Studies show that SME development is closely linked with growth


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Recent studies show that SME development is closely linked with growth. For example, Beck et al. (2005) find a robust, positive relationship between the relative size of the SME sector and economic growth, even when controlling for other growth determinants. According to Ayyagari et al. (2007), in high-income countries formal SMEs contribute to 50 percent of GDP on average.

Furthermore, in many economies the majority of jobs are provided by SMEs. In OECD countries, for example, SMEs with less than 250 employees employ two-thirds of the formal work force (Beck et al., 2008; Dietrich, 2010). Using country-level data, Ayyagari et al. estimate that, on average, SMEs account for close to 60 percent of employment in the manufacturing sector. According to SME Performance Review (EC, 2009), between 2002 and 2008, the number of jobs in SMEs increased at an average annual rate of 1.9 percent while the number of jobs in large enterprises increased by only 0.8 percent. In absolute numbers, 9.4 million jobs were created in the SME sector in EU-27 between 2002 and 2008. Also, it is often argued that SMEs are more innovative than larger firms. In developed countries, SMEs commonly follow "niche strategies," using high product quality, flexibility, and responsiveness to customer needs as a means of competing with large-scale mass producers (Hallberg, 2000; Snodgrass and Biggs, 1996).

In this chapter, an introduction of the field research report and the chosen topic is provided. The paper continues with a background of the research topic and area, followed by the research rationale, research objective(s) and scope of the research

Background Information

All over the world small and medium enterprises are the bed rock of any economy, but it seems that the same does not apply to Nigeria where this crucial building block of every economy is being neglected and under-utilized. China which has become the bride of every country today started her journey by developing and encouraging small businesses. [1] All companies, businesses, industries and firms with less than 250 employees in Nigeria are categorized as MSMEs. Studies done by the Federal Office of Statistics shows that 97% of all businesses in Nigeria employ less than 100 employees. Looking at our earlier definition of SMEs, it then means that 97% of all businesses in Nigeria are, to use the umbrella term, "small businesses". The SME sector provides, on average, 50% of Nigeria's employment, and 50% of its industrial output [2] .

Due to the high unemployment rate in most developing countries, MSME's has turned out to be the dominant form of business ventures. Especially on the African continent, with high unemployment rates, people are turning toward informal and formal small business in order to sustain their livelihood. The percentage of Nigerian SMEs and their impact on the economy is high and can be compared to those in developed economies of the world. There are approximately 23 million small businesses in the US which altogether employ more than 50 % of the private workforce, and generate more than half of the nation's gross domestic product (GDP) [3] . In the European Union, SMEs are seen as largely essential for European employment. With up to one million new SMEs being set up yearly in the European Union and SMEs account for 99.8% of all companies and 65% of business turnover in the European Union [4] 

In the UK statistics of early 1997, there were 3.7 million businesses, with 99% of these having less than 50 employees, just like in Nigeria. So what is the difference? The difference lies in the importance attached to the SME sector by the governments of each country and the role they play in national economic development. In the UK, these businesses not only form the bedrock of the British economy, but they are widely accepted as the main hub of economic activity in the country. They are creators of wealth and not just seen as job creators. But to top it all, the UK government firmly believes that small and medium sized businesses are crucial to a successful enterprise economy and is fully committed to stimulating the creation, competitiveness and growth of new and small businesses. These are not just mere words. The key principles underlying the UK Government's approach include fostering an enterprise culture that encourages innovators and risk takers; providing and maintaining a supportive economic environment; identifying and removing barriers to growth and providing high quality business support for firms at all stages of their development [5] . This is where the problem resides. Whilst the UK government and indeed the governments of other advanced economies see their SME sector as crucial to their continued growth and development, the Nigerian government, to put it mildly, does not have any concrete idea of what hidden potential lies within its SMEs, and if it does, has no idea how to harness it [6] . Obviously, it would be unreasonable to equate Nigeria's level of development with that of the UK. This means that Nigeria is not expected to be able to provide the same level of sophisticated support for its small businesses, not only for financial reasons, but also because in terms of economic development, Nigeria is not on the same par as Britain. Having said that, however there is nothing wrong in learning from them and adopting (not blindly of course) some of their policies and programmes that best suits her needs. Small Firms are the backbone of the Nigerian economy and to reflect its acceptance and recognition of this, the Government must have small business policy at the top of its agenda. It has to put concrete steps in place to ensure they are able to grow and prosper. This task should not be the sole role of Government to provide financial assistance to businesses. The SMEDC, SMEDAN, NASME and other agencies set up to promote SME will then have to explore the option of funding through equity in Nigeria. In US and the UK where equity funding have been widely used, it has helped in the provision of necessary funds for large scale growth and development. Equity funding, or venture capital as it is widely known, has been the secret behind the growth of Silicon Valley, and the mass number of fast growing high technology companies that abound there. With the high number of billionaires originating from Nigeria [7] , the SMEDC, MSEDAN, and NASME have to find a way of encouraging them to invest their wealth in small up and coming businesses, thereby helping them and the country to grow and prosper

