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Challenges Affecting the Performance of Small and Medium
provided Scale
by Universiti Enterprises
Teknikal Malaysia (SMEs) In Nigeria
Melaka: UTeM Open Journal System

CHALLENGES AFFECTING THE PERFORMANCE OF

SMALL AND MEDIUM SCALE ENTERPRISES (SMEs) IN
NIGERIA

Mohammed Sani Abdullahi1, Balarabe Abubakar Jakada2,

Salwa Kabir1

Department of Business Administration and Management,

1

School of Management Studies, Kano State Polytechnic, Nigeria.

2
Department of Business Administration and Entrepreneurship,
Bayero University Kano, Nigeria.

ABSTRACT

Small and medium scale enterprises (SMEs) have been identified as the
catalysts and builders for economic growth and national development
for both developed and developing countries, particularly Nigeria.
The objective of this study is to investigate the challenges affecting the
performance of SMEs in Nigeria. This paper identifies the challenges
affecting the performance of SMEs in Nigeria to include financial
constraints, infrastructural problems, management problems, marketing
problems, technological problems, corruption problem, lack of skill
labour, government unfavourable fiscal policy and policy inconsistence’s,
inadequate training, socio-cultural problem, strategic planning problem,
multiple taxation, and location and business environment problem. But
this study discovered that the major challenges that affect the performance
of SMEs in Nigeria are finance, infrastructure and training among other
challenges which this study adequately focused on. This study suggests
that finance, infrastructure and training should be given adequate
concentration. Thus, it is recommended that the government should make
loan available for SMEs entrepreneurs, interest rate charge should be single
digit instead of double digit, and the collateral demanded by the financial
institutions before given out any financial assistance should be fear or the
collateral should not be demanded when the project embark on can serve as
the collateral. There is a need for the government to improve the existing
infrastructure such as power supply, transportation, communication,
water supply and roads in the country. Lastly, the SMEs entrepreneurs
should inculcate the habit of training and developing their management
and workforce to build a strong capacity for meeting the challenges of time
to embrace and take advantage of development.

INDEX TERMS: Challenges, performance, SMEs, development, growth,

Nigeria

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Journal of Technology Management and Technopreneurship

I. INTRODUCTION
In Africa, the SMEs sector accounts for almost ninety percent of all the
enterprises or firms, located in both the rural and urban areas, whereby
there provide more equitable distributions of income in all spheres of
the countries. Nigeria, been the focus continent of discussion, SMEs
account for about 70% of industrial employment (Adebusuyi, 1997).
Odeyemi (2003) describes Nigeria SMEs as a very heterogeneous group
of businesses that operate in different sectors of the economy. This
means that the SMEs are the major source of providing job opportunities
to the people, and also stimulate the development of the countries by
promoting business skills and entrepreneurship amongst communities
and strengthening the local or domestic production sector as well as
the industrial base. Therefore, SMEs in Africa have been recognized to
be an essential engine for obtaining national development goals, which
include economic growth and poverty alleviation (Mokaddem, 2006).

Despite such, SMEs in Nigeria have not been performing creditably

well and hence have not played or shows the expected role in the
economic growth and development of the nation. The issue has been of
high concern to the government, citizenry, practitioners, operators, and
the organized private sector groups. Governments at Federal, State and
even local levels through budgetary allocations, pronouncements and
policies have signified interest and acknowledgement of the important
roles of the SMEs sector of the economy and hence made policies for
energizing the sector. There have also been supports and aids from
fiscal incentives, grants, bilateral and multilateral agencies as well
as specialized institutions, which are all geared towards making the
SMEs sector vibrant, and also it is a great concern to all, and sundry
to promote development and performance of SMEs. With this, it has
been a great concern for all the fact that the vital sector has fall shorts
of expectations. The situation is more worrying and disturbing when
compared with what other developed and developing countries have
been able to achieve with their SMEs sectors, and it has been shown
that there are high correlation and relationship between the degree of
poverty, hunger, unemployment, economic well-being of the citizens
of the countries and the degree of vibrancy of the respective SMEs
(Onugu, 2005).

Onugu (2005) posits that if Nigeria was to achieve an appreciable

success towards the attaining the Millennium Development Goals
(MDGs) for 20:2020, one of the possible ways is to pursue the growth
and development of its SMEs performance vigorously. Some of the
key MDGs, like reducing child mortality, reducing extreme hunger

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 Challenges Affecting the Performance of Small and Medium Scale Enterprises (SMEs) In Nigeria

and poverty, improving maternal health and the rest, may indeed be a
mirage unless there is a turnaround of the SMEs fortunes sooner than
later in order to achieve efficient result. It is now time to do something
surgical to the situation of the SMEs in order to achieve performance,
given the aggravating level of poverty in Nigeria and the need to meet
up with the MDGs. One of the major drawbacks in Nigeria’s quest
for industrial growth and development over the past years has been
the absence of a vibrant, strong and performing SMEs sector. Given
a population of well over one hundred and twenty million people,
rich variety of mineral deposits, vast productive and arable land, and
also enormous human and other natural resources, Nigeria should
have been a haven for SMEs with maximum returns, as it also has
the location advantage as a marketing hub for the West and even East
African Countries (Onugu, 2005).

