IHUA___SIYANBOLA_2012

Int. J. Business and Globalisation, Vol. 9, No. 2, 2012 171

Copyright 2012 Inderscience Enterprises Ltd.

Critical challenges limiting small business performance in Nigeria: an exploratory investigation

Ugwushi Bellema Ihua* Department of Strategy and Applied Management, Coventry Business School, Coventry University, Priory Road, CV1 5FB, UK E-mail: [email protected] *Corresponding author

Tejumade Omowumi Siyanbola Kent Business School, University of Kent, Canterbury, CT2 7PE, UK E-mail: [email protected]

Abstract: Although small businesses have been globally acknowledged for their roles in enhancing economic growth and sustainability in many countries; yet, their impact on Nigerias economy remains minimal. This paper sought to investigate the critical challenges limiting small business operations in Nigeria; thereby, contributing to the growing body of knowledge relating to factors influencing small business failure, particularly from the Nigerian perspective, one that has not received much attention in the literature. The study adopts an exploratory approach, via in-depth semi-structured interviews, to reveal that five critical challenges hamper the operations of small businesses in Nigeria, namely: limited access to credit, high cost of doing business, inadequate infrastructure, inconsistent economic policies, and corruption and multiple taxes. There is germane need for an effective SME-stakeholder engagement (policy makers, central bank, financial institutions, investors and SME associations) via a National SME Summit, to spearhead the development of a coherent master-plan for the sector.

Keywords: small businesses; small to medium-sized enterprises; SMEs; critical challenges; business failure; Nigeria.

Reference to this paper should be made as follows: Ihua, U.B. and Siyanbola, T.O. (2012) Critical challenges limiting small business performance in Nigeria: an exploratory investigation, Int. J. Business and Globalisation, Vol. 9, No. 2, pp.171185.

Biographical notes: Ugwushi Bellema Ihua is a Lecturer in Business Management at Coventry Business School, Coventry University, UK. He holds BSc in Accounting from University of Abuja, MSc in Business Management from Birmingham City University (BCU), MBA from University of Ado-Ekiti and MSc in Knowledge Management from Robert Gordon University, Aberdeen Scotland. He also holds a PhD in Business Administration and Management from Kent Business School (KBS), University of Kent, Canterbury, UK.

172 U.B. Ihua and T.O. Siyanbola

Tejumade Omowumi Siyanbola is currently a Doctoral Researcher at Kent Business School (KBS), University of Kent, Canterbury, UK. Although shes currently on study leave, she is also a Lecturer in the Department of Management and Accounting at Obafemi Awolowo University (OAU) Nigeria; where she teaches modules in human resource management (HRM). She holds BSc, MBA and MPhil from the same institution, and has published her works in a number of journals and conference proceedings.

1 Introduction

Contrary to previously held opinions, small to medium-sized enterprises (SMEs) have long dispelled the views that they are miniature versions of larger organisations. In their own right, SMEs are unique and they play important roles in enhancing economic growth, sustainability and development of several developed and less developed countries (Al-Shaikh, 1998). Literature is replete on the significance of SMEs. Firstly, they constitute the largest proportion of businesses in most countries, up to 98%, and contribute towards the gross domestic product (GDP) and gross value added (GVA) of several nations (OECD, 2000). Furthermore, they act as the source of providing needed goods and services, create employment opportunities, generate wealth and enhance better living standards (Day, 2000). They also provide inputs and material resources, as well as act as seedbed, to larger businesses, to mention a few (Gold, 2003).

In several economies, the significance of the SMEs sector has long been recognised. For instance, the ex-president of the USA, Ronald Reggan, in his 1982 speech to congressmen, termed small businesses the heart and soul of USs free enterprise economy (Peterson et al., 1983). In the Asian Tiger economies, SMEs have also been widely acknowledged for their roles in successfully lifting them into global economic recognition. In this regard, Ariyo (1999) referred to SMEs as the backbone of economies, and they have also been termed the catalysts for economic growth (Ihua, 2005). Similarly, Al-Shaikh (1998) suggested that we are presently in the era of small businesses. This is also responsible for the continued relevance of the sector in academic research.

