Despite multi trillion naira interventions, Nigerian SMEs still crawl

The government has, over the years, made series of interventions running into trillions of naira to position the Small and Medium-size Enterprises (SMEs) for employment generation and wealth creation. But in spite of these interventions, the nation’s SMEs have experienced stunted growth. JUSTICE NWAFOR looks at the impact of the interventions and other factors on the wellbeing of SMEs.

Wale Bakare is resilient, confident, creative and dogged. But with these, he still could not access the loan facilities of the Bank of Industry, even though the same qualities had helped him build his business from scratch to its current 3-staff-strength status.

When he heard of the BoI’s avowed support for small and medium scale enterprises with low interest loan facilities, hopes glowed like fireflies perching on the armless dark of the night. Enmeshed in optimism, Bakare applied for an SME loan of between N5 million and N10 million, but an elongated delay, his optimism gave way to bare-faced disappointment.

“I was asked to bring two level-15 civil servants as my guarantors as well as collateral that is worth way more than the amount I was requesting for,” he said. Explaining further, Bakare asked, “Where would I get them from? If I had a property worth that much, why would I be asking them for the loan in the first place?”

The two-room office of his digital marketing and mobile money business would have been expanded and equipped to accommodate the 20 new staff he looked forward to employing. It would have concretised Bakare’s dream of supporting his immediate and extended family members who, largely, depend on him; afforded him the opportunity of getting certification in digital marketing and given the new staff he would have employed a new lease of life. But no, the fund still sits in BOI’s coffers, while Bakare’s business scratches through.

His experience resonates with more than 70 per cent of the participants of Youth Entrepreneurship Support Programme (YESP) organised by BoI itself, in Ilorin, capital of Nigeria’s north-central state of Kwara, in 2016; and numerous other young entrepreneurs spread across the country, who genuinely need fund either to kick-start or expand their businesses.

Nigeria has a burgeoning population growing at an annual rate of 2.6 per cent, as of 2018, and GDP growth rate of 2.0 per cent, as of the first quarter of 2019, the World Bank says. At this rate, the bottom half of the population which sits in poverty may not be lifted anytime soon.

While the federal government of Nigeria has mouthed its strides at empowering youths, encouraging small businesses and lifting millions from the dungeon of poverty, the World Bank says, employment creation remains weak and insufficient to absorb the fast-growing labour force, resulting in high rate of unemployment (23 per cent in 2018), with another 20 per cent of the labor force underemployed. And the country is ranked 152 out of 157 countries in the World Bank’s 2018 Human Capital Index. These grim statistics tell of the gap yet to be filled by SMEs in the country.

All over the world, SMEs are reputed as drivers of the economy, so much more in a developing economy like Nigeria. They account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90 per cent of businesses and more than 50 per cent of employment worldwide, the World Bank says. These should make them an indispensable part of any serious government’s economic blueprint.

In Nigeria, “approximately 96 per cent of businesses are SMEs, compared to 53 per cent in the US and 65 per cent in Europe, (but) they contribute approximately 1 per cent of GDP compared to 40 per cent in Asian countries and 50 per cent in the US or Europe”, the Central Bank of Nigeria’s Financial System Strategy 2020, says.

This is in the face of the numerous entrepreneurship development programmes brought in by the government to encourage entrepreneurs, especially youths, to expand their business and/or establish new ones.

Plethora of underperforming support schemes

The intention of the Nigerian successive governments has been to key in to the global trend of SMEs driving economic growth. But this, sadly, has sparingly, yielded the desired results, leaving small businesses gasping for breath and the economy performing abysmally.

Bank of Industry (BoI)

The Nigerian Bank for Commerce and Industry (NBCI) was set up in 1973 to provide, among other things, financial services to the indigenous business community, particularly the SMEs. It was the apex financial institution for SMEs, and was responsible for the disbursement of the SME 1 World Bank loan scheme.

On the other hand, the Nigerian Industrial Development Bank was established in 1962 with the primary mandate of providing medium to long-term loans for investments in industrial activities. Its unit with focus on SMEs also participated in the distribution of SME 2 World Bank loan, most actively between 1980 and 1988.

They, at different times, suffered insolvency and were bundled into what is known today as the BoI in 2002. With the clear-cut mandate of providing financial assistance for the establishment of large, medium and small projects as well as the expansion, diversification and modernisation of existing enterprises, the bank holds a lot of promises for small business owners.