A number of facts have been adduced as to why the expectations of

SMEs have not been achieved. These clearly shows that the performance
of SMEs in Nigeria has not been favourable over the years now. First
and foremost, the little progress that was made by the entrepreneurial
efforts of the first generation of indigenous industrialists were
almost wiped out by the massive traumatic devaluation, dislocation
and indeed devastation, that develop as a result of the Structural
Adjustment Programme (SAP) (Onugu, 2005). Onugu (2005) stressed
that the policies and good intentions of SAP were based on the neo-
classical theory of efficiency, perfect and competitive markets whose
assumptions were unfortunately not harmonized with the prevailing
constraints, circumstances and operating environment of SMEs in a
developing economy like that of Nigeria. The SAP era represents the
anti-climax of flourishing, and thriving period for SMEs in Nigeria over
the past decade and the economy of the country has been declining with
no appreciable real growth. People gradually moved out of the farms
into urban areas due to lack of agricultural incentives, and also even in
the towns and cities, infrastructure continued to deteriorate, the roads
were in bad conditions, water supply was irregular, power outage was
a regular phenomenon or issue, and even for people who could afford
to make use of electricity-generating sets, petroleum products to power
them might not be available as needed. Political instability negatively
affected the performance of primary institutions responsible for policy
enunciation, monitoring and implementation that result in distortions
in the macroeconomic structure and its attendant of low productivity.
These and other problems constitute drawbacks to the performance of
SMEs, which to all intents and purposes provide the critical building
blocks for sustainable industrialization and economic growth.

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Journal of Technology Management and Technopreneurship

This study has discovered and identified finance, infrastructure and

training as the most influential factors that affect the performance of
SMEs among other challenges.

Problem Statement
SMEs are very dynamic and acknowledged as factory of production,
for economic growth, development and poverty alleviation in both
developed and developing countries. This universal recognition of
SMEs is justified by its potentials in the areas of job creation, ability
to mobilize domestic savings for investment, introduction of business
methods, capacity to reduce inequalities, products and services that
help to restructure the weak agricultural sector or other uncompetitive
transition economies, stability of economic balance through industrial
dispersal, promotion or provision of efficient resource utilization,
linking participants in supply chain among others (Ojo, 2006; Ogujiuba,
Ohuche & Adenuga, 2004; SEAF, 2004). Despite the significance of
SMEs contribution to economic growth, government institutions and
policies aimed at supporting and enhancing the capacity of SMEs in
Nigeria still yet SMEs fall short of expectations.

Onugu (2005) posits that the performance of SMEs in Nigeria has been
slow and in some cases even collapsed due to a number of challenges
confronting this important sub-sector of the Nigerian economy. Some of
the obstacles highlighted in the body of literature as being responsible for
the problems include: deplorable infrastructural facilities; inadequate
managerial and entrepreneurial skills; financing challenges; limited
demand for their products and services; limited capacity for research
and development as well as innovation; insufficient technology system;
burden of multiple taxes charge; lack of business plan or good business
plan; recruitment of incompetent employees; absence of motivation to
staff; choosing of wrong business location; lack of transparency arising
from government regulations and regulatory bodies; as well as lack of
interest and focus on the side of government in addressing the specific
factors responsible for the abysmal performance of the sub-sector. On
the other hand, Oluboba (2011) argue that the issues faced by SMEs can
never be overemphasized and it is as a result of poor access to funds,
management practices, low equity participation from stakeholders,
inadequate infrastructural facilities, societal and attitudinal problems,
shortage of skilled manpower, multiplicity of regulating agencies, little
access to markets and lack of access to information.

Oghunbiyi (1999) argues that the main problem facing SMEs in Nigeria
is inadequate finance. According to him, the finance may be for the

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 Challenges Affecting the Performance of Small and Medium Scale Enterprises (SMEs) In Nigeria

establishment of new business, innovate an existing one or to carry out

expansion plans. The inability to attract financial credit has made the
sub-sector backward. In his view, commercial banks that are expected
to be the launch pad for SMEs development through the provision of
loans. Stiff collateral security demands by the banks often mean that
SMEs are unable to meet the requirements, consequently losing the
chance of obtaining loans. In addition, high-interest rates charge on
loans scare off potential entrepreneurs to access financial credits that
make the performance of SMEs not to be achieved (Joseph, 2013). Osalor
(2012) posits that the most disturbing and the critical factor among
challenges affecting the performance of SMEs is funding/finance but
concedes that most SMEs are not attractive prospects for banks because
there want to minimize their risk profile. SMEs in Nigeria are found to
rely largely on their own personal savings or contributions, not only to
grow and expand in operation and size but also to innovate, whereas
enterprises often need real services support and formal financial
assistance. These have put a lot of SMEs into a problem as a result of it;
they found themselves in a stage of under-investment in the long term
(Oyelaran & Oyeyinka, 2003).

