I would forgive you if you didn’t know what SMEs mean or if you are just getting to know that such abbreviation exists.
Well, I was once in your shoes and I kept seeing SMEs in the dailies without bothering to check; another random business jargon I thought to myself till I decided enough was enough with ignorance.
SMEs stand for Small and Medium-sized Enterprises, voila! Very straight-forward and interpretable. In some countries the term MSMEs have been adopted meaning Micro, Small and Medium-sized Enterprises.
Small and Medium-sized Enterprises carry different meanings from country to country and are categorized based on a set of limits such as number of employees, asset base, annual revenue and most times a combination of two or all of these factors.
In Nigeria for instance, the Central Bank defines SMEs as businesses with an asset base between N5 million to N500 million and maximum manpower of 300 employees and at least 5 employees.
While definitions may differ from Country to Country or sometimes even State to State within a particular country, it is common that Small and medium-sized enterprises are the heartbeat of a large percentage of the world’s economies.
The smallest of things tend to suffer been underestimated sometimes but not SMEs, the outcome is ever-unpleasant.
As a matter of importance, a 2014 report by the Department for Business Innovation and Skills in the UK projected that majority of the UK’s private sector enterprises comprised of small and medium-sized enterprises putting it at roughly 99.3% of the private sector. The report also evaluated that the annual yield of SMEs made up almost half of its private sector’s turnover.
In not too distant Egypt, a 2012/2013 economic consensus revealed that over 99 percent of the nation’s businesses are small and medium-sized; 97 percent were small-size while a meager 2.7 percent represented the total of medium-sized businesses in the country.
While these large figures in terms of percentages do not always translate to economic development as is the case with some countries, it is pertinent to note that the survival of SMEs and sustainability correlates to economic growth and development based on the fact that SMEs are the backbone of any economy.
At home in Nigeria, a study conducted by the Federal Office of Statistics recorded the nation as having 97 percent of enterprises as small and medium-sized and when the nation’s economy is said to not be doing so great we could attribute it to a host of factors most importantly the dwindling fortunes of our small scale businesses.
Table of Contents
- How Do SMEs Contribute To Society?
- Why Do SMEs Struggle?
Some of the features of small and medium-sized enterprises have been highlighted in the preceding paragraphs. They will be retouched here with other features also included;
In Nigeria, the SMEs are categorized to fall within the 5 to 300 employees, N5million to N500 million threshold as defined by the Central Bank of Nigeria.
Most SMEs are sole proprietorship ventures i.e they have a single person as owner with the number of employees depending on the business’ scale of operations.
Small and medium-sized enterprises offer products and services for immediate and non-immediate consumption as is the case with retail and wholesale ventures respectively. Services could include: fashion designing, makeovers, photography, hair treatment etc.
Location of such ventures could depend on a lot of factors, majorly, entrepreneurs decide to locate their businesses closer to the market, that is, where their products or services are in demand for consumption.
Other factors that could determine the locations of SMEs are accessibility to social amenities, accessibility to raw materials; if it contributes to the businesses input and preferences of sorts all depending on the entrepreneur.
Capital can be raised in various ways as it pleases the business owner; savings, grants or loans from financial institutions, profit reinvested into the business. All these are ways that SMEs raise capitals.
How Do SMEs Contribute To Society?
The benefits to be reaped from a vibrant private sector are numerous. SMEs contribute immensely to the growth of society and sustainability of such growth if such enterprises can be sustained themselves by providing an enabling environment where they can thrive.
Small and medium-sized enterprises create numerous employment opportunities, providing over 65 percent of the Nigeria’s industrial manpower.
Since the decline of SMEs, the rate of unemployment in the country has increased as thousands of graduates from higher institutions of learning remain unemployed; thank God for the ‘naija’ spirit that has seen some of our ambitious youths create self-employment for sustenance even as society continues to be bruised by the actions of unemployed persons who have resorted to substance abuse and violence.
Small scale and medium-sized enterprises promote indignity. Before the vibrant SMEs in Nigeria in the 80s began to cave in due to unfavorable government measures and before the Nigerian market became awash with imported goods most of which are second-hand, a lot of companies that focused on the tapping of the nation’s resources to create finished products were active and yielding positively.
The textile industry, plastic industry, rubber industry that used to be up and kicking are now dead or not far from crossing over. These enterprises also used to be huge contributors to the Gross Domestic Product but since SAP, nothing’s been the same.
Why Do SMEs Struggle?
Nigeria’s chain of small and medium-sized businesses have struggled to replicate the success that SMEs saw in the 70s and 80s ever since the Structural Adjustment Programme(SAP) was implemented and the Naira was devalued.
Then government led by President Ibrahim Babangida could be blamed as having been responsible for implementing the SAP but doing so while absolving the entrepreneurs from blaming themselves isn’t fair judgement.
SMEs have struggled for such reasons as;
- High cost of production
- Inadequate infrastructure
- Less patronage; attributed to the naira’s low purchasing power now.
- Difficulty accessing funds for expansion; high interest rate.
- Free Trade policy kills our local industries
On the part of entrepreneurs, we can blame such things as;
- Poor managerial skills
- Misplaced priorities
- Poor attitude to work.
A lot is been done to revive the small and medium-sized enterprises especially by the government by providing access to long term funds for SMEs, technical training and certification, infrastructure building, reviewing unfriendly economic policies and making sure all such efforts pay off is a step in the right direction for Nigeria to experience economic growth.