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Mr. Balogun Abiodun is a seasoned business expert with over two decades of experience in Business Management. He serves as a Business Instructor at Lagos State University International School and teaches part-time(Sandwich Study) at Lagos State University. Mr. Balogun holds both his first and second degrees in Business Administration from Lagos State University (LASU) with additional coursework at Olabisi Onabanjo University (OOU). He is currently pursuing a doctoral degree at Leadcity University. His expertise encompasses business startups, market trends, and economic growth and fluctuations.
In this interview with ABIODUN SAHEED OMODARA, he shares his thoughts on the critical roles of SMEs in enhancing economic stability and national development. Excerpts:
Could you tell us more about yourself and the experience you have garnered over the years in the field of business?
My name is Abiodun Muftau Balogun, I am a business expert and a teacher. I have been working as a business teacher and business analyst for over a decade now, having served as the Head of Department of Business specialising in business and economic development, strategic analysis for Small and Medium-sized Enterprises (SMEs).
Tell us more about SMEs with regard to the business landscape of a nation, especially in comparison to larger corporations in Nigeria?
First of all, we need to understand the conceptual meaning of what SME is all about.
SME, as it is fondly called, small and medium enterprise, which is privately owned businesses whose capital workforce and assets fall below a certain level, depending on the particular nation or country. Here in Nigeria, the Federal Ministry of Commerce and Industry defines SME as firms with total investments, excluding the cost of land and capital, which is up to N750,000 and paid employment up to 50 employees. This means that for you to be under SME, at least you must have a minimum of two workers.
Why are SMEs so important in this regard?
Of course, looking at the rate of unemployment, you will discover that the best way to go is to encourage people with initiative to come up with some ideas in establishing a business, be it from agriculture, be it from production, depending on the skills that individual has. In the process of coming up with these ideas, it is believed that a lot of jobs will be created and more hands to develop such businesses.
So, SMEs are important as they play pivotal roles in the economic stability and development of a nation for several reasons. Firstly, they are significant contributors to employment generation. These businesses often have the flexibility to adapt quickly to market changes, leading to more job opportunities within local communities.
That's a crucial point. How else do SMEs contribute to economic stability and growth?
SMEs are also key drivers of innovation and competitiveness. Their agility allows them to innovate faster than larger corporations, bringing new products and services to the market. This innovation not only boosts economic growth but also enhances the overall competitiveness of the nation's economy on a global scale.
It's fascinating to see how crucial SMEs are in fostering innovation. How do SMEs impact the economic stability of a nation?
SMEs promote economic diversification, reducing dependency on a few industries or sources of revenue. By cultivating a diverse range of businesses, SMEs help cushion the economy against external shocks or market fluctuations, thereby contributing to long-term economic stability. SMEs play a vital role in the economic stability of a nation in several ways:
Job creation: SMEs are significant job providers, often employing a large portion of the workforce. This helps reduce unemployment rates and provides livelihoods for many families.
Economic diversification: By contributing to various sectors, SMEs help diversify the economy. This reduces dependence on a few large corporations and makes the economy more resilient to shocks.
Innovation and competition: SMEs often drive innovation by introducing new products and services. Their agility allows them to respond quickly to market changes, fostering competition that can lead to better quality and lower prices for consumers.
Local development: SMEs typically operate locally, which helps stimulate local economies. They often source materials and services from other local businesses, creating a multiplier effect that benefits the community.
Tax revenue: SMEs contribute to government revenues through taxes, which can be reinvested in public services and infrastructure, further supporting economic stability.
Flexibility and adaptability: SMEs can adapt more quickly to changing market conditions compared to larger firms. This flexibility helps sustain economic activities during downturns.
Entrepreneurial culture: SMEs foster an entrepreneurial spirit, encouraging individuals to start their own businesses, which can lead to further economic growth and innovation.
Therefore, SMEs are essential for job creation, economic diversification, innovation, and local development, all of which contribute to the overall economic stability of a nation.
Do you think SMEs have really achieved the purpose of jobs creation in Nigeria?
Well, I believe SMEs are doing a great job in this country to some extent. Looking at the rate of unemployment, Nigeria as a nation mostly focuses on the idea of certification.
They believe that before you can secure a job or be successful you have to be certified in any given profession you go into. But as the case may be, the influence of SMEs has helped to reduce the rate of unemployment, thereby increasing the standard of living, the quality of living in this country, in the sense that those who are seeking a white-collar job now think otherwise by starting or thinking creatively in establishing a business. For example, now look at the likes of the people operating Point of Sale (PoS) service. You can now see that we have more of POS operators.
These are the ways of reducing the unemployment rates. Someone who has maybe a million naira in his or her account can of course have about maybe 10 PoS machines, thereby bringing people to come and work for them and reducing the unemployment in the society.
