An industrialist, Gboyega Ojuolape, discusses the significance of small and medium enterprises, insisting that this segment of the private sector holds the potential to pull the Nigerian economy out of the current recession. He spoke to Crusoe Osagie. Excerpts:
Role of SMEs in economic growth
Small and Medium Enterprises (SMEs) play an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports and facilitating equitable distribution of income is very critical. The SMEs broadly consists of the traditional cottage & household industries and modern SMEs.
The traditional village and cottage industries as distinguished from modern SMEs are mostly unorganised and located in rural areas and semi urban areas. They normally do not use power-operated machines/appliances and use relatively lower levels of investment and technology. But they provide part time employment to a very large number of poorer sections of the society. They also supply essential products for mass consumption and exports.
The modern SMEs are mostly defined in terms of the size of investment and labour force. The industries (Development and Regulation) define SMEs having less than 50 workers with the aid of power or less than 50 workers with the aid of power.
The government is extending various steps towards the growth of SMEs in Nigeria. It was for this reason the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was established in 2003, to facilitate the promotion and development of a structured and efficient micro, small, and medium enterprises (MSMEs) sector that will enhance sustainable economic development in Nigeria. In addition, the SMEs has been supported and encouraged by various government policies for infrastructure support, technology upgradation, preferential access to credit, preferential policy support, etc.
Specific Contributions of Small Scale Sector
The contribution of Small scale sector to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added.
The small scale sector performance in the manufacturing sector and GDP as a whole is significant in terms of its share in total value added. SMEs can play a role in mitigating the problem of imbalance in the balance of payment accounts through its export promotion.
While the large scale industries are expected to increase the inequities of income and concentration of wealth, SMEs are expected to help widespread equal distribution of income and wealth.
Small sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities. It can help to release scarce capital towards productive use.
The SMEs can reap the benefits of lean production and can find new cost-efficient techniques of lean production, as small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocation efficiency.
Also, the element of risk is minimum in SMEs, more resources will be employed by large number of labour force.
Does the SME sub sector have potential or capacity to take Nigeria out of recession?
Yes, during a period of economic recession, what most countries do to get out of the situation is to invest in human capital. Singapore, Korea, China, and India are clear examples of countries which deliberately invested in knowledge capital and today are better for it, and in my opinion investing in SMEs is the true human capital investment because of its far reaching capabilities.
SMEs have been recognised as indispensable components of national development in both developed and developing economies. This sub-sector of the economy is globally acknowledged to contribute substantially in enhancing employment creation or generation, poverty alleviation, equitable distribution of resources, income redistribution, technical and technological innovation, entrepreneurial skills development, more uniform industrial and economic dispersal, and general improvement in the living standard of the populace within an economic region. Moreover, they have been touted as strategic in ensuring food security and encouraging rapid industrialisation and reversal of rural-urban migration.
One of the greatest challenges for the Nigerian economy in this recession is the lack of forex, SMEs can generate sizeable forex for the Nigerian Economy through exports.
One of the opportunity areas where Nigerian SMEs are missing out is AGOA (African Growth and Opportunity Act), a Statutory Trade Preference Program that allows duty and quota free incentives for the entry of 6,400 goods from sub-Saharan Africa countries. If our SMEs can be developed or positioned in a way to properly reap from the benefits this opportunity presents alone, we will be out of recession in no time.
For example the benefits and incentives AGOA presents spans over 6400 products in various categories including Cashew e.g. raw, roasted, salted; Shea e.g. Shea butter- bulk and finished products; Home Décor & Fashion Accessories e.g. Furniture and wood products, hand-crafted pottery and baskets, leather handbags and shoes; Apparel for example hand-woven cloth, ethnic printed fabrics, silver and beaded jewelry; Specialty Foods e.g. Boxed fruit juices, chips and cassava by products, vegetables, honey, palm-oil, spices; Sustainable Fish & Seafood e.g. Frozen, Dried or smoked fish, snail, shrimp which can be produced in larger quantity in Nigeria.
SME is the only veritable tool that can rescue the economy of the country from its current status if SMEs are fully empowered to export their products. Improving SMEs as significant drive of growth, job and economic prosperity at a time such as this is very important.
The sector has potential to absorb economic shock and the current recession would have been controlled if the SMEs had been well positioned because of the sector’s far reaching impact in rural areas.
