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.