Challenges/ Problems of SMEs in Nigeria

CHALLENGES FACING SMEs IN NIGERIA

In the last episode, we discussed the THE NEXUS BETWEEN SMEs AND ECONOMIC GROWTH.This episode will focus on the challenges facing SMEs in Nigeria.

They include:

1. Lack of Managerial Skills

In running effective SMEs in Nigeria, efficient and effective managerial skills are required. Many SMEs lack the basic skills, techniques and aptitude to successfully operate a business. The managerial skills and talents necessary for planning, organizing, directing and controlling both the human and material resources are essential components of effectively running a business outfit.

The study of Ololube and Uzorka (2008) showed that SMEs are unable to employ and maintain highly skilled workers because of their small sizes and the limited capital available. Skilled personnel like accountants and managers that are meant to be employed by SMEs are not engaged partly due to financial problems. This has resulted in poor accounting and financial management practices experienced by SMEs in Nigeria.

2. Lack of Finance

According to Ololube in Abeh (2017a), the budgetary allocations set aside to assist and that are available for SMEs growth and development in Nigeria is very small. Funds provided for SMEs are too small for proper planning for the take-off of SMEs. The condition of the SMEs remains a thing of concern. Under-funding and systemic corruption makes the matter worse.

Inadequate funding of SMEs stands as one of the major factors working against effective SMEs, planning and implementation (Abeh, 2017b). The capital base of would be entrepreneurs in Nigeria is very low because of the poverty rate and most SMEs find it difficult to access loans from banks. As a result, many of them are undercapitalized .

3. Lack of Innovation

According to Naylor (1999), innovation is key to SMEs strategy and a central factor for its competitive growth and development.. Abeh (2017a), SMEs are expected to introduce innovation into their business in order to create sustainable SMEs business solutions.

Innovation is a process that creates knowledge, which is collected, shared and integrated. In other words, it takes the form of new technology or new product or services. Thus, innovation is related to change that can be integrated or incremental. Commonly, innovation can be considered as implementation of exploration and process that shapes outcomes and products.

4. Political and Religious

The present political dispensation in Nigeria since independence does not allow for favourable and conducive environment for SMEs to operate. Delays in the passing of national budgets both in the states and federal levels are a major example. Party wrangling and disagreements takes months and years to settle. Unfavourable policies, laws and delays in the implementation of the national budgets stall proper planning of SMEs in Nigeria. The list is endless. According to Ololube and Uzorka (2008), the political atmosphere in Nigeria does not favour SMEs because they bear the brunt of such situations whenever they arise.

The constant change of power from one administration to another in the political space of Nigeria has militated against the success of SMEs. The persistent religious crises in Nigeria have negatively affected SMEs. Small businesses cannot afford to bribe their way towards having police and military personnel to guide their businesses. Most deaths that occur during religious crises are victims of small business owners. Politicians have failed on several occasions to address this issue as it does not affect their interest greatly, as such; efforts are not put into resolving the conflicts.

5. Social/Cultural

There is evidence (Ololube & Uzorka, 2008) that social factors influence the likelihood of a person becoming an SME owner or manager. The evidence according to Ololube and Uzorka (2008) include peaks in the age profile of the self-employed: the interaction of personal and social factors is illustrated by the data on ages of the self-employed. One of such studies according to Ololube and Uzorka found that SME starters were aged between 30-45 years.

Most SMEs follow from social marginalization and it is more common in some ethnic groups and some parts of Nigeria. It is predominantly evidenced that the Ibo speaking ethnic group tends to venture into business more than other ethnic groups in Nigeria. In the same degree of measure, they also have the propensity to sustain and grow in their businesses. This is because they grasp every opportunity that comes their way in business. Most of the northern part of Nigeria do not allow female to partake in business activities. Rather they prefer women to be full house wives.

6. Economy

The economy of Nigeria is marred with corruption in all aspects and corruption has continued to pose serious menace to the survival of SMEs in Nigeria. The report of Transparency Internationals 2016 Corruption Perception Index ranked Nigeria one of the most corrupt countries in the world (Economy Watch, 2016).

Corrupt practices appear to permeate all levels inducement to disburse government approved funds to micro, small and medium scale enterprises, down to office assistants, who declare files missing if not submitted with tips (Anochie et al., 2015). The high cost of doing business in Nigeria imposes economic dimension of challenges encountered by SMEs. In the present day Nigeria, the rate of poverty has resulted in the death of most SMEs because people can no longer afford to buy products and serviced resolving these problems.

7. Environmental

Another constraint in the growth and development of SMEs in Nigeria relate to environmental problems. Multiple taxation from environmental and allies agencies makes the operation and smooth running of SMEs difficult. This factor affects both entrepreneurial firms and non-entrepreneurial small businesses (Eneh, 2010; Abimbola & Agboola, 2011).  The high cost in business incorporation names, legal and professional fees, business permits and licenses increase start-up costs of SMEs.

The incidence of multiple taxation and levies in different forms by the federal, state and local government authorities constitute militating forces for emerging small businesses (Anochie et al., 2015). According to World Bank Business report , Nigeria was ranked 108 out of 178 economies studied with regards to friendly business environment. Several sub-Saharan countries like Botswana, Ethiopia, Ghana, Kenya and South Africa have better ranking. The provision of conducive environment for the development of SMEs will advance the growth and development of Nigeria (Ololube, Uriah & Dudafa, 2014).

8. Infrastructural Facilities

Ololube et al. in Abeh (2017a) observed that SMEs do not operate without a number of challenges that impede their successful entrepreneurial drive for national development. Amongst the notable challenges: almost all sub-infrastructures are inadequate.

This is as a result of lack of electricity to power ICT resources, poor telecommunication facilities, and insufficient funds in general. Nigeria spends less than 12% of its annual budget on SMEs. Agboli and Ukaegbu (2006) highlighted the devastating effect of poor infrastructural facilities, including epileptic power supply, poor condition of road network and inadequate water supply on emerging businesses.

In Nigeria, a large number of the population live below the poverty line, as such, average middle-income SMEs cannot afford basic technological and communication gadgets. The cost of computer related gadgets in Nigeria is three times the monthly wage of average SMEs. Thus, computer related telecommunication facilities remain less than useful for most

Nigerian SMEs, as computers are still a luxury in most SMEs, and many SMEs have not had the chance to develop the skills to use them. This has made the integration of needed on-line business resources (e.g., e-mail and the world-wide-web) into SMEs in Nigeria most difficult (Ololube et al. in Abeh, 2017a). According to Ololube and Uzorka (2008), huge amount of monies are spent on running generator sets to power equipments used for production of goods. Transportation from the rural areas to the urban centres is as well expensive, including the installation and maintenance of bore-holes for water supply.

We have highlighted the challenges facing SMEs in Nigeria. In the next episode, we will look at FINANCING SMEs.

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