STRUCTURE AND CONSTRAINTS OF MICRO, SMALL AND MEDIUM SCALE

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Abstract

 

In both developed and developing economies, there are evidences of the immense contributions of MSMEs to economic growth and development. Small enterprises are known to adapt with greater ease under difficult and changing circumstances because they are typically low in capital intensity and allow product lines and inputs to be changed at relatively low cost. With the collapse of the world oil market and the ensuing economic downturn in Nigeria, refocusing attention on the MSMEs will help reduce unemployment, create wealth and alleviate poverty. Hence, this paper set out to profile the structure of MSMEs in Nigeria, examine their firm characteristics, financing and operations and constraints with a view to proffering suggestions on how to use MSMEs as a strategy for economic development in Nigeria in the face of the current economic downturn. Results of the survey conducted indicated that MSMEs dominate Nigeria’s economic landscape as 53.5 per cent of the respondents were in the micro-enterprise category, 29.6 per cent in the small-scale category, 14.1 per cent in the medium-enterprise category and only 2.8 per cent in the large scale category. Capacity utilization rate was highest for MSMEs in the agriculture/agro-processing sector at 70.2 per-cent compared with 55.4 per cent for those in the manufacturing sector. Inadequate fund/working capital was the most mentioned problem by the MSMEs. It was therefore, recommended that credit programmes that will take cognisance of the peculiarities of MSMEs in Nigeria be intensified so as to increase their access to funds in view of their dominance and potential contribution to the growth of the economy. 

 

1. INTRODUCTION

 

Micro, small and medium enterprises (MSMEs) are economic units whose number of employees or turnover falls below certain limits. The definition of MSMEs, change over time and depend, to a large extent, on a country’s level of development. Thus, what is considered small in a developed country like the USA could actually be classified as large in a developing country like Nigeria. However, the definition of MSMEs in Nigeria as contained in the National Policy on Micro, Small and Medium Enterprises produced by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in 2007, is adopted in this paper because it is in line with the definition in other developing countries like Indonesia (Timberg, 2000) and Ghana (Elijah and Nsikak, 2011) as well as in the European Union (EU) (European Commission, 2007).

Table 1: CLASSIFICATION OF MSMEs IN NIGERIA

 

Size Category

Employment

Assets

(excluding land and buildings) (in Naira)

1.

Micro enterprises

Less than 10

Less than  N  5 million

2.

Small enterprises

10 -49

5 to less than  N 50 million

3.

Medium enterprises

50 -199

50 to less than  N 500 million

Source: Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Abuja, 2007.

 

The National Policy document states that where there is a conflict in classification between employment and assets criteria (for example, if an enterprise has assets worth seven million naira (N7m) but employs 7 persons), the employment-based classification will take precedence and the enterprise would be regarded as micro (SMEDAN, 2007).  This is because employment-based classification tends to be a relatively more stable definition, given that inflationary pressures may compromise the asset-based definition.


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