However, BoI, which is in charge of Federal Government of Nigeria (FGN) Special Intervention Fund for MSMEs (an initiative to provide subsidised loans to SMEs at 9 per cent per annum), and other funds meant to assist SMEs, has made accessing these funds a not so easy task.

President of the Association of Micro Entrepreneurs of Nigeria (AMEN), Saviour Iche, in 2018, accused the BoI of shutting out SMEs through stringent requirements which, according to him, are hardly met. He, however, noted that “If you go through the ‘other channel’ which they have, you can get the money quickly.”

Attempts by the Nigerian Tribune to confirm this from BoI proved abortive as the Customer Care Unit, which was contacted did not respond to enquiries as of the time of going to the press.

Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)

Established as an agency under the Federal Ministry of Industry, Trade and Investment, in 2003, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was intended to be the apex agency coordinating the activities of SMEs in the country. One of its core mandates is to ensure the promotion and facilitation of development programmes, instruments and support services to accelerate the development and modernisation of MSME operations. Also, linking MSMEs to internal and external sources of finance, appropriate technology, technical skills as well as to large enterprises is the responsibility of SMEDAN, as intended.

But the agency has been bridled, leaving SMEs to crawl and experience limited success. This, the Auditor General of the Federation’s report on the agency’s activities, from 2014 to 2016, confirmed. The Auditor General, in the report, confirmed that the agency failed to effectively link SMEs to sources of finance due, largely, to lack of awareness creation by the agency.

Inter-agency collaboration is at the centre of SMEDAN’s activities. Empowered by section 9(1) of SMEDAN Act, 2003, to collaborate with sister agencies to make training, funding opportunities available to small business owners, the agency failed to enter into joint venture arrangement and draw Memoranda of Understanding with institutions and organisations, to promote the development of SMEs.

The report also revealed that the SMEDAN failed to sign any agreement with the BoI or the Industrial Training Fund (ITF) for the implementation of the National Enterprise Development Programme, which was meant to address the challenges of SMEs in Nigeria. Further collaborations with institutions like the Federal Institute of Industrial Research, Oshodi (FIRIO) for research in the areas of the needs of SMEs and to link them to technologies for their productions, did not take place.

Kingsley Arumnota, a seamster, alongside three of the apprentices at his shop located at Queen Cinema axis of Ibadan, Oyo State, laughed when asked if they had heard of SMEDAN. After explaining the functions of the agency to them, Mr Arumnota turned and said, “Does this shop look like one that has gotten anything from the government before? Everything I have here, I made myself. Please, no government agency taught me anything.”

The likes of Arunmota, self-starters, resilient and independent minded, who rarely get support from agencies created to support them, dot streets, villages, towns and states across Nigeria.

Entrepreneurship Development Centres (EDC)

EDCs were established by the Central Bank of Nigeria (CBN) IN 2006. The apex bank said the establishment of these centres, one in each of the geopolitical zones of the federation, was to upskill entrepreneurs. The centres are meant to complement the efforts of SMEDAN, National Directorate of Employment (NDE), National Poverty Eradication Programme (NAPEP), Industrial Training Fund (ITF), among others, and encourage private entrepreneurship, self-employment, job creation, income growth, poverty eradication and economic development. The primary targets are entrepreneurs with minimum of secondary education. The programme commenced in 2008 in three locations – Onitsha (southeast), Kano (north) and Ota (southwest).

Beyond CBN-established EDCs, the centre sits in almost every tertiary institution of learning in Nigeria. They may have different names like Centre for Entrepreneurship and Development Research (CEDR) in University of Nigeria, Nsukka, or Centre for Entrepreneurship Development at Yaba College of Technology, Lagos, but are geared towards producing the same results.

However, doubts have surrounded the effectiveness of the programmes at the centres, including the ones run by tertiary institutions, as to connection between what the centres teach and reality.

According to the findings of a research carried out by Ossai Abeh on the problems and prospects of small and medium scale enterprises growth and development in Nigeria, there is a wide gap between what the centres teach and what the operators encounter on the field. The research submitted that “Effectiveness of such academic programmes is limited by disconnects experienced between the centres and the industrial sector, who are supposed to provide practical training and experience.”

Other entrepreneurship support schemes, which include: Youth Enterprise with Innovation in Nigeria (YouWIN), Small and Medium Industries Investment Scheme (SMEIS), Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), National Directorate of Employment (NDE), Bank of Agriculture (BOA), Tradermoni, Npower and SureP, have all lived below expectations. They were, and have not been able to live up to the high hopes that graced their respective inaugurations. Hence, the continuous underperformance of SMEs in the country.