Rationale of the research

This research was focused on identifying those factors responsible for the poor growth of SMEs in Lagos state in Nigeria. It is a known fact that being an entrepreneur in Nigeria is very tough. The environmental challenges are so severe that they kill the young firms before maturity. You need to contend with the unavailability of critical resources including power and water supply. Typically, no matter what it is that you do as an entrepreneur, you must generate a huge chunk, if not all of your electricity need. If you happen to be into any form of production or manufacturing, you would need to generate your own water supply as well. These are some of the most basic problems, which small and medium scale enterprises as well as larger enterprises need to confront on a daily basis. These problems, however, do not confront SMEs in other parts of the world including many developing countries such as neighbouring Ghana [8] .

This research focused on pointing out those deficiencies and hindrances facing small businesses and pondered on ways to that could help their sustenance and profitability.

Research objective(s)

To investigate the crucial factors hindering the SME development in Lagos State.

Scope of the research

This research was carried out in Lagos mainland where you find most of the manufacturing SMEs and Lagos Island where you find the services and trading SMEs, 63 Entrepreneurs and managers whom have been in the business for at least one year were interviewed.

In chapter one, the current situation of MSMEs in Nigeria and the factors hindering its growth has been discussed. Chapter two provides literature on small and medium business with the objective of the research. Chapter three contains a short description of the field research while chapter four presents the data analysis and results of the research. The conclusions and recommendations follow in chapter five with a reference and appendix table at the end.


In Nigeria SMEs are generally referred to as Small and Medium Industries (SMI) or Small and Medium Companies (SMC) but the researcher opted to use SME which is used globally for uniformity.

The Federal Republic of Nigeria is the most densely populated country in Africa (Okpara, 1996, 2006). It has boundaries with the Republic of Benin in the west, Chad Republic and the Republic of Cameroon in the east, Niger Republic in the north, and the Gulf of Guinea in the south. With a population estimated at over 150 million, one in every two West Africans is said to be a Nigerian (Yusuf and Schindehutte, 2000). The country's GDP is larger than that of all countries in West Africa combined and larger than all countries in Africa except South Africa (Adaya, 1998).

Recognizing the indispensable role of small businesses and private sector enterprises in general economic development, many countries have instituted enterprise support networks and structures to fuel the development of these enterprises. Nigeria is no exception. At various times since the 1970s, the government has designed and introduced measures to promote small-and medium-enterprise development (Yusuf and Schindehutte, 2000). These measures have included fiscal, monetary, and export incentives .The fiscal incentives included tax holidays and tariff concessions. For instance, small businesses were given a tax holiday for the first six years of their operations. In terms of monetary support, the Central Bank of Nigeria introduced credit guidelines requiring commercial and merchant banks to allocate a portion of their loanable funds to small businesses. Several developmental financial institutions and schemes were also established to aid small businesses, including the Nigerian Bank of Commerce and Industry (NCBI), the Nigerian Industrial Development Bank (NIDB), and the World Bank SME I and SME II initiatives. There were also export incentives from the Nigerian Export-Import Bank (NEXIM) to stimulate export loan facilities to small businesses as well as export duty exemptions administered by the Nigeria Export Promotion Council (NEPC) [9] . Other small business incentive programs included personnel training, repair and maintenance of specialized machines, and extension services. Small-business assistance programs have also been established by local and state governments [10] . Over the past six years, the government of Obasanjo ( 1999 - 2007) pursued policies that should provide fertile ground for small-business including trade liberalization and making the operating environment friendlier to entrepreneurs. The International Monetary Fund (IMF) has agreed to support more economic growth in Nigeria by helping to finance infrastructure improvements (Akwani, 2007). In the light of these support and incentive programs, it would seem reasonable to expect that small businesses would grow and flourish in Nigeria. However, the effectiveness of these programs remains unclear, and the rate of business failure continues to increase.

