Importance of SMEs to the Economy: 5 Reasons Why SMEs are key to the Nigerian Economy

Importance of SMEs to the Economy: 5 Reasons Why SMEs are key to the Nigerian Economy

November 15, 2021 0

Many times, people wonder about the importance of SMEs to the Nigerian economy. Small, Micro and Medium Enterprises (SMEs) are the core of any economic sector. They are also responsible for driving innovation and competition in almost every country. 

SMEs are non-subsidiary, independent firms or organizations that employ a few employees. Most SMEs exist because they are less capital intensive and more flexible in filling niche markets’ needs. As such, their contribution drives the economic and industrial transformation of the country.

Small firms usually have fewer than 50 employees, while micro-enterprises have at most 10, or in some cases 5, workers. But they represent about 90% of businesses and more than 50% of employment worldwide. They also contribute up to 40% of national income (GDP) in emerging economies.

The Importance of SMEs to the Nigerian Economy 

Globally, SMEs are recognized as the critical stimulators of economic growth. The reason is their potential to create jobs and boost production. They also generate income, reduce poverty, and contribute significantly to the employment ratio. Let’s look at the importance of SMEs to the Nigerian economy.

Importance of SMEs to the Economy: 5 Reasons Why SMEs are key to the Nigerian Economy
SMEs are important to every economy

Economy Stimulators

Small businesses and entrepreneurship are essential drivers of economic growth. Furthermore, entrepreneurship is a critical activity that drives a wedge between knowledge and total factor productivity by bridging the gap between inventions and specific sections of technological knowledge by establishing new businesses. On the other hand, SMEs have two features that explain why they are economic stimulators. First, they create competition, and second, they provide a vehicle for market regeneration. 

A Mechanism for Market Regeneration

Small businesses increase competition leading to less static market structure measures like concentration. They also provide a mechanism for regeneration. In a market, SMEs act as change agents. Despite the lack of systematic evidence to determine whether small businesses are more productive than larger businesses, it was discovered that small businesses contributed to the net employment rate, particularly during times of economic uncertainty, while their larger counterparts reduced employment.

Job Generator

​​Small businesses are said to create jobs. SMEs were responsible for eight out of ten new jobs. Smaller firms have a faster rate of net job growth than larger businesses. Across all income groups in the country, small businesses provide the most to employment.

Small and medium-sized businesses (SMEs) play a key role in the global economy by contributing to employment, as well as input and output. There are a few things to keep in mind here. SMEs are responsible for the majority of the formal jobs available in developing markets. That’s nearly four out of every five positions on the market. In developing countries, SMEs generate roughly 33 percent of national income and 45 percent of total employment at any given time.

Encourage Innovation 

They give a steady supply of new skills and ideas to the economy and make the marketplace more dynamic. When you consider the success of companies like Bolt, Jumia, and Gokada, which have all disrupted their respective industries, it’s evident that SMEs have a strong presence at present, thanks to technological advancements. Entrepreneurs are exploring new markets and establishing SMEs to tap into them.


One thing is certain: small and medium-sized enterprises, whether a corner barbershop or a dry cleaning shop down the street, are the engines that propel national economies. One of the issues, given the potential of SMEs to unlock Nigeria’s economic growth, is access to credit. For numerous years, the government and private organizations have prioritized addressing the problem.

Rejoice Obike
Rejoice Obike
Rejoice Obike
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