Onugu (2005) argues that despite the incentives, programmes, policies

and support aimed at revamping the SMEs, they have performed
rather below expectation in Nigeria. Different people, organizations,
and operators have advanced. Various reasons to consider why
SMEs has not been able or in the capacity to live up to their billing.
While an average operator would always hinge their failure to lack
of access to finance, some think otherwise arguing that difficulty in
accessing global market, inappropriate management skills, lack of
entrepreneurial skills and know-how, inadequate infrastructure, and
the rest are mainly responsible. Finance is usually considered as the
main obstacle of SMEs. While this may be true empirical evidence have
shown that fund/finance contributes only about twenty-five percent
to the success of SMEs, which sounds insignificant. Thus, the creation
of other appropriate support systems and enabling environment are
indispensable for the success of SMEs in Nigeria (Ekwem, 2011).

In conclusion, researches on empirical and theoretical study by

(Oyelaran and Oyeyinka, 2003; Onugu, 2005; Oluboba, 2010; Osalor,
2012 and Joseph, 2013) have shown the problems facing the performance
of SMEs. Some have been tackled by previous researchers while some
still affect the performance of SMEs in Nigeria. As a result of this it
clearly shows a gap, which have been identified as the major problems
that still affect the sector that are known as finance, infrastructure
and training which adequate attention will be given and they are the

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vacuum area to be filled up in order to add value to knowledge in this

study. The reason or the yardstick while the variables under study was
used in this study despite it has been used by previous studies is that in
Nigeria same variables solution to its challenges have not been meant
with that it hinders the performance of SMEs. The uniqueness of the
study variables is that they serves as the flourish engine for SMEs to
achieve its aims in the Nigeri context, and at the same time the variables
of such nature have not been used in same study in Nigeria, this shows
that using same variables in same study is very effective and efficient
because with that it will easily capture or to know the performance of
SMEs if the variables under study are all in place in Nigeria.

II. LITERATURE REVIEW

Concept of Small and Medium Scale Enterprises in Nigeria
The issue of what constitutes SMEs is a major concern in the literature.
Various authors have spelled out different definitions to this category
of business. SMEs indeed have not been spared with the definition
problems associated with concepts that have many components. The
definition of SMEs changes between researchers. Some make use of
turnover level, skill labour or make use of a capital asset to explain what
SMEs mean. Others also define SMEs in terms of method of production
and legal status (Abor & Quartey, 2010).

Nwokoye (1988) stressed that SMEs are those enterprises that employ
between five and one hundred staff with an annual turnover of
almost four hundred thousand naira. Okorie (1989) opined that SSE
is an indigenous owned establishment with less than fifty full-time
employees. Onugu (2005) stressed that SSE are those enterprises that
has a total cost which include working capital but exclude the cost
of land which is between ten million naira and one hundred million
naira and/or employing eleven and seventy full-time workers, with a
turnover which is not more than ten million in an annual. While MSE
are those enterprises that has a total cost which include working capital
and excluding cost of land which is above one hundred million naira
but less than three hundred million and with an employee strength
of between seventy-one and two hundred full-time staffs with a year
turnover which is not more than twenty million naira.

This shows that SMEs does not have a single definition because it
changes with time, and it is viewed differently by organizations,
institutions and countries.

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Characteristics of Small and Medium Scale Enterprises

Onugu (2005) argued that the major characteristic of SMEs in Nigeria
is that they serve as a linkage or relates to ownership base or structure,
which mainly revolves around an essential man or family. Hence, the
preponderance of the SMEs is a one-man business (sole proprietorships)
or more than one-man business (partnerships). Thus, even where the
registration status is that of a limited liability company, the real fact of
ownership in SMEs is that of a one-man, family or partnership business.
Onugu (2005) opined that others characteristics of SMEs in Nigeria are
outlined as; labour-intensive production processes, inadequate to access
relevant information, lack of good succession plan, lack of connection
to international market, out-dated and inefficient use of technology,
high level cost of production due to inadequate infrastructure and
wastages, deficiency to distinguish between personal and business
finance, limited access to long-term finance, low quality product
output, poor management of financial resources, lack of adequate
financial record keeping system, inadequate entrepreneurial skills,
poor documentation of policies and strategies, ineffective education or
technical background, absence of research and development initiative,
over-dependent on imported raw material and spare-part, little or no
training system and development for staffs, poor managerial skills due
to their inability to acquire skilled labour, poor inter and intra-sectoral
linkages, high business mortality rate within their first two years, high
interest rate charged by banks and weak capital structure among others.