However, despite these impressive acknowledgements, the SMEs sector in Nigeria still performs far from expectation (Okpara, 2011). Literature reveals that several factors have been blamed for their poor performance such as: unfavourable economic conditions, inconsistent policies, difficulty in accessing credit facilities, highly dilapidated state of infrastructure, astronomically high costs of doing business, corruption and lack of interest from government, amongst others (Adenikinju, 2005; Dike, 2005; Onakuse, 2004). This situation cannot afford to remain unabated. Nigerian small businesses need to be supported to perform effectively and to operate at par with their counterparts in other transition economies, who are contributing significantly towards their nations economic fortunes (Arinaitwe, 2006; Ihua, 2006).

Consequently, this study attempts to explore the critical challenges, i.e., those critical challenges limiting small business performance in Nigeria. However, unlike other quantitative-based studies, this study relies exclusively on the qualitative approach, to allow the small business owners discuss, in their own words, the critical challenges facing their businesses and express their views regarding their implications for

Critical challenges limiting small business performance in Nigeria 173

performance. As such, this study fits into the business-failure stream of research and attempts to provide further insights into this area.

This article is sub-divided into five sections. The next section provides a review of extant literature on SMEs in Nigeria and factors influencing business failure, particularly within the Nigerian context. This would be followed by the methodology in Section 3 and findings in Section 4. Finally, we present discussion and conclusions in Section 5.

2 Literature review

2.1 Small and medium-sized enterprises in Nigeria

The definition of a SME differs from country to country. In small business literature, several measures are often used to classify what constitutes an SME, such as: capital outlay, annual turnover, value of assets and employment levels (Stokes and Wilson, 2006). In Nigeria, the small and medium industries equity investment scheme (SMIEIS) defines SME as any enterprises with a maximum asset based of N200 million excluding land and working capital and with a number of staff employed not less than ten or more than 300 (Udechukwu, 2003). In this study, a small business is simply defined as any business with less than ten employees; as have been used in previous studies (Chaudhry and Crick, 2004).

Since Nigeria gained independence in 1960 to date, the SMEs sector has been through several phases and challenges. In comparison with developed nations like the UK and USA, where SMEs make up 95% of total businesses and contribute over 65% of the labour force (SBS, 2006); figures from Nigerias Federal Office of Statistics indicates that the sector also represents about 97% of the entire businesses, employs an average of 50% of the total working population, and contributes up to 50% of her total industrial output. Despite the statistical similarity, scholars have continued to contend that unlike in developed nations where SMEs issues are put in the front-burner of economic policy; issues relating to the sector have continued to be handled with kids-glove by successive Nigerian governments, particularly the military regimes. For instance in the UK, where SMEs contribute over 30% of the GDP (Day, 2000), the government has continued to initiate policies to support the SMEs sector, as part of its economic reforms aimed at enhancing increased access to finance and re-positioning their post-recession economy. At the end of 2010, the UK government announced a new bank-led 1.5 billion business growth fund to provide equity finance to established SMEs who need finance to implement their growth plans. More recently, there has also been the enterprise finance guarantee scheme and the enterprise capital funds to provide long-term loans and equity capital to SMEs (Simmonds, 2011). In addition, President Obamas economic stimulus package in the USA and his signing of the Small Business Jobs Act and the eight small business tax cuts into law in September 2010 attest to the significance placed on the sector. Amongst others, it is expected that the new act would create a new $30 billion small business lending fund, establish a state small business credit initiative to strengthen state programmes that support private-sector lending to small businesses, extend successful Recovery Act provisions raising SBA loan guarantees and eliminating fees, and double the maximum size of most SBA loans (White House, 2010).

On the contrary, policy support for SMEs in Nigeria has not been up to expectation. Even when new support schemes were introduced, they mostly faltered due to ineffective


implementation and follow-up. Despite the neglect by previous successive governments, the Obasanjo administration (between 1999 and 2007) tried to introduce several policy initiatives to support the sector. A few of such initiatives include: the National Economic Empowerment and Development Strategy (NEEDS) I and II, with cardinal points for SMEs; the National Poverty Eradication Programme (NAPEP); the oil and gas industry local content policy; the SMIEIS, which was later halted; and the re-organisation of community banks into micro finance banks (MFBs). Irrespective of these and similar efforts, the SMEs sector continued to struggle because most of the efforts were poorly implemented or short-lived (Obokoh, 2008b).

