• Saturday, July 13, 2024
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Animating the SME sector through economic linkages

It is good to celebrate success but there is a risk of forgetting the sources and causes of the success in the midst of the applause that follows success. When we celebrate champions and their victory, it is very important to take good care of those talents that make them the champions they are, be they physical or emotional endowments. The same is true for Small and Medium Enterprises (SMEs) and their global acclaim to a successful role in the world economy.
SMEs are no doubt the engine of growth in many world economies and Nigeria is not excluded. This view has long been verified and accepted among managers and planners of the leading economies of the world, to the extent that it cannot be validly disputed at this point.
The United Nations Industrial Development Organization (UNIDO) had once advised that it was important for developing countries to be integrated into the global economy through economic deregulation, decentralization, democratization and liberalization as critically important ways to overcome poverty and inequality. An important element of this process is the development of a vibrant private sector with an equally vibrant SME sector that plays its vital roles effectively.
The performance credentials of SMEs are based on a number of facts that are both hard and verifiable. Studies carried out in 2010 by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency (SMEDAN) have restated that SMEs are contributing a lot to the growth of the Nigerian economy. According to this collaborative study by SMEDAN and NBS, SMEs are major contributors to private sector employment in Nigeria. The study shows that in 2010 the sector contributed over 46 percent of GDP and over 65 percent of total employment in the country.
This is typical of the contribution of the SME sector. Generally, MSMEs and informal enterprises account for over 60 percent of GDP and over 70 percent of total employment in low income countries. For the high income countries, SMEs also contribute a lot to growth. About 70 percent of GDP and 95 percent of total employment in middle income countries also come from this sector.
The abundant energies of our teeming population find vent and expression among the operators in this sector, and within their economic activities. The SME sector is the buffer of the economy. It is the cooling-off haven for those structured out of the formal sector into the periphery of the economy. It also provides investment opportunities for those with some amount of capital to invest profitably. In every sense, the SMEs fill a great economic void that large corporations can never fill. They are, indeed, the powerhouse of the economy providing raw materials and semi-finished goods for input to the production processes of large corporations.
And this is where the nexus is. I believe this nexus has been neglected or inadvertently deemphasized. Even the National Policy on Micro, Small and Medium Enterprises 2015 does not, in my view, pay proper attention to the inter-industry and inter-sector linkages that ought to be the bedrock of our MSME development policy. Those of us who are interested or who champion the growth of SMEs, and who, through their works of advocacy and other contributions, promote the SME sector, are gradually falling into the error of focusing too much attention on celebrating the success which SMEs achieved in faraway lands at the expense of understanding the sources of such success. I think it is time to clear some fog in this very important area.
We need urgently to call attention to the importance of certain economic linkages that will benefit the SMEs if properly nurtured – economic linkages especially with large corporations. Most of us need no further lectures on the important role which industrial linkages play in economic development. Suffice it to say that in a healthy industrial setting, one firm’s output is another firm’s input. It is easy to be carried away by the fact that we all know that SMEs drive growth in most economies. The tendency is to believe that once we assist the SMEs to find some of the critical inputs they require, we could go to sleep and hope that all is well with them. It is not exactly so.
Some of the critical inputs include investment capital which, against my personal belief, some studies still tend to push forward as the most serious challenge of the sector. My views on the role of investment capital in the SME sector are documented. If capital were the most important challenge, we would have more success in that sector than we currently have. Finding capital is one thing but managing it effectively is another. It is easy to beg or borrow investment capital in an extended family-oriented society like ours, but this chance is often damaged by records of previous mismanagement due mainly to lack of capacity.
Many venture financiers are, however, working hard in this area, together with some of the new financial institutions recently created in the country, including microfinance banks and other financial institutions. Many more are helping them to deepen and widen capacity through coaching, training and other human capital development activities. While finance may be the low-hanging, entry-point problem, it is definitely not the most important. The truth is that none of the problems of the sector should be taken in isolation. They should be handled in an all-inclusive and holistic manner.
What we need most now is economic linkages between SMEs and the bigger firms. We should be looking to enhance their sales to the corporations in Nigeria. Economic linkages relate to the inter-industry relationships that exist in a properly functioning economy. Small companies may be vital to the economy but that is for as long as they exist and get nourishment from the system. The question is: from where do the SMEs get their nourishment? A close look at the inter-industry economic relations will reveal that SMEs prosper more in an environment in which large corporations exist and integrate SMEs in their production plans.
In closing, I think we need to change our view of SMEs, which to many of us is a destination. It should not be. SMEs should rightly grow into big corporations. We should encourage profitable business interaction between MSMEs and the big corporations, by enhancing their interdependence. Most SMEs are involved in the provision of commodities, semi-processed materials and other raw materials. These items constitute the bulk of the inputs for the productive activities of large firms. Let us emphasize this nexus.
Emeka Osuji