The Micro, Small and Medium Enterprises (MSMEs) constitute about 60 percent of the Nigerian economy, contributing 47 percent to the gross domestic product (GDP).
There are currently 37 million of them, employing more than half of the population. According to the Bank of Industry (BoI), this category of business constitutes up to 90 percent of Nigerian enterprises.
But players in this segment of the economy, particularly small and medium actors in the creative and productive sectors, are poorly patronised.
Owing to this, key players say there is a need for the Federal Government to make patronage of made-in-Nigeria products compulsory at ministries, departments and agencies. This should also be extended to states and local governments, they add.
African-Farmer Mogaji, chief executive officer, X-RAY Farms, said: “MSMEs in the country today have not performed creditably well as they ought to because Nigerians are not even patronising their products. We prefer imported items than our own locally produced commodities.”
Mogaji urged local manufacturers to ensure that their products meet up to international standards. He said there is a need to make local products appealing to Nigerians.
The Nigerian business environment is becoming increasingly tougher for small businesses that struggle for survival in the face of recession. Currently, the Monetary Policy Rate (the benchmark interest rate in the country) is 14 percent, which means most financial institutions can hardly lend at less than 20 percent.
“For MSMEs to survive the current recession, the government must improve on the ease of doing business,” said Degun Agboade, president and chairman of council, Nigerian Association of Small and Medium Enterprises (NASME).
“It is not a laughing matter to be an entrepreneur in this country. The environment is very hostile; government is not doing what it is supposed to do and finance is not there,” he said.
Agboade stated that in other countries, governments ensure they provide the needed environment for businesses to thrive, unlike in Nigeria where entrepreneurs have to provide their own power, water, and legal framework, amongst others. Despite the business opportunities in Nigeria, the country ranks low on the Ease of Doing Business Index, occupying 169 out of 189 countries.
Recently, the Manufacturers Association of Nigeria (MAN) announced that about 222 small businesses have shut down operations due to the harsh operating environment and FX restriction. This claimed about 180,000 jobs from the economy.
Friday Opara, director-strategic partnership, Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), said: “The FX issues have made the Nigerian business environment tougher. We need to look at our funding position for MSMEs because businesses cannot access cheap funds and this is why the government should fast track central bank movable asset collateral initiative.”
“Governments at all levels need to provide enabling environment so that business can survive,” Opara said.
The cost of doing business for MSMEs and businesses in general have continued to increase with the rise in interest rates and increase in the prices of many commodities.
Creating markets
Despite the creativity of MSMEs, finding market for their products is quite challenging as most Nigeria consumers have high preference for foreign products over local products.
“People like my designs but they still want to purchase foreign clothes because they see made-in- Nigeria products as inferior. Acceptability of the made-in-Nigeria products is a key challenge which MSMEs are still facing,” said Crystal Omotosimi, a fashion designer and founder, HC Vestimenta Enterprise.
Despite claims that local products produced by MSMEs are largely inferior, there are indications that things are changing.
Local goods, which were largely branded as inferior in the past, are now seeing rapid improvements in quality, boosting their chances of competing with international players.
Nike Ademola, a student of the University of Lagos (Unilag), said, “I used to buy hand bags imported from China. Within five months then, the bag would start tearing off. But now, I buy our locally hand-made handbags and can tell you that they are far better than the ones from China.”
The government has done several unsuccessful campaigns in the past aimed at encouraging the purchase of locally made products. Analysts believe that the government should do more as MSMEs have big economic potential.
Changing tax structure
Analysts say the Federal Government and state governments need to review the country’s tax structure for MSMEs as many refuse to register their businesses owing to multiple taxes and pressure from tax agencies.
As a result of this, their products are not being certified, making them operate in the informal sector. Governments at various levels lose a lot of revenues when the majority of MSMEs are still in the informal sector.
According to experts, the number of businesses in the informal sector has been on the rise as most entrepreneurs and business owners are frustrated with difficult tax structure.
In Nigeria, the tax structure is the same for all businesses irrespective of the business type and it is usually 30 percent of total profit, analysts say. Again, the canon of certainty is often violated.
“In a situation where MSMEs are being taxed with the same tax structure that is used for large enterprises and corporations, how do you want them to survive?” Agboade asked.
According to Agboade, government needs to tax MSMEs on the basis of their profits, saying that this should also depend on size.
“SMEs should pay taxation only on their profits. It should be 10 percent for medium, five percent for small and 2.5 percent for micro businesses,” he proposed.
According to Francis Onwumere, business and product developer, Prowork Project Management Limited, “As soon as you register your business, different tax agencies come after you, and this can be frustrating. Many MSMEs refuse to register their businesses so that tax authorities don’t come after them.”
Onwumere said this is increasing the number of businesses in the informal sector.
There is likewise duplication of functions among various regulatory agencies. Different tiers of government agencies collect regressive and multiple taxes and levies as well as other unofficial fees from MSMEs, experts say.
“The complexity of the functions of regulatory agencies seriously affects the growth of SMEs as some laudable projects are being frustrated by regulators,” said Abdul Rasheed Yerima, deputy president, northern region, NASME.
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