Obstacles to SME development in Nigeria

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PROBLEMS OF SMEs IN NIGERIA

Results from this research show these as the major setbacks:

  1. Inflation: This refers to the overall increase in price of goods and services. SMEs rely on raw material supplies from local manufacturers and, during economic downturns, businesses have to adapt by accepting reduction in profits or passing the extra costs to consumers through higher prices which affect performance (sales and profits).
  2. Interest Rates: Interest rates, which is controlled by CBN, is still high when compared to charges in the developed countries and this affects performance of SMEs. Capital funds in 2003 attracted up to 11% until 2010, when improved economic reforms reduced it to around 6% (Bonga., 2010).
  3. Exchange Rates: Inflation and high exchange rates affect the real cost of production, value of exports, and quantity of products from local manufacturers. Small and medium-scale business owners also find it difficult to plan in uncertain situations, especially because fluctuating exchange rates make them vulnerable to losses. Undercapitalized firms eventually opt for closure instead of increasing financial risks (Adepoju., 2003).
  4. Personnel Management: Most SMEs collapse due to managerial incompetence, particularly from use of ineffective business strategies which focus on markets, tasks and profits with less or no investment in employee/management training programmes. In addition, crisis management mechanisms are weak, unstructured and neglected until problems set it (Bonga., 2010).
  5. Leadership: Most SMEs in Nigeria fail because managers/entrepreneurs do not understand the need for relationship-building and motivational skills. Successful managers analyse systemic problems, identify the causal factors, as well as formulate and implement innovative strategies. Unfortunately, SME managers in Nigeria often neglect the impact of direct staff coaching and regular training programmes until it becomes costlier, cumbersome or too late (Adepoju., 2003).
  6. Legal Documentation: Land use charges and cost of legal documentations for credit facilities at the Corporate Affairs Commission (CAC) and state ministries have been part of the major problems of SMEs in Nigeria (Adekoya., 2016). Nigeria ranks very low in business licencing and business registration procedures and, according to Abugu (2007), the cumbersome operational procedures observed by NAFDAC and SON have discouraged investors. Further, there are no preferential rates to encourage SMEs.
  7. Infrastructure: Inadequate infrastructure such as good roads, electricity, clean water and ICT, among others, hamper growth of SMEs in Nigeria. Without these facilities, business processes become sluggish thus reducing productivity levels, with huge financial losses incurred by entrepreneurs, consumers and corporate bodies (Carpenter., 2003).
  8. Corruption: The Nigerian public service is synonymous with embezzlement and this has stalled growth of SMEs. Extortion from market administrators, mismanagement of public funds by government officials, and use of thugs for the collection of taxes and unauthorized levies impede growth of small-scale enterprises in Nigeria, a situation which the Federal Government has failed to tackle for many years (Anyanwu., 2001).
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