An Overview of Small and Medium-scale Enterprises (SMEs) in Nigeria

CHAPTER TWO

LITERATURE REVIEW

2.1 AN OVERVIEW OF SMALL AND MEDIUM-SCALE ENTERPRISES (SMEs)

SMEs stimulate economic development by facilitating productive activities in different sectors of the economy. It increases National Income (NI) and enables equitable distribution of wealth through employment, industrial linkages, export promotion and value creation for investors, customers and stakeholders, including the three tiers of government (Eniola & Ektebang., 2014). Although entrepreneurs in different business settings have varied opinions about SMEs, their understanding or misconceptions about commerce, in most cases, determine which firms survive and those that go extinct (Jaouen & Lasch., 2015). Further on business performance, Wennberg and DeTienne (2014) pointed out that closure of SMEs in developed or developing countries are often misconstrued despite their invaluable contributions as drivers of economic growth.

The SME sector is crucial to Nigeria’s GDP growth (Okon & Edet., 2016). However, poor financial management strategies, ignorance of new developments in global markets, ineffective government policies and inadequate infrastructure (roads, electricity, ICT etc) are some of the challenges responsible for SME failures in Nigeria (Karadag., 2015). According to Aujayeb-Rogbeer et al (2015), other factors that hamper growth of small businesses include religion, cultural beliefs and tradition in some parts of the country where women are forbidden to trade or hold administrative positions in offices (Dey., 19750. To revitalize SMEs and infuse competitiveness in the sector, these challenges demand urgent attention from policymakers.

Findings from Gbandi and Amissah (2014) show that SMEs are categorized under small, medium or large-scale industries depending on the number of employees and assets. For example, SMEDAN viewed small businesses as companies with less than fifty workers and capital assets below ₦500,000.00; the Ministry of Industry and Trade (MITI) cited a cash/working capital above ₦5 million but not more than ₦50 million, suggesting that use of employees as a criterion should be avoided to eliminate confusion during economic recession periods; and BOI defined SMEs as registered business outfits with ₦750,000 allowed as the maximum value of cash investment. CBN, however, excluded investments in real estate but recognized SMEs as businesses with less than 50 permanent-contract employees and assets valued below ₦1 million.

Further, medium-scale industries refer to companies functioning with less than 100 permanent-contract workers and less than ₦50 million in total assets. Despite the varied interpretations of SMEs, it is agreed that small-scale industries operate with less than fifty permanent-contract employees whereas medium-scale companies cannot employ more than 100 full-time staff (Juliana., 2013).

Figure 2: Classification of Micro, Small and Medium-scale Enterprises