Contributions of Small and Medium Scale Enterprises to the Nigerian

Economy

The contributions of SMEs to the development of the Nigerian economy

are immense and have been acknowledged by many. Data or document
from the Federal Office of Statistics in Nigeria affirmed the importance
and reveals that about 97% of the entire enterprises in the country are
SMEs and employing an average of 50% of the working population as
well as contributing to fifty percent of the country’s industrial output
(Mohammed & Nzelibe, 2014). In Nigeria, SMEs have been seen and
believed to be the dynamic engine room for the development of the
economy because they form the road map of business activities in a
growing economy, the benefits of SMEs cannot be overemphasized
and also SMEs have been seen as pivotal instruments for economic
growth and development either in developed or developing economies
(Ogujiuba et al., 2004).

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Akabueze (2002) stressed that the contributions of SMEs to Nigerian

economy are evident, as SMEs are known to contribute to the
development of the economy in terms of employment opportunities
at a relative low capital cost, more especially in the booming services
sector, providing opportunities for developing and adapting to the
most appropriate technological approaches, provision of extensive
output of goods and services, they provide a road map for the
reduction of income disparities, improving forward and backward
linkages between socially, economically, and geographically diverse
sectors of the Nigerian economy, they develop a pool of skilled and
semi-skilled employees as a basis for future industrial expansion. SMEs
offer an excellent breeding ground for entrepreneurial and managerial
talent and the rest. Previous study conducted by Udechukwu (2003)
claimed that SMEs have been fully acknowledged and recognized by
development expert and the Government as the pillars of economic
growth and sustainable development, and SMEs are the major player
in promoting or boosting private sector and partnership development.
The coming up or development of SMEs is an essential factor in the
growth strategy of the Nigerian economy in particular.

Wattanapruttipaisan (2003) posits that SMEs have been universally

acknowledged for growth, competitiveness and productivity of the
economy. SMEs contributes simultaneously in improving the living
standard of people, it bring about substantial local capital formation
and through SMEs high level of productivity is achieved, SMEs is the
primary means through which equitable and sustainable industrial
diversification and dispersal, and also SMEs provide intermediate
or semi-processed goods for use by large-scale firm. With this, SMEs
provide a lot of industrial linkages between local producers of raw
materials and large industrial concern. It equally serves as an agent
for the distribution of final products of such industries with these it
agrees that SMEs provide materials to large scale firms. SMEs serve
as veritable means of mobilization and utilization of domestic savings
as well as increased efficiency through cost reduction and greater
flexibility.

Challenges of Small and Medium Scale Enterprises

Despite all the efforts, and support made by Government to see the
SMEs sector flourish in order to achieve high performance, still yet
it is worrisome that SMEs have not made an impact on the Nigerian
economy; it underscores the belief that there are fundamental issues or
problems that confront SMEs, but hitherto have not been wholesomely
tackled. Therefore, with this performance of SMEs can’t be sustained or

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achieved (Ekwem, 2011). The following are the problems affecting the
performance of SMEs in Nigeria:

Financial Problem
Abor and Quartey (2010) claimed that the major challenge that SMEs
often face is access to capital, and SMEs development is inevitably
constrained by limited availability of financial resources to meet
varieties of operations and investment needs. The role of finance is an
essential element of the development and performance of SMEs (Cook
and Nixson, 2000). Inadequate financial services have been figured
out as the primary inhibitors to SMEs development and production in
Nigeria (Olutunla, 2005). Besides insufficient start-up capital from the
personal savings of an individual and the contribution from friends
and relatives, there are still constrained access to institutional finance
from the capital market and banks. The genesis behind the limitation
or constraint includes; wrong and unacceptable feasibility report,
inability to raise the required equity contribution, lapses to provide
collateral securities and incomplete financial documentation (Ojo,
2006; Olutunla, 2005; Omoruyi & Okonofua, 2005). Eighty percent to
eighty-five percent of SMEs are in a very catastrophic condition due
to inadequate fund and other related issues (Fatai, 2011). A study
conducted by Apo (2001), Sleuwaegen and Goedhuys (2002) stressed
that inadequate financial sources are the primary constraints faced by
SMEs and entrepreneurs need to use their personal sources to start
up or begin their businesses and to expand the operations still yet the
internal financial sources are usually insufficient. Nichter and Goldmark
(2009) argue that they are policy biases towards large enterprises and
SMEs because SMEs face the problem of growing the business due to
inadequate access to finance. SMEs have difficulty in growing due to
insufficient collateral, high transaction costs, and incapability to deal
with the complexity of formal financial institutions (Harvie, 2005; APO,
2001; Leopairote, 1997).