2.2 Business failure and challenges facing small businesses in Nigeria

Although a single definition of business failure is yet to be agreed upon; nonetheless, there is a consensus amongst scholars on the impact of failure. Irrespective of the size of a business, failure tends to have negative impact on most, if not all, of its stakeholders. Entrepreneurs tend to lose their capital investments, the society is often deprived of sources of goods and services, employees lose their jobs, it can reduce peoples living standards and government loses tax revenue (Watson, 2003). These negative implications explain the serious concern attached by policy makers to ensure that businesses thrive.

Literature reveals several theories on business failure, however the two predominant ones are: the discontinuance of business theory, where failure is deemed as when a business discontinues for any reason; because discontinuance suggests that resources have been shifted to more profitable opportunities (Fredland and Morris, 1976); and the bankruptcy theory, where a business official has to be declared bankrupt to be deemed to have failed (Watson and Everett, 1996). However, the bankruptcy theory appears to be mostly cited by scholars, and they refer to failed businesses as: those businesses that cease operations following assignment or bankruptcy; ceased with loss to creditors after such actions as execution, foreclosure or attachment, voluntarily withdrew leaving unpaid obligations; were involved in court actions such as receivership, reorganization or arrangement, or voluntarily compromised with creditors [Watson and Everett, (1996), p.47]. Other perspectives on failure include: where businesses are deemed to have failed when they are disposed-off, to prevent further losses and when businesses fail to make a go of it (Campbell and Underdown, 1991).

A wide body of literature exists on the causes of, or factors influencing, business failure in organisations. With this body of knowledge, arguably more focus has been placed on quantitative studies and to a less extent on qualitative studies. Examples of previous studies include: Dun & Bradstreet (1969), Argenti (1976), Fredland and Morris (1976), Peterson et al. (1983), and Watson and Everett (1996). Also, as it relates to small businesses, previous studies that have investigated causes of failure include: Al-Shaikh (1998), Perry (2001), and Stokes and Blackburn (2002). Similarly, the Nigeria-based studies include: Olorunshola (2003), Okpara and Wynn (2007), Ihua (2009), and Okpara (2011).

Broadly speaking, scholars have tended to divide the causes of failures into two, namely: the internal factors which are within the control of businesses, and external factors, over which businesses have no control. While such internal factors include: poor management, undercapitalisation, financial indiscipline, poor marketing and sales efforts, poor planning, poor accounting and book keeping practices; the external factors include: high interest and inflation rates, unfavourable economic policies, multiple tax regimes,


inadequate infrastructure, lack of social support, fierce market competition, natural crises and disaster (acts of God), civil unrest and terrorism. However, these studies mainly proceed to examine the causes or factors influencing failure, without considering the challenges faced by business, which may invariably lead to their failure.

More so, most of the studies have focused more on quantitative, and less on qualitative, approaches to collect primary data. For instance, studies conducted by Okpara and Wynn (2007) and Obokoh (2008a) each consisted of surveys administered to 500 SMEs Nigeria; with the collation of 396 and 369 valid responses respectively. This has therefore resulted into paucity in exploratory studies, from which the boundaries of knowledge would have benefited from the quality and richness of qualitative data. Hence, the choice by the researchers to adopt an exploratory approach in this current studies to allow small businesses tell their own stories regarding those critical challenges impinging on their performance and, in essence, their ability to contribute significantly to the Nigerian economy.

3 Methodology

In exploring the critical challenges limiting small business performance in Nigeria, it was considered necessary that the investigation employed an in-depth qualitative approach, to be able to answer the why and how questions regarding the challenges and their resultant implications on performance. After reviewing the extant literature, in-depth semi-structured interviews were conducted with ten owner-managers of small businesses in Lagos, Nigeria; in order to gather their insights into challenges facing their businesses. The sample size of this study was based on available time and cost constraints; tripled with the unwillingness for small business owners to be interviewed. However, the study revealed a number of common findings that suggested the possibility that, barring the limitations of time and cost, they could have gathered more significant information from a larger sample size.

To fulfil the requirements of this investigation, the researchers decided that small businesses must meet certain criteria. First, they require having less than ten employees. This is done in order to meet the commonly agreed micro and small business definition (see for example, Chaudhry and Crick, 2004) and it matches the definition of small businesses adopted earlier in this paper. This is also to avoid any human resource bias that may be associated with labour intensive sectors. Second, the investigation ensured that all the small business have been in operation for a period of over five years; to be sure they have crossed the teething periods of small business start-ups. Third, the researchers made sure they interviewed the owner-managers of the businesses, the individuals who founded the businesses, take most of the decisions and have managed the businesses till date. This was to done to reflect the position of small business literature, which acknowledges the omnipresence of small business owner-managers over their businesses (McCartan-Quinn and Carson, 2003). Lastly, in a few cases where the founders were not responsible for the day-to-day management of the business, the researcher sought to engage with the most experienced manager in charge.