Infrastructural deficit

Patrick Uba runs a palm oil mill in Owerri-Umudioka, Orlu, Imo state, in Nigeria’s southeast. The mill was established less than 28 months after he was graduated by the Department of Economics, University of Nigeria, Nsukka, in 2017. Although he wanted to establish it immediately he was graduated, lack of funds hindered him.

Now the business has been set up. His profits come not from sales of palm oil alone but other products like palm kernel. And he wishes to expand the business and employ more hands, but the cost of running the mill keeps increasing and the profit which he would have reinvested has taken a downward spiral.

“The roads are bad”, he said, complaining that the worse the roads get, the higher the cost of transportation as well as the cost of production. “My kind of business is one that takes me to the road always. We use trucks to get to the places where we buy the palm fruits and pack them. And these vehicles break down every now and then, not because they are not good but because the roads are terrible.

“When they break down,” he continued, “I am the one who pays for the repairs, indirectly. I don’t have any trucks yet. Imagine a trip that should cost about N10,000 costing about N20,000, because of bad road. Now I spend money I should invest into my business on transportation.

“The extra N10,000 Naira I spend on transportation, if I calculate it by how many trips in a month and multiply it by one year, it’s a lot of money which I can use to expand my business and employ more staff. Bad road is killing my business”, he said in an emotion laden voice.

Although Uba sells his products at the local market in Orlu, he takes orders, too, from customers from different parts of the country, like Lagos and Abuja. “You know there’s competition and your own price should not be different, no matter how high the cost of production is. No one wants to lose his customers”, he said.

Opeyemi Abideen runs a cooking gas refilling depot at Malete, Kwara state. Started over three years ago, the business has been doing fine. But the terrible state of Shao-Malete road that leads to the station is dealing him a big blow. Lives are threatened, as accidents occur, on a weekly basis, and patronage is dwindling due to the worsening state of the road.

Bold and daring, Mr Abideen wrote a Save our Soul letter to the governor of the state, Abdulrahman Abdulrazaq, to draw his attention to the deplorable state of the rWoad, in September, 2019. The state government acknowledged receipt of the letter but no action has been taken, yet, to ameliorate the suffering of the road users and businesses like Opeyemi’s.

“The poor road is really affecting my business. I have my own bus which I use in transporting load, and I repair it every two weeks because I ply the road on a daily basis”, he complained.

‘Electricity outages reduce firm productivity by 40%’

For Bakare, electricity is critical to his business, as constant water supply is to Patrick’s oil mill. And supply of these is essential to the growth of their businesses and realisation of their expansion plans. But these dreams and plans, which are only resident in their heads and papers, could flutter away and become sad tales told in hindsight and caged in regret and anger, if the government continues in its current posture of neglect of decayed public infrastructures.

Dr Emmanuel Nwosu, a Development Economist and Senior Lecturer, Department of Economics, University of Nigeria, Nsukka, says studies have it that electricity outages negatively impact the productivity of SMEs. This is in tandem with Bakare’s experience. He, sometimes, runs on generator for many days without a glimpse of power from the public electricity supply source.

Nwosu added, “In fact, a study we concluded recently shows that electricity outages reduce firms’ productivity by as high as 40 per cent, reduce capacity utilisation by almost similar percentage points, reduce the probability of engaging in research and development as well as introducing new products.

“The effect of constant power outages on the cost of operation of the firm is so substantial that our manufactured goods are not globally competitive in terms of unit cost.”

The way out

The challenges faced by SMEs are not insurmountable. There are many ways of solving the problems and routing SMEs and the economy to the path of progress, said Nwosu.

“Put infrastructure in place, he recommended. “If this is done, businesses of different sizes will spring up and remain sustainable. There is a high positive correlation between infrastructure and economic performance as well as the growth of small businesses.

“Gathering at Transcorp Hilton to launch one policy or the other will do no better than using the money that will be used to hire the banquet hall and give 500 people lunch to build some kilometres of road or provide electricity in one particular industrial area. Provide infrastructure and stop launching policies in order to encourage more people into business”, he emphasised.

It is also important to ensure that the several financial mediation agencies put in place by the government deliver on their mandate so that the SME sector of the economy will experience growth and be positioned to create employment opportunity for the people and wealth for the country, observed Professor Festus Epetimehin of the Joseph Ayo Babalola University, Ikeji Arakeji, Osun State.