The nation needs the Small and Medium Enterprises (SMEs) because they contribute meaningfully to economic development.  They are in the forefront of output expansion, employment generation, income redistribution, promotion of indigenous entrepreneurship and production of primary goods to strengthen industrial linkages.
The sector is responsible for about 70 percent of the total industrial employment in our country and between 10-15 percent of the total manufacturing output.  The agricultural sector which comprises mainly of SMEs have promoted indigenous technology and increased utilization of local raw materials.  They are the strongest promise we have for industrial growth.


The era of 1980s can be said to be golden years of SMEs in Nigeria. Those were the years of the Nigerian Industrial Development Bank Ltd (NIDB) and the Nigerian Bank for Commerce and Industry (NBCI).   They were Federal Government Development Banks specifically dedicated to the development of SMEs in the country.
They provided foreign exchange denominated loans for procurement of machineries and raw materials from foreign sources.  The interest rate was friendly and the amortization ranged from 5-7 years with about two years moratorium during which only the interest was paid.  The promoters used their equities to finance purchase of land and construction of buildings while the Commercial Banks provided the working capital.  During this period, capacity utilization reached 73.3 percent and the sector contributed immensely to the GDP.  Foreign exchange was abundant because the exchange rate was 65 kobo to the dollar.  Promoters and banks were not discriminatory with regard to the types of project financed or promoted.
The economic policy in vogue was Import Substitution which means that one could substitute importation with local production without taking due cognizance of the local availability of the raw materials. Many projects that were over-dependent on foreign raw materials were incepted.


When Structural Adjustment Programme (SAP) came with its abundant devaluation of Naira most of the SMEs collapsed because the quantum of Naira they required to purchase the appropriate amount of foreign exchange for their raw materials had shrunk considerably.  Most of them were forced to close down due to shortage of working capital required to finance constant importation of raw materials.  The banks could not help them because most of them were either undercapitalized or about to be distressed as a result of the effects of SAP.  This continued until the Naira became totally devalued and both the interest rate and the rate of inflation got out of hand.

As a result of all the above, the SME sector was reduced to rubbles, the economy became weak and the following conditions ensued.

· Buying and selling became the mainstay of the economy.
· The country became a dumping ground for other economies.
· The real sector became inactive.
· Unemployment escalated.
· Excessive importation became the order of the day and
· Capacity utilization plummeted.


One can say without any fear of doubt that unemployment escalated when the mechanism for sustaining SMEs were dismantled by SAP.   Unemployment is now the greatest problem confronting our country and it is the major cause of urban unrest and escalation in violent crimes.  About 48 percent of our population are presently unemployed while over one million students graduate from our tertiary institutions annually to join the army of unemployment people.  We must build capacities to develop more SMEs by empowering these unemployed through technical training and financing.  In countries where SMEs are given priority attention, they cater for over 65 percent of the national employment and contribute significantly to the GDP.  In our country presently, the sector is moribund because of multiplicity of problems.


Nigeria presently ranks 140 out of 174 countries on the Human Development Index (HDI) and the official estimates put the poverty level at 70 percent of the population.  In 1980, the poverty level was 27.1 percent but in 1992, it deteriorated to 42.8 percent and plummeted to 65.6 percent by 1996.  These show that as unemployment deteriorates, the level of poverty in our country also deteriorates.  The major demand of poor people is not food but various types of input and facilities that can help them generate income on the bases of their skills and proficiencies.



1. High Interest Rate:  One of the biggest problem confronting SMEs is paucity of funds for growth and expansion.  When these funds are sources, the interest rates are prohibitive thereby making goods uncompetitive with the imported ones.

2. Import Liberalization:  The over generous application of this policy as a result of the World Trade Organization (WTO) code, has made a mess of our infant industries by exposing them to rude and unfair competition to dumped goods from all over the globe.  Government must moderate this policy by protecting our local products.  Globalization must be approached with reason and protective judgment.  Free Trade as a global concept should not be adopted at expense of our domestic economy.   Importation of primary goods that can be produced locally by our SMEs should be discontinued and consumers should be educated to buy made in Nigeria goods so as to promote local employment.

3. Company Income Tax:  SMEs should be exempted from company tax for 10 years to enable them pay off their loans and get established.  This will enable them to grow, create employment and produce goods and services for the economy.  The products of viable SMEs will discourage frivolous importation which puts pressure on our foreign exchange and over-heats inflation.

Other Problems:  There are numerous other problems like management skill, lack of adequate infrastructure like power, water, roads, etc. Low consumer patronage, high cost of production, security, adulteration of goods, etc.  The government is seriously addressing some of these.
The government is determined to rebuild and reactivate the sector but the private sector must play a formidable part in the exercise.  Government’s determination is exemplified by the inception of the Bank of Industry (BOI) which assumed the assets and functions of the old NIDB and NBCI.  The BOI is tailored to be a reliable source of long term funds for SMEs and the interest and amortization rates should be more friendly than the commercial banks.


This agency was established under the pattern of American Small business Administration (SBA) to offer technical assistance to SMEs.  It has offices in 36 states of the federation including the federal capital.  The agency can help new entrepreneurs draw business plans and can reactive old businesses.  The agency needs to be more proactive by conducting workshops and seminars for SMEs and future entrepreneurs.


Some states had taken bold and emphatic steps to ameliorate the excessive lack of credit of Small Businesses and grassroots entrepreneurs. Delta State championed an innovative package of N16 billion which was disbursed through Community Banks.  Edo State also worked out some plans with the then  Habib Bank Nig. Ltd to provide loans to SMEs.  We hope that more states will copy these examples and do more in this present administration.


Since the demise of NIDB and NBCI, the Commercial Banks have systematically shied away from financing SMEs.  It is as a result of the need to provide an alternate long term funding arrangement that the then Governor of Central Bank floated the idea of SMEEIS to the Bankers Committee, which is made up of the Chief Executive Officers of the Banks.  The scheme requires all banks to set aside 10 percent of their Profit Before Tax for equity investment in SMEs on annual bases.  The operation of this scheme commenced in August, 2001 when it was launched by the President.

Latest Central Bank of Nigeria figures show that by July 31, 2007 the scheme had accumulated over N37.4 billion out of which only N18.9 billion or 49.5 percent had been invested.  This investment outlay shows that either the SMEs are not aggressive enough in pursuing the fund or that the fund managers are too lethargic in their portfolio management.  Which ever is the case, we would like to see an improvement on the rate of disbursement or investment.  We need to rapidly grow our SMEs so that they can take their rightful place in our economic development.

The advantages of SMEEIS are numerous:
– It ameliorates the chronic and endemic problem of cash crunch that has reduced our SMEs to inactivity.
– It provides the much needed management skills to help SMEs improve their efficiencies.
– The bank can also provide the SME the Working Capital Fund it requires to operate smoothly.
– The Equity Funds help our SMEs to acquire more productive assets, develop human capital, expand technical expertise, employ more people, produce more competitive and better products and services that improves our GDP.


A more efficient and productive SME sector, means more and better products and services for our country.  It also means better and more skilled workforce for our nation, ore contribution to our GDP and an improvement in the real sector.  Our unemployment situation will improve and the frequent migration of our youths to foreign lands as destitute and refugees will reduce.  Our products will become more competitive and can easily be exported to other countries.  Also, the notorious emphasis on importation will relax and the pressure on the Naira will be abated.  Inflation will reduce and the real sector will once more become the engine of growth.

All the above will contribute in eventuating our dream of becoming one of the 20 largest economies by the year 2020