Positioning MSMEs for Economic Growth

Positioning MSMEs for Economic Growth

ANALYSIS

NumeEkeghe writes on efforts to support micro, small and medium scale enterprises in the country

Micro, small and medium enterprises (MSMEs)in Nigeria, just as in other countries are the bedrock for economic growth.
This is seen in the value contribution they make to national Gross Domestic Product (GDP) as well as in the number of persons they engage in terms of employment.

Unfortunately, in Nigeria, MSMEs have performed below expectation due to a combination of problems which among others include infrastructural deficit and frequent policy changes, according to a report by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
In Nigeria, with a population of over 190 million people, of which more than 65 per cent are persons below the age of 35 years, the imperative for more youths- participation in entrepreneurship cannot be overemphasised.

The SMEDAN intervention
At the point of its creation, SMEDAN’s overall objective was to promote the development of this sector, consequently reducing poverty through wealth and jobs creation, thereby facilitating socio-economic transformation.
But to achieve its objective, SMEDAN needs accurate and reliable data on which it can formulate appropriate policies. Until 2010, when SMEDAN partnered with the National Bureau of Statistics (NBS), such data was scarce.

However, since the creation of the National Survey of Micro Small and Medium Enterprises report, the country has benefited from better data from the sector.
SMEDAN explained that there was need to pay a lot more attention to such businesses because they have the largest share of employment, they contribute a huge chunk of gross domestic product, and they probably have the greatest possibilities to create more jobs.

“So the government needs to pay as much attention if not more, to them and also, it may be difficult to lump 41 million of them together, so we need to create more levels so they can be better targeted. “Reduction in registration fees have helped, but we have to also focus on some other challenges they face and create policies to tackle them, and that is exactly what data is for.

“It helps you know exactly what MSME’s challenges are in different areas, and as a government, we create policies to tackle it,” the agency explained.
On his part, the Director General, SMEDAN, Dr.DikkoUmaruRadda, noted that MSMEs make significant contribution to the country’s GDP, which he put at 49.78 percent presently.

“And there is also an increase in exports which was 7.2 percent. Though the increase was negligible, I think it is worthy of mentioning, because it has increased to 7.68 per cent,” he added.
According to a former Minister of State, Industry, Trade and Investment, Aisha Abubakar, the baseline survey report – 2010 National MSME Collaborative Survey – provided a watershed moment in understanding of the sub-sector.

Amongst others, she said, “it became public knowledge that the total number of MSMEs was 17,284,678.”
“These employed a total 32,414,884 persons as at December, 2010. On the heels of the national economy rebasing, enterprise numbers surged at the next edition of the survey in 2013 to 37,067,416 with complementary employment contribution of 59,741,211 persons.
“Such indices as the contribution of MSMEs to GDP, exports as well as their distribution across major economic sectors and states also emerged.

“This was besides identifying challenges faced by the sub-sector.”
The collaboration with the NBS is embodied in a memorandum of understanding (MoU), which provides for the survey to be reviewed after every three years, with the most recent exercise being 2013.
SMEDAN, is expected to continue to update and provide credible MSME data through collaboration with both private and public institutions.

Findings in the Report

Prepared every three years, the latest report showed notable improvement in certain areas of operations and activities of MSMEs in Nigeria.
According to the Statistician General of the Federation, Mr.Yemi Kale, the sector recorded an increase in its contribution to GDP and employment, albeit within a period where the economy suffered a recession. It also improved in terms of overall business performance when compared to the previous year.
In terms of the number of enterprises in the sector, this increased to 41,543,028 in 2017, with the education and manufacturing sectors making the most contribution to Small and Medium Enterprises, while Wholesale and Retail trade, and Agriculture contributing the largest number of enterprises in the Micro Enterprises sector.

According to the report, Wholesale/Retail trade (42.3 percent), Agriculture (20.9 percent), Other Services (13.1 percent), Manufacturing (9.0 percent) and Accommodation & Food Services (5.7 percent) accounted for about 91.0 percent of all MSMEs.

Also, while males were dominant in Agriculture (84.9 percent), female-dominance was instead observed in Accommodation & Food Services (86.8 percent), Manufacturing (68.7 percent) and Wholesale/Retail Trade (64.5%).
With regards to Ownership Status, Sole Proprietorship predominated at 97.1 percent, followed by partnerships (2.2 percent). And, while most entrepreneurs were within the age brackets 26 – 35 years (30.2 percent) and 36 – 50 years (40.2 percent), male-ownership was superior at 51.3 percent.

Meanwhile, with a total employment contribution of 59,647,954 persons, including owners, at December, 2017 (equal to 86.3 percent of national workforce), Micro Enterprises alone contributed a whopping 95.1 percent but with innately weaker capacity for jobs creation at 1.37 persons per entity (compared with 39.5 persons for SMEs). When employers were excluded, it emerged that 18.1 million jobs were created by the sub-sector.

The report noted that most MSMEs did not utilise professional services. However, Business Consultants followed by Accountants/Auditors were the services most patronised. Consequently, while about 24.4 percent of Micro Enterprises (up to 65.1 percent for SMEs) had used a business plan, comparative values for business insurance penetration and on-line business set-up dropped sharply to 3.3 percent and 1.8 percent, respectively.

Most of the businesses surveyed (or 85 percent) had an initial start-up capital of N100,000 or less, a situation which was complicated by their limited access to formal credit.
Only 5.3 percent of businesses (up to 21.6 percent for SMEs) had access to bank credit even with 40 percent of operators having personal banking relationships.

According to the report, the predominant source of raw materials and machinery amongst MSMEs was local (greater or equal to 87.5 percent), which is indicative of the innate capacity for local content utilization. While most operators have little-to-nil need for power supply (probably due to large numbers of operators in Wholesale/Retail Trade), this changed drastically for Real Sector operators, 25 percent of whom depended on alternative sources for 10 hours (or less) daily (up to 75 percent for SMEs). This is a recurring factor for high operating costs, with implications for competitiveness.

The report also noted that the marketing of MSMEs products was dominated by local channels (as contrasted with export). Also, consistent with the economic downturn observed in 2017, most MSMEs reported average monthly sales/ turnover of N100,000 or greater.
Nevertheless, export contribution by the sub-sector, improved marginally to 7.64 percent (from 7.27 percent in 2013) with contribution to GDP, also, posted at 49.78 percent.

The report made two policy recommendations: the recognition for a new ‘One -Man Business class’ to accommodate the 37.1 million (or 89.1 percent) MEs, which being only income generating activities have not matured to be recognised as enterprises’ and the creation of a new dual-criterion, comprising paid employment and/or formal registration, for recognizing enterprises.

This is to be used in conjunction with the current MSMEs class limits (i.e. employment and/or asset base).
Speaking further on challenges they face, Radda said: “On challenges MSMEs face, he said finance is still a major factor as he urged there be a review to how MSMEs can access loans available to support them.”
He said: “From the survey, finance has remained the major challenge of the micro-enterprises. Then followed by capacity building, which is more about the capacity of the MSMEs.

“And I think, as regards to the finance, the government is doing a lot of things to ensure they are addressed. And I think the interventions from the CBN are equally helping to reduce the challenge.
“But I think as a government and the person who represents the government, and MSMEs, there is still need for us to do more on reducing the process or procedures for accessing finance from the commercial, macro, and even the development banks of Nigeria.”

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