I would forgive you if you didn’t know what SMEs mean or if you are just now learning that such an abbreviation exists.
Well, I was once in your shoes and I kept seeing SMEs in the dailies without bothering to check; another random business jargon I thought to myself till I decided enough was enough with ignorance.
SMEs stand for Small and Medium-sized Enterprises. Voila! It’s very straightforward and interpretable.
In some countries, the term MSMEs has been adopted to mean Micro, Small, and Medium-sized Enterprises.
Small and Medium-sized Enterprises carry different meanings from country to country and are categorized based on a set of limits, such as the number of employees, asset base, annual revenue, and, most often, a combination of two or all of these factors.
In Nigeria, for instance, the Central Bank defines SMEs as businesses with an asset base between N5 million and N500 million and a maximum manpower of 300 employees or at least 5 employees.
While definitions may differ from Country to Country or sometimes even State to State within a particular country, Small and medium-sized enterprises are commonly considered the heartbeat of a large percentage of the world’s economies.
The smallest things tend to suffer being underestimated sometimes, but not SMEs; the outcome is ever-unpleasant.
Importantly, a 2014 report by the Department for Business Innovation and Skills in the UK projected that most of the UK’s private sector enterprises comprised small and medium-sized enterprises, putting them at roughly 99.3% of the private sector.
The report also evaluated that the annual yield of SMEs made up almost half of the private sector’s turnover.
In not-too-distant Egypt, a 2012/2013 economic consensus revealed that over 99 percent of the nation’s businesses are small and medium-sized; 97 percent were small, while a meager 2.7 percent represented the total number of medium-sized businesses in the country.
While these large percentages do not always translate to economic development, as is the case with some countries, it is pertinent to note that the survival and sustainability of SMEs correlate to economic growth and development because SMEs are the backbone of any economy.
At home in Nigeria, a study conducted by the Federal Office of Statistics recorded the nation as having 97 percent of enterprises as small and medium-sized.
When the nation’s economy is said to not be doing so great, we could attribute it to a host of factors, most importantly the dwindling fortunes of our small-scale businesses.
Features
Some of the features of small and medium-sized enterprises have been highlighted in the preceding paragraphs.
In Nigeria, SMEs are categorized as falling within the 5 to 300 employee, N5 million to N500 million threshold as defined by the Central Bank of Nigeria.
They will be retouched here with other features also included;
Ownership
Most SMEs are sole proprietorship ventures, i.e., they have a single owner, and the number of employees depends on the business’s scale of operations.
Operations
Small and medium-sized enterprises offer products and services for immediate and non-immediate consumption, as is the case with retail and wholesale ventures, respectively. Services could include fashion design, makeovers, photography, hair treatment, etc.
Location
The location of such ventures could depend on many factors. Mostly, entrepreneurs decide to locate their businesses closer to the market, that is, where their products or services are in demand.
Other factors that could determine the locations of SMEs are accessibility to social amenities and accessibility to raw materials, if they contribute to the business’s input and preferences, all depending on the entrepreneur.
Capital
Capital can be raised in various ways as it pleases the business owner: savings, grants or loans from financial institutions, and profit reinvested into the business. SMEs raise capital in all these ways.
How Do SMEs Contribute To Society?
There are numerous benefits to being reaped by a vibrant private sector. SMEs contribute immensely to society’s growth and sustainability if such enterprises can be sustained by providing an enabling environment where they can thrive.
Small and medium-sized enterprises create numerous employment opportunities, providing over 65 percent of Nigeria’s industrial manpower.
Since the decline of SMEs, the rate of unemployment in the country has increased as thousands of graduates from higher institutions of learning remain unemployed; thank God for the ‘Naija’ spirit that has seen some of our ambitious youths create self-employment for sustenance even as society continues to be bruised by the actions of unemployed persons who have resorted to substance abuse and violence.
Small-scale and medium-sized enterprises promote indignity. Before the vibrant SMEs in Nigeria in the 1980s began to cave in due to unfavorable government measures and before the Nigerian market became awash with imported goods, most of which were second-hand, many companies focused on tapping the nation’s resources to create finished products were active and yielding positively.
The textile, plastic, and rubber industries that used to be up and kicking are now dead or not far from crossing over. These enterprises also used to be huge contributors to the Gross Domestic Product, but since SAP, nothing’s been the same.
Why Do SMEs Struggle?
Nigeria’s chain of small and medium-sized businesses has struggled to replicate the success that SMEs saw in the 1970s and 1980s ever since the Structural Adjustment Programme(SAP) was implemented, and the Naira was devalued.
The government led by President Ibrahim Babangida could be blamed for implementing the SAP, but doing so while absolving the entrepreneurs from blaming themselves isn’t a fair judgment.
SMEs have struggled for such reasons as;
- High cost of production
- Inadequate infrastructure
- Less patronage is attributed to the naira’s low purchasing power now.
- Difficulty accessing funds for expansion; high interest rate.
- Free Trade policy kills our local industries
On the part of entrepreneurs, we can blame such things as;
- Poor managerial skills
- Illiteracy
- Misplaced priorities
- Poor attitude to work.
A lot has been done to revive small and medium-sized enterprises, especially by the government.
Providing access to long-term funds for SMEs, technical training and certification, infrastructure building, reviewing unfriendly economic policies, and making sure all such efforts pay off is a step in the right direction for Nigeria to experience economic growth.