Small and medium scale enterprises have been long recognized as an instrument of economic growth and development. This growing recognition has led to the commitment of World Bank group on SMEs sector as core element in its strategy to foster economic growth, employment and poverty alleviation. In the year 2004 the World Bank group has approved roughly $2.4 billion in support of micro small and medium enterprises (World Bank, 2001, Ayyagari et. al 2007) While the importance of small and medium scale enterprises has not been in doubt, unfortunately classifying businesses into large and medium scale is subjective and premised on different value judgment. Such classification has followed different criteria such as employment, sales or investment for defining small and medium scale enterprises. According to different literatures the definition varies in different economies but the underlying concept is the same. Ayaggari (2003) Beckley (1989) contends that the "definition of small and medium scale enterprises varies according to context, author and country". In country such as USA, Britain and Canada small scale business is defined in terms of annual turnover and the number of paid employees. (Ekpeyong and Nyang, 1992) In Britain for example small scale business is conceive as that industry with annual turnover of 2 million pound or less with fewer than 200 paid employees. In the case of Japan it is conceptualized as type of industry, paid up capital and number of employee. Consequently small and medium scale enterprises are defined as those manufacturing with 100million yen paid up capital and 300 employees [11] . Those in wholesale trade with 300million paid up capital with 100 employees while those in retail trade with 100million paid up capital with 50 employees. In the case of Nigeria hardly do you see a clear-cut definition that distinguishes between small and medium scale enterprises. However, the Central Bank of Nigeria in its monetary policies circular No. 22 of 1988 view small scale industry are those enterprises which has annual turnover not exceeding 500,000 naira.(CBN; 1988) Similarly in 1990 the Federal Government of Nigeria defined small scale enterprises for the purpose of commercial bank loans as those enterprises whose annual turnover does not exceed 500,000 thousand naira or those enterprises with capital investment not exceeding 2 million naira (excluding the cost of land) or a minimum of 5 million naira. In the wake of Second-tier foreign exchange market (SFEM), and Structural adjustment program (SAP) era in 1986, this value has now been reviewed and increased to five million naira. Since this happened, there may be a need to classify the small scale industry into micro and super-micro business, with a view to providing adequate incentives and protection for the former. In that context, any business or enterprise below the upper limit of N250, 000 and whose annual turnover exceeds that of a cottage industry currently put at N5, 000 per annum is a small scale industry. The National Directorate of Employment (NDE) concept of a small scale industry has been fixed to a maximum of N35, 000 [12] . In other words a business unit of not less than $240 dollar is characterized as a small scale business in Nigeria. That may not be the same in other countries, but that classification may be useful in developing countries, because of the low capacity of its small scale industry. That is why Kozak, (2007) argued that SMEs should be judged based on number of employees or annual turnover that fall bellow certain threshold. It is these indicators, number of employees and or rate of turn over that tend to define the context within which different countries and economies situate their understanding of small and medium scale enterprises.

