How SMEs Contribute to Nigeria’s Growing GDP

By Adebayo Ogunnusi Posted/ June 17, 2025

In trying to analyse the challenges, risks and inherent opportunities in the Small and Medium Enterprises (SME) sector, it is important to take into account what its core aims and objectives of setting them up.

Basically, Small and Medium Enterprises (SMEs) are often regarded as the backbone of economic development globally, and Nigeria is no exception. Representing a significant proportion of businesses in the country, SMEs contribute to employment generation, poverty alleviation, and overall economic growth. However, the journey of SME development and growth in Nigeria is fraught with challenges that necessitate strategic interventions.

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The very interconnecting bridge of SMEs in any economy cannot be easily glossed over. For instance, in Nigeria, the SMEs play a critical role in nation’s economy. They account for over 90% of businesses, contribute approximately 50% to GDP, and are responsible for nearly 84% of employment in the country. These figures underscore the influence of SMEs in shaping the economic landscape by fostering innovation, promoting local entrepreneurship, and contributing to the diversification of the economy beyond oil and gas.

Importantly, SMEs are pivotal in addressing the high unemployment rate in Nigeria. By providing numerous job opportunities and support work engagements , especially for youth and women, SMEs reduce dependency on government jobs and large corporations. They empower individuals to participate actively in economic activities, thereby stimulating communities’ development.

Consequently, through their daily market operations, SMEs is also playing an important role in poverty alleviation by creating income-generating opportunities. Entrepreneurial ventures in rural areas significantly contribute to raising living standards and reducing inequality.

Despite their critical contributions, SMEs in Nigeria face numerous challenges that hinder their growth potential. These include financial constraints, inadequate infrastructure, unfavourable policies, government controls and limited access to markets.

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Limited access to finance or funding is one of the most significant barriers to SME development in Nigeria is limited access to finance. Banks and other traditional financial institutions view SMEs as high-risk ventures, making loans and credit inaccessible to many entrepreneurs. The absence of collateral and high interest rates further exacerbates this issue, leaving SMEs financially incapacitated.
When one attempts to extrapolate the challenges SMEs face, it would be gleaned from the standpoint of poor infrastructure, particularly unreliable electricity supply, inadequate transportation networks and thus, impeding the operational efficiency of SMEs. Entrepreneurs often face increased production and distribution costs, which lead to reduced competitiveness in both local and international markets.

Government policy thrust is a pointer to the direction of the interconnecting economic entities. The regulatory environment in Nigeria is often cumbersome for SMEs, mostly opaque in its ensconced in a multi-level layers of bureaucracy. Excessive bureaucracy in business registration, high taxation rates, and complex compliance requirements discourage entrepreneurs from formalizing their operations, limiting their ability to scale.

Since they are business entities in a micro sense, SMEs continue to face risks of limited access to markets and intense competition from larger firms and imported goods are other significant hurdles. Many SMEs struggle to establish their presence in the market due to a lack of marketing knowledge, inadequate branding, and minimal exposure to global trade opportunities.

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However, with definite political will, the challenges faced by SMEs can be fixed to enhance growth, by adopting a multi-faceted approach. This requires a combination of strategies that includes improving access to finance, strengthening necessary infrastructures, amenable policy regulations to guide the market and general operations. All of these will help to foster a thriving SME sector.

Specifically, the government in its 3-tiers and financial institutions can collaborate to develop innovative financing models tailored to SMEs. Examples include microfinance schemes, credit guarantee programs, and venture capital investments. Simplifying loan application processes and offering lower interest rates can encourage SME owners to seek financial support.

Furthermore, the government and corporations should be encouraged to Invest more in infrastructural undertakings which unarguably, is critical to SME growth. Improved electricity supply, better road networks, and access to digital technologies can enhance operational efficiency and expand market reach. Public-private partnerships (PPPs) can play a role in achieving these infrastructural upgrades.

In order to create more interactive access and opportunities for SMEs, government should create an enabling environment supported by relevant laws. This could start with streamlining business registration procedures and implementing tax incentives for SMEs in order to reduce the regulatory burden on entrepreneurs. Additionally, establishing SME-focused agencies to provide advisory services, training, and mentorship can enhance entrepreneurial capacity.

As a deliberate policy, local content should be canvassed vigorously by promoting local products, establishing export promotion councils, and facilitating trade fairs can help SMEs gain visibility in domestic and international markets. Strengthened e-commerce platforms and digital marketing strategies can further widen their reach.

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Taken together, the opportunities and risks that SMEs face in Nigeria can be controlled for positive growth. The challenges, also presents numerous opportunities for the SMEs to thrive. The country’s large population, growing middle class, and increasing digital adoption create fertile ground for entrepreneurial ventures.

Currently, with Nigeria’s population ranked at over 200 million offers a vast consumer base for SMEs across various sectors. The growing middle class, characterized by increased purchasing power, provides significant opportunities for businesses in retail, technology, and services.

Another added opportunity for leveraging, the rise of digital technologies has enabled SMEs to innovate and operate more efficiently. The economy generally is now supported by several Fintech outlets. Mobile payment systems, e-commerce platforms, and social media marketing is transforming SMEs as they are now able to interact with more customers and manage their operations.

However, the Federal Government has been at the vanguard of establishing various initiatives aimed at supporting SMEs through the provision of carefully designed programmes for growth. Some of these initiatives include the establishment of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), the Bank of Industry (BOI), and the Youth Entrepreneurship Support (YES) Program offer funding, training, and capacity-building resources. And of recent the Renewed Hope Empowerment Programme under current President Bola Tinubu’s administration.

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Nobody will argue pointlessly that SMEs have taken a solid seat in Nigeria’s economic growth. They have become veritable partners of development, transforming the economic landscape and GDP bottom-line of the nation. There are much avenues and room for further expansion of the sector in order to achieve more economic diversification aimed at social and economic prosperity of Nigeria.