2.1.5.7 Challenges of the SMEs
Most SMEs die within their first five years of existence. Another smaller percentage goes into extinction between the sixth and tenth year thus only about five to ten percent of young companies survive, thrive and grow to maturity.
Many factors have been identified as to the possible causes or contributing factors to the premature death. Key among this include insufficient capital, lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of proper records or lack of any records at all, inability to separate business and family or personal finances, lack of business strategy, inability to distinguish between revenue and profit, inability to procure the right plant and machinery, inability to engage or employ the right calibre staff, plan-lessness, cut-throat competition, lack of official patronage of locally produced goods and services, dumping of foreign goods and over-concentration of decision making on one (key) person, usually the owner. Other challenges which SMEs face in Nigeria include irregular power siipply and other infrastructural inadequacies (water, roads etc) unfavourable fiscal policies, multiple taxes, levies and rates, fuel arises or shortages, policy inconsistencies, reversals and shocks, uneasy access to funding, poor policy implementation, restricted market access, raw materials sourcing problems, competition with cheaper imported products, problems of inter-sectoral linkages given that most large scale firms source some of their raw material outside instead of subcontracting to SMEs, insecurity of people and property, fragile ownership base, lack of requisite skill and experience, thin management, unfavourable monetary policies, lack of preservation, processing and storage technology and facilities, lack of entrepreneurial spirit, poor capital structuring as well as poor management of financial, human and other resources. Their characteristics and the attendant challenges notwithstanding, it is the consensus that SMEs, which globally are regarded as the strategic and essential fulcrum for any nation’s economic development and growth have performed rather poorly in Nigeria. The reason for this all-important sector’s dismal performance have been varied and convoluted depending on who is commenting or whose view is being sought. For sure it has nothing to do with government’s appreciation of the vital central role of the sector as evidenced by how well SMEs have been acknowledged and orchestrated in various government’s budget, with the imperativeness of SMEs as the bulwark for employment generation, poverty reduction and technological development being highlighted. While many attribute the relatively poor performance of SMEs in Nigeria when compared with the significant roles which SMEs have played in developed economies such as the United Kingdom, Germany and the United States and even developing countries of the world like India to the challenges outlined above, some others hinge the reasons on the fair share of neglect on the sector by the government. The latter group argues that government’s appreciation of the SMEs in capacity building has always been restricted to the pages of the budget presentations and submissions at various fora. Essentially, they argue that poor budget implementations over the years account for the unsavoury impacts of SMEs on the Nigerian economy, which has had a record sluggish growth and declining future as measured by the population of Nigerians becoming literate, having more access to better healthcare, shelter, food, and other necessities of life such as access to more and better paying jobs as well as declining per capita income. Other parameters usually used to measure the performance of SMEs include percentage of working population employed by the SMEs in a given country or economy, the percentage contribution to the country’s GDP, managerial and technical capacity building, percentage of revenue internally generated or percentage of total PAYE accruing to the government from the SMEs employees, years increases in average household income, etc. This research is intended to critically appraise and analyse the operating environment and circumstances of SMEs in Nigeria with a view to actually identifying why they (SMEs) are not playing the vibrant and vital roles in the Nigerian economy as they (SMEs) do in other economies such as India which has so many similarities with Nigeria in terms of population and other demographic variables. This is even more disturbing if one recalls that Nigeria remains the largest market in the African continent where investment opportunities are beckoning to be exploited. This research uses Matori community in Lagos state Nigeria as the case study area.
The theories explored herein are in line with my findings. Setting up viable SME businesses will attract infrastructural developments and such infrastructures like road, electricity, water etc will aid the operations of the SMEs in areas of production cost reduction, marketing and products accessibility which will in turn lead to increase in profit margins irrespective of the type of businesses involved. While the SMEs maintain good profit margins and healthy balance sheets, banks and other financial institutions will be disposed to granting financial assistance like loans and grants to the SMEs. Government support is however required to ensure these loans are given at affordable interest rates. Government support is also required in providing favourable and stable policies to make SME businesses more conducive. With such conducive environments, SMEs will continue to thrive and improve on their profit records and will readily embrace Information Technologies (IT). With IT enough knowledge and information is accessible on the globe with which SMEs can use to turnaround and improve on their businesses. It is therefore evident that my findings support the existing theory in the field.