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This study,AN ASSESSMENT OF THE CONTRIBUTION OF SME’S TO SUSTAINABLE ECONOMIC DEVELOPMENT IN NIGERIA contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.




This study, an assessment of the contribution of Small and Medium Scale Enterprises (SMEs) to sustainable economic development in Nigeria., was undertaken to find out if the SME sub-sector in Nigeria has performed its critical role of driving the country’s industrial transformation and development as it has done in other developed countries; and if not, why? The study thus investigated the performance of the Small and Medium Enterprises sub-sector of the Nigerian economy (1999-2013), its problems and prospects and recommended measures to make the sub-sector virile and vibrant in order to play the crucial role it is expected to play. This study relied mostly on secondary data from Central Bank of Nigeria’s Statistical Bulletin and Nigerian National Bureau of Statistic. The study adopted the ordinary least square (OLS) multiple regression technique to evaluate the data collected. The study period ranges from 1999 to 2013, using real GDP as the dependent variable, while commercial bank loans to SME’s, output of SME’s and Employment rate by SME’s are used as the independent variables. The result showed that 40.93% variation in real GDP is explained by the independent variables, while the remaining 59.07% are determined outside the model. The result of OLS also showed that the model is statistically significant using the F-test. The potentials and opportunities for SMEs in Nigeria to rebound and play the crucial role of engine of growth, development and industrialization, wealth creation, poverty reduction and employment creation are enormous. The realization of this requires a paradigm shift from paying lip service to a practical radical approach and focus on this all-important sector of the economy by the government realistically addressing the identified problems, while SMEs themselves need to change their attitude and habits relating to entrepreneurship development. The major findings of this study include the following: SMEs have played and continue to play significant roles in the growth, development and industrialization of many economies the world over. In the case of Nigeria, SMEs have performed below expectation due to a combination of problems which ranges from attitude and habits of SMEs themselves through environmental related factors, instability of governments and frequent government policy changes and somersaults.




Small and Medium Enterprises (SMEs) in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria. This situation has been of great concern to the government, citizenry, operators, practitioners and the organised private sector groups. Year in year out, the governments at federal, state and even local levels through budgetary allocations, policies and pronouncements have signified interest and acknowledgement of the crucial role of the SME sub-sector of the economy and hence made policies for energizing the same. There have also been fiscal incentives, grants, bilateral and multilateral agencies support and aids as well as specialized institutions all geared towards making the SME sub- sector vibrant.

World Bank, (1988) defines SMEs as an enterprise whose total fixed assets (excluding land) plus working capital does not exceed N10 million in constant 1988 prices. This means that a general increase in the price level will, normally bring about a rise in the upper limit of the Small-Medium Enterprises capital outlay within this definition. Small scale industry orientation is part and parcel of most nations. Evidence abound in our respective communities of what successes our great grandparents made of their respective trading concerns yam barns, iron smelting, farming, cottage industries and the likes. So the secret behind their success of a self reliant strategy does not, like in any particular political philosophy so much as in the people’s attitude to enterprise and in the right to which the right incentive is adequate enough to make risk worth taking are provided. Majority of the small scale industries developed from cottage industries to small enterprises and from small scale to medium and large scale enterprises (Ogechukwu, 2011).

Small and Medium Enterprises, (SMES) are very critical to the development of any economy. The important role of SMEs to the development of the economy of any nation is even more evident when the economies of developing nations are considered. The SMEs have played very important roles in the development of many Asian countries, and indeed the Asian giants. The economic boom in some of these Asian countries which is not unconnected to SME shave lifted hundreds of millions of people out of poverty and created tens of millions of new middle-class consumers (Tanzer, 2005). SMEs are responsible for driving innovation and competition in many economies.  In India, the SMEs account for about 39% of manufacturing output and 33% of total exports. SMEs possess great potential for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large scale industries (CBN, 2011). According to Fadahusi and Daodu (1997), SMEs constitute very significance sector of the Japanese economy due to a well articulated services and programmes in support of the sector, some of which are legislation, financial support, consultancy, technological, marketing, sub-contracting and modernizing advice given by government and non-governmental organization. Vem (2011) pointed out that, there are 4.69million SMEs constituting about 99.7 percent of all enterprises, accounting for 70 percent of all employment in the Japanese economy.

