How SMEs Can Solve The Present Nigerian Economy

The size of a nation’s economy is measured by its GDP (Gross Domestic Product), which is the value of all the goods and services produced in a country in a given year. However, even as some countries increase their GDP by 30% or more, some tend to experience a downward trend in the equilibrium of the nation’s income, also known as a ‘download slope ‘.

This is a result of certain factors that can affect economic growth, such as government spending, net exports, poor infrastructure, foreign exchange rate volatility, low productivity, and population rate. Therefore, when it comes to the Nigerian economy, the driving force of the country’s economy are

Small and Medium Enterprises (SMEs) are the backbone of many economies worldwide, and Nigeria is no exception. These enterprises, with their significant contributions to job creation, innovation, economic diversification, and GDP, play a crucial role in the Nigerian economy.

SMEs as the backbone of Nigeria’s Economy

According to Atunba Bimbo Ashiru, in the last Nigerian National SME Business Awards (NNSBA) 2024 program, a prestigious event that recognizes and celebrates the contributions of small and medium entrepreneurs to the Nigerian economy, which was held in Lagos – he said that these entrepreneurs contribute greatly to the growth of the Nigerian economy.

He also pointed out that maintaining economic development and building a more robust and diversified business environment is dependent on supporting SMEs through laws that promote entrepreneurship, financial access, and innovation. That’s also why the Nigerian government has implemented several policies to support SMEs, including the establishment of the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the creator of the national collateral policy.  Meanwhile, statistically, according to the National Bureau of Statistics (NBS), Nigeria’s GDP grew by 2.98% (year

-on-year) in real terms in the first quarter of 2024. This growth rate is higher than the 2.31% recorded in the first quarter of 2023. That being said, in this blog post, we’ll be looking at the major contributions of SMEs to the present Nigerian economy.

Read Also: Lessons Learned: Success Stories and Failures of Prominent SMEs

How SMEs Can Solve The Present Nigerian Economy

In a country with an increasing population and a dynamic market environment, Small and Medium Enterprises (SMEs), which are businesses with less than 250 employees and an annual turnover of less than N500 million, play a crucial role in driving economic growth, fostering innovation, and generating employment.

Their contribution to economic growth are as follows:

1. Job Creation:

One of the most significant contributions of SMEs to the Nigerian economy is job creation. SMEs are important for job creation in rural areas, where they provide a source of income and employment for people who may have limited job opportunities. According to the National Bureau of Statistics, SMEs account for over 84% of jobs in Nigeria. This widespread employment not only contributes to economic growth but also reduces poverty levels, improves living standards, and alleviates social tensions associated with high unemployment rates. Let’s look at the agricultural sector.

For instance, SMEs create employment opportunities for farmers and agricultural workers and also contribute to the development of the value chain. In the manufacturing sector, they create jobs for suppliers of raw materials, transportation providers, and distributors.

All these are to foster poverty reduction and give people some sense of livelihood.

2. Innovation and Entrepreneurship:

SMEs provide innovation to sectors. They are often more flexible and can adapt quickly to changing market conditions compared to larger enterprises. This was supported by Ashiru, who also expressed his optimism about the resilience of SMEs, even in the face of the country’s current growth obstacles.

They always strive to maintain their market share, demonstrating their ability to adapt and survive. This resilience has fostered a culture of entrepreneurship, where new ideas and business models can be tested and implemented rapidly.

In Nigeria, this innovative spirit is evident in the tech sector, with Lagos being dubbed the “Silicon Valley of Africa.” Startups and small tech companies are developing solutions tailored to local challenges, driving digital transformation and economic diversification.

3. Economic Diversification:

Nigeria’s economy has always been heavily reliant on oil. However, SMEs contribute to diversification in the economy since it levels other various sectors, such as agriculture, manufacturing, retail, and services, by investing in them.

On that note, this diversification is crucial for reducing the country’s dependence on oil revenues and creating a more stable and resilient economy. For instance, the agricultural sector, powered by numerous small-scale farmers and agribusinesses, plays a critical role in food security and export revenue.

4. Contribution to GDP:

SMEs are major contributors to Nigeria’s Gross Domestic Product (GDP). They represent about 48% of the national GDP, highlighting their importance in the overall economic structure. The sheer volume of transactions and activities carried out by these enterprises emphasizes their integral role in the economy’s functioning and growth.

5. Regional Development:

SMEs promote regional development by encouraging the establishment of businesses in rural and semi-urban areas. This geographical spread helps in balanced economic development, reducing urban migration and the pressures on city infrastructure.

By promoting economic activities in less developed areas, SMEs contribute to a more equitable distribution of wealth and resources across the country, fostering a sense of national pride and unity.

6. Skill Development:

SMEs are essential in developing local talent and skills. They provide opportunities for on-the-job training and skill acquisition, which are vital for personal and professional development.

These skills are transferable and enhance the employability of the workforce, thereby contributing to human capital development.

7. Foreign Exchange Earnings:

A good number of Nigerian SMEs engage in export activities, contributing to foreign exchange earnings. Products such as agricultural goods, textiles, and crafts find markets overseas, bringing in valuable foreign currency.

This influx of foreign exchange helps stabilize the Naira and supports the country’s balance of payments.

8. Social Stability:

By providing employment and encouraging economic activities, SMEs contribute to social stability. Gainfully employed individuals are less likely to engage in criminal activities or fall into social vices. Moreover, SMEs play a role in community development initiatives, further strengthening social integration.

Challenges Facing SMEs in Nigeria

Despite their contributions, Nigerian SMEs face several challenges that hinder their growth and potential.

These include inadequate access to finance, such as high interest rates and stringent loan requirements poor infrastructure, such as unreliable power supply and inadequate transportation networks; regulatory bottlenecks, such as complex and time-consuming business registration processes; and a lack of business support services, such as limited access to business training and mentorship.

Addressing these challenges requires concerted efforts from the government, financial institutions, and private sector stakeholders. That’s why the policies created to govern SMEs aim to provide easier access to finance and address some of the challenges facing the body.

Conclusion

The contribution of SMEs to Nigeria’s economic growth is indispensable. They are great contributors to job creation, innovation, and economic diversification. For Nigeria to achieve sustainable economic growth and development, it is important to support and nurture the SME sector.

This support can come in the form of improved access to finance, better infrastructure, favorable policies, and a conducive business environment. By empowering SMEs, Nigeria can harness their full potential to drive economic prosperity and improve the quality of life for its citizens.