The Impact of Small and Medium Enterprises in Nigeria’s Economy

The term ‘’Small and Medium organization’’ is frequently used within the business environment, however it is very important to note that the term ‘’small’’ is subjective and can mean different sizes in different economies as well as countries (Ongori and Lutham 2009, p. 94). Within the European Union the maximum number of employees for an SME is 250 employees (Oyelaran-Oyeyinka et al, 2007), where as in the United States its fewer than 500 employees (Etuk, Reuben Ufot et al, 2014, pp 658-658).

In relation to Nigeria a small and medium-sized enterprise can be defined as a non-subsidiary as well as an independent firm which employs less 100 employees (Banji, 2008. Pp 16-17).To even be more specific the Nigerian National Council of Industry in 2003 described the small enterprise to have employees of about 11 to 35 (Ignisi,2002; Qureshi, 2012; Caiying and Wang, 2014).

Financial assets or monetary values can also be used to determine if a firm falls under the category of small, medium or big enterprises (Tom Gibson et al, 2008.pp 3-6). In the European Union the turnover of a small enterprises (10-49 employees) should not exceed EUR 10 million and the balance sheets should not be more than EUR 2 million. (OECD, 2005, page 17.)

However in Nigeria is different as the turnover of a small enterprises (11-35 employees) should not exceed Naira 10 million and the balance sheets should not be more than Naira 50 million including the cost of the land as specified by the Central Bank of Nigeria, 2005 (Ignisi,2002; Qureshi, 2012; Caiying and Wang, 2014).

There are constant claims by economic analysts that small scale firms are more efficient as well as effective at creating quality jobs, innovative, have a faster growth rate as compared to larger firms (Zoltan J. at al, 1988, pp 678-690), However these claims have also been questioned by even more scholars taking into consideration the rate at which small companies are not insulated to the risk of easily failing (Eric T. Wagner, 2013).

According to Sundar and Kumar, 2012, statistics have however proven over and over again that the small firms play a significant role in the overall success of an economy of any nation taking into consideration the number of people these small firms employ as well as the fact that most firms start of as small and eventually grow and become very big. It has to be emphasized that the economic contribution of the small enterprises depend critically on initial success in their home markets (Ayozie Daniel, 2013.pp 7-9).

In Nigeria there are respectable big corporations like, Adebowale Electricals, Doyin Groups of Companies, Dangote Groups, Eleganza Nigeria Limited, as well as JOAS Electrical Industry Limited which all at the beginning started off as small but are now very huge. Such firms are perfect reason why countries like Nigeria should continue supporting small organizations because in the long-term the whole economy is likely to rip enormous benefits (Johari, 2012).

Continuous arguments relating to the overall business environment in any given country has apparently caused some countries to question whether taxpayer or foundation moneys should be spent on small industry initiatives (Hallberg, 2000; Sundar and Kumar, 2012). In most countries policies related to the support of small industry are still in development but currently unclear because they haven’t quantified the actual benefit of small scale industries into the overall economic development of the country(Abubakar and Yahya, 2013)..

In this research we will focus on the impact or the role which the small scale businesses have played in the economy of Nigeria as a whole. We will document, research, analyze and well as scrutinize their importance, their disadvantages and well as contribution to diversified sectors within the Nigerian nation. We will also go ahead and scrutinize the support provided by the Nigerian government to the small businesses so as to clarify their importance taking into consideration the power they possess.


Over the past years there has been a lot arguments concerning the importance of small businesses to a nation’s economic growth. History and statistics have shown us that a lot of people have lost their jobs and more will lose their jobs in the coming months and years from large private as well as public funded companies as a result of downsizing (Ignisi, 2002; Taipale-Erävala and Lampela, 2010). The situation calls for the increased support of small businesses which seems to be the backbone of respectable nations such as China, Malaysia, Indonesia, etc. (Gundal, 2014).

The aim will be to take a closer look into the Nigerian economic system or situation and conduct a qualitative research evaluating the impact, significance as well as the role played by the small businesses in Nigeria’s economic growth taking into consideration that Nigeria has the largest internal market in Africa.

For a country like Nigeria were a number of people are desperate and dependent on small businesses for employment opportunities and also as a way for different investors to diversify their sources of income. It is of importance to try and quantify the value of these small businesses to the overall economic performance.


