SME Prospects for Nigeria’s Economic Growth and Unemployment Reduction

Ibukunoluwa Jeremiah Akinrinde (), Ojo Johnson Adelakun (), Kingsley Chuks Okogor () and Erefagha Jerome-Ukaoke ()
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Ibukunoluwa Jeremiah Akinrinde: Finance Competitiveness & Investment Global Practice, World Bank
Ojo Johnson Adelakun: National University of Lesotho
Kingsley Chuks Okogor: Delta State University
Erefagha Jerome-Ukaoke: University of Northampton

Chapter Chapter 19 in The Palgrave Handbook of Decolonising Entrepreneurship, 2025, pp 497-543 from Springer

Abstract: Abstract Small and Medium Enterprises (SMEs) are pivotal to Nigeria's economic growth and employment generation, yet their potential remains constrained by persistent financing challenges and macroeconomic inefficiencies. This study critically examines the role of SMEs in driving economic expansion and addressing Nigeria's rising unemployment, with a particular focus on financing constraints and policy implications. Utilizing secondary time series data from the National Bureau of Statistics (NBS), the Central Bank of Nigeria (CBN), and the World Bank (WDI) spanning the period 1981–2023, the study investigates the relationships among economic growth, unemployment, lending rates, and commercial banks’ credit to SMEs. Grounded in three key economic theories, Okun's Law, the SME-Led Growth Hypothesis, and the Financial Constraint Theory, the empirical findings reveal a weak negative correlation (r = −0.30) between GDP growth and unemployment, affirming the “Nigerian Economic Paradox,” wherein economic expansion fails to translate into significant job creation. Despite the positive correlation (r = 0.25) between SME credit and GDP growth, the impact remains modest due to high lending rates, policy inefficiencies, and structural constraints. Additionally, the study finds that lending rates exhibit an insignificant relationship with economic growth and unemployment, suggesting that high interest rates impede SME development and economic expansion. The study underscores persistent gaps in credit accessibility due to stringent collateral requirements, inadequate financial literacy, and regulatory inefficiencies. Moreover, Nigeria’s economic reliance on oil exports exacerbates structural unemployment, limiting the effectiveness of SMEs in fostering inclusive economic growth. Policy interventions such as reducing lending rates, implementing financial inclusion strategies, strengthening institutional frameworks, and promoting diversified credit distribution across economic sectors are recommended to enhance SME contributions to national development. Furthermore, leveraging financial technology solutions, public-private partnerships, and capacity-building programs can improve SME access to finance and enhance productivity.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-92310-4_19

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DOI: 10.1007/978-3-031-92310-4_19

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