Importance of Small Scale Businesses in Nigeria (2024)

It is important for us to start this article with a definition of what a Small Scale Enterprise or Small Scale Business is, so as to boost clarity as we progress down to the main subject of this post which are the Importance of Small Scale Businesses in Nigeria and economy.

Across the world, there are no agreed definition of what small businesses are. A lot of authors, scholars, and schools of business have diverse ideas as to the differences in structure and capital outlay, number of employees, sales turnover, fixed capital investment or assets,  plant and machinery, or even the kind of market share that a business should have in order to be categorized as a small scale business. From one country to the other these factors differ.

Since we are talking about Nigeria, however, we shall stick as narrowly as possible to the definition that is accepted in Nigeria.`

Small scale business, small scale industries, as well as small scale entrepreneurship, are used interchangeably and mean the same thing in Nigerian parlance. According to the Central Bank of Nigeria report released in 2003, Small scale firms are businesses that have a workforce of 11 – 100 workers and a total value of not more than 50 million Naira including working capital, equipment, and excluding the cost of land. That is the ceiling, but there is no floor for this categorization. That means a sole proprietorship having very little capital but having a total of 11 people employed by the business shares the same category as a company with 100 workers. Going by this explanation, a business that has 10 workers is a non categorized business entity.

Importance of Small Scale Businesses in Nigeria
Importance of Small Scale Businesses in Nigeria

The Third National Development plan of Nigeria (1975 – 1980) has also defined a small scale business as a manufacturing firm that has a staff strength of fewer than ten people, or whose machinery and cost of equipment (excluding land) does not exceed N600,000

The (Nigerian) Federal Government Small Scale Industry Development Plan of 1980 further defined a small scale business in Nigeria as any manufacturing or service industry business with a total capital value (excluding land) not exceeding N150, 000 in manufacturing and equipment alone.

The vast majority of enterprises in Nigeria are categorized as small businesses, despite the fact that there is not a clear definition of what exactly must be classified as a small scale business.

Importance of Small Scale Businesses in Nigeria

Even though there is no clear statutory rule that defines what is a small business enterprise, the explanations above have given us an idea. Now let us progress to the main feature of this article which is to highlight their importance. That is exactly what we do in the following paragraphs.

The role small scale enterprises play in the development of Nigeria and indeed any country at all is very important. Small scale enterprises have greatly contributed to the Nigerian development in terms of employment, growth and development, and marketing of goods and services.

  • 1. Food Security:

Small scale businesses in the Agricultural sector of the economy have done so much to ensure food security. Most of the crop farmers in Nigeria are small. Although they are mostly based in the hinterland, where an ancient system of cooperation exists among crop farmers they remain independent, and many have adopted a system of employing workers who are mostly paid on a daily basis. Animal farmers are also mostly small scale businesses as they operate their poultries, piggeries, and cattle ranches on a small scale, most of them employing less than 10 workers. These are the businessmen and women who are responsible for the vast majority of the food, poultry, and meat that are served on the dining tables in Nigeria.

  • 2. Manufacturing of Daily Need Commodities

Small scale industries are important role players in contributing to the transition of agriculture led economies to industrial ones. Small scale enterprises also play a vital role in absorbing agricultural products and by-products and transforming them into useful commodities that would otherwise have been imported from abroad. Commodities like soap which use palm kernel oil as a vital manufacturing ingredient, foot-ware which uses locally harvested rubber and leather, and other such important needs of the people are manufactured locally using locally sourced ingredients.

  • 3. Employment Creation

small scale enterprises provide employment for the teeming population. This is true not only in Nigeria but in most developed and developing economies. It is an obvious fact that the government alone cannot employ all the people. Small scale enterprises employ a larger number of the Nations’ workforce.

  • 4. Youth Engagement and Development

Small scale enterprises, although they may not pay as much as the government or large companies, also play another vital part in the country’s life- one that goes beyond providing money and giving people a chance to put food on their tables: they engage the young people in the country. Small scale enterprises engage the young ones, thereby taking them off the streets keeping them occupied, and so away from crime, gangster-ism, prostitution, and other such vices. Furthermore, small scale enterprises integrate the young ones into the working environment, teaching them vital skills that can help them succeed in life, including how to relate with workmates in a work environment, how to set and meet targets, how to market products and services, and so on.

  • 5. Improving Nigeria’s Technical Capacity

Small Scale enterprises have done and continue to do so much for Nigeria in the area of improving Nigeria’s technical ability. Small scale businesses in the field of engineering have contributed more to the engineering sector than any school system or government initiative to date. Auto mechanics have done so much by way of technical skill acquisition and teaching theses skills to the younger generation so as to ensure that we remain self-sufficient in the area of technical ability now and the future. Technical ability in the area of pipeline installation and maintenance has also recently been on the rise, thanks to small scale enterprises that have come into the oil servicing sector of the economy.

  • 6. Marketing of Goods and Services

Nobody relates better with the man on the street than a small business. Small businesses due to the fact that they are small, transparent and trustworthy, are better at introducing, marketing or promoting new goods and services to the people, and are far better at retaining customers for the business. Many times these small businesses collaborate with bigger manufacturing companies, sometimes serving as distributors to them, thereby playing a big part in their value-chain, helping to bring their products to the people’s market.

A great percentage of all registered companies in Nigeria is made up of small scale industries and they have been in existence for a long time, which goes to show that small scale businesses are vibrant and that the ground is still fertile for even more small scale enterprises to spring up, and to add their quota to the development of Nigeria.

That’s all on the importance of small scale businesses in Nigeria.


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