Critical analysis of the literature relating to the influence of small scale industries in Nigeria in terms of employment, tax revenue contribution, GDP, education, innovation as well as infrastructural development.

To investigate measures taken by the Nigerian government to promote the survival of the small scale businesses as well as what they are doing or have done to proliferate and promote their growth or development into big industries.

To evaluate positives or negatives of the impact of the small scale industries and come up with reliable conclusions and recommendation based on the outcome of research findings and analysis.

Literature Review

In any open or competitive market a business regardless of whether big or small contributes to the growth of the economy in terms of provision of employment as well as contributing to the total tax revenue (Fida, 2008). Nevertheless most significant question is how crucial is its contribution to the economy as well as how much impact does its survival or failure impact the performance of the overall economy (Desai, 2000;Ajonbadi, 2002; Navickas, 2014).

Nigeria is the most populated nation in the entire African continent with over 173 million people (Unicef Report, 2014) and a labor force of well above 60.83 million according to 2014 estimates; CIA, 2012. Statistics have shown that as a developing nation Nigeria has over 19.4 million small and medium sized firms and these structures employs over 43.6 million people and contribute may more than over 46.5% to the nation’s GDP (Smedan, 2014). The small business and middle sized companies account for 70% of industrial employment as well as 60% of agricultural employment (Odubajo and Usman2001; Abubakar and Yahya, 2013), these numbers are too impressive and show how valuable SMEs are to Nigeria.

Nigeria is a one of the countries in the world known to be suffering from a term usually referred to as a ‘’resource curse’’ (Aluko, 2004; Otaha, 2012), the statement refers to the failure of the Nigerian government to manage, control, be transparent as well as take advantage of the enormous resource endowment both in human capital and natural resources to facilitate positive economic performance. The enormous Nigerian resources have brought about a lot of pain and suffering to the people of Nigeria and the economy has continued to perform well below expectations due to a lot of insecurities for instance with Boko Haram (Lindsay J, 2014. pp 802).

Dating back to the early 1960s, the Nigerian governments have repeatedly promoted policies which support the reduced dependence on importation hence making small businesses very important for supplying the local raw materials (Olusomore, 2006). These policies have led to the development of a number of respectable companies such as Dangote Group which is now worth over 18,3 Billion $US according to Forbes(Damilare Opeyemi, 2016).

Statistically, the majority of the entire Nigerian registered companies is made up of small scale firms and the percentage rate has been gradually increasing over the years (Ayozie, 2006).The availability or the continuous development of these small scale industries is very crucial to the economic performance of the Nigerian economy (Oluseyi O. et al, 2013, pp 20-21). The Nigerian government has taken exception in recognizing the impact of these small industries as drivers of the economic growth and they have taken certain measures to promote continuous creation of new businesses as well as ensure their survival (Latinwo and Ayozie, 2010).

Taking into consideration that Nigeria is a developing nation (Barbara B, et al, 2015, pp 2-4), the United Nations Industrial development Organization (UNIDO), 2013 makes it clear that developing nations can conquer poverty as well as inequality by democratizing, deregulating, liberalizing the integration of small businesses into the global economy. Previous reliable studies have documented that small businesses are capable of contributing up to 55% of GDP and over 65% of total employment in high income countries (Kathryn Kobe, 2012, pp 10), these numbers are very impressive and they have led to a different number of analysts agreeing on the importance of small industries to any nation’s economy (Oyelaran-Oyeyinka et al, 2007).

In Nigeria agriculture sector is regarded as one of the economy’s critical sectors besides the oil industry which is more dominated by huge international as well as local companies (Tolulope O, et al, pp 5- 6). The agriculture sector’s importance to the economy dates back since their independence and it remains an aggressive as well as resilient sustainer of the economy (Sekunmade, 2009).

It is estimated that Nigeria’s Agriculture sector employs close to two-thirds of Nigeria’s labor force, contributes significantly to the GDP and is a provider of a large proportion of non-oil related earnings (CIA, 2013, Sekunmade, 2009). To make matter even more interesting, the agricultural sector still has several untapped potential for growth considering that it is estimated that about 84 million hectares of Nigeria’s total land area has potential for agriculture and yet only about 40% of it is under cultivation (FMARD, 2012).

