Saturday, 13 July 2013

SME: Pillars of an Economy

Small and medium enterprises are companies whose personnel numbers fall below certain limits. Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.

Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as web design and programming, etc.

The development of SMEs is an essential element in the growth strategy of most economies and holds particular significance for Nigeria.
SMEs contribute to improved living standards, bring about substantial local capital formation and achieve high level of productivity and capability. SMEs are recognized as the principal means of achieving equitable and sustainable industrial diversification and dispersal

SMEs account for well over half of the total share of employment sales and value added SMEs constitute the most viable and veritable vehicle for self sustaining industrial development, as they possess the capability to grow an indigenous enterprise culture more than any other strategy. SMEs represent the sub sector of special focus in any meaningful economic restructuring program that targets employment generation, poverty alleviation, food security, rapid industrialization and reversing rural urban migration…in essence "small is profitable in Africa.

The benefits of SMEs cannot be over emphasised. They include; contributions 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;
Its a vehicle for the reduction of income disparities thus developing a pool of skilled or semi-skilled workers as a basis for the 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 in Nigeria are facing daunting challenges which include poor infrastructural development, unstable macro-economic environment and inadequate access to capital. Of all these, poor access to finance is noted to be a primary and major constraint due to a number of reasons,which include banks' reluctance to lend to SMEs, their preference to lending to the largest companies which tend to crowd out smaller firms, and inadequate rural banking. Other factors include the small size of SMEs and their opaque financial reporting standard, lack of convincing track record and ignorance of owners about other channels of raising finance capital.

For Nigeria to benefit from the potential of SMEs in catalysing economic boom, experts believe there should be a strong political will by the government to drive and sustain growth and development. The banks in setting lending rules should take cognisance of the peculiar features of SMEs, while owners of SMEs should cultivate the culture of employing the services of professionals in the preparation of feasibility reports, book keeping, accounting and general advice.
Sent from my BlackBerry® wireless handheld from Glo Mobile.

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