MSMEs: Oiling the wheels of Nigerian economy
Micro, small and medium scale enterprises (MSMEs) are the bedrock of the Nigerian economy as they provide platforms on which economic growth thrives. Business experts agree that MSMEs have significantly contributed to economic growth through job creation, revenue generation, and economic diversification, among others.
Vice president Yemi Osinbajo said at a breakfast meeting in 2019 that MSMEs were the bedrock of Nigeria’s industrialisation and inclusive economic development, stressing that they were the most important component of industrialisation as set out in the Economic Recovery and Growth Plan (ERGP).
They constitute over 90 percent of the country’s businesses and contribute to half of the Gross Domestic Product (GDP). They have also reformed and actively influenced the country’s economy through innovations, creativity and disruptions of the status quo.
A national survey of MSMEs conducted by the National Bureau of Statistics (NBS) and the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) in 2019 described MSMEs as engines for economic transformation and industrialisation.
The survey, which covered 2013 to 2017, showed that the total number of MSMEs in Nigeria as of 2017 was 41.5 million, with the micro enterprises constituting a larger part with 41.4 million businesses, representing 99.8 percent. Small scale enterprises were a total of 71,000 businesses, constituting 0.17 percent while medium scale enterprises constituted 0.2 percent of the total with 73,081 enterprises.
The survey highlighted some notable contributions of MSMEs to the Nigerian economy. It said MSMEs contributed 49 percent to the national GDP, accounted for 96 percent of businesses and 84 percent of employment. With the huge number of Nigerians setting up new businesses, the survey highlighted that MSMEs had been major sources of employment and poverty reduction.
“It is evidently clear that the MSMEs could play a catalytic role in the economic transformation of Nigeria. The role includes substantial contribution of the sub-sector to the gross domestic product (GDP), employment generation, export, increasing local value addition and technological advancement.” the survey said.
While MSMEs are scattered across various sectors, they are majorly found in the trade sector— wholesale and retail—, agriculture, manufacturing, and food services, among others.
Increased job creation and skills development especially for youths
Paul Ruwase, former president of the Lagos Chamber of Commerce and Industry (LCCI), said at a press conference in 2019 that MSMEs were critical to the nation’s economic development especially with regard to job creation and poverty reduction.
Before the growth of entrepreneurship, the public sector was saddled with the responsibility of job creation, but this was overwhelming considering the accelerated growth of the country’s population.
The NBS said that Nigeria’s unemployment rate stood at 23.1 percent as of the third quarter of 2018. However, the survey under review showed that amid rising unemployment, MSMEs generated 18.1 million jobs for the economy between 2013 and 2017.
Five percent of the jobs were created by small and medium enterprises while micro enterprises contributed 95 percent to job creation, especially in the industrial and manufacturing sector where they contribute 50 percent and 90 percent respectively.
The survey showed that the major economic sectors that generated employment were manufacturing sector, which accounted for 47.4 percent; agriculture, which contributed 29.6 percent; the trade sector -wholesale and retail- contributed 10.1 percent, while other services contributed 5.6 percent.
However, the least employee figures were recorded under the real estate, arts, entertainment and recreation and administrative and support services.
Propelled abundance of local investment in the country
Furthermore, following investors’ reluctance to invest in the Nigerian economy due to economic headwinds and restrictive business environment, MSMEs have continued to flood the economy with various business activities, and encouraged financial circulation in the economy.
According to the NBS, SMEs in Nigeria have contributed about 50 percent to the national GDP between 2013 and 2017, and 7.64 percent to export receipts. In addition to this, the small-scale industry employed 87.5 percent of local sourcing of raw materials during production activities.
Digitalisation and innovation to improve competitiveness
Over the years technology has grown to transform and develop at an accelerated speed, and technological innovation has been recognised as a way for developing nations to foster economic development and improvement in all areas. In line with global practices, different countries have started to ride on the wave of the digital revolution.
However, while many developed and developing countries have been able to catch up, Nigeria has been reported to lag in technology adoption, which has limited its competitiveness in the global economy.
As engines of socio-economic transformation, including industrialisation, SMEs have managed to change the narrative and have actively engaged in technological advancement and digitalisation through digital marketing, online transactions to any part of the world and ICT engagements. They are seen as platforms to explore various opportunities and connections.
The MSMEs have been nurturing Nigeria’s ability to position itself in this new wave and unlock economic growth via investments and viable businesses across all sectors of its economy.
Stimulates local economy with demand down the value chain and improved income re-distribution
As growth agents for the economy, MSMEs have stimulated business activities in the economy, and also encouraged economic activities among the unbanked population, thereby encouraging financial inclusion.
Data from the survey under review showed that small businesses accounted for a greater percentage of all businesses in the Nigerian economy, generated the majority of private sector employment and economic input.
“Small-scale industries, by their nature, are such that they are involved in primary and secondary economic activities that depend heavily on locally sourced materials. As such, they achieve high value-added operations which play a key role in the growth and development of any economy,” the report said.
As expected, marketing of MSMEs products was dominated by local channels between 2013 and 2017m according to the report, while exports contribution by the sub-sector was valued at N57.5 billion, representing 7.64 percent of the country’s export activities. This was an improvement from the 7.27 percent contributed in 2013. Furthermore, the SME sector of the economy contributed 49.78 percent to the GDP.
According to the survey, the major contributors to the economy were the trade sector –wholesale and retail- with 42.3 percent; agriculture with 20.9 percent; other services with 13.1 percent; manufacturing with 9.0 percent, and accommodation and food services with 5.7 percent. Together, these accounted for about 91.0 percent of all MSMEs.
Encourage economic and Industrial diversification
Also, the abundance of SMEs have allowed for diversity in the economy in different sectors which align with the federal government’s objective of economic diversification. Further examination of the report shows that the small-scale enterprises consisted of the education sector while the medium enterprises were majorly made up of manufacturers who covered 43 percent of medium enterprise. Small enterprises are well positioned to introduce and develop new ideas. They present a vital platform for boosting technical, technological and entrepreneurial capacities among critical segments of the populace.
“MSMEs play significant roles in the transition from agriculture-based economies to industrial ones, providing opportunities for value chain linkages that generate sustainable livelihoods for the bottom-of-the-pyramid citizenry. MSMEs are responsible for most of the advances in new products and processes,”the report said.
In recognition of its activities and impact on the economy, the report said, “In recognition of the crucial roles MSMEs play with respect to economic growth and development, successive governments in Nigeria had availed various initiatives aimed at promoting MSMEs in the country with access to credit featured prominently amongst the measures offered,” the report further said.
Some of these measures include establishment of a MSMEs ratings agency, Tradermoni scheme, Anchor Borrowers Programme, and Development and Bank of Nigeria (DBN), all tasked with improving credit access. The measures also include establishment of the Presidential Enabling Business Environment Council, tasked with reforming the business environment, and the 2019 Finance Bill which aims to achieve five major objectives that cut across supporting MSMEs in line with the ease of doing business reforms.
In summary, governments across the world protect MSMEs because of the critical roles they play in the economy. However, Nigeria still has a long way to go. The survey disclosed that 2,877 medium enterprises were shut down within this period. This was basically down to recession that hit the country in 2016 and a string of poor policies that hit the country within this period. Today, in the 21st century, Nigerian MSMEs are facing multiple taxation as government agencies and touts see them as cash cows. Many MSMEs, depending on their locations, cannot survive because of high expenditure on energy. This makes a god case for the use of renewable energy in the country.