the world. Because their contributions are essential to economic growth and they enhance economic output while simultaneously improving the day to day welfare of citizens. Small and Medium Enterprises (SMEs) play major roles in world economies, particularly in developing countries. Their roles in relation to production and supply of essential products for mass consumption, employment generation, contribution to exports and the facilitation of an even distribution of income is crucial and should be taken seriously.
SMEs in Nigeria have contributed immensely to the country’s national GDP, particularly in the last five years. With a little over 41.5 million enterprises,SME contribution to GDP in this country happens because nearly 90% of small businesses operate in the manufacturing sector while also spearheading about 50% of all industrial jobs in the country. The result is that these businesses inadvertently create groups of skilled and semi-skilled workers who through the work they do, go on to support future industrial and business expansion across every sector in the country. The stability of the Nigerian economic system has relied on and benefited from the low unemployment rates brought about by these small businesses for many years.
Studies by the IFC show that about 96% of Nigerian businesses are SMEs compared to 53% in the US and this NBS report shows that out of the estimated 41.5 million small businesses spread out across the 36 states of this country, microenterprises constitute 99.8%, about 41.4 million. According to the report, the composition of sectors is different for each business type classification. For instance, Wholesale/Retail Trade, Agriculture, as well as other services and activities, comprise of about 76.3% of small businesses; Education, Manufacturing, and Wholesale/Retail Trade have about 68% of small enterprises in operation while Manufacturing, Wholesale/Retail Trade, and Human Health & Social Works constitute about 68% of SMES in Nigeria.
Clearly, SMEs in Nigeria contribute more than half of the overall workforce, with contributions to the national GDP and an equally impressive contribution to exports. I think the high level of participation might be because the SME business culture in Nigeria is so entrenched in our values as a people, that even though the SME sector still struggles with issues of accountability, funding, stiff competition from foreigners, security challenges, infrastructure and regulatory bottlenecks, the business owners always persevere and shoot past these limit to continually grow their businesses and our economy.
The Gross Domestic Product (GDP) in Nigeria was estimated at about 448.10 billion US dollars in 2019, according to official data from the World Bank. This value represented about 0.37 percent of the world economy and SMEs in Nigeria contributed 48% of the country’s gross domestic product (GDP), accounted for 96% of businesses and 84% of employment in the country. SMEs in Nigeria also accounted for about 7.27% of goods and services exported out of Nigeria last year alone. When broken down further, it was found that out of this number, Lagos state had the highest number of small businesses numbering about 3,224,324. This position was followed closely by Oyo and Kano States with 1,864,054 and 1,794,358 respectively.
SME contribution to GDP in Nigeria last year was not just evident in numbers but also in other intangible ways they impacted their communities. For example, these businesses operate locally and they have strong preferences for hiring local people. Nothing drives new job growth in a region like small businesses. With more Nigerian students graduating and struggling with unemployment, the job opportunities created by a combination of all these small individual enterprises far exceeds that created by any of the larger companies. The hiring of local people can have a huge impact not only on the local economy, but on the overall welfare of Nigerian community.
SMEs in Nigeria also proved to be valuable links between Nigerian businesses and more sophisticated foreign investors and companies last year. This has provided many young Nigerian innovators with the platform to develop their ideas and take them to the world stage. SME contribution to GDP in Nigeria last year also made our commercial markets more competitive thereby forcing changes in our communal thinking and behaviour patterns. These businesses often have more flexibility than their foreign competitors and the result is that these SMEs are more diverse in forms, functions and culture than the bigger brands. This is great for Nigerian GDP because the more diverse the sub-sectors of our economy is, the easier it is for the country to withstand tough conditions. And last year, there was a whole lot of it.
SME contribution to GDP in Nigeria in 2019 also featured in the way these businesses contributed to the identities of the local communities within which they operated. Indigenous businesses provide character in a community because most times, they are all about neighbors helping neighbors and friends patronizing friends. For instance, local food joints reflected the delicacies of their regions and all these lent character to Nigerian communities in more ways than one. SMEs here reflect the personalities of our towns or ethnic groups and this was an intangible contribution to Nigerian GDP in 2019.
Nigeria’s entrepreneurs collectively power Africa’s largest economy, yet high borrowing costs, multiple taxation, currency volatility, and infrastructure shortfalls all conspire to make business exceptionally difficult. For a lot of SMEs, the challenges they usually face revolve around, electricity, fuel, taxes, and capital. Nigeria government programs meant to help small businesses are awash with red flags and ineffective track records. To make a bad situation worse, politicians here routinely interfere by steering contracts to their cronies. All these undermine the effectiveness of SMES in Nigeria and sometimes, force the founders into closing shop.
Government data shows that they continually disburse loans to SMEs, but many SMEs maintain that they don’t have access to these funds. A reason for this might be the fact that a lot of SME founders either do not know where to access the information on how to get these interest free loans, or lack the financial literacy to apply for them. A bigger reason though is the fact that a good number of these loans always seem to be channeled into unscrupulous hands or for the selfish purposes of government officials.
This is the unfortunate reality of our country and while we continue to hold our leaders accountable and demand that they be transparent if you are an SME owner, it’s crucial that you belong to small business circuits that operate in your chosen industry. This way, you will be aware of the opportunities available in your industry space and avoid missing out on packages that are beneficial to you and your business.