Do you think this development has led to a great innovation?
Yes, the role of SMEs in fostering innovation is significant for several reasons:
Agility and flexibility: SMEs can adapt quickly to market changes and emerging trends, allowing them to innovate more rapidly than larger corporations that may have more bureaucratic processes.
Niche markets: SMEs often focus on niche markets, which can lead to the development of specialised products and services that might not be profitable for larger companies to pursue.
Risk taking: Smaller firms are generally more willing to take risks on new ideas and technologies, which can lead to breakthroughs and innovative solutions.
Collaboration and networking: SMEs frequently collaborate with other businesses, research institutions, and startups, fostering an environment of knowledge sharing and co-innovation.
Customer-centric innovations: Being closer to their customers, SMEs can gather feedback more effectively and tailor their innovations to meet specific consumer needs.
Investment in research and development: Many SMEs invest in research and development, contributing to technological advancements and new product development.
The innovative contributions of SMEs are crucial for driving economic growth, improving competitiveness, and addressing societal challenges. Their ability to experiment and iterate on ideas often leads to significant advancements in various industries.
That's a vital contribution indeed. In your experience, what are some challenges that SMEs face in fulfilling their roles in economic development?
SMEs face several challenges that can hinder their ability to contribute effectively to economic development.
One of the primary obstacles is access to finance. Many SMEs struggle to secure funding from banks and investors due to perceived risks and a lack of collateral. This financial constraint limits their ability to invest in growth, innovation, and technology, essential for competing in the market.
Another significant challenge is regulatory compliance. SMEs often grapple with complex regulations and bureaucratic processes that can be overwhelming, diverting resources and attention away from core business activities. The costs associated with compliance can disproportionately affect smaller firms, making it harder for them to thrive.
Market access is also a critical issue. SMEs may find it difficult to penetrate larger markets dominated by established companies. Limited resources for marketing and distribution can restrict their visibility and ability to reach potential customers, hindering growth opportunities.
Moreover, SMEs frequently face skills shortages. Attracting and retaining skilled employees can be challenging, particularly when larger firms can offer better salaries and benefits. These skills gap can stifle innovation and operational efficiency.
Additionally, technological barriers pose a significant challenge. While technology can drive efficiency and innovation, many SMEs lack the resources to invest in the latest tools and systems. This can result in operational inefficiencies and an inability to compete effectively in a technology-driven marketplace.
Lastly, economic fluctuations and uncertainty can disproportionately impact SMEs. Smaller firms often have less financial resilience, making them more vulnerable to economic downturns, changes in consumer behavior, and shifts in market demand.
These challenges collectively limit the capacity of SMEs to fulfill their vital roles in economic development, highlighting the need for supportive policies and resources to help them overcome these barriers.
What recommendations would you offer to policymakers and stakeholders to enhance the role of SMEs in economic stability and national development?
To enhance the role of SMEs in economic stability and national development, policymakers and stakeholders can consider the following recommendations:
Access to finance: Develop and promote financial products tailored for SMEs, such as microloans and grants. Establish government-backed loan guarantees to reduce the risk for lenders and encourage investment in small businesses.
Simplify regulatory frameworks: Streamline regulations and reduce bureaucratic hurdles that SMEs face. Implement "one-stop-shop" services to help businesses navigate compliance requirements more easily.
Support for innovation: Create innovation hubs or incubators that provide resources, mentorship, and funding for SMEs to develop new products and services and encourage partnerships between SMEs and research institutions to foster collaboration.
Training and development programmes: Invest in skill development initiatives aimed at both entrepreneurs and their employees. Provide access to training programmes that focus on management, technology, and industry-specific skills.
Market access initiatives: Facilitate access to larger markets through trade agreements, export assistance programmes, and participation in trade fairs. Support initiatives that help SMEs leverage e-commerce platforms to reach broader audiences.
Tax incentives: Introduce tax breaks or incentives for SMEs, particularly those investing in innovation, job creation, or sustainable practices. This can help alleviate financial pressures and encourage growth.
Networking and collaboration: Foster networks and platforms for SMEs to connect with each other, larger corporations, and industry associations. Encourage collaborative projects that can lead to shared resources and knowledge.
Digital transformation support: Provide resources and training to help SMEs adopt digital technologies. This could include grants for technology upgrades or subsidised access to digital tools that enhance operational efficiency.
Crisis management support: Develop contingency plans and support systems for SMEs during economic downturns or crises, including financial assistance and guidance on navigating challenges.
Public awareness campaigns: Promote the importance of SMEs in the economy through public awareness campaigns. Highlight success stories to inspire confidence and encourage entrepreneurship.
I think by implementing those recommendations, policymakers and stakeholders will create a more conducive environment for SMEs, enabling them to thrive and significantly contribute to economic stability and national development.
