Small Business in Sub-Saharan Africa: Major Constraints in [Nigeria] Introduction The Federal Republic of Nigeria has an area of 923,768. 00 sq kilometres and completely within the tropical zone (About. com 2005). Nigeria has a population which is estimated over 154 million. It is a 12th largest petroleum product producer in the world. Due to the surge in international oil prices during 2007-08, Nigeria administrated an annual GDP of US$352. 3 billion and has the largest GDP compare to all countries in West Africa. The GDP per capita is US $2,400 (Economy Watch n. . ). In Nigeria, the petroleum industry is central to the country economic profile. They are overly dependent on the petroleum sector. Besides the petroleum sector, Nigeria economy is highly amorphous and lacks basic infrastructure. Small businesses are important in sustained a country economic growth. However, there are still lots of constraints such as poor management, corruption, weak infrastructure, paucity of second generation, lack of capital and so on need to be tackled. This report will deeply analyse the small business environment of Nigeria.
Firstly, this report will state the measures of Nigeria’s government in promoting small business development. Secondly, the essay will look into the limitations that blocking the way of Nigeria small business growth. Finally, this report will state some recommendations about how to grow Nigeria small business. 1. The environment of small business in Nigeria The need for small business growth in Nigeria is beyond question, small business play an important role in a country economic growth. They provide job opportunities, enhance regional economic balance through industrial ispersal and generally promote effective resource utilization considered critical to engineering economic development and growth. However, a lot of obstacles are testing the survival of small business in Nigeria. 1. 1 Nigeria’s government measures and Funds After year 1970s, Nigeria’s government has introduced measures which included monetary, fiscal and export incentive to pushing the growth of small business. Centre Bank of Nigeria demanded merchant and commercial bank distribute a part of their loanable funds to small businesses.
Nigeria’s government and international financial institutions have create subsidized credit programmes and given loan guarantees such as Nigerian Bank for Commerce and Industry (NBCI), National Economic Reconstruction Fund (NERFUND), the Nigerian Industrial Development Bank (NIBD), and the World Bank SME I and SME II initiatives to provide either long term credit or specialized services to the small business entrepreneur (Abereijo and Fayomi 2005). At the first six years of business operation, small business owner was given a tax holiday in term of fiscal incentives from Nigeria’s government.
The Nigerian Export-Import Bank (NEXIM) has also provides export incentives for small businesses to motivate their export activity. For instance, Nigeria Export Promotion Council (NEPC) has managed export duty exemptions for small businesses (Okpara and Wynn 2007). Local and state government have established small business assistance programs which including extension services and entrepreneurs training. Nigeria has the agreement with the International Monetary Fund (IMF) to support more economic growth in Nigeria by helping to finance infrastructure improvements (International Monetary Fund 2007).
In these incentive programs, small businesses are expected to grow thrive in Nigeria. Although several efforts have been made to develop small business sectors but failed. At the end those funds mostly allocated to other projects. Those funds are given according to nepotism or favouritism (Okpara and Wynn 2007). Therefore, the constraints of small business survive and growth in Nigeria will be mention further in this report. 1. 2 Limitation of Nigeria’s small business growth There are too many limitations for Nigeria small business to growth. One of the related aspects is the paucity of second or third-generation firms.
For an example, the bread market in Port Harcourt, Nigeria was dominated by The Anirolf Bakery in the early 1970s. “Anirolf bread” soon disappeared from the dining table of Port Harcourt residents when the founder-owner of Anirolf Bakery dead suddenly in 1977 (Monibo A Sam 2003). Unlike large company, small businesses ownership and control are all together. The owner of the small business is the one who embodies the “structural blue print” of the enterprise. According to the resources, most of the small businesses fail to make the transition from one generation to another (Sund 2002, 123-133).
One of the major problems in managing and sustaining a small business in Nigeria is financial support. Some of the owner of small business claimed that it is hard to borrow capital from commercial banks or financial institutions because they are lacking of collateral. Commercial banks in Nigeria are generally biased toward large corporate borrowers, because they have more reliable financial information, credit ratings, provide better business plans and better chances of success and higher profitability for the banks compare to small business.
At the same time, the loans provided by micro-finance institution are less, with high interest rates plus short repayment periods (Okpara and Wynn 2007). In Nigeria, equity has distinct advantages over debt for the development of small business entrepreneur as a financing tool. There are some venture capital funds establish in Nigeria to acquire an equity share in small business. For instance, the European Investment Bank (EIB) had made 215 million Euros in risk capital to the developing countries like Africa in 2000. However, it presently comes with significant difficulty by the oot-dragging of the bank for investing in small business and the low response from the small business entrepreneur to apply for the fund (Abereijo and Fayomi 2005). Owing to low capitalization and insufficient assets, high mortality and vulnerability to market fluctuations, small business has been regarded as high risk borrowers by investors and creditors. This made traditional commercial banks and investors are foot-dragging of service small business. As a result of lacking small business accounting records, investors and creditors are having difficult to evaluate the creditworthiness of potential small business proposals.
At the same time, high administrative costs of investing or lending small amount do not make small business financing a profitable business. Even if banks and investors do lend to small business, they will charge the borrower higher interest for assuming risk and apply tougher screening measures, which drives up costs on all sides (Silver and Vegholm). Another major constraint cause small business failed is administrative problem which includes accounting, finance, personnel and management issues. Entrepreneurs lack of management experiences and poor record keeping are the main killer of small business survival.
