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Small and Medium Enterprises (SMEs) Impact on the Nigeria Economy

Small and Medium Enterprises (SMEs) Impact on the Nigeria Economy

Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. According to estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs. Small and medium enterprises (SMEs) are common in every developing or developed economy as they are one of the major drivers of economic development both in the rural and urban areas. Thus, governments are daily trying to develop the SME sector in an attempt to spur economic development which could be through providing the enabling environment for SMEs to thrive, or providing the incentives necessary for the growth of the sector.
The country enjoys a high presence of small businesses and this form of business predominates any other form of business in the country. Why is that? The simple reason that comes to mind is largely due to the many advantages’ small businesses present. From a survey conducted amongst small business owners, independence is the key driver and this gives the advantage for entrepreneurs to be their bosses and be self-reliant. This singular attribute makes the total financial gain (100%) be that of the entrepreneur or the business owner. Small business gives the operator the total business control without any form of dilution from external investors, which is a form of prestige for the operators according to the views gathered from the survey conducted.
Without doubts, this form of business is easy to set up and enjoys low or no serious regulatory requirements, unlike large enterprises. It is usually made up of 1-3 people, with even less than N50,000 initial capital outlay to operate. This form of business structure in most cases provides direct services, what do I mean? Hairdressers, fashion designers, dry-cleaners, artisans, kiosk operators, and event planners to mention a few (and they are business ideas you can run even while having your 9-5 jobs, such jobs as contact centre agents, outsourcing agents, human resources etc.), provide services directly to customers, and with that, they enjoy quick patronage and easy payments. The administration of small business services is not cumbersome the problem of coordination and communication which is a major setback to the operations of large firms is therefore easily solved in small businesses.
They conveniently give keen interest and personal attention to the particular requirements of their customers who in some cases willing to pay something extra for the special and urgent services rendered. Some customers are tied to these small businesses because of the existing long relationship and personal attention they enjoy in the business. Further to this is the decision-making and taking process, because most owners of the small businesses are the operators or managers, there is hardly any problem in the decision process. Unlike the large enterprise approval processes, decision processes and dealing with customers can take a lot of time but with small businesses, the structure is simple with less bureaucracy.
The vivid truth is small businesses enjoy agility and flexibility because of the ease with which the businesses can transmute and transfer capital to other sectors or industries, just in case the business operators need to react quickly to opportunities. In short small businesses can dramatically change their business model to align with new opportunities, which is the prime driver of innovation and creativity.
Focus is another important advantage of running a small business, the focus of the operators is relatively narrow, and this appears to be a good trait. While large enterprises have to search far and wide for opportunities, small businesses tend to know exactly where they have the most competitive advantage.
Therefore, with all these attributes a well-functioning small business sector would add more value to the economic fortunes of the country, sustain livelihoods, reduce poverty by creating more job opportunities in the economy than any other sector. Furthermore, these attributes can also give small businesses a competitive edge over large corporate entities and can help shape their success.
However, access to finance is a key constraint to SME growth, it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries. The sector is still characterized by a lot of challenges which include the reluctance of banks to grant loans to SMEs due to unavailability of reliable information on borrowers, poor bookkeeping, the poor accounting standard and low transparency of operations, lack of discipline in the use of credit facilities, the perception of the SME sector as risky, and difficulties in enforcing loan contracts, high rates of loan diversion, inability to carry out feasibility studies and absence of collateral security
In conclusion, the government should get more involved in the growth, development, and sustainability of small businesses within the country. There is a need to realise and recognise that small businesses are crucial to job creation, economic diversification, innovation, poverty reduction, wealth creation, and income redistribution in their policy-making activities. If this sector is well harnessed in Nigeria it can be a huge catalyst in transforming the country economically. On a final note, small businesses can be a great tool to reduce the increasing unemployment rate in the country.

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