While there are limited directories listing small businesses in Nigeria, from organisations such as SMEDAN and Abuja Enterprise Agency; there were also difficulties in finding the appropriate small business that would be willing to participate in the research investigation. Many owner-managers were not interested in participating,


because in their opinion, it seemed to be a waste of time. In fact one individual mentioned: after you finish interviewing me, how would that help me? Will it bring me the needed funding for my business or help me to meet the costs of running my business? Indeed, challenges of this nature are not new to investigating small businesses (Ihua, 2009; Obokoh, 2008a). Irrespective of the inherent biases identified in the process of this study, the researchers considered a non-random sample appropriate to be able to gather sufficient interviews and unearth the depth of information needed regarding the intricacies surrounding small business failure.

Following our selection of the companies, a convenience sample of small businesses that met the criteria for the investigation was adopted using personal contacts and snowballing technique. Furthermore, taking into consideration the potential bias from making use of personal contacts, interviews lasting between 45 minutes to 1 hour were conducted with the owner-managers, since they were considered as the key decision-makers and most suitable to provide us with relevant information. Thereafter, other academic colleagues checked the data, and these were colleagues not of Nigerian or African origin [a research approach akin to this was adopted in Chaudhry and Crick (2004)].

This methodological approach undertaken in this study allowed the owner-managers to freely express themselves and provide account of the crucial challenges hindering their performance and, which if unabated, could lead to their failure. Nonetheless, a number of potential drawbacks were considered in the process of undertaking the study: the potential biases of the researchers, the possibility for data to be misinterpreted, the bias of using personal contacts and the sincerity of the interviewees. Therefore, in addressing these issues, the researchers observed the guidelines proposed by Guba and Lincoln (1998), which were to consider the nature of the research, its authenticity and trustworthiness.

4 Results and findings

Based on the primary data collected, five critical challenges were identified to be limiting small business performance in Nigeria. They include: insufficient financing and poor access to credit, high costs of doing business, infrastructural inadequacy and lack of social support, inconsistent economic policies and corruption and multiple taxes and levies.

4.1 Insufficient financing and poor access to finance

All the entrepreneurs and owner-managers considered insufficient finance as a major challenge facing their businesses. Firstly, the data showed that the owner-managers their personal savings and borrowings from friends and relatives to initially fund the business. However, as time progressed, the lack of funds have stunted the growth the businesses. The owner-managers explained that the Nigerian population portends a huge investment market and several opportunities exist to grow their current market. In addition, there are investment potentials which could be further explored in the market; but the lack of finance acted as a limiting factor hindering their operations and performance. One of the interviewees commented:


Look at the country, its made up of 150 million people and this tells you that it is a huge market for investment, but where is the money to invest? We are all just struggling to survive as the business needs funds to grow, but if we cant get the funds, what do we do? We just dey patch am...

The other similar issue is that of poor access to credit. Most of the small businesses decried the limited access to credit that persists in Nigeria and lamented the attitude of commercial banks and other financial institutions for not helping them in anyway, suggesting that banks in Nigeria are not interested in giving out loans to small businesses, but were only interested in collecting deposits off them. The study showed that six of the respondents have attempted to secure loans from commercial banks at least two times without success; while only two admitted to have been able to secure short term loans, but at very high interest rates:

Banks in Nigeria are not helping matters at all... they dont care about the real sector. In countries that know the benefits of small firms like ours; they know we are the ones that employ the people, so they do everything in their power to support us, but in Nigeria, who cares? Your personal banker doesnt, neither does your bank manager...

...dont mind them [the banks] they are not interested in giving us loans, they are only interested in collecting our deposits. They send their young ladies here all the time for marketing, only to collect our money, but are never interested in giving us loans. If i had my way, i wont even be keeping my money in the bank...

...after several attempts they granted me a loan, in fact i was practically begging the bank manager, because i know if i dont my business may close shop, so i had to plead with him to help us... and when he eventually approved the loans it was with interest of over 15 percent per annum. Now, how do you expect me to cope with that? By the time they piled their admin charges, handling charges, legging charges and all their funny charges, the interest rate had gone up... its so sad...