This is to say that SMEs are defined with much or less the same indicators (No of employees, rate of turnover .etc) the indicators are not the same in all countries all the time. In other words while number of employee and rate of turnover are the indicator, the number of employee and total amount of turn over for defining SMEs in different countries are certainly not the same. For instance, the employee requirements in Britain is 200, with 2million pound turnover, the same cannot be said of Japan with 100million Japanese yen as paid up capital and 300 paid employees [13] . While in Nigeria, the paid employees are usually not considered important, but more importantly is the turnover of N500,000 especially for the purpose of Commercial and Mortgage bank loans. Balunywa (2010) however affirmed that the number of employee may not be a good indicator, especially where the company is labor intensive. This is true in country like India, where labor intensivity is a policy approach to industrialization. However, that is not to say that in some cases, trading organization cannot transact big business, but yet employed few employees. In that case, capital employed may be used as indicator for defining small and medium scale enterprises. In countries where the number of employees is an indicator, the number of employee required differs from country to another. In Uganda the figure of employees for SMEs is between 5-50, (Ngobo, 1995) in India it is 30-100, while in the US, is less than 500 (Stoner, 1996) In Kenya, 10 or fewer people are called micro business, while 11-50 are referred to small enterprises and 51-100 are called medium enterprises. (Kibera and Kibera, 1997). That is why in the United State of America, small business administration is defined as one that is independently owned and operated, is not dominant in its field and meet up employment or sales standard developed by the agency (Stoner 1996) This shows the same trend with other countries like Nigeria and Japan except that the exchange value differs in the financial criteria. In a more general and comprehensive term Ogechukwu (2005) chronicled a general criteria for defining small and medium scale enterprises in different countries. These includes number of employees, annual turnover, local operations, sales volumes, financial strength, managers and owners autonomy, relatively small markets compared to their industries and capital usually supplied by individual or shareholders etc. There are so many small scale business units in Nigeria which qualifies within this context, most of them are in the commercial sector. However a common trend in Nigeria today is the gradual classification of service provider, hotels, fast food and restaurants as small and medium scale enterprises. In a report of enterprises association, Macqueen (2004) conceive of SMEs as enterprises employing 10-99 full time employees or with a fixed capital investment of US$1000-500,000. Small and medium scale enterprises are certainly not transnational company, multinational cooperation, publicly owned enterprises or large facility of any kind. However they can depend on business and ownership structure to become a large business unit (Macqueen 2006) while it can be argued that 80% of the financing of SMEs come from owners, friends and families, business form can take different form including private ownership, limited partnership, contract and sub-contracts, cooperatives or associations. (Kozak, 2007) Small and medium scale enterprises have a narrow context within which its operation is carried out. However, where it is effectively operated it has capacity to sprout the economic growth and national development. As a result of this definitional differences and lack of universal definition, the European Union in 2003 adopted a universally accepted definition of small and medium scale enterprises and micro business as companies with less than 250 employees, with respect to financial criteria, revenues must not exceed 50 million Euro(measure as turn over) or 43million euro(measure as balance sheet) In addition, the European Commission specifies terms of ownership stating that SMEs must be independent with less than 25% being owned by outside interest.(EU Commission; 2007).

With the collapse of the oil prices in the mid 1980's, many of Government promoted large scale industries found it difficult to source foreign exchange to import raw materials and machinery. This adversely affected capacity utilization, particularly, in the large-scale industries. This further necessitated a change in policy direction of Government towards private sector participation, promotion of Small and Medium Enterprises (SMEs) and development of Small Scale Industries. Thus, the 1988 Industrial Policy of Nigeria not only recognized the pivotal role of the private sector but shifted industrialization strategy from large scale industries to small and medium industries. Government's main efforts therefore became directed towards the promotion of conducive environment for the growth and development of the sub-sector. Since the Civilian Administration of 1999 led by President Obasanjo, many policies, measures, schemes and support systems to develop the SME sub- sector have been put in place to help make its products more competitive. Through the development of the SMIs, Government intended to achieve the main objectives of industrial growth and self-sufficiency; create employment; enhance sustainable livelihood and reduce poverty; promote entrepreneurship, encourage transfer of technology and utilization of local resources and talents; mobilize savings and encourage capital accumulation; and integrate SMI with large scale industry (LSIs) and create linkages with other sectors of the economy.

In today's Nigeria, industries, particularly small and medium sized manufacturing industries operate under various conditions and constraints, which stand on the way to the achievement of organizational goals. There are, for example, high cost and shortage of materials, shortage of funds, inability to recruit competent staff. Due to its size, the individual firm neither has control over input factor costs or the prices at which it sells its output with the result that inefficient and high cost firms are forced out of business. This makes cost saving devices essential for economic survival. Gone were the days when owners of the businesses concerned themselves with returns, or employees with salaries and wages only; their interests are now also focused on the efficient operation of the business and utilization of invested resources.


The researcher`s topic is focused on MSME but very little has been said about this micro sector because they are mainly informal and dominated by women. Literature supports the fact that women entrepreneurs, mostly in developing countries, do not have easy access to credit for their entrepreneurial activity (Ibru, 2009; Iganiga, 2008; Iheduru, 2002; Okpukpara, 2009), whereas the rate of women participation in the informal sector of the economy is higher than males (Akanji, 2006; Akinyi, 2009). Lack of capital to start or run business led them to request for credits from micro-finance institutions (Ibru, 2009; Kuzilwa, 2005). This is due to poverty, unemployment, low household and business income and inability to save (Otero, 1999; Porter & Nagarajan, 2005; Roomi & Parrot, 2008). Women entrepreneurs, mostly in developing countries, lack the ability to save (Akanji, 2006; Mkpado & Arene, 2007), yet savings are needed to protect income, act as a security for loan and could be re-invested in the business (Akanji, 2006). Women entrepreneurs, especially in developing countries lack training and entrepreneurial process is a vital source of developing human capital as well as plays a crucial role in providing learning opportunity for individuals to improve their skills, attitudes and abilities (Brana, 2008; Cheston & Kuhn, 2002). Again, the effect of training on women entrepreneurs' performance, especially in developing countries, has not been adequately addressed in recent literatures. Taking cognizance of the peculiar situations of most women in developing countries in terms of poverty, low educational levels and other societal discriminations (Porter & Nagarajan, 2005; Roomi & Parrot, 2008)

