1.1 CONTEXT FOR THE STUDY
Small and medium-sized firms (SMEs) are often recognized as the motor drive of any nation’s economic progress and as justifiable means of propelling global development. As much as they are capital-saving enterprises, SMBs are also labor-intensive. They are capable of empowering individuals and creating billions of new employment worldwide (Abeh, 2017a, b; Kadiri, 2012). They are also seen as the primary drivers of economic expansion and poverty eradication (Agwu & Emeti, 2014). The importance of small and medium-sized enterprises (SMEs) in linking, bolstering, and enhancing the growth of nations cannot be overstated. Their success and growth in manufacturing, agriculture, and services, among others, have been seen as economic drivers and have contributed to Nigeria’s economic prosperity. Competitiveness is created through sustainable growth and increased SME performance, which opens multiple doors for employment possibilities, tangible and intangible assets (investment) in the environment (Eniola & Ektebang, 2014). Nigeria’s independence in 1960 marked a turning point in the growth and development of small and medium-sized enterprises (SMEs), which has led to a significant emphasis on SMEs as a cure for reducing poverty and unemployment in Nigeria as a whole. In all countries, whether developed or developing, small and medium-sized businesses have been recognized as a key driver of economic growth and development. Several studies support this conclusion. (Ogujiuba; et. al 2004, Onugu; 2005, Ihua; 2009) The federal office of statistics in Nigeria revealed that 97 percent of all businesses in the country are small and medium-sized firms (SMEs), which employ an average of 50 percent of the working population and provide 50 percent of the country’s industrial production. According to Ariyo (2009) and Ihua (2009), SMEs in Nigeria are not just a driver of economic growth and progress, but also the nation’s backbone. Despite the fact that small business activities have existed in Nigeria since the country’s independence, a concerted effort on small and medium scale enterprise as an instrument of economic and national development began between 1970 and 1979, when Nigeria adopted the policy of indigenization via its national development plan. In a seminar titled “Career Crisis and Financial Distress- The Way Out,” the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified the following non-insurmountable problems of SMEs: low level of entrepreneurial skills, poor management practices, restricted access to money and capital markets, and low equity participation from the promoters as a result of inadequate personal savings. Undoubtedly, the problems and obstacles that SMEs face are immense, thus it is intriguing to learn that certain SMEs are able to overcome them. This provides optimism and grounds for hope that there is a solution. There must be certain survival methods that few SME boosters are aware of. This research is also meant to investigate and reveal some of the most effective business survival tactics employed by a select thriving SMEs. Other small and medium-sized enterprises (SMEs) facing extinction concerns, as well as new and proposed SMEs, should learn from their example. Many other nations have been able to revitalize and transform their SME subsector into one so robust that they have been able to decrease unemployment and poverty to a bare minimum due to the subsector’s tremendous contribution to their economic growth and development. It is anticipated that the findings of this study will go a long way toward reviving Nigeria’s SME subsector. Given the high unemployment rate in Nigeria as well as the poverty level in the country as measured by the following indices and figures on Nigeria’s Human Development Indicators: Illiteracy Rate, Infant Mortality Rate, Life Expectancy at Birth, and GDP Growth Rate in comparison to other countries as shown in Tables I to VIII from Development Data Group, World Bank, the 31% contribution of SMEs to industrial growth is quite alarming. It is anticipated that these developmental indices will increase in tandem with the performance of Nigeria’s SME subsector, as has been the case in economies where SMEs have established and increased gradually over time. iii) Contribution to Industrial Production in particular and GDP in general: Despite the paucity of well-documented, trustworthy, and up-to-date statistics, it is evident that the contributions of SMEs to the Nigerian Industrial output in particular and the Gross Domestic Product in general are inadequate. This dismal performance is supported by the fact that the majority of manufacturing companies in Nigeria have operated well below capacity over the past two decades. In some instances, capacity utilization has been as low as 30%. Many small and medium-sized enterprises (SMEs) had failed, hence exacerbating the unemployment crisis in the country and contributing to its high crime rate. In The Nigerian Vision 2010 initiatives, the government had envisioned an environment in which small and medium scale enterprises would contribute approximately 34% (gross value of manufacturing to GDP ratio) to the national product, generate 60-70% of employment with sustainable annual growth, and have a low business mortality rate. The envisioned future for SMEs in Nigeria is “a robust and vigorous small and medium firm that enjoys strong institutional backing and significantly contributes to the Gross National Product” (GNP).
1.2 DESCRIPTION OF THE PROBLEM
Small and Medium Enterprises (SMEs) in Nigeria have not performed admirably and have not therefore played the expected critical and dynamic role in the country’s economic growth and development. Limited access to financing, high costs of funds and equipment, infrastructural inadequacies, unpredictable and inconsistent government policies, low purchasing power of consumers, low quality of manufactured goods, multiple taxes and levies on manufacturing inputs and manufactured goods, inefficient customs and ports administration, and dumping of cheap finished products on the Nigerian market have all been identified as impediments to full industrial capacity utilization. Some of the key Millennium Declaration Goals, such as halving the proportion of people living in extreme poverty, suffering from hunger, and lacking access to safe water, reducing maternal and infant mortality by three-quarters and two-thirds, respectively, and enrolling all children in primary school by 2015, may in fact be a mirage if the fortunes of our small and medium-sized enterprises (SMEs) do not improve sooner rather than later. Given the deteriorating degree of poverty in Nigeria and the necessity to accomplish the Millennium Declaration Goals, the time has come to take drastic action about our SME predicament. In spite of government incentives, favorable laws and regulations, and preferential support, the performance of small and medium-sized firms (SMEs) in Nigeria has been below expectations. While the difficulties connected with small and medium-sized businesses and their failure have been well acknowledged, there is still room for improvement. Lack of preparation, unfavorable government rules, bad marketing strategies, lack of technical know-how, and lack of cash are some of these factors. However, although some of the obstacles faced by SMEs are a result of the operational environment (government policy, globalization effects, financial institutions, etc.), others are inherent to the nature and character of SMEs.
1.3 OBJECTIVE OF THE RESEARCH
This study’s primary objective is to analyze the challenges of funding small and medium-sized businesses in Nigeria. Specifically, the study aims to:
1. Examine the general obstacles encountered by SMEs in Nigeria
2. Determine the economic impact of the SME sector in Nigeria
Determine the impact of the SME financial crisis on Nigeria’s economic growth.
Identify solutions to the difficulties of SME funding in Nigeria.
1.4 RESEARCH QUESTIONS
The following research questions were developed to steer this study to a valid conclusion:
What are the primary obstacles faced by SMEs in Nigeria?
What is the economic impact of small and medium-sized enterprises in Nigeria?
Does the financial difficulties of SMEs have any effect on Nigeria’s economic growth?
4. What solutions can be proposed for the issue?