Interestingly, there were two other respondents who had not applied for bank loans since they commenced business; and when they were asked why, one of them simply replied: we know the banks dont like giving loans so we dont bother going to them. They further emphasised that many of their friends and business partners had in the past tried to secure loans, but the banks were never willing to give them anything. The study further revealed that this unwillingness to approach the financial institutions has opened up other funding windows within the informal sector. One of the windows is the informal rotating savings schemes known as Isusu, where group members agree in trust to contribute particular amounts to a common pool of funds at regular intervals and the common fund is given to each member of the group in turns:

... i have been doing Isusu now for the past three years with ten other brothers and sisters from my hometown in Lagos, who are also members of our charismatic fellowship in church, and we all contribute N20,000 every month... if you calculate it, you would see that i can collect up to N200,000 when it is my turn to collect, and the money helps me a lot to stock my shop...

The second credit window revealed was shylock financiers and loan sharks. The study revealed the in increasing use of loan sharks, who charge exorbitant interest rates; because they know it is difficult to secure loans from the banks. These loan sharks ask for collaterals that far outweigh the amount of loan requested, and are willing to confiscate


those items used as collateral when small businesses fail to make payments. There is even the superstitions belief that some of the wicked loan sharks actually cast spells on the loans offered to borrowers to deprive them from being able to repay the loan. And all these are because the right policies are not in place, or not effectively implemented, to ensure that small businesses have increased access to credit.

4.2 High costs of doing business

The cost of doing business in Nigeria is tremendously high. Depending on the nature of business, almost all the small business owner-managers were responsible for providing their own electricity to power their operations. Businesses had to buy generators, which they also had to power by constant purchase of fuel or diesel. They have to provide their own water, security, communication, and transport amongst others. One of the respondent jokingly commented:

... [Laughing] every business in Nigeria is a local government of its own, you have to provide your own power, you need a generator here you know... if not you would operate without power, you would still have to buy diesel for the generator; provide your own water, if not, there would be no water for you to operate; provide your own security, if not area boys and vandals can come and cart away your items. Its a battle ground here in Nigeria that is why the cost of doing business is really unbearable...

In addition, due to the fluctuations in the countrys currency, the Naira, inflation rate is also on the high side, which also impacts upon the costs of raw materials and the general operating costs. The data revealed that the small businesses were faced with constantly sky-rocketing costs of raw materials and having to services their generators due to excessive use. According to one owner-manager:

...In the past two years i have never bought my raw materials at the same price. Prices are constantly sky-rocketing due to our weak naira against the dollar, and for those of us who depend on imported raw materials; we have no choice but to buy them like that...

When asked how they coped with the constantly increasing inflation rate, most of the interviewees explained that they passed on the burden to the final consumer or whoever was going to purchase their products or use the services that they render. One owner-manager retorted: that is why today everything is very expensive in Nigeria. In essence the situation has resulted into a vicious cycle of having high inflation resulting into higher prices of goods and services and vice versa.

4.3 Infrastructural inadequacy and lack of social support

The issue of the dilapidated state of the countrys infrastructure was also found to be another critical challenge limiting small business performance. This issue was pencilled as one of the main causes of the excessively high costs of doing business. All the owner-managers interviewed strongly lamented the crisis of the countrys infrastructural decay. Consequently, the study revealed high level of resentment towards the countrys ruling elite and politicians, who the owner-managers blame for being corrupt and embezzling the funds meant for infrastructural development. The result suggests that infrastructural inadequacy deeply depletes the profits that could have been made by the


small businesses, hinders their operations and stifles their performance; as well as their ability to compete and contribute significantly to the countrys economic growth and development:

... We have no light [power], no good roads, no modern transportation system and even our existing laws are not well implemented. How do you expect me to compete with someone in London or America? ...because of bad roads, a journey from Lagos to Ibadan, which ought to be about 45 minutes takes you 5 hours; how can you compete with China in this kind of situation, when our rail system is practically non-existent?...

...the loss of man hours in this country due to lack of infrastructure is a pity. Look at me, i have to run my bakery practically on generator for 15 to 18 hours everyday, and spend the little profits i would have made to buy fuel to power our generator and service our buses. Look at the terrible state of our roads... even one of the legislators described travelling on Lagos-Ibadan express road as engaging in a Makaba dance... so you see, how can small businesses perform with this kind of situation?