Moreover, SMEs in developing countries generally find it difficult to

access or get formal bank loans (Nichter and Goldmark, 2009; World
Bank, 2009), because of extremely high risk of default, incapability
to provide the required physical collateral and low profitability
(Harvie, 2005). It seems clear that the accessibility of the funds. The
factors discovered as a result of inhibiting funds accessibility by SMEs
are the stringent conditions and protocols lay-down by the financial
institutions which make entrepreneurs to find it difficult to access the
funds for them to start up or expand their businesses which is already
in existence because most entrepreneurs face the issues of cost of

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obtaining funds, and collateral and credit information (Oladele, 1985,

Adepoju, 2003, & Osamwonyi, 2004). However, venture capital sources
that could have help immensely lacks in Nigeria, which is an obstacle
to SMEs in Nigeria (Osamwonyi, 2005a).

Infrastructural Problem
The performance of SMEs experience set back in the sector as a
result of decay, inadequate infrastructural facilities or deplorable
conditions of the available once and it has posed formidable obstacle
to the performance of SMEs and hence call for urgent attention by
the government (Ojo, 2006). Inadequate facilities for power supply,
telecommunication, access to good road network and water supply
constitutes the major constraints that SMEs face in Nigeria. A study
conducted by World Bank in 1989 proved that the amount, which will
be used to provide infrastructures to SMEs in the absence of those
facilities, identified to be about 15% - 20% of the cost of establishing
manufacturing enterprises in Nigeria” contemporary evidence has
proved that private provision of infrastructural facilities is much
heavier on SMEs than on large-scale enterprises. Omotola (2008)
contends that the percentage has since increased to 30% - 35% of the
cost of establishing manufacturing enterprises in Nigeria. The issue
of electricity is highly challenging obstacle among the infrastructural
challenges to SMEs. The problem of power supply has brought a
setback to the business environment. In Nigeria, most SMEs have close
or fold-up which means they can’t operate any longer as a result of
inadequate and un-guaranteed supply of electricity in the country.
The issue of power in the country is extremely sad and shameful to
an extent whereby large industries or companies are now relocating
to neighboring countries like Ghana, and the rest where infrastructure
is more available compared to Nigeria. The implication or result of
this embarrassment has lead to the downfall of production activities.
The cost of machine and equipment, fueling generator has resulted in
reducing the employees pay and running cost of the SMEs. There is no
doubt that this has eventually triggered the folding up of most SMEs
in Nigeria since they cannot compete in the market anymore (Omotola,
2008). Most Banks have capitalized on this reason and blamed their
inability to fund SMEs on the weak state of infrastructures, economic
climate and low performance of the public utilities.

However, the truth is that the situation or the state of infrastructure

in Nigeria is highly discouraging. Electricity supply is inadequate and
unstable, condition of our roads are highly terrible, water supply too
is also not sustainable, and telecommunication system, which is what

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makes any business to achieve success is not efficient. Infrastructural

facilities are neither inadequate nor present and functional; with this
the environment can’t stimulate and guarantee improvement for SMEs
which undoubtedly resulted in low and negative performance of the
SMEs because of high risk and the uncertainty of the investment climate.
The government has not seriously been supportive towards providing
a conducive environment for SMEs to operate efficiently in Nigeria. The
obstacle of infrastructure involves inadequate transportation system,
shortage of water supply, poor telecommunication system, and lack
of electricity in solid waste management. These makes businesses to
provide expensive parallel infrastructure. These have been a hindrance
to the success of SMEs performance in Nigeria (Osamwonyi & Tafamel,
2010).

Management Problem
Management issue hinders the performance of SMEs in Nigeria, and
it has become apparent that the lack of management skills and lack
of trained manpower constitute the significant challenges to SMEs
survival. West and Wood (1972) opined “…90% of all enterprises failure
occurs as a result of inadequate competence and management”. Rogers
(2002) stressed that inadequate record keeping and inefficient in the
overall management system are also the major features of most SMEs,
and lack of essential and required expertise in the production process,
maintenance, technical problems/competence, procurement and
marketing and finances have always resulted in funds misapplication,
costly and wrong decision-making. Onugu (2005) reviewed that lack
of entrepreneurial skills, strategic plan, business plan, managerial
skills, adequate organizational set-up, succession plan, transparent
operational system and the rest, are on the part of many founders
and managers of SMEs in Nigeria. As fallout of these, many of the
SMEs promoters purchase obsolete and inefficient equipment thereby
setting the stage of ab initio for lower level productivity as well as sub-
standard goods and services with dire repercussion on output and
market acceptance and penetration.

Macpherson and Holt (2007) and Barratt-Pugh (2005) discovered

that firm growth depends on managerial knowledge and skills. In
comparison with LEs, managers in SMEs are generally less trained
(Tannock et al., 2002), consequently, there chose inferior production
technology, do not use proper accounting systems and underestimate
required funding (APO, 2001). Generally SMEs spend less on formal
training than LEs due to financial limitations and the fact that it can
be difficult to take employees out of the production (Thassanabanjong

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et al., 2009; Tannock et al. 2002). Training is crucial for effective quality
product delivering as well as it also influence and motivate employees
effectively and efficiently (Thassanabanjong et al., 2009). Manager of
SMEs feel reluctant or fail to listen to his employees who have good
ideas and who understand the process and the product very well
(Tannock et al., 2002). These serve as a problem to SMEs due to the
Nigerian culture which scores high on power distance and influence
the business environment where managers have great authority
and workers fear to communicate with their managers (Hofstede &
Hofstede, 2005).