For instance, entrepreneurs are tends to manage the business themselves and hires inexperienced staff in term of cut down operating cost, this may endangering professional image of business and customer loyalty. At the same time, most of the entrepreneur can’t account their business’ profit at the end of the month as a result of poor record keeping. Besides that, problems such as poor planning, lack of technical knowledge, weak in market research is also led to the failure of many small businesses (Mambula 2002). African country including Nigeria has its own version of corruption, it is a negative factor which the survival of small business.
According to the World Bank reports, only 1% of Nigeria’s population benefited by 80% of oil revenues as a result of serious corruption in Nigeria. This may also bring harmful impacts in small business growth in Nigeria, because a country health is reflected by its’ wealth (Journal of Perinatology 2005). Conclusions Obviously, the vital role of small business in the economy growth is doubtless. As discussed above, several reasons which included lack of financial support, lack of management skill, corruption, poor planning, paucity of second generation and bad record keeping have caused the failure of small business in Nigeria.
Except these, political activities also play an important role in small business failure in Nigeria. Without a proper implementation of the measures, small business in Nigeria would not growth in good health. Not only government, banks and small business entrepreneur are also important in pushing the survival and growth of small business. If the small businesses are unable to flourish, the economic of Nigeria will also be restricted, and this will cause the future of Nigeria to be uncertain. Recommendations As mentioned above, a number of elements were responsible for the small business flunk in Nigeria.
Among all, the main factor of small business failure is financial support. It is recommended that the owner of small business adopt the Grameen Bank model which removing the need for collateral (Grameen Bank 2010). They provide credits to the poor without any collateral. The small business owner also can seek for the assist from venture capitalists by selling business stake as they do not require collateral from borrowers. The large gains from the stock market are attracting venture capitalists to accept high risks.
With regard to the management problems, seminars for educate small business entrepreneur about record keeping, basic accounting knowledge, basic management skills can be conduct by nongovernment organisations, non-profit organisations and universities. Experienced workers should be employed and given reimbursement based on their skill, education, and experience. In term of government at local, state and federal level, it is recommended that to adopt the legitimacy action to enhance and build Nigeria’s infrastructure. For the success of small business in Nigeria, a corruption free society is a must.
It is recommended that government should establish anti-corruption organisation to prevent bribery activities. Any action and approval of government project should be transparent and supported by every citizen of Nigeria. (1,548 words) References Abereijo, I. O, A. O. Fayomi. 2005. Innovative Approach to SME Financing in Nigeria: A Review of Small and Medium Industries Equity Investment Scheme (SMIEIS). http://www. krepublishers. com/02-Journals/JSS/JSS-11-0-000-000-2005-Web/JSS-11-3-173-258-2005-Abst-PDF/JSS-11-3-219-227-2005-265-Abereijo-I-O/JSS-11-3-219-227-2005-265-Abereijo-I-O-Full-Text. pdf (accessed 6 April, 2010). About. com. 010. Nigeria. http://geography. about. com/library/cia/blcnigeria. htm (accessed 10 April,2010) Economy Watch. n. d. Nigeria Economy. http://www. economywatch. com/world_economy/nigeria/ (accessed April 8, 2010) Grameen Bank. 2010. Introduction. http://www. grameen-info. org/index. php? option=com_content&task=view&id=16&Itemid=112 (accessed 10 April, 2010) International Monetary Fund. 2007. IMF Country Report No. 07/271. Nigeria: Poverty Reduction Strategy Paper—Progress Report—Joint Staff Advisory Note. http://www. imf. org/external/pubs/ft/scr/2007/cr07271. pdf (accessed 10 April, 2010). Journal of Perinatology. 2005. http://www. ature. com/jp/journal/v25/n11/full/7211375a. html (accessed 8 April, 2010) Sam, M. A. 2003. Jstor. When founding entrepreneurs leave: the problem of succession in small firms in Nigeria, 1971-198o. http://www. jstor. org/pss/3876236 ( accessed 10 April, 2010) Silver, L, F. Vegholm. 2009. ProQuest. The dyadic bank-SME relationship; Customer adaptation in interaction, role and organisation. http://proquest. umi. com. dbgw. lis. curtin. edu. au/pqdweb? index=0&did=1927011491&SrchMode=1&sid=1&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1270908119&clientId=22212 (accessed 9 April, 2010). Sund, L. 2002. Small Business Economics. 9th Edition. Netherlands: Kluwer Academic. Mambula, C. 2002. ProQuest. Perceptions of SME growth constraints in Nigeria. http://proquest. umi. com. dbgw. lis. curtin. edu. au/pqdweb? index=14&did=105724666&SrchMode=1&sid=7&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1270909130&clientId=22212 (accessed 9 April). Okpara, J. O, P. Wynn. 2007. ProQuest. Determinants of Small Business Growth Constraints in a Sub-Saharan African Economy. http://proquest. umi. com. dbgw. lis. curtin. edu. au/pqdweb? index=3&did=1304108491&SrchMode=1&sid=2&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1270716417&clientId=22212&cfc=1 (accessed 9 April, 2010).