In addition, all the owner-managers expressed their displeasure about government apathy towards the SMEs sector. They lamented the lack of social support, and two of the owner-managers noted that government did not care whether they existed or not, and blamed this on the countrys over dependence on crude oil. When asked to comment about the MFBs licensed by the central bank specifically to cater for small businesses, all the owner-managers dismissed the MFBs, saying they were even worse than commercial banks, and citing that there are some fraudulent ones amongst them, and cases exists where they had defrauded vulnerable traders and disappeared with their meagre savings.

In replacement of the SMIEIS policy, CBN reformed, by converting, the ailing community banks into MFBs; with the introduction of new minimum capitalisation requirement of N20 million and redefined focus on the SMEs sector. Our study revealed that the same old problems persist. We found that MFBs go about seeking more of deposits from the same customer that the commercial banks go after, and provide very little credit opportunities to SMEs. One respondent commented that to justify their weaknesses, the MFBs often make statements such as: oh these SMEs dont even know how to package themselves to access available funds they do not even know how to draft proper business plans, as if they were ever interested in providing loans. This statement was re-echoed by another respondent who stressed that in his opinion most MFBs are one of two things: either an arm of one of the big commercial banks; or some individuals attempting to make a quick buck... A third respondent also supported this finding by pointing out that he had tried to secure loans from two MFBs, but they refused to give him the loans, because like the big commercial banks they [MFBs] were more interested in collecting deposits, and less concerned with granting loans. They gave me flimsy excuses saying we didnt have good business plans. However, there was no evidence to substantiate these assertions.

4.4 Inconsistent economic policies

All the participants were of the opinion that economic policies in Nigeria where unfavourable to small businesses. Noting that most policies announced by the government never get properly implemented, so they never get to enjoy any benefits whatsoever in from policies geared towards promoting the small business sector. When


the researchers queried the owner-managers regarding the SMIEIS policy introduced by ex-president Obasanjos administration, it was found that no single owner-manager interviewed benefited from the scheme.

The result shows that when the SMIEIS scheme was announced, it was hailed by most industry stakeholders; because it mandated all commercial banks operating in Nigeria to set aside and commit 10% of their pre-tax profit into developing the SMEs sector via medium to long-term loans and venture capital (VC) arrangements. Small business owners were delighted, hoping that the scheme would mark an end of the challenge of poor access to credit. On the back of this policy, the central bank licensed a number of VC companies; most of which were either subsidiaries of the commercial banks, or had their backing in one form or another. The resultant effect of this arrangement was that the same scenario that played out between SMEs and the commercial banks continued to manifest thereafter. Although there were a few VC firms that invested in some SMEs; yet, it was certainly not as significant as the projected scale the scheme targeted at its inception. The respondents strongly argued that VC firms either refused to provide funds or claimed that many SMEs were ill-prepared to access the pool of funds at their disposal.

One seemingly well-informed owner-manager, who previously worked in the manufacturing industry, before taking-up early retirement to establish his own business, took considerable time to explain the situation. According to him, even in cases where SMEs were provided with VC funds, the businesses were almost snatched-away from the hands of their entrepreneurs or owner-managers. In his words, ...I can tell you this because I know, and I had friends that went to apply for the SMIEIS funds; first of all, the VC firms usually compelled the SMEs to part with significant proportions of their shareholdings (at least 45%) else the funds would not be approved. Thereafter, the firms make the entrepreneurs hands-off certain strategic portfolios within the businesses (which many entrepreneurs see as their brain child) such as chairman, chief executive officer, managing director or finance director. Consequently, this created disaffection in several financing relationships between the VC firms and entrepreneurs/small business owners; because no business man plans to go out in search of funds only to find out at the end of the day, that he has been turned into an employee in the business which he founded. He continued:

...in fact, there is a game that the VC firms tend to play. They would ask the entrepreneur to choose a portfolio between the Chairman and the MD, while the other portfolio would be filled by a representative of the VC firm. By instinct, most entrepreneurs would gladly choose to be the Chairman, after which they would be told that as Chairman, you should note that the MD would be responsible for the day-to-day management of the company. Then, If the entrepreneur had a rethink and returned to them to say oh no, I think I now want to be the MD of my company, the VC firms would in-turn tell him something like in that case, you should also be aware that if you choose to be the MD, the Chairman of the company would be responsible for overall decision-making, which brings the entrepreneur back to square one. So it was not a win-win situation between entrepreneurs and VC firms... this is so sad, because this attitude put-off many entrepreneurs from seeking VC funds to boost their businesses...

its all down to the laxity of central bank, and their ineffective implementation, supervision and monitoring systems... unethical practices were going on, and the CBN couldnt do anything to protect small businesses commented another respondent.