In addition, another obstacle which was lack of management

knowledge reported by Lind (2005) was caused as a result of language
differences (barrier) between the customer and the supplier of product
or services in many developing countries, Nigeria in particular. Lind
(2005) highlighted that it was crucial to listen and give more emphasis
to customer requirements so that their perceived benefit of the product
can be understood. The ultimate advantage of the customer’s customer
concept is to know how a firm’s goods and services can improve the
customer’s business with his customer (Lind, 2005).

Marketing Problem
Brush et al. (2009) discovered that marketing system is another problem
companies or businesses face in order to grow because many businesses
are confronted with problems of communicating product features,
marketing effort, and implementing sales to win and retain customers,
pricing products and services in an attractive way, establishing effective
distribution channel and undertaking constant product development
in order to sustain sales. Furthermore, other aspects such as lack of
capabilities to create innovation, image, exclusive branding, and lack of
appropriate support from marketing infrastructure. SMEs, in general,
usually face the obstacles of lack of information or knowledge about
other markets, and they only limit their ability to sell their products to
groups of customers to expand their businesses. With this, it is a great
problem because in marketing defining your product to a particular
group or market is not the best (APO, 2001). Though, Brush et al.
(2009) argue that massive marketing campaigns are not the best form
to achieve success, conversely, close personal relationships, word-of-
mouth referrals, repeat business, and niche marketing efforts have
proven to be more cost-effective and successful.

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Technological Problem
SMEs tend to have low productivity and they are weak in terms of
competition which resulted from using in advanced technology, not
maximizing machinery utility and not improving in technology due
to inadequate support in terms of fund which the sector do experience
as resulted to experience the technological problem, and it is clear that
almost all the SMEs are users of knowledge not adaptors of it. Many
managers are not aware of applying the accurate technology to their
business, and they can’t choose the appropriate technology for their
company. It was accepted that small-scale firms are in a contrary
position if compared with large-scale firms in terms of access to
technology. Access to technology and making improvements to the
current technology are not ends in themselves, but a means of achieving
dynamic efficiency and innovativeness (Harvie & lee, 2005).

The World Bank (2009) opined that investment need to be done or be in

place for technology to be in place too, which is highly significant for our
SMEs, which are even required to improve the quality of production,
and to build up the existing capacity which will generate higher value-
added product that will automatically improve the competitiveness
of firms. In addition it is crucial for SMEs to make the most strategic
business decision hence government support of technology initiatives
and networks with research institutions should assist SMEs in terms of
technological development (Courseault Trumbach et al., 2006).

Corruption problem
Corruption can be placed amongst the chief hindrances to Nigeria
SMEs being a major factor that affects Nigeria’s development.
Corruption refers to efforts in securing wealth or power through illegal
means for private/individual benefit at public detriment, or the misuse
of public fund and resources for private benefit and has remained a
long-term political and economic challenge in Nigeria. Corruption
comprises of illegal payoffs, government officials extorting money
from various businesses, the misuse of government funds which could
have been utilized to develop various sectors that are channeled in
other directions, and so on (Obayelu, 2007). Dike (2005) opined that
the case of corruption in Nigeria is “pandemic”. Corruption is more
or less the way of life for Nigerians that comprises illegal payoffs, and
government officials extorting money from various businesses and so
on. In Nigeria, it is an acceptable practice to hold out hands for bribe
(Dike, 2005). Ojukwu (2006) identifies Nigeria as a country where
fraudulent activities such as Advance Fee Fraud has built a generation

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Journal of Technology Management and Technopreneurship

of techno- skeptical entrepreneurs and these attitudes negatively affect

SMEs in Nigeria. Corruption has been a serious problem in Nigeria for
decades, and it has been widespread, deeply rooted, well-organized
and tolerated (Treerat, 2000).

A study conducted by Ayobolu (2006) describes corruption as one

of the unresolved problems that have hobbled and skewed Nigeria’s
development. The level of corruption in Nigeria hampers SMEs’
development that in turn, hinders them from reaching their desired
targets. Many Nigerian SMEs suffer from this experience since they are
unable to provide solutions to the problem of bribery and corruption
in the country. Number of factors was known as an instrument of
increasing corrupt practices in Nigeria. These include the nature of
Nigeria’s political economy, the weak institutions of government, a
dysfunctional legal system and the absence of explicit rules and codes
of ethics (Dike, 2005). Hence, bribery and corruption are accepted by
many Nigerians as a norm that has been ingrained in the fabric of
society (Dike, 2005).

