Micro, small and medium enterprises (MSMEs) play a big role in the Nigerian economy and economies around the globe. MSMEs outnumber large companies by a wide margin and also employ many more people. SMEs are important for economic and social reasons, given the sector’s role in employment.
SMEs are also said to be responsible for driving innovation and competition in many economic sectors. In Nigeria, most micro businesses are often owned and managed by sole operators. In this post, we shared a quick overview of the status of MSMEs in Nigeria and how they make an impact on the country’s economy.
What is an MSME?
The definitions of micro-business, small business, and medium business depend on the country and who is defining the terms. In Nigeria, Micro Small and Medium Enterprises (MSMEs) are generally referred to as enterprises with up to 250 employees.
The definitions of small and medium enterprises are as follows: –
- Micro Enterprises: between 1 and 9 employees.
- Small Enterprises: between 10 and 49 employees.
- Medium Enterprises: between 50 and 249 employees.
Population of MSMEs In Nigeria
According to the Ministry of Industry, Trade, and Investment, Nigeria has over 37.07 million micro, small and medium-scale enterprises, MSMEs, and they account for more than 84 percent of total jobs in the country. The ministry also claimed that the MSME enterprises in Nigeria also account for about 48.5 percent of the gross domestic product, GDP, as well as about 7.27 percent of goods and services exported out of the country.
Based on the total numbers of MSMEs in Nigeria, Micro Enterprises account for the bulk with 36,994,578 enterprises (about 99.8 percent), while small enterprises took 68,168, and medium enterprises 4,670. Lagos, Oyo and Kano State are the top three states in Nigeria with the highest number of MSMEs in Nigeria.
MSMEs Benefits to Economic Growth
Most economies, particularly those of developing countries like Nigeria, march on the shoulders of small and medium-sized businesses. This is because MSMEs are characterized by dynamism, innovations, efficiency, and their small size allows for a faster decision-making process.
The benefits of MSMEs to any economy are easily apparent, they include:
- Contribution to the economy in terms of output of goods and services;
- Creation of jobs at relatively low capital cost, especially in the fast-growing service sector;
- Provide a vehicle for reducing income disparities;
- Develop a pool of skilled and semi-skilled workers as a basis for future industrial expansion;
- Improve forward and backward linkages between economically, socially and geographically diverse sectors of the economy;
- Provide opportunities for developing and adapting appropriate technological approaches;
- Offer an excellent breeding ground for entrepreneurial and managerial talent, the critical shortage of which is often a great handicap to economic development, among others.
SMEs are believed to be the engine room for the development of any economy because they form the bulk of business activities in a growing economy like that of Nigeria.
Funding Gap for MSMEs in Nigeria
The lack of finance for MSMEs has been an issue discussed by the government, industry leaders and financial institutions at large. Most MSME businesses have challenges getting the required finances to improve and grow their businesses.
In 2013, The CBN launched the MSME Development Fund with a share capital of N220 billion. The Fund was established in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy and the existing huge financing gap. The broad objective of the Fund is to channel low-interest funds to the MSME sub-sector of the Nigerian economy through Participating Financial Institutions (PFIs).
Also, Banks and Fintechs (financial technology companies) have also been filling the gap in the market by providing short-term financial loans to MSMEs in Nigeria. Banks often require a large amount of paperwork, including a business plan, as part of the application process compared to Fintechs who leverage data and technology to provide smooth and quick access to funds.
In the past and recent times, the Nigerian Government has established numerous schemes and programs specifically targeted at MSMEs e.g. SMEDAN, YouWin, TraderMoni, N-Power, etc. All these efforts combined together form a great step at bridging the gap for MSMEs in Nigeria.
As Nigeria emerges as one of the brightest economic spots in the World and No. 1 in Africa, it should focus on ways to make help MSMEs, the most powerful driver of its growth survive, succeed and soar.
It is equally important that the MSME segment develops in all areas of agriculture, manufacturing and services sectors because each of these sectors will continue to be very relevant to the overall GDP growth as well as employment generation. The MSME sector will act as a catalyst to bring about this socio-economic transformation.