There are arguments that funding is not the major challenge hindering SME development. What’s your take?
Funding is the major issue but it’s not limited to funding. Some of the problems reported as being responsible for the slow growth and development of SMEs in Nigeria include deplorable infrastructural facilities; funding and financing challenges; inadequate managerial and entrepreneurial skills; limited capacity for research and development as well as innovations; limited demand for their products and services; burden of multiple taxes; and overbearing actions of government functionaries and agents.
What will you say is the greatest challenge of SMEs in the country?
The attitude of government towards SMEs is the greatest challenge. Until the government realises that the diversification of the economy starts with the rapid growth of the SMEs especially in the rural areas, then the SMEs will continue to struggle. That’s why some of us have decided to contribute the best way we can to develop SMEs in Nigeria. Priority must be accorded to the sub sector to drive growth and development from the grass roots, create wealth and generate employment.
Any partnership with DFIs to drive economic growth?
We are working on several angles concerning that. The recession isn’t helping matters but a lot is in the pipeline, France is looking more like the nation where we will have the chunk of investments come from because the size of investments from France to west Africa dropped in recent years due to war and strife in some countries in the region, but the new leadership is working on increasing the direct investments into Nigeria these days and we are well-positioned to benefit from that.
Tell us about the project 774 and its key deliverables
It is a project borne out of the need to solve the problem of unemployment in Nigeria and to also build the Nigerian economy on true enterprise. The objective is to create 1 million startup businesses in 10 years in Nigeria. This will create at least 5 million jobs in the process, which can increase to a lot more in another 15-20 years.
Mission: To fight unemployment in Nigeria by raising 1 million start up entrepreneurs across the 774 local government areas in Nigeria in 10 years.
Objective: To achieve this through the collaboration of the organised private sector, international donor agencies and government institutions.
Vision: To create 5 million jobs in 10 years and most importantly create a base for the Nigerian economy through entrepreneurship.
Beneficiaries are startup entrepreneurs, male and female, 21-35 years across the 36 states in Nigeria.
Funding will come from a lot of developmental partners like Banks, Telecom companies, international donor agencies, international financial institutions, private individuals and government agencies.
You see, one of the most critical variables in entrepreneurship development is to train young men and women to be creative and innovative. Talking about innovation, as Nolan Bushnell puts it, “The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week, but today. The true entrepreneur is a doer, not a dreamer.”
You will also recall that there has been a growing concern among young Nigerians and the business community that access to funds and technical knowledge on growing start-ups are fast becoming a thing of the past, giving room for rising number of young citizens who take to crime in order to survive. Even more so, government initiatives to kick-start the SME sectors have not yielded the desired results. The condition of most administration of SME development initiatives in Nigerian is far from standard and therefore unfavourable for the realisation of the purposes for which the ideas and projects were designed. Research has also shown that this challenge highlighted above is as a result of the following; Overreliance on Oil over the years as a major source of revenue; insufficient or lack support from government as well as the public; Non prioritisation of SME as an avenue for empowerment and economic diversification; Little support and ambitious moves from private sector drivers.
To this end, Project 774 was created out of the necessity to help government diversify the economy via MSEs (Micro and Small Enterpsises) and bridge the gap in knowledge, access to funds and technical resources for the ambitious but un-advantaged young citizen interested in starting business in any of the following areas: Agriculture, Production (Manufacturing), ICT(Grassroots geared solutions), Export, Artisanship Education(Capacity building and Skill acquisition).
We hope to use Project 774 to address the issues of Access to funds (N500,000 to N2,000,000 per start-up), knowledge gap, research reports and business development and growth strategies.
Any advice for government on SME development
Our advice to the government on SME development is to encourage a spread of the developmental processes and strategies across the 774 local government areas. More efforts should be concentrated on the rural areas to put a stop to rural-urban migration. Agriculture and manufacturing especially are areas to be looked at, the spread and growth of ICT companies too have presented an opportunity, youths are all on Facebook, Blackberry and Twitter discussing politics and trending entertainment news, their energies can be rechanneled into using these channels to grow their businesses at the rural level.
We can turn Nigeria to a large manufacturing center if SMEs are pushed to the limit across the 774 LGAs to build this sector, same for agriculture; a lot of youths are returning to the farm, such efforts have to be complemented.