Leveraging MSMEs for Nigeria”s economic growth

Perhaps, in the past, Nigeria could pass as one of the worst countries in the world where Micro, Small and Medium Enterprises (MSMEs) value to national development is only song without concrete actions. Though some progress are being achieved to support and develop MSMEs with various interventions from the Central Bank of Nigeria (CBN), the […]

Perhaps, in the past, Nigeria could pass as one of the worst countries in the world where Micro, Small and Medium Enterprises (MSMEs) value to national development is only song without concrete actions. Though some progress are being achieved to support and develop MSMEs with various interventions from the Central Bank of Nigeria (CBN), the Bankers’ Committee, Development Bank of Nigeria (DBN), Bank of Industry (BOI) and other programs, huge gaps still exist.

To imagine that Nigeria has no concrete data on MSMEs and the true contributions of the MSMEs to GDP growth trajectory is an aberration. The Nigeria Bureau of Statistics (NBS) has projected that Nigeria has about 37 million MSMEs but experts say that figure is far from being accurate as the NBS only did a hypothetical projections rather than a census of MSMEs in Nigeria. It is the same flawed figures the SMEDAN also uses for its MSMEs planning and development, which hasn’t yielded any significant result.

But the good news is that the National Bureau of Statistics, (NBS) in partnership with SMEDAN is developing a more credible data base for all MSMEs in the country. The primary objective of the proposed MSMEs survey is to establish a credible and reliable database for MSMEs sector in Nigeria and to measure their contribution to the job and wealth creation in the economy.

Recently, the Director General, SMEDAN, said Dikko Radda says MSMEs contributes about N38.8 trillion (48.47%) to the nation’s Gross Domestic Product (GDP).

Dr. Dikko Radda DG/CEO SMEDAN is also worried about the integrity of data on MSMEs currently put at 37 million and employing 58 million persons.

However, recent statistics according to the MSME Clinic initiative being championed by the office of the Vice President, Prof. Yomi Osinbajo says that Nigeria has about 39 million MSMEs. 

The MSME policy has it that SMEDAN should generate data on the number of MSMEs every three years.

“We conducted in 2010, in 2013 which is the latest we have. For the 2013, we had 37.76 million MSMEs in Nigeria. Lagos has the highest of 3.9million and Niger has the lowest of 367,000” the SMEDAN DG explained recently.

He also said “the survey revealed that Micro enterprises have about 99 per cent of the total because they have 36,994,000. The Small enterprises has about 68,000 and the Medium has 4,670.”

From what the SMEDAN CEO said, another survey was due in 2016 but would probably happen this year.

 

Export capability of MSMES

There is decline in export because the medium enterprises who have capability of producing goods for exports are not supported.

Data from the CBN show that Nigeria’s non-oil export earnings have come down by more than $5.9 billion, from $10.35 billion recorded in 2014 to $4.39 billion in 2015.

Besides, credit to non-oil exports sector, which currently is in the decline, has only constituted a paltry 0.6 per cent of total domestic credit to the private sector in the past five years.

This figures speaks to the steady decline of medium scale enterprises, who should fuel majority of the non oil exports in Nigeria, as it is in other economies around the world.

Worried by this trend, the Managing Director/CEO Fortis Microfinance Bank, Mr. Tiko Okoye recently said, the recently established Development Bank of Nigeria (DBN) to support export oriented Micro, Small and Medium Scale Enterprises (MSMEs) there are a lot of SMEs who are export oriented across the country and if they are supported, they will grow capacity and price for export thus help the country earn more foreign exchange.

“The Development Bank of Nigeria should promote export oriented Small and Medium Scale Enterprises (SMEs). This will also help government to boost its foreign exchange earning capabilities” he said.

 

Mr. Okoye also said DBN should also help build capacities among the Micro, Small and Medium Scale Enterprises (MSMEs) adding that a lot of the players in that sector lack the capability to grow their capacities.

The Managing Director while welcoming the DBN initiative also prayed DBN to de-risk the MSMEs and guarantee the loans to the SMEs so the microfinance banks can have the confidence to lend to them.

