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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Small and medium scale enterprises (SMEs) are largely viewed as the engine wire of any nation’s economic growth and they are regarded as justifiable means that propel development globally. SMEs are labour intensive; as much as they are capital saving business ventures. They are capable of making people self-reliant and generating billions of new jobs globally (Abeh, 2017a,b; Kadiri, 2012). They are also observed as the key drivers to economic growth and poverty reduction (Agwu & Emeti, 2014). SMEs are significant parts that links, strengthen and enhances the development of the countries. Their performance and growth in manufacturing, agriculture, services, etc., has been considered as the drivers and has contributed to the Nigeria economy. Sustainable growth and the increase in SMEs performance create competitiveness that opens numerous doors for employment opportunities, tangible and intangible assets (investment) in the environment (Eniola & Ektebang, 2014). Historically, Nigeria’s independence in 1960 marked a turning point in the growth and development of SMEs, which has created much of the emphasis on SMEs as panacea in the reduction of poverty and joblessness or unemployment in Nigeria as a whole. The adoption of the Economic Reform Program (ERP) of 1986 indicated a pivotal shift from impressive, capital intensive and large scale industrial projects based on import substitution to small scale industries with enormous potentials for the development of domestic linkages for sustainable economic and industrial development (Agwu & Emeti, 2014). As such, SMEs perform very important part of the Nigerian economy (Eniola & Ektebang, 2014). Though, SMEs have developed over the years in Nigeria in spite of its challenges.

Dr. Ade Oyedijo, a financial expert in a paper titled “Nigeria’s Economy and its Career Promise for the Mature Employee” affirmed that the plights of SMEs in Nigeria have to do with key variables and challenges that characterise the nation’s economy. These include but are not limited to a very high unemployment rate, which is expected to increase as a result of the current ongoing public sector reforms, high unemployment rate, high poverty level, disease, hunger, etc. Dr. Oyedijo also mentioned a drastic shift from the production of non-oil traded goods (mostly agricultural) to traded goods while about 95 million Nigerians are reported to be living below the poverty line even as 19 of her citizens are ranked among the 500 wealthiest men in modern capitalist economy as among the characteristics of our nation’s economy which aggravate the problems of Nigerian SMEs. He also opined that since independence, the main thrust of Nigeria’s development strategies and objectives have been the development of industrialization, education and a self-reliant economy but regretted that the human capital which is expected to support the industrialization process and propel other sectors to maturity has not exhibited the right mix of knowledge, attitude and skills required to achieve this purpose.

In spite of the fact that SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant unsavoury impacts on the economy. In a seminar titled “Carer Crisis and Financial Distress- The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: low level of entrepreneurial skills, poor management practices, constrained access to money and capital markets, low equity participation from the promoters because of insufficient personal savings due to their level of poverty and low return on investment, inadequate equity capital, poor infrastructural facilities, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agencies and overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times. The problems and challenges that SMEs contend with are enormous no doubt but it is curious to know that some SMEs are able to overcome them. This gives hope and should provide a basis for optimism that there is a way out. There must be some survival strategies, which are not known to many SME promoters. This research is also intended to explore and unravel some of the key business survival strategies, which have worked for a few thriving SMEs. The benefits of this could be tremendous in that other SMEs facing threats of extermination as well as new and proposed new ones could also borrow a leaf from them.

1.2 STATEMENT OF THE PROBLEM

In running effective SMEs in Nigeria, efficient and effective managerial skills are required. Many SMEs lack the basic skills, techniques and aptitude to successfully operate a business. The managerial skills and talents necessary for planning, organizing, directing and controlling both the human and material resources are essential components of effectively running a business outfit. The study of Ololube and Uzorka (2008) showed that SMEs are unable to employ and maintain highly skilled workers because of their small sizes and the limited capital available. Skilled personnel like accountants and managers that are meant to be employed by SMEs are not engaged partly due of financial problems. This has resulted in poor accounting and financial management practices experienced by SMEs in Nigeria. Also Beckman (2008) contend that most of the problems of SMEs are external to it, among them are those related to capital shortage, taxation and regulations, product liability patent and franchising abuses. The internal problems of SMEs in Nigeria include: inadequate working capital, stiff competition from larger companies, difficulties in sourcing raw materials, low capacity utilization, lack of management strategies, poor educational background of operators, and huge financial problems while the external problems include: policy inconsistencies, multiple taxation, harsh regulatory requirements and trade groups.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to find out the challenges of SMEs in Nigeria, specifically the study intends:

1. Find out the challenges SMEs in Nigeria

2. Analyze the effect of the challenges on the growth of SMEs in Nigeria

3. Find out the factors that determine the growth of SMEs in Nigeria\

4. Proffer solution to the problem of SMEs in Nigeria

1.4 RESEARCH QUESTION

1. Are there any challenges SMEs in Nigeria?

2. Is there any significant effect of the challenges on the growth of SMEs in Nigeria?

3. What are the factors that determine the growth of SMEs in Nigeria?

1.5 RESEARCH HYPOTHESIS

Ho: there is no significant effect of the challenges on the growth of SMEs in Nigeria

Hi: there is significant effect of the challenges on the growth of SMEs in Nigeria

1.6 SCOPE OF THE STUDY

The scope of this research is limited to the 15 randomly selected operators of SMEs in Lagos, Nigeria. It is assumed that their responses will reflect the opinions of all SME operators in Lagos, Nigeria.

1.8 DELIMITATION OF THE STUDY

Finance for the general research work will be a challenge during the course of study.

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