In the UK, SMEs have no investment ceiling but an employment ceiling of 199 employees Oyekamni (2003). According to the Department of Business Enterprise and Regulatory Reform (BERR) Enterprise Directorate analytical unit, the UK economy is 99 percent SMEs. Out of a total of 4.8million UK businesses, less than 1 percent are large corporations (i.e. over 250 employees). Besides one – man – bands who represent a huge 73 percent of all UK businesses yet only account for 7.4 percent of gross domestic product (GDP). UK SMEs employ 14.23million people out of a working population of approximately 30million (Vem, 2011).

Small and medium enterprises are a very important part of the Nigerian economy as a study by the International Finance Corporation (IFC) show that approximately 96% of Nigerian businesses are SMEs (Oyelarin-Oyeyinka2010). The SMEs represent about 90% of manufacturing/industrial sector in terms of number of enterprises in Nigeria. Between 1970 and 1979 when Nigeria adopted the SMEs subsector as a catalyst for economic growth and development, the sector contributed insignificantly to the level of employment because the supportive environment for the SMEs was weak. Various attempts were made by successive government to actually revamp the sector but to no avail. As at 1994 and 1999, the sector contributed 25.15 percent and 32.40 percent respectively to the level of employment in Nigeria. When the Small and Medium Industry Development Agency (SMIDA) was established in 2003 which was later changed to Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) in 2004, the performance of the sector became encouraging. It accounted for about 41.10 percent of employment level during this period. The introduction of microfinance policy, regulatory and supervisory framework for Nigeria in 2005 with the objective of providing a legal framework for microfinance banks to channel funds to the SME subsector raises the employment level of the sector to 44.80 percent. Also in 2006, 2007 and 2008, the SMEs contributed about 46.80 percent, 47.81 percent and 48.39 percent respectively to employment level. Other policies like the Small and Medium Equity Investment Scheme (SMEEIS) in 2009, the 200 billion for Small and Medium Enterprise Credit Guarantee Scheme in 2010 among others were set up for the SMEs sector. This effort improved the performance of SMEs in terms of employment as it does generate 48.41 percent, 48.43 percent and 48.60 percent in 2009, 2010 and 2011 respectively (CBN, 2011). The 2012 enterprise baseline survey has revealed that there are about 17,284,671 SMEs in Nigeria employing about 32,414,884 persons in Nigeria (Punch Monday 24th June, 2012). From the foregoing, we discover that the SMEs sector has been contributing significantly to the level of employment in Nigeria as more incentives, policies or initiatives are created.

However, in spite of the fact that the SMEs Constitute more than 90% of Nigerian businesses, their contribution to GDP Is only about 1%. Broadly speaking, SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant unsavory impacts on the economy. In a seminar titled “Carer Crisis and Financial Distress-The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: low level of entrepreneurial skills, poor management practices, constrained access to money and capital markets, low equity participation from the promoters because of insufficient personal savings due to their level of poverty and low return on investment, inadequate equity capital, poor infrastructural facilities, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agencies and overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times. This is why SME’s have not been able to achieve its goal in Nigeria.

Sustainable Development is a continual enhancement of the quality of human life both for now and the future. The report of the World Commission on Environment and Development of the United Nations in 1983 popularly known as Brundtland Commission Report 1983 holds thus:

Sustainable development is development that meets the need of the present without compromising the ability of future generations to meet their own needs. In essence, sustainable development is a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development; and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations

The SMEs remain a veritable vehicle for the transformation of Nigerian economy. For the governments to realize the lofty objectives of the development programmes, the SME sub-sector has to be thoroughly revamped and focused. This is one of the ways that the government can be sure of realizing the objectives of the well-intended economic reforms and move the economy forward for the benefits of all stakeholders, particularly the impoverished masses as it accounts for over 95 per cent of the non oil productive activities in Nigeria and 94 per cent total share of the employment figure (Ndubusi, 2004).