Although there was no evidence to substantiate the expos; nonetheless, the SMIEIS policy was later halted, leaving the financing of the SMEs sector at the discretion of commercial banks. The policy was replaced with the reformed MFB policy; attesting to the inconsistency that has characterised the economic policies regarding the SMEs sector, and which was lamented by all the respondents.

4.5 Corruption and multiple taxes and levies

Corruption was also identified as another critical challenge limiting small business performance. From the data, all of the owner-managers commented that the menace of corruption has been a bottleneck to their effective operation; because people, especially, in the public sector require businesses to give them money in order to undertake their normal responsibilities, for which they are paid salaries. Two of the owner-managers involved in contracting and procurement for the public sector expressed their disappointment that several times, the files containing their proposals and bids have gone missing, because they refused to give kick-backs. One respondent noted that even in the private sector, ...there is very little trust... people renege on agreements at will... its very difficult to find people whose words are their bonds... In support of these findings, another respondent summarised the problem by suggesting: ... [corruption] its a problem of values... the military eroded our value system... we desperately need value re-orientation in this country...

Linked to the issue of corruption was the issue of multiple taxes and levies. All the participants complained that multiple taxes and levies increase the cost of running their businesses and dug deep into their bottom-line. Evidence shows that this is an area that needs to be addressed, as all manner of characters now parade themselves on the road collecting money from uniform officers, at both legal and illegal check-points, to state and local government officials, traffic wardens, transport associations, and area boys claiming to be vigilante groups:

...its really not fair on us; were trying to manage our business and everyday you get one group or the other trying to get money out of us... Sometimes you get people who say they are from the local government coming to check radio/TV licenses, business permits, shop permit, quality certificates etc. All because they want to collect money from us... these days you see people in all manner of uniforms you dont even know who is who... One owner-manager lamented.

... to move our flour from Apapa to this place, we spend so much... Apart from the costs of the flour and haulage, sometimes there can be an average of over 20 checks on the road and we have to part with money. There would also be area boys, who would block a road and say our truck will not pass unless we settle them... then there are the likes of OPC who would come and say they secure the area and require payment... how do you expect us to cope... Another respondent who manages a bakery emphasised.

When the researchers queried about governments supposed tax holidays, the respondents suggested that those were only heard on TV and it never translates to the small businesses. One owner-manager noted that: we dont even believe government anymore... that was how they said they were injecting N200 million into the SMEs sector and till date, we cant access those funds. In the opinion of the small businesses, there was nothing such as tax holidays for small businesses existing in the country. Probably,


the lack of adequate information or difficulty in accessing advisors and consultants may be responsible for this lack of awareness.

5 Discussion and conclusions

We do not claim that these five challenges make up an exhaustive list of all the critical challenges limiting small business performance in Nigeria. Nonetheless, it can be argued that they constitute major barriers to the success of numerous small businesses; and may inadvertently influence the high rate of failure experienced in the sector. The findings from this investigation considerably reveal that all the critical challenges limiting small business performance may be linked in one form or another to governments action and/or inaction. All the participants indicted the government of apathy towards small businesses, and the findings are consistent with previous studies: Olorunshola (2003), Okpara and Wynn (2007), Ihua (2009), and Okpara (2011). Consequently, it was found that the experience of these challenges has had an effect on the way small business-owners perceived the activities and policies of government; and there appeared to be some resentment towards politicians and those in authority at all levels of governance federal, state and local government.

