Micro, small and medium scale enterprises (MSMEs) are the bedrock on which the Nigerian economy stands. A recent report by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) proves this point.
The number of MSMEs rose from 37million in 2013 to 41.5million in 2017. Micro enterprises were 41.47 million, constituting 99.8 percent of the total enterprises, while small and medium businesses were estimated at 73,081, which is 0.2 percent of the total.
Together, they employ 59.647 million people in the economy. They also contribute 50 percent to the gross domestic product (GDP) and 7.64 percent to export receipts.
While they are scattered across various sectors, they are majorly found in the trade sector— both for wholesale and retail—, agriculture, manufacturing, and food services, among others.
Interestingly, the report shows that the number of medium scale enterprises dropped by 61 percent, from 4,670 in 2013 to 1,793 in 2017, while the total MSMEs grew marginally by 12.1 percent.
Analysts say this is a reflection of the Nigerian economy in the last six years—particularly in periods of negative or sluggish growth in 2016/2017.
“The periods covered by the survey were when the Nigerian economy was in mostly down and in recession. The small and medium enterprises suffered from shocks in the economy, forcing many to close shop,” Friday Opara, director, strategic partnership, SMEDAN, who contributed to the survey, told BusinessDay on the phone.
“This was why we had a decline in the number of medium-sized businesses. The growth recorded in micro businesses was as a result of so many retrenched workers starting up micro businesses to keep life going,” Opara explained.
Yes, there were massive retrenchment and business closures, particularly between 2016 and 2017 when the Nigerian economy was in recession.
In August 2016, the Manufacturers Association of Nigeria (MAN) and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses. Frank Jacobs, former president of the Manufacturers Association of Nigeria(MAN), told BusinessDay in 2016 that 54 firms shut down in one year preceding August 2016.
Two years after recession, have the problems of MSMEs ceased?
According to the 2019 World Bank’s Doing Business Index, Nigeria ranked 146th out of 190 countries, scoring 52.89 out of 100 points. This reflects the difficult conditions of business owners in Africa’s biggest economy. The MSMEs are left to battle with various issues ranging from a limiting environment to restrictive economic policies, overbearing regulatory agencies, and tax multiplicity, among others.
Babatunde Paul Ruwase, president of the Lagos Chamber of Commerce and Industry (LCCI), said at a breakfast meeting that MSMEs are critical to the nation’s economic development, especially with regard to job creation and poverty reduction. He said the private sector, especially the MSMEs, should be empowered and supported.
Funding remains a major hiccup for MSMEs, as these businesses require funding either in the form of loans or grants. Nigerian banks are usually reluctant to lend to businesses, especially MSMEs due to issues around absence of identity, lack of collaterals and trust. Those willing to give out loans charge high interests that are usually difficult for firms to pay.
Nigeria retained its double digit monetary policy rate at 13.5 percent from a previous 14 percent, and commercial lenders give out loans at 20 to 35 percent interest rates with a 12 months tenor. Furthermore, development banks like the Bank of Industry which give out loans at single-digit rates of about nine percent lack the required capital to keep up with its activities.
Nigeria’s benchmark interest rate is among the highest in Africa at 13.5 percent. Ethiopia’s is 7 percent; Kenya is 9 percent; South Africa is 6.75 percent; Zambia is 10.25 percent, and Cameroon is 4.25 percent.
Similarly, Rwanda is 5 percent; Mauritius, 3.5 percent; Algeria is 8 percent, and Senegal is 4.5 percent. Manufacturers are asking the Federal Government to recapitalise especially the Bank of Industry, which provides single-digit funding to them. Doing this, they say, will increase lending to the real sector.
Interestingly, the NBS report shows that 85 percent of businesses could not have access to external financing within 2013-2017. In fact, only 5.3 percent of SMEs had access to bank credit, even with 40 percent of them having relationships with banks. Most MSMEs reported average monthly sales/turnover of N100,000 as a result of lack of funding for expansion.
Infrastructure is a major issue. Think about the ports. A research report conducted by the Lagos Chamber of Commerce and Industry (LCCI) in 2018 showed that at least 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day, despite that the two ports were originally meant to accommodate only 1,500 trucks.
The report showed that Nigeria loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis due to the poor state of Nigerian ports.
There are no good railways at the moment and roads are bad in many instances, thereby increasing logistics costs, which are now next after energy for MSMEs.
Analysts say good infrastructure boosts businesses and raises the gross domestic product (GDP), creating jobs and economic prosperity. They urge the government to help businesses by spending aggressively on capital projects rather than on recurrent.
According to USAID’s energy sector review, Nigeria has the ability to generate 12,522 megawatts (MW) of electric power from existing plants, but it is only able to distribute around 4,000 MW.
Currently, manufacturers in Nigeria currently self-generate a little over 13,000MW through alternative sources of energy in order to stay afloat.
In fact, cost of alternative electricity generation alone constitutes about 40 percent of our production cost.
The Manufacturers CEOs Confidence Index (MCCI) survey conducted by the Manufacturers Association of Nigeria (MAN) in the first quarter of 2019 highlighted various issues hurting Nigeria’s productive sector. Generally, these are part of the issues that trouble business owners in the country and dissuade prospective investors from Nigeria.
According to the MCCI, CEOs confidence stood at 51.3 points in the first quarter of the year, slightly above the 50 points benchmark of a good performance. Issues around foreign exchange, double digit interest rate, government capital implementation, multiple taxes, overregulation and raw materials were identified by chief executives of Nigerian firms as some of the challenges dragging the growth of the sector backwards.
Findings reveal that business owners pay no less than 54 different taxes annually to different regulatory agencies. These eat deep into their finances and margins. Furthermore, many taxes, levies and fees charged by the federal government are also duplicated by states and local governments.
Analysts believe that there are still various things that the federal government can do to improve the ease of doing business in Nigeria. These include improving the infrastructure and transportation system as well as reforming the taxation system.
To aid these businesses, it is imperative for Nigeria to align withthe World Bank’s report on global economic overview which states that, “it is of paramount importance for emerging market and developing economies to rebuild policy buffers while laying a stronger foundation for future growth by boosting human capital, promoting trade integration, and addressing the challenges associated with informality.” Nigeria needs energy and tax review, and must begin to think of creative ways of making funds available for MSMEs, analysts say. MSMEs matter, and no serious nation can afford to toy with them.
Gbemi Faminu
