Appraisal Techniques and Socio-Economic Factors in Real Assets Investment: Critical Study of Micro, Small and Medium Scale Enterprises in Nigeria

There is no doubt about the strategic importance of micro, small and medium enterprises (MSMEs) in developing and developed economies. As a result, governments and transnational institutions have been unrelenting in pursuing policies and programmes meant to engender MSMEs effectiveness and sustainability. However, despite the efforts of both governments and the agencies, the actualization of the strategic roles of MSMEs remains a source of controversial narratives. Unfortunately, however, while so much attention is given to such factors as finance and infrastructure, the issue of managerial competence seems to receive very little attention. This study focused on the decision-making orientations of MSMEs in Nigeria, particularly regarding adopting capital appraisal techniques. Specifically, the study investigated the extent of MSMEs' usage of investment appraisal techniques. In addition, the study identified the socio-economic factors that influence investment in real physical assets and the nature of the relationship between the adoption of investment appraisal techniques and the quality of decision-making. Based on a descriptive survey of 2740 MSMEs from the Federal Capital and twenty-three States spread across the six geo-political zones of Nigeria, the hypotheses were tested with multinomial and ordinal logistic regression. The findings of the study include: some investment appraisal techniques are used, albeit infrequently by some MSMEs; socio-economic factors such as taxation, inflation, high foreign exchange, economic growth, high interest rate, urban development, infrastructural development, and insecurity influence the decisions of MSMEs to invest in real physical asset. However, the increase in tax, infrastructural development and insecurity exerted more significant influence than the other factors across the groups of MSMEs; there is a significant and positive relationship between the use of investment appraisal techniques such as payback period, accounting rate of return and profitability index and the quality of investment decisions made by MSMEs. The study concludes that the embrace of rational decision-making methods by MSMEs in Nigeria is low. There is, therefore, the need to improve the attention given to the development of managerial competence of MSMEs.