The Role of SMEs in Nigeria Economic Development

The Role of SMEs in Nigeria Economic Development

The Role of SMEs in Nigeria Economic Development

This article is looking at the role of SMEs in Nigeria economic development. It is a review on how the micro, small and medium scale enterprises (MSMEs) have contributed to the economic growth in Nigeria, African and other countries of the world.

It is often said by reformers that ‘government should be conducted upon business principles’ and related analysis. This is because the government offers a wealth of data and information about businesses, industries and national economic situations.

This argument is however true, but “the principles of business have not changed…only the environment of business has” changed over the years.

For instance, the ultimate goal of any business is still to make profits.

However, the environments of business continue to change from the physical brick and mortar store examples; into everything digital eCommerce websites you can access 24/7 at the comfort of your home or office.

Today customers are now asking for more reliable, fast, convenient and conducive ways to spend their hard earned money.

With that being said,

We will follow statistical figures and reference our information from only reliable sources in this post; showing the importance of SMEs in Nigeria economic growth and that of other popular economies of the world.

According to the International Council for Small Business (ICSB), Micro, Small and Medium-sized Enterprises (MSMEs) make up over 90 per cent of all firms, provide up-to 60% employments, and account for 50 per cent of Gross Domestic Product (GDP) of any economy.

The Small and Medium sized businesses can also boost the economy of Nigeria in most different areas, such as employment create, poverty reduction, and industrial development among others.

The sector holds immense potential for generating employment opportunities for our ever increasing population, boost the development of indigenous technology, diversification of the economy; and forward-integration with established sectors in Nigeria such as the banking industry, telecommunication sector, oil and gas, etc.

What is MSMEs?

By definition, the Micro, Small and Medium sized Businesses, (MSMEs) are seen as the entrepreneurship businesses with small number of employees, normally from 1 to 100 employees; and up to 500 or more for medium sized companies.

Apart from the number of employees, these businesses are classified based on other factors, such as their industry category, sales potentials, and assets strengths. SMEs have small investment capitals, with small annual business turn-over.

Even though they are relatively small, there are great economic importance this sector can contribute to the national building which we are going to cover in this report.

Here, we will look at the Nigerian entrepreneurship structure with respect to some well meaning economies of the world that are growing due to their government investment in entrepreneurship.

The Role of SMEs in Economic Development: A Case Study of Nigeria, USA, and China.


The Role of SMEs in America Economic Development

The Small and Medium sized Enterprises are the backbone of successful economies like the USA, EU and China; where over 43 million small businesses employ about 60 to 70 per cent of the overall workforce, and generate more than half of the nations’ gross domestic products (GDP).

As of 2016, there were 28.8 million small businesses in United States of America, (compare to 18,500 large companies in the US.), which accounted for 99.7% of US businesses. (Source: SBA Gov 2016).

During the year ending December 2016, private-sector employment increased by 1.7% as the United States small businesses employed over 57.9 million people.

23 million of these businesses are self employed and home-based; showing that small businesses are the biggest employers of labor, job creators, and contributors to the National Gross Domestic Product (GDP).

The US has a GDP that is almost $17 trillion which is a quantitative measure of the United State’s total economic activity.

A report by Liberty Capital Group, also indicates that “around half of the American workforce is employed by a small business, and almost 67% of all new jobs are generated by small businesses”.


The greatest challenge to US small business growth and survival is linked to economic uncertainty, lower consumer spending and regulatory burdens.

When it comes to accessing the capital a business needs, many small business owners struggle, turning to banks and government – only to be denied or written off in favor of bigger corporate ventures.

The Role of SMEs in China Economic Development

Small and medium enterprises are the important driving forces for the economic growth of People’s Republic of China, a populous country in East Asia.

SMEs in China are considered quite bigger, relative to that of Europe or the United States when looking at the labor intensity in the production; and the huge size of China as a nation.

The current and projected population of China (2018) is estimated to be 1,394,102,196 (that is 1.4 Billion) people.

According to China’s Bureau of Statistics (CBS), the number of SMEs rose to over 40 Million in 2004. To put this into perspective, the number of SMEs in Europe which stood at about 19 Million in 2003.

In 2015, a report from the China Statistical Yearbook found that SMEs currently make up about 97.9% of all registered enterprises in China. They also contributed nearly 58 percent of the China GDP, and 68 percent of the total export volume.

SMEs are also playing significant role in the employment creation in China; with the number of employees in SMEs sector amounting to average 82% of total employees in China. This implies that they are responsible for the creation of nearly 75% of the new jobs every year.


Despite such a big importance to China’s economic growth, the MSMEs in China still face some challenges when it comes to business financing and information promotion.

The Role of SMEs in Nigeria Economic Development

The MSMEs occupy an important position in the economic development of any country, especially is the case of Nigeria which is a commodity market.

A survey carried out by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in conjunction with National Bureau of Statistics (NBS) revealed that the total number of MSMEs in the country as at 2013 stood at 37,067,416 companies.