The importance of SMEs in employment generation and hence economic development is known both at local and international level. They have been recognized and acknowledge as springboard for sustainable development. The interest of nations in promoting SMEs is based on the failure of pass industrial policies to generate efficient self sustainable growth (Olorunshola, 2003). These failures range from attitudes and habits of SMEs themselves through environmental related factors, instability of government and frequent government policy changes. As a result of this backdrop, the researcher has decided to research on the impact of SME’s on sustainable economic development in Nigeria.

This study therefore focuses on the evaluation of the various financing initiatives that can be utilize effectively to foster the development of SMEs and as such, enhanced economic growth and development via employment generation.


Small and medium scale enterprises have enormous contributions to the socio-economic development of Nigeria as it serves as the source of livelihood for many. Yet, the scope of their operations and impact on the economy in terms of  meeting  the expectations of government in accelerating job creation, increasing the production of goods and services, facilitating technology transfer, creating more opportunities for entrepreneurs in Nigeria is due mainly to inadequate credit facilities. As pointed out by Akingunola (2011) in Abereijo and Fayomi (2005), the inadequate credit facilities to SMEs are attributed to the following:

(i) They are regarded by creditors and investors as high risk borrowers due to insufficient assets and low capitalization, vulnerability to market fluctuations and high mortality rates;

(ii) The existence of information asymmetry arising from SMEs lack of accounting records, inadequate financial statements or business plans makes it difficult for creditors and investors to assess the credit worthiness of potential SMEs proposal; and

(iii)  High administrative/ transaction costs of lending or investing small amount. They averred that the combined effects of these factors make SMEs financing an unprofitable business.

Inadequate government incentives are also hindrances to the performance of SMEs. The supportive business environment for SMEs is still weak in Nigeria. The SMEs support programmes such as The Youth Enterprise with Innovation in Nigeria (You Win) Programme meant to generate jobs by encouraging and supporting aspiring entrepreneurial youth in Nigeria to develop and execute business ideas that will lead to job creation; Train to Work (TRATOW) Initiative which is targeted at equipping young Nigerians with the skills required to establish and manage their small businesses; Campaign for Patronage of Made-in-Nigeria Products with the objective of providing access to market thereby enhancing the turnover of SMEs and making them more competitive as the programme provides incentive for individuals to establish one form of small or medium scale business or the other. These programmes are poorly coordinated and lack the necessary coverage to reach all sectors of the SMEs community (NBS and SMEDAN, 2010).

Inadequate information is another factor affecting the performance of SMEs. SMEs are usually characterized by poor record keeping which tend to starve the necessary information required for planning and management purposes. Other problems faced by SMEs include poor management expertise, lack of raw materials, poor accounting system, lack of continuity among others.

This is why certain policies and strategies such as the Small and Medium Scale Enterprises credit Guarantee Scheme (SMECGS), Small and Medium Scale Enterprise Development Agency of Nigeria (SMEDAN), The Small and Medium Enterprises Equity Investment Scheme (SMEEIS), and Micro Finance Institutions (MFIs) among others have been developed to ensure a viable SMEs sub-sector to create employment to people and to also contribute to economic growth and development.

Based on the above, this research work seeks to examine the following:

  1. Is there any significant relation between the growth of SMEs and sustainable economic development in Nigeria?
  2. What is the impact of SMEs on sustainable economic development in Nigeria?
  3. What is the constraint/challenge of SMEs in its operations, and its prospect in the Nigerian economy?
  4. What are the strategies/policies that will help in breaking the yoke of non performance of SMEs?


This work is generally aimed at evaluating Nigeria’s SMEs and assessing their contributions to the economy in terms of employment generation which could lead to sustainable economic development.

The specific objectives include to:

  1. determine the relationship between SMEs and sustainable economic development in Nigeria
  2. examine the impact of SMEs as a strategy for sustainable economic development.
  3. identify the constraints of SMEs in employment generation in Nigeria.
  4. evaluate the strategies/financing policies and incentives available to SMEs in Nigeria


The research design adopted in this study is partially exploratory as it attempts to uncover the various motivating and facilitating factors in SMEs. The design is basically descriptive and analytical in approach. To ascertain this relationship therefore, the researcher employs the use of econometric analysis and statistical tools.

