The Nexus Between SMEs and Economic Growth

Nexus Between SMEs and Economic Growth

In the last episode, we discussed the CONCEPTUAL CLARIFICATION of SMEs. In this episode, we will focus on the nexus between SMEs and Economic Growth.

The word “NEXUS” in the context of the subject refers to connection between SMEs and Economic Growth

SMEs have been recognized  as an important  means in the economic growth of any nation by contributing towards the gross domestic product (GDP), creating jobs, reduction in poverty, generate income and facilitate nation’s wealth thus resulting in national development.

Small and medium enterprises have significantly contributed to the economic growth of many countries such as developed , developing or less developed  countries  (LDC). There are about 90% of small and medium  enterprises  that contributes over 50% of employment worldwide. (IFC,  2010).

From Organization for Economic Cooperation and Development  (OECD),  more than 95% of the entities  as SMEs generating about 60% to 70% of the employment – OECD Report

In Africa, 90% of the businesses operate as SMEs and contributes towards more than 50% of employment as well as GDP.for example,  the SME sector in South Africa  comprises of 55% employment  along with 22% of GDP.

In Kenya, SME contribute 18% of national GDP, while in Morocco,  the SME sector accounts  for 93% of the industrial firms and 46% employment.. Some of these less developed SMEs can mainly be found in Zimbabwe, Tanzania, Kenya, South Africa and Nigeria.

 According to Fjose  in the ‘MENON-publication of June, 2010, contributions by SME sector to both GDP and employment have a strong relationship with the GDP per capital. Thus,  the more affluent a country, the greater SME importance is to the overall economy.

The Nigeria situation.

Nigeria is known to be one of the powerhouses in Africa due to the economic growth it pursues. Nigeria is one of the fastest growing economies in Africa. This has been possible because of the immense contributions  provided by the SME sector for many years.

Although, a big chunk of Nigeria’s revenue comes from the oil sector, she also depends highly on the non-oil sector which a vast majority of it falls under the SME sector. These enterprises have contributed extensively over the years showing a positive growth in the economy.

Statistics shows that the overall economy increased gradually with an average of 7.4% from 2003 to 2009. The non-oil sector grew by 9% from 2003 to 2009 alongside a good performance in agriculture,  manufacturing,  solid minerals  and telecommunication sectors.

 As affirmed SME e-access and usage in 2006, about 87% of the businesses in Nigeria operate as small and medium  enterprises. According to a survey, 95% of the formal manufacturing activities  are SMEs and 70% of industrial jobs. This sector employed approximately 50% of the workforce contributing up to 50% of its industrial output.

In relation to GDP contribution, it is estimated that SMEs create approximately 50% of the GDP and represent  any business sector, that is, 50% as distributive trade, 10% in manufacturing, 10% in the service sector and 30% in agriculture.

As reported  by Nigeria’s Bureau of statistics in 2019, Q1,  GDP grew by 2.01%, with the majority of its growth being associated with the non-oil sector which is a positive sign and indicative of Nigeria’s possible diversification  and less reliance on the oil sector to drive her economy.

The international monetary fund forecasts that GDP will increase by 2.1% in 2019, which would make Nigeria  one of Africa’s slowest-growing economies and this means that growth is negative in per capita terms. While inflation is at 11.4% and has been above the central Bank’s target at 6% to 9% for almost four years.

We have been able to establish NEXUS between SMEs and Economic growth. In the next episode, we will look at THE CHALLENGES OF SMEs IN NIGERIA.

Subscribe for more business tips and updates…