Lack of Skilled Labour

Lack of skilled labour is a hampering factor for SMEs in developing
countries especially in Nigeria (Sleuwaegen & Goedhuys, 2002).
According to (Holden et al., 2007) Firms in all sectors can grow and
progress to the use of graduate labour, but there is distrust between
the two parties (SMEs & Graduates). Apo (2001) highlighted the lack of
skilled workers as one of the disturbing challenges SMEs do face. Thus,
it is not easy for the SMEs to employ highly educated employees and
retain them, because there do prefer to work for large-scale enterprises
that can offer them high remuneration (salary), career possibilities, and
job securities. The inadequacy of financial resources to recruit skilled
manpower naturally restrains expansion and limits productivity and
growth. Many SMEs employ semi-skilled or unskilled labour. This of
course hinders competitiveness (Ogujiuba et al., 2004).

Government Unfavourable Fiscal Policy and Policy Inconsistence’s

The inability of the government to execute efficient and consistent
policies both fiscal and monetary undermines the capacity of SMEs.
Ogujuba et al. (2004) factor the problem as a result of inadequate time
in the process of budget implementation that at the same time affects
investment and trade decision. In most situation there is a delay in
approving budget at the legislative level due to executive and legislative
face-off, and even due the budget is approved the implementation

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 Challenges Affecting the Performance of Small and Medium Scale Enterprises (SMEs) In Nigeria

of the approved budget is a significant problem because it is slow in

terms of the application due to administrative bottlenecks. Thus, there
is delay in investment decision of SMEs, in terms of taxes and tariff
measures in their trade decision, such factors have made the cost of
operating SMEs not to be encouraged, and motivating towards doing
business. Onugu (2005) stressed that due to the absence of harmonized
tax administration that would make manufacturers in acceptable and
approved levies of tax payable.

Onugu (2005) opined that SMEs sector in Nigeria has not been
performing well due to the inappropriate implementation of enormous
government policies as well as frequent policy changes or what is call
policy inconsistencies. Poor policy implementation deeply rooted in
poor corporate governance and unethical practices; that abound in the
Nigeria public service. The overwhelming control and management
of most business supporting structures and facilities by government
departments and agencies also aggravate the situation. The significance
of SMEs within an economy emphasize the importance of having
government policies that support SMEs, issuing regulations that help
them and their ability to operate efficiently and rules that imply low
administrative costs (Harvie & Lee, 2005b). Although there has been
an increase in governmental policies promoting and supporting SMEs
in other to achieve economic growth and reduce poverty, there is still
lack of laws, administrative procedures and access to assistance from
governmental agencies (Harvie, 2005).

Research & Development – Innovation

Previous study conducted by Morrison (2006) posits that Innovation
progressively depends on links between scientific research and
industrial research and development (R&D) and without an R&D focus,
companies risk falling behind competitors in innovative new products.
Raymond and St-Pierre (2004) put emphasis on how globalization
has impacted SMEs to greater demand. On the other hand, Nigeria
SMEs put little focus on innovation and also; the Government is not
very supportive in term of encouraging SMEs to engage more in R&D
activities. The government has some structure for innovation; however,
the cooperation between universities, government research centers,
and firms is still weak. In addition, the government has very limited
budget for innovation with this it actually affect SMEs operations, and
SMEs have little ability to innovate, and they are reluctant to invest in
R&D due to their financial limitations. Furthermore, the interest and
awareness of innovation is small since many SMEs do not find any
relevant benefits by innovating in terms of production, organization,

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Journal of Technology Management and Technopreneurship

and marketing and as a result of this it make SMEs not to achieve

performance.

Socio-Cultural Problems
Social-political ambitions of some entrepreneurs of SMEs lead to the
diversion of what is called valuable funds and energy from business to
what is called social waste. The negative thought or bias on the made in
Nigeria goods and services is highly disturbing. Bala (2002) discovered
that the attitude of typical Nigeria entrepreneurs wants to invest in a
business today and reap or harvest tomorrow. Short term investment
is prevalent among Nigeria entrepreneurs, which not suppose to be
in such shape. With this farming and manufacturing that demand for
long-term gestation time or period is jettisoned. Nigerian business
men and women (Entrepreneurs) do not retain their profit earned or
does not have the investment habit or culture of plugging back profits
or gains. He further stressed that despite the fact that Nigeria have a
population of over one hundred and twenty million people in 2006
census; the market for locally made goods is still in a poor shape. The
reason behind this is that Nigerians have developed a culture or believe
that consuming the foreign products is better than their locally made
products.

Strategic Planning Problem

This is another problem that SMEs face that does not make the sector to
progress. SMEs do not carry out strategic planning in their operations
properly. Previous study conducted by Ojiako (1987) claimed that
SMEs lack strategic planning system because well active and sound
planning serves as a necessary input for sound decision making for
new ventures or existing enterprises to succeed in terms of profits
maximization and the rest.

