Abstract
This study examines the contributions of Small and Medium Enterprises (SMEs) to Nigeria’s
Introduction
economy from 1999 to 2024 through the lens of the Pecking Order Theory, which explains how
the sector's reliance on a hierarchy of financing prioritizing internal retained earnings over high
interest debt and elusive external equity shapes its growth trajectory. Representing over 96.7% of
all Nigerian businesses, MSMEs experienced a dramatic expansion from 17.28 million units in
2010 to over 41.54 million by 2017, effectively doubling employment from 32.4 million to over 60
million and reaching a record GDP contribution of 49.5% by 2024 despite post-2017
macroeconomic volatility. While the sector dominates the labor market by absorbing up to 87.9%
of the workforce and providing 50% of industrial production, the financing preferences dictated
by the Pecking Order Theory often trap firms in the "micro" stage, limiting export contributions
to just 6.21% due to insufficient capital for scaling. To transition these resilient but vulnerable
enterprises into high-growth industries, it is recommended that the government establish a
dedicated MSME fund to improve credit accessibility, implement industrial dispersal policies to
stimulate rural growth, invest heavily in energy infrastructure, and formalize mentorship
programs to enhance institutional capacity.