The statistical definition of SMEs varies by country, and is usually based on the number of employees, capital, or the value of assets and sales volume [14] . In Nigeria SMEs are categorized based on capital, sales volume and number of employees but the amount in question is not as high as in the Western world because the standard of living differs.

Ninety five percent of private sector firms in most industrialized economies are made up of SMEs [15] . According to Rowen et al, (1998) the rapidity of industrial development success achieved in the last thirty years in East Asian economies have been staggering and this is attributed to SMEs. The importance of SMEs in driving economic growth is again emphasized in the case of communist East and Central European countries that allowed limited forms of officially-sanctioned SME development as a way of ameliorating poor economic performance and lifting living standards [16] . According to researches done on the failure rates of small businesses globally, it has been established that failure is higher in developing countries than in developed countries [17] and the case of Nigeria is not an exception. A lot of factors contribute to the problems being faced by small businesses like; multiple taxation, dumping, lack of technological know-how, lack of managerial skills, difficulty in getting soft loans or lack of finance, lack of adequate laws to protect the micro and small business enterprises against competition from multinationals and imported goods. Most of these MSMEs obtain funds from family members or micro credit markets with very high interest rates due to credit policies that tend to discriminate them from going to banks [18] . Considering the enormous potentials of the SMEs sector, and despite the acknowledgement of its immense contribution to sustainable economic development, its performance still falls below expectation in many developing countries (Arinaitwe 2006). This is because the sector in these developing countries has been bedeviled by several factors militating against its performance, and leading to an increase in the rate of SMEs failure. These factors include the unfavorable and very harsh economic conditions resulting from unstable government policies; gross undercapitalization, strained by the difficulty in accessing credits from banks and other financial institutions; inadequacies resulting from the highly dilapidated state of Infrastructural facilities; astronomically high operating costs; lack of transparency and corruption; and the lack of interest and lasting support for the SMEs sector by government authorities, to mention a few (Oboh 2002; Okpara 2000; Wale-Awe 2000).

In Nigeria, Arinaitwe (2002) in Okpara & Wynn (2007) stress that "scholars have indicated that starting a business is a risky venture and warn that the chances of small-business owners making it past the five-year mark are very slim" they further stated that the obstacles facing SMEs include lack of financial resources, lack of management experience, poor location, laws and regulations, general economic conditions, as well as critical factors such as poor infrastructure, corruption, low demand for products and services, and poverty. The big firms dominate every opportunity for obtaining loans and raw materials. They attract employees by offering better wages and benefits, and secure most of government procurement and contracts. [19] 

From Carter & Jones-Evans (2006) perspective, some of the strategic problems of small business enterprises are; lack of financial resources, marketing problems and customer concentration, management and human resources, lack of systems and controls, and technology skills. They further explained that most small business are undercapitalized and are inappropriately capitalized in terms of both a high debt-equity ratio and an over-reliance on short term debt. Small business managers engage in little marketing activity and have no experience of marketing, they prefer to devote their time to activities that are more familiar to their products [20] . In Nigeria, there are very few or no R&D for small enterprises, no or very little managerial skills for the managers. They are also characterized by informality and poor information systems which results to poor decision making. Small business enterprises mostly lack the capabilities of assessing new technological developments which enhances innovations [21] . However, there are still rooms for improvement in Nigeria; hence small business enterprise sector is acknowledged to have huge potential for employment generation and wealth creation in any economy. The issue of dumping by industrialized nations is seriously affecting the development and growth of SMEs in developing countries especially Nigeria.

There is inadequate information and a very high percentage of lack of awareness about the SMEIES program that was structured out especially for SME sustenance and development. Entrepreneurs rarely attend seminars and workshops organized by SMEDC and other bodies that promote SME development in Nigeria citing different reason

Research Question(s)

What are the major factors hindering MSME development in Lagos.