Multiple Taxation
An empirical study conducted by Ihua (2009) discovered that the
manifold and high taxes are considered to be significant factors that
cause SMEs’ failure in Nigeria. These is a major obstacle faced by given
it to tax consultants and agents hired by governments at all levels. They
are not honest in their operations, excessive in their assessments and
broken heart in their relationship to the production process. Even some
state Government does not help matters; they also add their burden,
with such situation SMEs is highly affected significantly. They tax
everything in their bid to generate revenue without considering the
net effect of SMEs, household incomes and employment (Osamwonyi

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 Challenges Affecting the Performance of Small and Medium Scale Enterprises (SMEs) In Nigeria

& Tafamel, 2010). In another Study conducted by Onugu (2005) opined

that the high incidence of a multiplicity of regulatory agencies, taxes
and levies result in high cost of doing business and also discourage
entrepreneurs from doing business. These are due to the absence of a
harmonized and Gazette tax regime; that would enable manufacturers
to build recognized and approved levies and taxes payable.

Location and Business Environment Problem

These are highly significant that include access to the stores. Shops in
the market are dominated by absentee owners who fixed high price or
charge exorbitant rate. Most owners of the shops are politicians, head
of government agencies and parastatals, and they strictly control it.
The high rents charged by the owners in an excellent business location
have force small-scale or medium-scale producer to move to the streets
or at best inaccessible places (Osamwonyi, 2005b).

Empirical study carry out by Ayeyemi (2013) posits that every business
has its environment of activities within which it operates, likewise
the SMEs. The business climate, within which the company operates,
is vital to its survival for existence. The business and operational
environment for SMEs include both its internal environment and also
its external environment. Its internal environment involves factors
within the organization that can put the survival of the business in
jeopardy. Some of these factors are management skill of the company,
employee’s strength and intellectual capability, method of production
and production process and so on. The business environment within
which SMEs operates in Nigeria is one of the major challenges facing
its survival. This metamorphose because the business atmosphere is
not conducive to business survival; as a result of absence of necessary
infrastructural facilities, frequent change of government policies,
absence of cheap source of financing and other incentives like tax
relief and so on. This assertion is justified by the International Finance
Corporation of the World Bank ranking Nigeria as the one hundred and
thirty-one countries in the world based on ease of doing business. The
extent, to which some of the identified challenges to SMEs in Nigeria
are still relevant today, is among other factors that this study tends to
determine and provide a recommendable solution.

III. CONCLUSIONS AND RECOMMENDATIONS

The significance of this study is that it provide optimal understanding
to existing, new or potential entrepreneurs of SMEs in Nigeria about

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Journal of Technology Management and Technopreneurship

the factors that affect their business performance, with the objective of
reducing the risk of failure and increase the chance of success. This is
to ensure that their business continue to grow and ultimately help to
support the growth and development of the Nigeria economy. They
are numbers of factors that affect SMEs in Nigeria. In an attempt to
finds out the factors that affect or influence the performance of SMEs
the most, this study exclusively find out and concluded that finance,
infrastructure, and training are the most significant factors that
adversely affect or influence the performance of SMEs in Nigeria.

Driven by the findings of this study, SMEs in Nigeria have a long way
to go for the sector to be significant, focused, productive enough, and
play the crucial roles it is expected to play scientifically in contributing
to the growth and development of the Nigerian economy. The SMEs
should be seen as an extremely important sector of the economy
requiring specific incentives to assist its development. From the findings
of this study, the following are its implications and recommendations
suggested to promote and develop a vibrant SMEs sector toward
performing up to its expectation in Nigeria:

The government should encourage financial institutions to lend to

SMEs at reduced interest rate (single digit rates), and the collateral to
be demanded should be fair or the collateral should not be demanded,
the project embark upon should serve as the collateral. Mandatory
interest rate concession for SMEs should be provided, and the authority
should make the loan easier to be accessed. The government should
make sure cooperative financial institutions enjoy its patronage. There
is dire need for the government to provide and improve the existing
infrastructural facilities such as roads, electricity, water supply and
telecommunication facilities. The infrastructural facilities provided
should be of high standard, in terms of Stable Electricity supply,
adequate and efficient water supply, modern telecommunication,
advanced technology and good transportation systems are important to
the well-being of every business in order to achieve performance. And
also The Government should encourage SMEs entrepreneurs to make
use of the Entrepreneurial Development Programme (EDP) which is a
programme aimed at improving the skill level in the SMEs sector. The
EDP involves training of potential entrepreneurs in entrepreneurial
skills. EDP could assist SMEs by lessening or eradicating the challenges
of skills shortages. SMEs entrepreneurs should inculcate the habit of
training and developing their management and workforce in order
to build a strong capacity for meeting the challenges of time and
embrace and take advantage of developments in information and
telecommunication technology and other technological areas.

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