Nigeria’s large and ever growing population provides a potential for a vibrant local market for increased agricultural productivity (Fida, 2008). Besides being Africa largest producer of oil, Nigeria’s gas reserves ranks 6th globally and it has the 8th largest crude oil reserve in the world (Sanusi, 2010), however despite all the blessings the nation ranks among the world’s poorest economies (Olusomore, 2006; Verbano andCrema, 2013). Considering the technical difficulties involved in the oil business it’s a challenge for small business to be involved in that sector.

Taking into consideration that China is now the biggest economy in the world, analysts have credited the small businesses for being the driving force toward economic growth (Kongolo, 2010).The SMEs in China once contributed up to 60% of the country’s GDP (Kongolo, 2010). If Nigeria were to follow the same strategy or blueprint then there is possibility that it may yield that same result.

Challenges Faced by Nigeria’s Small Businesses

Despite the prospective, enormous improvements as well as contribution of small businesses to the economic growth or economic development these small firms in Nigeria are performing well below expectations (Ihua, 2009). Apulu and Lutham (2009) found out that there are a diverse number of factors which influence and affect the performance of Nigerian’s small businesses hence preventing them from reaching or achieving their full potential (2003 cited in Apulu and Lutham 2009).

Governments around the world are increasingly focusing their attention on supporting the globalization of small businesses so as to be internationally competitiveness (Davenport, 2009). Previously in Nigeria internationalization of businesses has always been exclusively dominated by large business meaning small firms are less active most probably due to lack of funds or inadequate policy framework. However, the emergence of internet has made it more affordable to appeal to the international market without spending too much money in the process (Abubakar and Yahya, 2013).

Ongori (2008) points that the challenges faced by small firms consist of ; poor infrastructure, bad governance, lack of transparency, lack of capable management, undersized market, legal incompetence and organizational barriers, inadequate access to credit, and insufficient regional amalgamation and most importantly political insecurities of fluctuations. These factors might seem endless but there is a way to tackle all of them strategically to make them less risky or threatening to the small businesses.

Moving on, previous studies by (Ihua, 2009; Adenikinju, 2005; and Akpan-Obong, 2007) also reflected that the other factors that influence Nigerian’s small businesses consist of, inadequate skills and training, cultural factors, energy limitations, incompetent polices or frame work, lack of risk analysis. The list of negative factors faced by small Nigerian businesses seem to be stretching but the implementation of certain polices or support structures by the government might mitigate their effects (Crema, 2014).

Furthermore, critics of small business have emphasized that they are very costly for an economy (Hallberg, 2000; Sundar and Kumar, 2012) , are low paying, (Oyedaran-Oyeyinka, 2007), a ‘myth’ rather than ‘reality’ (Snadgross and Briggs, 1996; Little et al, (1996); Park 2011;Pingle, 2014) and their activities are often short-lived and that they have a tendency of evading taxes (Ajonbadi, 2002) and finally that they are corrupt (Dike, 2005).

Over the past years a lot of people have lost their jobs and more will even lose their jobs in the coming months and years from large private as well as public funded companies as a result of downsizing. (Ignisi, 2002; Taipale-Erävala and Lampela, 2010). The situation calls for the increased support of small businesses.

Most small businesses fail because they lack adequate skilled people and hence entrepreneurship education as well as promotion of entrepreneurship spirit through competitions, award ceremonies should be inducted Akpan-Obong (2007). Countries like Malaysia, Singapore, Korea, etc. have used such tools to motivate more and more people to start small businesses and it seems to be working (Gundal, 2014). To make the matter better the Nigerian government has introduced a policy or made it a requirement for all secondary school kids to have entrepreneurship as a compulsory subject (Abubakar and Yahya, 2013).

Despite the strategic role played by small businesses, Nigeria has failed to fully exploit the potential of small business where countries like Malaysia, Indonesia and China have managed to. Nigeria should prioritize that because empirical research findings have revealed that there is a positive relationship between small businesses development and economic growth (Sauser 2005; Harks and Gibson, 2006).

Research Approach and Methodology

Taking into consideration that this is an analytic research which will try to analyze the impact small scale businesses have had on the Nigerian economy, this study will utilize qualitative data collection tools as the primary mode of data collection.
Participants will be asked to respond to a series of semi structured interview questions and also given an optimum amount of time to respond so as to promote clarity and quality in their responses and finally everything will be explained to them prior to the interview.
A possible weakness of the qualitative research includes social desirability bias in the participant’s answers, for instance when a participant delivers responses that the researcher wants to hear (Lee and Sargeant, 2011) and a possible way of limiting such bias is by trying not to be overly friendly with the participant because in may taint the credibility of the study (Bryman and Bell, 2007).