Growing MSMEs base

Experts have suggested that MSMEs should get Tax and levies breaks as an incentive to spur growth among the MSMEs. The tax and levies break should be used as a bait to enticing MSMEs register so government can have a more credible and workable data. With a credible data, government and other stockholders can target the SMEs directly rather than the current trial and error approach. The impact would be more direct and devoid of wasted efforts.

Capacity building (MSME clinics) as its currently being done by the FG is a step in the right direction but the government must be willing to partner solutions providers in the MSMEs sector to downscale the impact,

Also, government must be willing to provide better critical infrastructure for businesses to thrive. Infrastructures like stable power at the night voltage, water and good road/transport infrastructure. These can be concentrated at industrial clusters for a start.

Also critical to MSMEs growth trajectory is the local government system. Thus, states should be mandated to conduct local government elections and all the local governments be run efficiently. “Federal allocations must be accessed by the local governments directly and not through state governments who exploit the lacuna to corruptly enrich themselves to the detriment of small businesses” the analysts say.

Recently, the Governor of CBN, Mr. Godwin Emefiele noted that as a part of measures to grow the MSMEs, the National Collateral Registry was introduced to unlock access to credit, which has always been a major concern to MSMEs, particularly the micro enterprises which account for 99 percent of the 37.1 million MSMEs in the country. He said since commencement of live operations in May 2016, 410financial institutions have registered 26,899 financing statements valued at over N540 billion on the platform. “I am very optimistic that the Collateral

Registry will have tremendous impacts on MSME lending in Nigeria in the foreseeable future, particularly in the implementation of the AGSMEIS, as all equipment financed under the Scheme must be registered on the platform” he noted. 

Policy responses and sustainable MSMEs sector for national development

The general perspective is that MSMEs are seen as accelerating the attainment of broad socio-economic objectives, including poverty reduction, employment generation, wealth creation, among others.

The policy document on the ERGP mentioned that the strengthening of small-scale businesses and the promotion of industrialization are priorities for economic recovery.

Nigeria’s manufacturing sector has been particularly vulnerable to the stagnant economic conditions. It contracted by 4.38 percent in Q3 2016 largely due to difficulty of accessing forex to import intermediate goods and raw materials and falling consumer demands.                 

A revitalized manufacturing sector will create jobs, stimulate foreign exchange earnings and grow, micro, small and medium enterprises (MSMEs). The involvement of small businesses in the service sector is a major lever for economic recovery.

Also as part of the policy response, the Acting President, Prof. Yemi Osinbajo recently signed three executive orders that centres largely around the ease of doing business and promoting local goods patronage, the policy response that has the potential to impact a huge number of SMEs. Experts say small businesses and start-ups are the engines that will power Nigeria’s growth into the future. The sooner we start supporting our proudly Nigerian suppliers and service providers, the better for us. With our support, they can create wealth and jobs for the country, and many of them could grow into globally competitive exporters.

The executive orders are also anticipated to save MSMEs N2.6bn annually in registration costs to start their businesses.

These reforms, according to the action plan is expected to save the MSMEs about N2.6bn in business registration costs annually and reduce the time it would take to travel to the CAC to perfect business registration by 116,000 minutes daily.

Also recently Bankers’ Committee partnering the Central Bank of Nigeria (CBN) has set aside N26bn fund to finance agric businesses and other small informal businesses across the country under the Agribusiness/Small and Medium Enterprises Investment Scheme (AGSMEIS).

The  AGSMEIS, is an initiative of the Bankers’ Committee, was introduced at the Committee’s 331st meeting held on February 9, 2017. Under the initiative, all the deposit money banks (DMBs) will aside five percent of their annual profit after tax to fund the scheme. The fund which has peaked N26bn is expected to grow to N60bn before the end of 2018.

The initiative has as its core objectives to improve access to affordable financing for MSMEs, particularly those operating in the informal sector of the economy and to support the Federal Government’s efforts and policy measures to promote sustainable economic development and employment generation. All of these measures are meant to crystallize MSMES growth in Nigeria.