Sustaining SME Growth via Capacity Building

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Eromosele Abiodun takes a look at the factors hindering the growth of SMEs in Nigeria and efforts to reverse the trend

One of the major impediments to business growth in Nigeria is capacity building. This is against the wrong belief by many business owners and finance experts. Capacity building encompasses various aspects of a business from the business idea, customer engagement, funding, bookkeeping to sales and marketing, recruitment, logistics, regulatory and environmental issues, among others.

At the core of capacity building is the need to provide the needed tools for developing business sustainability.
Apart from access to finance and operational challenges, small and medium scale enterprises (SMEs) also need to enhance their capacity.

Experientially, many SMEs tend to struggle with book keeping, making it difficult for debt or equity investors to assess the business’ viability. According to a tax consultant based in Port Harcourt, Dominic Assim, many small businesses, hoping to cut costs and simplify their processes, adopt the single entry bookkeeping system in which all transactions are captured in one account only rather than the more robust and commonly used and trusted double entry system that has credit and debit columns. Such limiting accounting system already precludes future growth because the single entry has insufficient records that a debt or equity investor may require to properly evaluate the company’s financial position.

Identifying a niche and deploying the business’ assets and resources to satisfy that market is a lesson often lost on many SMEs, which dissipate their limited capital trying to satisfy a broader market. The analogy of the big fish in a small pond and the small fish in a big pond, with the fish as the business and the pond the market, aptly puts this error in perspective. A roomful of SME operators was once asked which they would rather be, the big or the small fish. Many, unsurprisingly, picked the small fish, with the rationale that they have a huge market to play in.

The choice is typical of the mindset of the average Nigerian business owner, which explains why over 65 per cent of businesses in Nigeria don’t survive beyond the first three years, according to the Nigerian Association of Small and Medium Enterprises (NASME). And even when they do, they simply hang on, hardly able to turn profitable. Dissipating scarce resources to satisfy a huge market rather than first focus on a small segment and then expand gradually, coupled with significant infrastructure challenges, is a sure recipe for business failure.

Multinationals such as MTN, Etisalat, Multichoice and global giants like Facebook and Samsung started out as big fishes in small ponds. They identified their markets, catered to those markets and swam to the bigger pond as demand grew. MTN, for instance, started operations in Nigeria in 2001 in three cities: Lagos, Port Harcourt and Abuja, because of the high level of commerce and therefore disposable income in these cities. There were many more cities it could have rolled out in at launch but considering the infrastructure challenge and the resources available, it most likely would have spread itself thin and become anemic if it had tried to take in too much too soon. From these three cities it was able to grow outwards after consolidating its presence. Etisalat followed a similar pattern. It came into the country seven years after the other networks had seemingly tied up the market.

To ensure business success, it focused its business efforts on the youth market segment and concentrated its marketing and advertising spend on areas where its target audience can be found: tertiary institutions. Today, it has over 20 million subscribers and is one of the fastest growing businesses in the country. Facebook started off as a networking tool for students of Harvard. It concentrated its efforts on the university campus until it became too big for that market and had to exploit other blue oceans.

Providing a Helping Hand
Meanwhile, experts believe that SMEs must make themselves available for capacity building initiatives to effectively compete.
For instance, an Executive Director, Personal and Business Banking, Stanbic IBTC Bank, Mr. Babatunde Macaulay, told THISDAY that businesses need the “right support in terms of infrastructure, financing and capacity building” for sustainability.

“The SME sector is pivotal to the economic growth and development of any nation and Nigeria is no exception, and we must ensure that operators get the right support in terms of infrastructure, financing and capacity building,” Macaulay said.
This explains why recent interventions by both government and established private sector players to develop a strong and sustainable SME sector have largely been geared towards capacity building rather than just providing finance.

Businesses need cash; they equally need advisory services, business and networking opportunities, as well as human capital and marketing. The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), established in 2003 by the federal government, was set up as a coordinating agency for SMEs, helping to link ideas with finance while exposing businesses to opportunities. Providing a structure for the 37 million micro, small and medium enterprises (according to data by the Nigerian Bureau of Statistics) in the country to thrive has become a priority.

Stanbic IBTC’s Approach
In a bid to reverse the trend of lack of capacity building, some stakeholders have put plans in place to ensure that this critical sector takes its rightful place in the Nigerian economy and generates the needed employments. Among the several initiatives out there, Stanbic IBTC Bank’s approach to capacity building is a very interesting one. The bank established a two-pronged approach to ensure business’ growth: partnerships and direct intervention. One of its direct interventions was the institution of an SME training series, which it organised across the country.

Beyond the capacity training and to ensure businesses have the right kind of support when they need it, the bank developed a unique digital banking platform, the SME BizDirect, to support small businesses with transactional products; savings and investment solutions; lending products; and wealth protection solutions. Underpinning all these is an investment in technology, which is designed to make banking easier for its SME clients and prospects.
“The SME training series was conceived to provide innovative marketing, financial and management skills that are useful to small businesses and which will provide the skillset needed for their businesses to grow,” Macaulay said.

The 2016 Stanbic IBTC SME training sessions took place recently across eight cities in Lagos, Port Harcourt, Abuja, Ibadan, Aba, Kano, Onitsha and Enugu to ensure coverage for the six geo-political zones. The uniqueness of these yearly training is the fact that it is free and open to interested business owners or budding entrepreneurs, both customers and non-customers of Stanbic IBTC.

The bank contracts professional and skilled external resource persons to handle the sessions. At the sessions, thousands of participants are yearly taken through topics on human resources, finance and accounting, customer relations, marketing and sales, taxation, entrepreneurship, and book keeping, advertising, employee engagement, among others. This year, the over 2,000 registered participants were availed empirical lessons on how businesses can survive a recession.

A participant at the Port Harcourt session, Lawrence Nwafor, who runs a logistics and supply business, said he was glad he stayed through to the end of the training, which lasted for seven hours.
“I had intended to stay for three hours then leave but the topics on market niche and the one on taxation held my attention and I couldn’t leave. Those topics showed me clearly what I have been doing wrongly and why I have struggled for a while now in my business. I am glad I stayed for the afternoon session,” Nwafor said.

Small businesses, experts believe, also suffer from a lack of information.
“There is also the problem of awareness,” was how one commentator put it. Beyond the training and to address the problem of awareness, the Stanbic IBTC SME BizDirect, the digital banking platform, was launched.

“We believe a migration to digital banking will reduce the challenges faced by customers and help them run more efficient businesses,” Stanbic IBTC had said at the launch.
“The SME BizDirect is a virtual centre from which well-trained bankers interact with customers by telephone and email. The centre aggregates information, which it shares with SMEs to keep them updated on latest trends in their industries, link SMEs to markets and provide necessary business support to ensure minimum business downtime for subscribers.

Stanbic IBTC’s second approach to capacity building is through collaborations. The most recent is the collaboration with Google to train over a thousand young entrepreneurs and SME operators in eight cities on digital skills in 2016.

“By organising the capacity building sessions in different parts of the country, the partners hope to build critical mass of businesses through increased adoption of digital technology and enhance their contributions to economic development,’’ the bank had said of the collaboration.

“With the economy in recession, rising inflation, dwindling government and private incomes, eroding purchasing power, falling demand and infrastructural deficit, efficient management of available resources will determine the survival and growth of businesses. A sound knowledge of and robust approach to business management that will ensure the survival of SMEs is what is needed at this time. Focusing only on finance may not augur well for the growth and development of small and medium enterprises,” said an official of the bank.