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Description
In almost all economies, small businesses are vital for sustained growth. A high failure rate is a huge negative for an economy, especially a developing economy with limited capital. This is the situation in Nigeria despite government programs established--on paper--to help entrepreneurs. Structured interviews and a survey gathered data from almost 400 small businesses in Nigeria to find the principal constraints to success, including poor management, lack of capital, corruption, weak infrastructure, poor recordkeeping and so on. Unfortunately, many of the solutions are hostage to the political climate as well as educational progress.
Introduction
Small businesses are generally regarded as the driving force of economic growth, job creation, and poverty reduction in developing countries. They have been the means through which accelerated economic growth and rapid industrialization have been achieved (Harris and Gibson, 2006; Sauser, 2005; van Eeden, Viviers and Venter, 2004; Arinaitwe, 2002; Kiggundu, 2002; Yusuf and Schindehutte, 2000; Monk, 2000; Goedhuys and Sleuwaegen, 2000; Birch, 1981, 1987). While the contributions of small businesses to development are generally acknowledged, entrepreneurs face many obstacles that limit their long-term survival and development. Research on small-business development has shown that the rate of failure in developing countries is higher than in the developed world (Arinaitwe, 2002). Scholars have indicated that starting a business is a risky venture and warn that the chances of small-business owners making it past the five-year mark are very slim. They should develop both long-term and short-term strategies to guard against failure (Sauser, 2005; Monk, 2000).
A positive relationship has been documented between small-business development and economic growth in developed countries (Harris and Gibson, 2006; Monk, 2000; Sauser, 2005; Birch, 1987; Birch, 1981). However, far less research has been conducted on this relationship in developing countries. Studies in small-business development are necessary in countries like Nigeria because of the dissimilarities in the process between developed and developing countries (Arinaitwe, 2002). It is also essential to understand the problems facing small-business development in African countries because they are significantly different from those facing developed countries. These obstacles include a lack of financial resources, lack of management experience, poor location, laws and regulations, general economic conditions, as well as critical factors such as poor infrastructure, corruption, low demand for products and services, and poverty. According to Arinaitwe (2002), internal and external components differ considerably among developing countries.
Our literature search revealed that, to date, very little research has been conducted on the growth constraints of small businesses in Nigeria in general and none on this topic. Studies on other African countries may not apply to the Nigerian business environment.
Why is this study significant? First, in a globalize economy, there is increasing recognition that identifying the problems facing small-business management in a non-Western context may be meaningful in terms of the types of assistance (finance, training, management, and technology) the West may provide. Second, the economy of Nigeria is growing rapidly, and Nigeria has opened its borders to international business. Therefore, scholars and practitioners should understand the level of small-business development, which plays a significant role in providing ancillary services to multinational corporations. Third, it is essential to determine whether small-business management practices and policies developed in the West are valid in a non-Western country. Fourth, the study draws management and policy-makers' attention to the urgent need for specific management practices to enhance the effectiveness and sustainability of small-businesses in Nigeria. Finally, from an academic perspective this study's insights should contribute to the future development of this line of research, particularly in a developing country like Nigeria. Therefore, the present study is of significant value to practitioners and scholars alike.
Given the importance of small business to a nation's economic growth, and also the role that small business plays in poverty reduction, we postulate that an understanding of the problems negatively affecting small businesses in Nigeria is a vital first step in managing and avoiding the massive failure of these small businesses.
Study Background
The Federal Republic of Nigeria is the most densely populated country in Africa (Okpara, 1996, 2006). It has boundaries with the Republic of Benin in the west, Chad Republic and the Republic of Cameroon in the east, Niger Republic in the north, and the Gulf of Guinea in the south. With a population estimated at over 100 million, one in every two West Africans is said to be a Nigerian (Yusuf and Schindehutte, 2000). The country's GDP is larger than that of all countries in West Africa combined and larger than all countries in Africa except South Africa (Adaya, 1998).
Recognizing the indispensable role of small businesses and private sector enterprises in general economic development, many countries have instituted enterprise support networks and structures to fuel the development of these enterprises. Nigeria is no exception. At various times since the 1970s, the government has designed and introduced measures to promote small-and medium-enterprise development (Yusuf and Schindehutte, 2000). These measures have included fiscal, monetary, and export incentives.
The fiscal incentives included tax holidays and tariff concessions. For instance, small businesses were given a tax holiday for the first six years of their operations. In terms of monetary support, the Central Bank of Nigeria introduced credit guidelines requiring commercial and merchant banks to allocate a portion of their loanable funds to small businesses. Several developmental financial institutions and schemes were also established to aid small businesses, including the Nigerian Bank of Commerce and Industry (NCBI), the Nigerian Industrial Development Bank (NIDB), and the World Bank SME I and SME II initiatives. There were also export incentives from the Nigerian Export-Import Bank (NEXIM) to stimulate export loan facilities to small businesses as well as export duty exemptions administered by the Nigeria Export Promotion Council (NEPC). Other small business incentive programs included personnel training, repair and maintenance of specialized machines, and extension services. Small-business assistance programs have also been established by local and state governments.
Over the past six years, the present government has pursued a policy that should provide fertile ground for small-business including trade liberalization and making the operating environment more friendly to entrepreneurs. The International Monetary Fund (IMF) has agreed to support more economic growth in Nigeria by helping to finance infrastructure improvements (Akwani, 2007).
In the light of these support and incentive programs, it would seem reasonable to expect that small businesses would grow and flourish in Nigeria. However, the effectiveness of these programs remains unclear, and the rate of business failure continues to increase. Accordingly,... |
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