Research Hypothesis

The availability of basic infrastructures has a positive correlation to the output of MSMEs and curbs the early SME mortality rate in Nigeria.

Greater awareness and training for entrepreneurs have a positive impact by enabling them know what is required of them, where to go in order to get help and factors to consider before taking major business decisions.

The proper implementation of SMIEIS by banks will go a long way in helping innovative entrepreneurs finance their projects and businesses instead of depending on families and friends.

The new tax act being debated by the senate when passed, will help merge all the business taxes from local, state and federal level so that the issue of multiple taxation will be stopped or reduced drastically.


This research was carried out in Lagos State of Nigeria; Nigeria is a West African Country with more than 154 million people living there. Lagos is a mega city with more than 15 million people!

Target group, Sampling and time Schedule

The target group comprised of entrepreneurs, Business managers and bank managers who are one way or the other involved in manufacturing, assembling, services rendering business and trading.

A sampling frame of 90 MSMEs and 20 Banks were chosen at random, but only 63 of the MSMEs responded and were interviewed or returned back our questionnaires fully filled. It was more difficult to get the bank officials responsible for the SME section since they were special group attached only to head offices of the banks. The main criterion used was their willingness to take part in the research. Sixty three percent (63%) of the members of the sampling frame of 100 MSMEs responded and took part in the research.

During the research period, a number of activities took place and are presented in the table bellow;

Research time table


Time period

Year 2010

Year 2011








Preliminary field survey & sample determination


Pre-testing of questionnaires & adjustment


Data collection and organization


Data analysis and field report writing


Field report submission

Research Area

The research area was carried out in Lagos; Lagos has an estimated population of 15million people and was formally the capital of Nigeria but now the business capital of Nigeria where every important business or government have a kind of presence. Lagos contains the highest concentration of SMEs compared to other states of the country coupled with its proximity to the Warf in Lagos. 80% of the goods that come into Nigeria come through Lagos, through the air via the international airport, through the sea via Warf or through land via the boarders. Most entrepreneurs that are into export prefer Lagos as well because it has common boundary with Cotonou (Benin Republic) and caters for almost the whole of West Africa.

Data Collection

The data collected was both primary and secondary. Primary data was collected via interviews and using a structured questionnaire to highlight the factors hindering the MSME progress in Lagos. The questionnaires were pre-tested prior to the actual data collection. Some of the questions in the original guides were changed but still in such a way that the intended information were still realised. Out of 98 questionnaires given out, a total of 51 was received fully filled out while 12 interviews were conducted making up 63% of my sampling frame.

Secondary data was collected by reviewing different Small and Medium Enterprises Investment and Equity Scheme (SMEIES), SMEDC, NASME, SMEDAN documents and Nigerian business journals

Partner Institution(s)

The Research Partner was SMEDC branch in Lagos, SMEDC is a semi-autonomous institution that provides, directs and supports SMEs in Nigeria. It works under the Ministry of Industry and Trade. Its principle role is to promote the development of SMEs in Nigeria in order to realize the vision 2020 goal. There other Government agencies that promotes SME but SMEDC is the most active in the SME development sector.

Contact Established

During the research period, I was able to establish contact with Development Agency of Nigeria (SMEDAN) Lagos branch which is headquartered in Victoria Island. SMEDAN was established by the SMEDAN Act of 2003 to promote the development of the MSME sector of the Nigerian Economy.

I also established and maintain contact with the coordinator of SME Development Centre (SMEDC) in Lagos, Mr Henry Ogochukwu.

SMEDC offers the following services;

National network for Small and Medium Enterprises (SME networks),

Special free business promotion for all SME Network registered members,

Skills and ideas development initiatives (SKIDI),

Seminars on business growth strategies such as business planning, human resources development, sales, promotion and marketing strategies, financing tips ( where to get cash to start or grow your business), financial and office management, investment and securities and many more.