In the first instance, most of the businesses considered limited access to credit a major challenge limiting their performance and influencing failure. There were mixed feelings regarding the unwillingness of commercial banks and MFBs to grant loans to small businesses. Similarly, there is growing complaints from small businesses, and lack of trust, towards financial institutions, particularly commercial banks and MFBs, regarding their focus on deposit-collection and indifference towards providing loans. This loss of trust has impacted negatively on the investment climate, and theres need to rebuild trust between SMEs and financial institutions. Moreover, while SMEs criticise the banks for blaming their ill-preparedness for loans and lack of viable business plans, the questions that scholars like us continue to ask are these: whose responsibility is it to help package small businesses for funding? Who should help them fine-tune their business plans and bring them up to scratch? Who should go out seeking viable businesses with unique potentials to invest in? Is it not the commercial banks, venture capitalists, MFBs and other financial institutions that ought to establish dedicated SME desks in their branches and charge them with the responsibility of seeking businesses prospects to capitalise and support their growth? This is how it operates in countries were small businesses are considered the hub of economic activities, and they in-turn contribute immensely to boosting the economic growth (Simmonds, 2011; White House, 2010).

The study also affirmed that small businesses operated under an unfavourable business environment; where they had to provide their own infrastructure and social support like electricity, water and security. They also do not have any choice, but to travel on the existing dilapidated roads to procure their raw materials and distribute their finished products and/or render their services. Businesses also have to cope with high inflation and interest rates from financial institutions. These findings affirm the position of previous findings that external factors, for which businesses have no control over, are the critical factors influencing SMEs failure in Nigeria. In addition, the issue of policy inconsistency identified from the study has been re-echoed in several studies (Obokoh, 2008a; Udechukwu, 2003). To buttress this problem of inconsistency, the Governor of the Central Bank of Nigeria recently criticised governments policy somersault on the ban


on the importation of tooth-picks and furniture. He described it as one of the reasons why banks refuse to grant loans to the real sector; emphasising that it portends lack of credibility on the side of government (Gabriel, 2011). Also, the study revealed the problems of multiple taxes and corruption; and this was consistent with earlier works, such as Dike (2005) who stressed that while the issue of corruption is a global phenomenon...the case of corruption in Nigeria is pandemic. Likewise, one of the participants in Ihua (2009) commented that although Nigeria has been blessed for not having natural disasters such as earthquakes and Tsunamis, nonetheless the country suffered from human disasters, who are embezzlers of public funds and some corrupt entrepreneurs. Therefore, the corruption challenge remains a clog in the wheel of progress for small businesses. Similarly, to corroborate the finding on the significant limitations posed by multiple taxes, a recent report by the Entrepreneurship Development Centre (EDC, 2011) Lagos, revealed that Nigerian SMEs are subjected to over 34 different taxes and levies from the federal, state and local governments.

It is our firm belief that the performance of small businesses in Nigeria can be enhanced and their challenges alleviated to the barest minimum. They can be supported to play catalytic roles towards the countrys economic growth and development; such as: the mobilisation of domestic savings for investment, generating sustainable employment, contributing significantly to the GDP, enhancing increased utilisation of local raw materials, reducing the level of poverty through sustainable livelihoods, increasing the standard of living through wealth creation, enhancing local technology development, and export diversification. Therefore government needs pay greater attention to infrastructural development in the country. However, infrastructural development also has to be backed by strong commitment to socio-economic and political reforms, which are rooted in fiscal discipline, transparency, accountability, professionalism, and performance orientation. Government should also address their apathy to the SMEs sector, by showing greater commitment to enhancing an enabling climate that is more conducive to engendering private sector investments and SMEs performance. This neoliberal-capitalist philosophy would ensure an effective public and private sector partnership that would witness massive investments in roads, modern transport system, healthcare, and education; which would altogether promote entrepreneurship and competition within a fair and equitable justice system.

Ultimately, whether or not Nigerian small businesses would be able to perform like their counterparts in other countries depends on the amount of attention and support provided to the sector. We recommend the institution of the National SMEs Summit (NSS), under the management of the Federal Ministry of Commerce and Industry, in conjunction with SMEDAN. The Summit would be one that brings together key SME-stakeholders in the economy and give them an opportunity to brainstorm on the way forward for the SMEs sector. Members may comprise government policy makers, central bank, commercial banks, MFBs, venture capitalists, business angels, investors, trade partners, small business advisors and consultants, non-governmental organisations (NGOs) working at grassroots level, and SME associations such as NASME and NASSI. This forum would give the stakeholders an opportunity to offer their opinion regarding the challenges hampering the smooth operations of the sector and hindering their performance; with the aim of designing and setting in motion the implementation of a coherent master-plan for SMEs sector development in Nigeria. Finally, instead of a one-off summit, the Ministry may organise the summit annually in order to track the progress made over the last period and fine-tune the agenda for the future.


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