Small and Medium Enterprises are businesses whose employee, business and asset numbers fall below certain barriers. The abbreviation “SME” is used by international organizations such as the World Bank, the European Union, the United Nations and the World Trade Organization in describing these businesses. SMEs serve as facilitators of economic development. They play an important role in the national economy by providing various goods and services, creating job opportunities, developing regional economies and communities, helping the competition in the market and offering innovation. By all standards, SMEs serve as a major backbone for all economies. However, many developing economies are negligent of this fact. This article will examine the different ways by which SMEs serve as important support systems for the Nigerian economy. It also reveals a call to action for SME support from the Nigerian government.
SMEs represent a source of entrepreneurship abilities and innovation. Their capacity to apply, adapt and disseminate new technology is distinct. According to the National Bureau of Statistics, SMEs account for 96% of businesses and 84% of employment creation in Nigeria. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, in terms of several enterprises. This demonstrates the immense impact that the SME sector has on general economic advancement. By creating jobs for middle and lower-income earners, SMEs serve as influential catalysts for poverty alleviation, job creation, and income generation.
It is noteworthy to acknowledge that available evidence shows SMEs occupy an important and strategic place in economic growth and development in all countries – not only developing ones, by constituting as high as 90% of enterprises in most economies worldwide. Therefore, asides from creating jobs, they also foster economic diversification and resilience.
Economic diversification is the process of shifting an economy away from a single income source toward multiple sources from a growing range of sectors and markets. Traditionally, it has been applied as a strategy to encourage positive economic growth and development. The inherent diversity of SMEs automatically positions it as a sector that encourages general economic diversification. This is because the now-dominant SME sector appears in numerous forms. While some are technology-oriented, others may drive the manufacturing or agricultural spaces. In all, the multiplicity of different types of SMEs guarantee that one sure way of ensuring diversification of the economy is through the development and financing of Small and Medium Scale Enterprises.
A healthy SME sector is vital to the sustainability and growth of an economy, especially in emerging environments. On a long term scale, SMEs contribute immensely to long term GDP increase. According to the National Bureau of Statistics, it is estimated that SMEs contribute 48% of GDP in Nigeria. The total of all SMEs activities including its influence on job creation expands the GDP rate of the economy on a long term basis. Also, their role in terms of production, contribution to exports & facilitating equitable distribution of income and supply of essential products for mass consumption all contribute to the eventual increase in the country’s GDP.
In spite of the importance of the SME sector to the Nigerian economy, there still exists a deep negligence towards it from the country’s administrative stakeholders. There is a need for support and funding for the SME sector within the country. Also, laws and propositions that enable the advancement of local SMEs should be put in place. Despite the importance of SME contribution to economic growth, SMEs across the nation are still faced with numerous challenges that inhibit business growth and contribution to the Nigerian economy. Apart from SME funding and seamless access to finance, SMEs also suffer from poor management skills which is a result of lack of adequate training and education. This results in high rates of business failure. Also, the support of the legal system, which can provide the needed confidence for effective practice, tends to be an issue of constant concern among SMEs in Nigeria. The Nigerian government therefore needs to provide adequate support in terms of funding and favourable policy formulation to ensure the sustainability of the SME sector.
One can conclude that a feasible and guaranteed way of enabling development in any emerging economy is a significant input into the growth of the SME sector of those economies. In the Nigerian space, SMEs continue to ensure economic sustainability and fulfil their responsibilities as backbones of the Nigerian Economy.
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