Being advised on how to avoid costly business mistakes

Encountered Problems

There were lots of minor and major problems encountered during data collection, I realised during this period that classroom theories are sometimes quite different or opposite of what you see when you are in the field. The first major problem was moving from point A to B, Lagos is a Mega City with more than 15Million people living there. I end up going to only one appointment in the day if the firms i want to visit are in different locations. A journey that should have taken 45minutes to 1hour end up taking 3 or 4hours because of traffic congestion, you have only a very short window of time to move about if you don't want to be caught in the rush hour traffic jam. There is a very poor MSME data collection in Nigeria even with the so called bodies established by the Government and private bodies to help and coordinate the SMEs. This lack of data created difficulties in obtaining the desired sampling frame. The person that was to be my contact in SME development centre said that I have to pay him before he can help me. Some of the interviewed entrepreneurs and business managers were unwilling to share information while others gave out false data in some cases. Some of them are suspicious that the information obtained might be shared with their rivals even after all the assurances given to them that the data are purely for research purposes. There was a drug manufacturing company were I went to more than three times with appointment and could not still see the manager or business owner. In some cases I have to send soft copies of the questionnaire per e-mail because the ones I dropped for the manager was misplaced or not given to the designated person. One of the entrepreneurs asked me if there is any direct benefit that his company will obtain from my research, that the authorities does not care if they are making profit or not. In one of my appointments in the outskirts of Lagos, I have to park my car and use a bike because the road was so bad that its only trucks and maybe 4wheel drives that could go through without getting stuck.

Changes made in research design

The first major change was to decrease the number of MSMEs to be interviewed from 100 to 63, Lagos is a very big city and moving from one location to the next is a very big challenge.

The second major change made to the original research design was scrapping one of the two questionnaires; the questionnaire for the entrepreneurs had very little change while the one for the credit institutions was discarded due to the difficulty in reaching the officers or head of SME sections which can`t be found in all branches but the head offices only.

The third change was made in the interview guide administered to the entrepreneurs and MSME owners. Some questions were dropped or changed after the pre-testing of the guide to modify and adapt to the problems being faced.


The data collected was organized and analyzed by using the Statistical Package for Social Scientists (SPSS) computer program. Descriptive statistics were used to describe the general characteristics of the sample, variables and indicators and relationships between them.

Attributes of the sample

The sample was heterogeneous in nature. It consisted of different characteristics such as: age groups, gender, positions in the business, education levels, different activity lines, and business status and operation areas. The subsequent sections illustrate each attribute in detail.

Age of respondents

The sample consists of adults with age range from 18 to 65 years as presented in the figure1 below.

Education level

Position of gender of respondents

Line of activities

Business status

Area of business operation

Properties of variables and indicators

Training offered to MSMEs

SMEIES services provided to MSMEs

Training offered to MSMEs

Business incubation services

Usefulness of SMEIES fund to SMEs

Awareness of SMEIES to MSMEs

MSME capacity enhancement

Formalization process

Technology acquisition

Generation/Introduction of new products

Usefulness of networks to MSMEs

Access to export markets

Relationship between the variables


Micro, Small and medium scale enterprises are long believed to be instrument of economic growth and development. This has been true in developed economies as experience in the United State of America, Britain, Japan, Germany and many other developed and industrialized nations. The same cannot be said of the developing countries, particularly Nigeria where most SME performances are abysmal. There are more than enough policies from the Government that promote and support MSME development in Nigeria but the problem lies in the implementation of those policies and the creation of awareness for the masses and business communities. Most corrupt officials hijack these policies and making it very difficult for genuine SMEs to benefit without giving bribes or being relations to powerful politicians or relations to those officials in charge of the funds disbursal.

The researcher noticed other problems that like dumping which most manufacturers and traders complained bitterly about forces customers to buy the cheap foreign goods rather than the home made one. Nigeria is still a third world country which makes the buying power of people there to be low, people prefer to buy cheap goods than buying original ones that will last surely longer than the cheap ones. A harmonized tax for MSMEs will go a long way in


The constraints and problems identified in the study greatly affected the industries and partly explain the reasons behind the not-so-good performance recorded by SMEs during the period of the research. The following actions are therefore suggested to be taken by Government and other stakeholders to improve the performances of SMEs in Lagos State and Nigeria in general.

a. Since Government policy measures influence the environment under which these industries operate, deliberate policy is needed on the part of Government to create climate that is conducive and favorable to the growth, development and profitable operation of small and medium sized industries. Accordingly, it is recommended that Government strengthens SMIEIS, BOI and other financing windows and lower interest rates and other cost of funds and also consider the expansion, in scope and operation, of the Industrial Development Centers, and enhance other sources of finance available to the industries. The SMEs could also establish a fund to finance their working capital and medium term loans and make the best use of hire purchase options rather than outright purchase. There is also the need to give adequate publicity to schemes that are intended to benefit the SMI.