In this total aggregate, the Micro Businesses recorded 36,994,578, while Small Businesses recorded 68,168. The Medium sized Businesses in Nigeria also recorded 4,670 according to the report.

The total number of persons employed by the sector as at December, 2013 stood at 59,741,211, which represents 84.02%  of the Nigeria total labour force.

In addition, the Micro, Small and Medium Scale Enterprises contribution to the nation’s Gross Domestic Product (GDP) in nominal terms stood at 48.47%; while the sector’s contribution to exportation also accounted for about 7.27% total volume in the same year.

The Role of SMEs in Nigeria Economic Development

The Role of SMEs in Nigeria Economic Development

The Future of MSMEs in Nigeria

Experts have argued that the MSME sector is the most neglected in Nigeria, with little or no support from government or financial institutions.

Stakeholders in the industry were also urged to come up with practical and sustainable solutions that would transform the current state of Nigeria’s economy.

Currently, there are over 37 million micro, small and medium enterprises in Nigeria that have employees, – amounting to 84.02% of the Nigeria total workforce.

This result is certainly not misplaced, but would have been more justifiable if an enabling environment can be provided for each of these MSMEs.

For example;

If each firm hired one more employee, we would be out of our current predicament of youth unemployment in Nigeria; which has increased to all time high – according to the new data published by Nigeria’s National Bureau of Statistics in the third quarter (June) of 2018.

You can imagine that over 37 million new jobs will be created by the entire SMEs in Nigeria by simply creating one extra employment opportunity.

Unfortunately, the development of a viable and efficient MSMEs sub-sector in Nigeria like many other evolving nations of the world is hampered by structural constraints over the years.

These constraints include difficulties in marketing and distribution of products, communication problems, lack of investment capitals, and lack of power supply to mention but a few.

When talking about the economic factors affecting businesses in Nigeria, most of these limiting factors are well covered in our future topic below.

Read: 10 Key Factors Affecting the Nigerian Business Entrepreneurs

Wrapping up: The Role of SMEs in Nigeria Economic Development

There is no doubt that small and medium scale enterprises are essential for rapid and sustained economic growth and development of any nation; including Nigeria, Africa and other growing countries of the world.

The micro, small and medium scale businesses in Nigerian can be the bedrock to the Economy if we can only give it a boost and the needed support.

The annual sessions of the Chinese People’s Political Consultative Conference (CPPCC), have raised opinions and suggestions that China needs technology innovation to adapt to the new economic growth opportunities, possible on the development of SMEs.

The Nigerian government, concerned institutions and authorities should also make entrepreneurship empowerment and the SMEs sub-sector a priority.

As most economists assert today:

“We will never generate a stable economic recovery from the depths of the “Great Recession” without an energetic response from both small and medium-sized businesses (SMEs)”.

The Nigerian graduates, busy working professional and retirees can no longer rely on salaries, pensions and post service years of unknown future jobs.

There is an urgent need for direct investment in entrepreneurship and small businesses across all major economic sectors in Nigeria like Agriculture, Information Technology, Manufacturing, Arts/Fashion, Entertainment, etc.

That with the prime mandate of: breaking the poverty and unemployment cycle in Nigeria and boosting the economy.

Though many government agencies and institutions have played and continue to play significant roles in the growth and improvement of SMEs in Nigeria; but more efforts are required if we are to achieve success.

SMEs will create employment opportunities for the teaming Nigerian population; enhance capacity building and manpower skills developments.

It will also promote economic growth, reduce the current poverty level as reported by the Word Bank Group, and of course facilitate industrial development in accordance with the sustainable development goals (SDGs).

Again, there is need for good policy and regulatory environment that supports the reform on the ease of doing business through MSMEs development; and implementation of such policies that will create and foster a positive business environment.

At this point, we can then maximize the roles of entrepreneurship in economic development, as we urge you to be a part to some of these empowerment programs currently available at Abbakin.

Abbakin is a small and medium size business developer in Nigeria. We create amazing solutions for individuals or organizations that call us!

We will help you if you are having problems growing your business!

Contact Us now to discourse your project!

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Comments (5)

  • olagoke Reply

    Please what day was this article published?

    April 12, 2018 at 4:19 pm
  • Olusegun Bamidele Solomon Reply

    Opening up the public procurement market is one of the ways to ensure send growth in Nigeria considering their enormous contribution to Nigeria GDP however the current Public Procurement Act 2007 didn’t expressly cover this aspect. Infact the provisions of the law has created bottle neck for Smes to participate in public contract. Hence the nëed to open up the public procurement MIT to SMEs as it is obtainable in other clime

    June 11, 2018 at 10:52 pm
  • Phillips Mary oladunni Reply

    Please is there a partnership with Nafdac as to enable small scale business registration with Nafdac and if yes please what’s the cost and requirement s?

    August 13, 2018 at 9:07 am
    • Abbakin Reply

      Philips, kindly visit any NAFDAC offices near you for more information about how you can register your products. Thanks

      August 17, 2018 at 10:45 am

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