Social Sciences

Infrastructural Deficiencies and Business Environment for SMEs in Nigeria, Basic Issues and Policy Options

Bachelors Degree


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The study is on infrastructural deficiencies and business environment for Small and Medium Enterprises in Nigeria was undertaken to find out how the business environment has been affected due to poor infrastructural facilities in Nigeria and its impact on the economic growth of the country. Small and Medium Enterprises (SMEs) is accepted globally as a tool for empowering the citizenry and economic growth. Nigeria seeks to be counted among the world’s 20 largest economies by 2020 (vision 2020) and this to many is not practical. This research work tends to figure out how infrastructural deficiencies in Nigeria has affected the business environment and its negative effect to small and medium enterprises in Nigeria. There by limiting the growth and development of the Nigeria’s economy. The study also looks forward to proffer solution to the problem and thereby brings an improvement to the level Small and Medium Enterprises (SMEs) operate. The growth of small and medium enterprises have been said to combine the strategies of poverty alleviation and industrialization into unique package that is beneficial not only to the entrepreneurs but also to the country at large. Therefore if the problems of infrastructure are been addressed small and medium enterprises would be seen as a tool for achieving the great Nigeria vision of been among the world’s 20 largest economies (vision 2020).

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It is now widely recognized that a conducive and enabling policy and regulatory environment is crucial to development of Small and Medium Enterprises (SMEs). The macroeconomic framework and the policies that are aimed at supporting SMEs development will determine and influence the demand for their products and services and can facilitate or deny access to the markets that are so essential for SMEs creation and growth. The efficacy of infrastructural system impacts on the efficiency of investment competitiveness in Nigeria. In many developing countries, Nigeria inclusive, the public sector has been the main agent for infrastructural development and the need to foster the development of small business is to stimulate employment, mobilize local resources, reduce migration from rural to urban centres and more even dispersal of industries throughout the country. A small scale industry  is that industry whose  total project cost excluding  cost of land but including working capital is not more than  ₦10 million (Osoba, 1987). Conversely a medium scale industry is that industry  whose  total project cost excluding cost of land but including  working capital does not exceed ₦40 million (Osoba, 1987).  However, the definition  of  SME’s  varies from country to  country  and even within  a single country  over time as  growth and  structural changes takes place in  the  country. A policy framework that is biased against SME’s, whether internationally  or not  can restrict access to  essential input such  as start – up and  working capital, machinery  and equipment and  raw materials. SMEs may be excluded from obtaining space and  facilities  to  set up and  run  the business and even where  inputs are available, distortions  in  the market may  make  them  disproportionately expensive  for  SMEs.

In Nigeria, several organizations involved in SMEs development individually adopted definition that suited their purpose. However, the study and evaluation of experiences in many countries shows that the policy and regulatory environment also determines to a very large degree, the success and sustainability of direct assistance to and support programmes for SMEs. In addition to stimulating the creation of new enterprises and fostering their viability and growth, and environment is not favorable, direct support to SMEs development such as accessibility to credit and finance, management and skill training, technology upgrading, marketing assistance, and the provision of workshops and facilities will only have a minimal and temporary effects. As a result of rise in cost of  machinery in producing  nations, the high cost of  building materials and the  unsuitable  and increasingly exchange value of foreign  currency against the naira, the above definitions were adopted by the National  Council of Industries in  1991.

A legal and regulatory framework which calls for excessively complex registration and licensing requirements and demands tedious and costly reporting practices, imposes unrealistic constraints on trading and business activities  and places a heavy burden entrepreneurs and their businesses. Extensive government participation in the economy and excessive control of market may dampen entrepreneurial drive. Even educational and training policies and programmes may discourage entrepreneurship and hinder the development of the enterprises culture necessary to nurture viable SMEs. In the second national development plan, it was suggested that in order to fill obvious needs and gaps that can supply products such as rubber items, glass windows, radiator, bottles, vehicle’s assembly,  livestock feeds (maize, fish, meat) surgical dressing from textile,  vegetable oil from groundnut, are likely  to spring up possibly through initiatives taken in the private sector.

Also, in the third national development plan, it was proposed that the study of effective method of encouraging small businesses should be carried out during the development plan in addition to other personal such as the creation of industrial development centres and the financing of small scale industries credit schemes. Both the third and the fourth plan documents recognized that industrial policy objectives can only be achieved by focusing on small business and through the provision of special financial and technical assistance to them.

3 firms float $30 million fund for SMEs. Shell Petroleum Development Company, Diamond Bank Plc and GroFin of South Africa have partnered to float a $30million  fund branded “ASPIRE  NIGERIA” to serve as a catalyst for the development and growth of Nigerian Small and Medium Enterprises (SMEs)

The fund “ASPIRE NIGERIA” is expected to enhance the operations of indigenous small and medium enterprises through the provision of much needed business development assistance and appropriate finance.

ASPIRE NIGERIA is an innovative and important step towards creating sustainable growth of the Nigerian SMEs sector.

Historically, businesses in this sector have not only lacked access to capital but also skill development. This combination has limited their ability to grow and achieve their potential.

It is important to note that the ASPIRE NIGERIA fund is a joint step in a deliberate effort to address the fund and developmental problems of small and medium scale Nigerian entrepreneurs.

The fund will be made up of the following respective contributions:

Shell – US $10million

Diamond Bank – US $20million and

GroFin – US $0.6million.

Table of Contents


Title Page

Table of Contents




1.1     Background to the Study       

1.2     Statement of Problem

1.3     Objectives of the Study

1.4     Statement of Hypotheses

1.5     Significance of the Study

1.6     Scope and Limitation of the Study

1.7     Outline of Chapter         s



2.1     Concept of Small and Medium Scale Enterprises (SMEs)

  • Contribution of SMEs
  • Technology Management Ownership
  • Financing the SMEs

2.2     Financial Needs and Financial Problems of SMEs

2.3     Potential of SMEs in Nigeria

2.4     Challenges in the Development of SMEs

2.4.1  Information

2.4.2  Finance

  • Technical

2.4.4  Environmental

2.4.5  Managerial

2.4.6  Personnel

  • Raw Materials
  • Market
  • Infrastructure
  • Theoretical Frameworks

2.5.1  Profit Maximization of SMEs



3.1     Introduction

3.2     Model Specification

3.3     Statement of Hypotheses

3.4     Statistical Tools for Testing the Hypotheses

3.5     Sources of Data



  • Presentation of Data
  • Discussion of Results



  • Summary
  • Conclusions
  • Recommendations




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