• Thursday, June 13, 2024
businessday logo

BusinessDay

How structural problems squeeze millions of Nigerian SMEs

DBN calls for policies to spur MSMEs growth

Emmanuel Okezie is a shoemaker at Faulks Road, Aba, commercial hub of Abia State, South-East Nigeria. Even with his N60,000 monthly revenue, Okezie is not registered at the Corporate Affairs Commission (CAC) and does not have a separate business bank account. He mixes his personal income with his business revenue and dips his hand into his bank account to pay his two children’s school fees and take care of his home.

With the way it is structured, Okezie’s business is already set up for failure and needs urgent restructuring, one analyst predicts.

But the Aba-based shoemaker is not alone in this. More than 60 percent of Nigeria’s 41.5 million micro, small and medium enterprises (MSMEs) are like Okezie, which informs why the majority die in the first three years of set-up, say analysts.

“These are what we call foundational principles, and they are the critical success factors,” said Femi Pedro, chairman, board of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), at a webinar tagged ‘Repositioning Nigerian SMEs for Growth & Sustainability’ organised by the Lagos Chamber of Commerce and Industry (LCCI) in Lagos at the weekend.

“Many small businesses are not financially disciplined and cannot separate their businesses from their personal lives,” he said.

Pedro, who was formerly a deputy governor of Lagos State, noted that MSMEs would not make much headway without character, integrity, structures, passion for the industry and mentorship.

“Do you have a mentor? These are people who have gone ahead of you and succeeded. You need to have them behind you. Also, you must have a business plan, and capital to start and run the business,” Pedro said.

“Many entrepreneurs are lone rangers: They are CEOs, accountants, HR officers and everything, and they have their cheque books in their pockets always,” he said, stressing that these were factors that could make or mar businesses.

He urged MSMEs to take advantage of the N75 billion Survival Fund and numerous CBN funds domiciled at deposit money banks.

About 41.469 million (99.8 percent) of Nigeria’s 41.5 million MSMEs are micro businesses, according to a 2019 report by the National Bureau of Statistics and SMEDAN. The data say that MSMEs contribute 50 percent to Nigeria’s gross domestic product (GDP), accounting for 86.3 percent of jobs (59.6 million jobs) as of 2017. Most of the structural or foundational challenges are found among micro businesses ranging from ‘akara’ balls sellers to kiosk operators.

“Getting your books audited can go as low as N20,000,” said Adams Adebayo, chairman, Nigerian Association of Small and Medium Enterprises (NASME), Lagos State chapter.

“It is important to get a structure and corporate governance. Financial discipline is lacking among many MSMEs, such that even if you lend them loans at zero percent they will still default,” he stated.

He, however, reminded government of the need to make the environment better for businesses, while ensuring that raw materials meant for small businesses were subsidized, if possible.

Nigeria jumped 15 places on the World Bank’s 2020 Doing Business Index, ranking 131st from 146th in 2019. This represents forward jump of 39 places since 2016 when the Presidential Enabling Business Environment Council (PEBEC) was set up.

Segun Kuti-George, immediate past chairman of Nigerian Association of Small Scale Industrialists (NASSI), said despite these improvements, the government had a role to improve the environment and end the overlapping functions of its agencies. He stressed the need to have industrial parks in the country where young Nigerians would put their energy to work.

On his part, Daniel Dickson-Okezie, chairman of LCCI SME Group, pointed out the need for the government to improve the business environment and boost decaying infrastructure to unleash MSMEs’ potential.

He said the Lagos State government had reformed certain aspects of the business environment, but added that more needed to be done to eliminate multiple taxes and improve power supply.

Toki Mabogunje, president of the LCCI, said the performance and contributions of the SMEs had been impeded by the country’s operating environment characterised by high production costs, declining purchasing power, excessive regulations, high borrowing costs, policy uncertainties and poor trade facilitating infrastructure.

He said all these were stifling MSMEs, making it hard for them to survive, thrive and compete favourably with global peers.

She said these challenges were made worse by the COVID-19 pandemic and associated containment measures which impacted almost all Nigerian MSMEs, though to varying degrees.

Mabogunje noted that interventions by the fiscal and monetary sides of authorities in cushioning the impact of the pandemic on the business community were commendable, as various schemes and programmes had been implemented at national and sub-national levels to support the working capital requirements of small and medium business operators in a bid to rescue them from going under.

“As a matter of fact, supporting SMEs is the most strategic approach towards reflating the economy. It is also very crucial to facilitate discussions on strategies that would help position small & medium business operators for sustainable growth,” she said.