The study adopted the ordinary least squares (OLS) to determine the impact of SMEs on sustainable economic growth using real GDP as proxy. The OLS is suitable in this study because the coefficient estimates are more efficient if the model is free from other econometric problems such as serial correlation, heteroschedasticity and multicollinearity (Koutsoyannis,1977).

The model to be used can be specified using real GDP as the dependent variable , while the output of SMEs (X1) and bank’s credits to SMEs (X2) as independent variables.

The model specified thus:

RGDP= α0 1 SMEO + α2 SMEB+ Ui


RGDP=Real Gross Domestic Product

SMEO=Small and Medium Enterprises Output

SMEB=Bank Credit to SMEs

Ui= Error term

α0, α1 and α2=estimated parameters on a priori grounds, it is expected that α1 and α2 should be greater than zero (α1, α2>0).

The model specified above implies that the output of SMEs, employment rate by SMEs and commercial banks lending to SMEs have a significant impact which could be positive or negative on the level of real GDP in the economy.


The following hypothesis has been formulated

Ho: The SMEs has no impact on sustainable economic development in Nigeria

H1: The SMEs has an impact on sustainable economic development in Nigeria.


The significance of the study of SMEs as a strategy for sustainable economic development cannot be overemphasized. SMEs whether in developed or underdeveloped economies play a vital role as far as development is concerned. Policy makers therefore require a thorough understanding of the employment role of SMEs in the economy and hence, formulate future policies that will strengthen the sector.

Industrialists on the other hand require adequate information on the trends in the sector so as to channel their investment accordingly. A good knowledge of the aggregate contribution from the sub-groups that make up the SMEs will enable them know particular industries which are more viable for investment.

Finally, this research work will also be of permanent importance to students as well as researchers who may find this work valuable in gathering information related to the topic (SMEs as a strategy for sustainable economic development in Nigeria)


Basically, data required for research work of this kind are from two sources – primary (raw data) and secondary sources (processed data from the raw data). However, the researcher employed the use of secondary data obtained from the central bank of Nigeria (CBN), national bureau of statistics (NBS), small and medium scale enterprises development agency of Nigeria (SMEDAN), CBN publications, national census for business and industries (NCIB) and state ministry for commerce and industries. Other sources include published materials such as seminar papers, text books, newspapers, journals, articles and ultimately the World Wide Web (www).


This research work encompasses all the recognized SMEs in Nigeria. Some of them include (textiles, brewing, Leather production industries, fabricated metal products, soaps and detergent, paints, drugs, vegetables and grains milling as well as building materials industries etc) based on their contributions to the SMEs sector. The statistical analysis covers a period of 14 years (1999-2013).

The research work has been constrained by certain factors beyond the researcher’s control. First, time and finance; these did not permit the researcher to cover much grounds as expected especially in the aspect of sourcing data required; and also in the aspect of exploring the internet. Secondly, biases and inaccuracy in data collection and finally, the poor record keeping of business transaction in terms of turnover. Others rarely disclose their operations because they would want to evade and avoid tax.

However, these constraints to a lesser extent does not distort the validity of our findings.


This research work is approached and organized into five chapters. Chapter one gives an introduction of the project work clearly stating the background, statement of problem, objectives of the study, significance of the study, research hypothesis, methodology, the scope and limitations of the study.

Chapter two embodied the concepts/definitions of SMEs and sustainable development, the theoretical and empirical framework. Chapter three is the main focus of this research – small and medium scale enterprises as a strategy for sustainable development in Nigeria. The study therefore covers a general overview of SMEs in Nigeria, the role of SMEs in economic growth and development of Nigeria, the impact of SMEs in employment generation in Nigeria, policies and incentives available to SMEs in Nigeria and the challenges and prospects of SMEs in employment generation in Nigeria.

Chapter four is the analysis of data and interpretation while chapter five is the summary, conclusion and recommendations.


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