The problem with SMEs in Nigeria


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Dearth of accurate, verifiable information on the number of SMEs and employees working in the sector is responsible for an alleged distortion of facts on job creation, production of raw materials, export earnings, development indicators, and inherent potentials of SMEs. According to a 2010 survey by SMEDAN and National Bureau of Statistics (NBS), there are about 32.5 million employees in nearly 17.3 million SMEs, with significant improvement documented in the federal government’s efforts to stabilize the economy through effective macroeconomic policies, reduction of importation barriers, streamlining the taxation system and institutionalizing transparency in the nation’s customs system (Enelamah., 2018).

Nonetheless, lack of reliable data management systems is not the only challenge to SME growth in Nigeria. Oyelaran-Oyeyinka (2006) notes that SMEs in countries like Korea, Vietnam, India and Singapore, which are comparatively at the same level of development with Nigeria, have made better progress since the 1960’s. This study therefore identified these as the major problems:

  • Lack of commitment from FG in institutionalizing a solid SME sector.
  • Poor infrastructure base.
  • Poor credit environment.
  • Inadequate technical/financial support.
  • Low-level investments from individuals, corporate bodies and foreign creditors due to Nigeria’s unstable economic and political environments.


This paper aims at evaluating the socio-political impact, problems and prospects of SMEs in Nigeria using Lagos State as a case study. The objectives are:

  1. To identify the problems militating against SMEs’ performance as a catalyst to Nigeria’s economic growth and sustainable development objectives.
  2. To thoroughly examine sources of the identified problems.
  3. To analyse the current situation of SMEs in Nigeria.
  4. To ascertain the socio-political impact and prospects of SMEs in Lagos State.
  5. To proffer solutions through change and innovative models.


Results of this analysis will be useful for the long-elusive transformation of the SME sector by:

  • Presenting the Lagos State government with a clear understanding of how SMEs can be maximized as a socio-political change agent.
  • Providing managers and policymakers with the most effective leadership and business management strategies needed to properly identify the strengths, weaknesses, opportunities and threats in the SME sector, for optimal development and functioning of human capital and material resources.
  • Providing entrepreneurs with easy access to working capital and investment funds.
  • Adding competitiveness to the sector and thereby attracting global investors.
  • Increasing local production of goods and services for exports, with less reliance on imported products.
  • Presenting an intellectual basis for further research on SMEs in Lagos State and 36 states of the federation.


SMEs have formidable potentials for exports, employment and economic growth, especially in Nigeria, where there are significant, unexploited opportunities spread across entertainment and leisure, agro-processing, fashion, biotechnology, telecom etc. Although the development of SMEs requires improved financial assistance, Benhabib and Spiegel (1994) noted that the problem is not in providing physical cash but in human capital investments. This is true, although domestic development of entrepreneurs with adequate technical know-how is costlier than what any country can spend to attract Foreign Direct Investment (FDI).

Based on these facts, the research question is: “How can innovative policies be recommended to the Lagos State government to solve SME challenges and maximize opportunities in local and global markets?”

Additionally, the sub-questions are as follows:

  1. How has Nigerian SMEs performed in recent years and what are the potentials?
  2. What are the socio-political impacts of SMEs in Lagos State?
  3. How can strategic policy change enhance the performance and potentials of entrepreneurs in Lagos State?


The research investigates SME challenges and prospects using valid, verifiable and unbiased contributions from a total of 120 SME owners carefully selected from all Local Government Areas in Lagos State. The respondents were chosen based on the fact that:

  1. They have a minimum of 5 years’ experience in the SME sector.
  2. They own or manage a registered small and medium-scale enterprise.


This study will focus on the overall performance of SMEs in Nigeria, including a comparative analysis with India, but narrowed down to Lagos State, where, through a mix of qualitative and quantitative methods, the researcher collates useful primary data from 150 survey participants who are resident in Lagos State. Other information collected from secondary sources include materials from public libraries, journals, academic books, print media and the Internet, which are expected to add relevance to the cache of knowledge required by the researcher to successfully complete this task.


H01: There is a relationship between SMEs and poverty reduction in Lagos State.

H02: There is a relationship between SMES and politics in Lagos State.

H03: There is a relationship between SMEs and the standard of living in Lagos.


Research processes are often challenged by human limitations such as ethics, moral, culture, tradition, language and socio-political barriers. Also, lack of reliable, comprehensive and easily assessible data records in Nigeria presents one of the major challenges to this study.


According to a 2017 survey conducted by the Economist Intelligence Unit (EUI), over 90% of businesses in Nigeria are categorized as SMEs which, with increased financial support and sustainable productivity, have the potentials for champion economic diversification strategies for industrialization and sectoral development. Unfortunately, an unstructured taxation system drains the nation of productive time. For example, approximately 956 hours are spent on filling tax returns in Lagos, compared to Africa’s overall average of 310. Findings from EIU also show that only 2% of adults had access to loans from MFIs. Further, 50% of Nigerians live without access to national grid electricity supplied by Enugu Electricity Distribution Company (EEDC). Although about 82% of residents access the internet through mobile phones on daily basis, mobile business transactions are slow and mostly impossible due to poor network coverages, especially in rural communities. These pitiable conditions are worsened by the incessant cases of terrorism in the North-East and militancy in the South-South (Green., 2017).

On this backdrop, SMEs in Nigeria experience low survival rate. Adeniji (2015) points out that most business outfits collapse within five years of existence whereas many others struggle to last between six and ten years. Only less than 10% of SMEs survive the highly-competitive market due to infrastructural inadequacies such as inaccessible roads and dysfunctional or inexistent water supply systems, including poor knowledge market trends, lack of differentiated products, ineffective business strategies and inexperience (Dӑnӑcicӑ., 2011).

For Nigerian SMEs to attain global competitiveness, there is need for collaborations among entrepreneurs, investors (local and foreign) and all stakeholders, including unwavering commitment and increased investments from the government.