Boosting SME Development: 5 Things the Buhari Government Needs to Do


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*First published in Apr 2016

by Brainerd Odiete and Obinna Igwebuike

As we write this article, oil price is around $30 a barrel, from the heights of over $110 less than 2 years ago. The dynamics of the oil economy have changed and countries like Nigeria are left holding the bag. Expanding the government’s resource base is no longer a romantic idea prescribed from a position of strong petrodollars, but is a reality that circumstance has pushed the country into.

A robust approach to SME development is an option to pull the country out of its current economic situation. This is a no-brainer. According to the Survey Report on MSMEs, a collaborative effort of the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS), Nigeria’s 37 million MSMEs employed 59,741,211 people, representing 84% of Nigeria’s total labour force. In terms of impact on the Gross Domestic Product (GDP), the report notes that MSMEs contributed about 48.47% to the GDP of Africa’s largest economy in the period under review. With SME’s, many of whom generally operate below optimal capacity, contributing close to 50% of Nigeria’s productivity, we can conclude that a significant boost in their productivity will have material positive impact on GDP growth.

 

We highlight a few strategic initiatives that need to be pursued with real intent in 2016.

 

Accelerate economic diversification

Nigeria’s economic challenges cannot be overturned overnight. However, a clear focus on accelerating reforms and economic diversification in 3 or 4 high growth sectors can significantly catalyze the rebound of the economy.

We would recommend that the government should immediately unlock the vast potentials in the solid minerals sector, given the country’s large mineral deposit. The value of the country’s solid minerals is believed to be in the trillions of dollars, even though its contribution to GDP in 2014 was an abysmal 1%. Other priority sectors should include agriculture, ICT and financial services, especially financial technology. Being that SMEs largely serve as supply channels to larger businesses, they will thrive more when the broader economy is more robust.

Reactivate and re-energize ASeM

Access to affordable and sustainable capital remains one of the critical challenges of the SME sector. Commercial banks loans, where available, can be quite a burden for SMEs. Relaunched in 2013, the Nigerian Stock Exchange’s Alternative Securities Market (ASeM), with a focus on small and mid-sized companies with high growth potential is yet to gain the desired momentum. Very little activity in terms of listing and investor activity is happening on this platform and this is very worrying. SMEs need access to long-term capital from the capital market at relatively low cost, allowing them to grow and institutionalize. The ASeM platform needs to be mainstreamed as a viable alternative for business funding.

Streamline taxation

The multiplicity of taxes that SMEs in Nigeria are burdened with is outrageous. Nigeria currently ranks 179 out of 189 economies on the ease of paying taxes in the 2015 survey conducted by the World Bank and PwC. There is an urgent need to address multiple taxation and multiple agencies, streamline tax administration and create tax incentives for SMEs and startups in order to encourage them and improve their chances of long-term survival.

Promote ‘Made in Nigeria’

A large percentage of local manufacturing businesses are SMEs. These businesses are under heavy threats from low quality foreign products and need to be protected in order to promote domestic manufacturing and industrialization. It is critical that the Ministry of Information develops a compelling campaign to revive the ‘Buy Nigeria’ concept. This will also include investing in the Nigeria Quality Infrastructure Project (NQIP) to ensure that with appropriate standards implementation, Nigerian products and services can compete with foreign products and services. There is also a need to create a clear policy framework to institutionalize local content procurement by public sector organisations, especially in the technology industry. Buying Nigerian made products will not only help SMEs thrive but also enable them employ more people, reduce FOREX exposures expenses and stimulate the growth of our local economy.

Improve SME lending

Despite the fact that there have been several interventions in SME Financing in Nigeria over the last 4 years, it’s still extremely difficult for many SMEs to access funding especially from commercial banks. The government needs to explore more channels to efficiently and effectively channel its SME development funds through partners who truly understand SME lending.

 

Brainerd Odiete and Obinna Igwebuike are Partners at Sawubona Advisory Services Limited, a Lagos-based Research, Advisory and Venture Management company.

This article was first published in February 2016.