However despite all measurers taken into consideration it has been decided that semi-structured interviews will best provide the quality of data required for this particular research.


This type of my methodology will require gathering information through interviewing industry experts, such as analysts, scholars, politicians, small business owners as well as workers in Nigeria.

The sample in this study will comprise of eight people two from each above mentioned category and the sampling technique will be conducted based on convenience of the participants. It has to be emphasized that the disadvantage of using convenience sampling is that it makes it very difficult to generalize the results because as the sample used does not necessarily fairly represent the population being taken into consideration (Bryman and Bell, 2007).

The emphasis will be put on interviewing people from different backgrounds so as to diversify as well as increase the reliability of the data collected.

Semi-structured interview question will be used, taking into consideration that they will guarded but at the same time giving the participant enough room to express his/her opinions without going out of the way. The other reason for choosing semi-structured questions is that they tend to be more thorough and easily understood by the participant as compared to unstructured questions which may easily be taken out of context (Borg and Gall, 1983, cited in Carruthers, 1990). In this study we will try to get diversified number of participants with a different cultural as well as educational background.

The advantage of semi-structured questions is that they will also give the interviewer an opportunity to ask for more information if needed without interrupting the flow of the participant. However semi-structured questions could be used as a tool to extract desired results considering that the researcher might ask questions follow up questions that intentionally lead the participant to a desired answer (Phillips and Hardy 2002).

The initial beginning stage involves the designing the main questions to be asked based on literature derived from other qualified scholars. In addition to the interviews being recorded, field notes will be taken of answers of particular interest in addition to comments regarding any significant changes in the participants‟ body language.

The disadvantage which I am likely to encounter involve the constant fight to stay away from already predetermined assumptions based on what I believe because one of the negative factors about qualitative study is for the researcher to have a clear mind and well as analyzes as well as perceive the data in a way the participant were thinking (Hannabuss, 1996).

Secondary data Collection Tools

As form of secondary data gathering, this research will use materials from other sources such as articles from analysts, sector experts as well as credible organizations, government websites as well as already published materials from other researchers. The availability of secondary data is expected to increase reliability, quality as well as the credibility of the research.

Proposed Data Analysis

The data collected will be processed, decoded, marginalized and organized manually without the use of any particular software. After the segmentation and coding the will be interpreted using the deductive approach method as well as the discourse analysis.

The reason why data will then be segmented and coded is to facilitate a critical discourse analysis and in this case discourse refers to the whole process of social interaction (Fairclough, 1989, quoted in Moufahim et al., 2007). Discourse analysis is considered critically important when analyzing relationships between texts and context, and helps clarify how meanings are constructed as well as how social reality is created, maintained and experienced by different people (Phillips and Hardy 2002).

The reason for the use of the deductive method concurs with the easy movement from data to theory, even from a specific point of view to a general point of view, which makes it very easy to be understood (Saunders et al., 2003).

Themes will be identified and, from this, the researcher should have the required information to determine the extent to which the small scale industries have affected the Nigerian economy.

Ethical Considerations

Each participant will be asked to sign a consent form prior to commencing the interviews and all will be given enough time to get prepared for the interview and they will also be given an opportunity to withdraw from the study at any given time if they feel uncomfortable or if for some reason they feel the need to withdraw. In order to be in line with the ethical rules every participant will be given precise information on how the collected data will be used and treated.

Considering that it’s going to be challenging to convince politicians for an interview and even if we manage to convince them they will provide answers which fit to the ideology of the party they represent, therefore in order to increase the probability of the politicians to speak their mind as well as provide us with uncompromised information we will guarantee them prioritized as well as complete anonymity from the public.

Finally, there is room to significantly expand the study empirically by increasing the number of research participants, interviewing high level politicians such as ministers and senators as well as adopting the use of quantitative data collection tools in form of questionnaires. Such extensions will most likely help improve the research key points on this study and also ameliorate the reliability, credibility as well as the quality of this study in general however they come at a cost in-terms of time and finance.

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