b. Improvements in infrastructures such as constant supply of electricity, water and transportation systems are quite necessary. This will reduce initial and operating costs to the industries. Thus, unless the situation of power and alternative energy supplies are addressed, the manufacturers, small, medium and large, will continue to experience severe constraints in operation and their products will ever remain less qualitative and uncompetitive. Also, Government has to take quick actions to improve the security and road network conditions because these infrastructures are also central to business operations.

c. The on-going reforms especially in the power sector should be effectively and efficiently implemented without further delay so as to address epileptic power supply problem in the country. Adequate incentives should be given to encourage investment in the energy sector. This will help in addressing shortfalls currently witnessed in power supply. Adequate investment incentives should be put in place to encourage investment in Independent Power Project (IPP). This could be patterned along the line of clusters (micro grids), which will produce power and feed the national grid. This is important, given the current short fall in energy generation and the need to boost capacity expansion in future. The manufacturing sector could participate in this scheme through energy Service Companies.

d. The issue of insecurity should be urgently addressed, as investors' confidence will be eroded.

e. Small and Medium Enterprises Equity Investment Scheme (SMEEIS) should provide a broad mix of facilities including loans and working capital funding. The scheme should address the current reluctance of banks to support Small and Medium Enterprises.

f. The rehabilitation of the existing road networks as well as the construction of new ones should be given priority by the government. This will facilitate free flow of goods and services. The railway transportation system in the country particularly the railway should be completely overhauled and made functional to reduce transportation difficulties.

g. The Manufacturing sector, as a result of the current infrastructure decadence will for sometime remain uncompetitive. Therefore, government needs to exercise political influence on ECOWAS to put on hold the on-going negotiations on the Economic Partnership Agreements between European Union and West African States.

h. Government should harmonize taxes and levies to reduce harassment of SMI and enhance conducive environment for doing business;

i. MAN, NASSI and NASME should establish an Agency to serve as a platform for obtaining contracts from Government and to source and procure bulk raw materials at lower costs and source markets for SMI products;

j. Nigerians are called upon to be patriotic and patronize products made by SMEs.

k. To boost the development of local raw materials, there is the need for increased local content sourcing and utilization of raw materials by industries that will encourage inter-industry linkages and reduce dependency on imported ones.

l. There is the need for Government to develop its petrochemical and steel rolling Industries, as these accounts for over 60% of raw materials requirements and to disseminate and commercialize the research findings of various research agencies.

m. The survey result suggests that SMEs employ Nigerians in all cadres, and this is healthy for Nigeria with large human resources. This further suggest that the need for Governments deliberate interventions to facilitate expansion in the sector and considerable increase in capacity utilization to create room for new employment opportunities and assist in employment generation. The idea of cost control has long been introduced to large businesses and its concept developed and put to use for their own benefits. The apparent characteristics, constraints, challenges and problems of the small and medium sized industries made it more appropriate for them to develop schemes that could enhance the development and use of sound cost control techniques for the survival and growth of the Industries.

n. Management should, through the budgeting, participation process, and the assignment of responsibility, create an environment which allows the workers to develop their full potentiality and to exercise responsibility through self control. There is the need for small and medium sized industries to introduce incentive schemes that secure workers' commitment towards achieving minimum costs to the organizations. Non-economic incentives should reinforce the economic ones, rather than being conflicting forces. Management may also provide such additional schemes as may counter the hostile attitudes of lower management and non-supervisory workers towards cost saving devices that may be introduced by it.

o.To salvage Government-controlled industries, there is the need to embrace the program of privatizing the industries. Full commercialization will not be a sufficient remedy, as this alternative allows the Government to have substantial say in broad policies and appointment of Directors and top management staff. Privatization entails the dismantling of Government shareholding and control in SMIs and the transfer of such ownership and control to private investor. Other benefits that will accrue from the privatization scheme include the following:-

(i) It will relieve government of huge and growing burden of financing the investment and working capital needs of the industries. This will free financial resources to meet other pressing social commitment of government.

(ii) By freeing the SMEs on reliance on government subventions, privatization will encourage them to finance other operations through the capital market and financial institutions.

(iii) The program insulates the companies from Government interference in their managements. This will enable them to liberalize purchasing procedures, rationalize labor and staff practices, improve internal efficiency and enhance better performance.

p. Government should enact laws banning cheap goods from China or other goods being dumped by other western countries or increase the duties for such goods so that the locally manufactured ones can still be competitive.

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