Survey: Obtaining Finance, Infrastructure Deficit Top Challenges for MSMEs

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By Peter Uzoho

Small Businesses in Nigeria have listed the most pressing problems impacting their operations to include obtaining finance, finding customers and infrastructure deficits.

These were some of the findings from a survey of micro, small and medium scale enterprises (MSMEs) in Nigeria conducted by PwC Nigeria.

The survey findings were revealed during a recent webinar hosted by the firm for MSMEs, with the theme: “Managing the Impact of COVID-19 and Repositioning Your Business for Growth.”

The report titled ‘PwC’s MSME Survey 2020- Building to last,’ provides insights into a range of issues concerning MSMEs in Nigeria, and the challenges impacting business growth, particularly financing, taxation issues; and other factors – through the eyes of their CEOs.

The survey which was conducted prior to the Covid-19 pandemic (between August and December 2019) sought the opinion of 1629 key decision makers in the MSME sector surveyed with annual sales turnover ranging from N5 million and above. The businesses surveyed had a geographical spread covering 29 states and across the 6 geopolitical zones in the country.

Presenting results of the findings, Partner and Lead, Private Wealth Services, PwC Nigeria, Esiri Agbeyi, noted that obtaining finance (22%), finding customers (16%) and infrastructure deficits (15%), were identified by respondents as their most pressing problems.

When asked what the biggest cost to their business operation was, 21% identified electricity as being responsible for the highest cost to their daily operations. This was followed by rent (17%) and cost of capital and employee cost at 15% and 14% respectively.

Agbeyi explained: “Access to finance, in particular credit, is a critical enabler for the growth and development of small and medium enterprises. The SME credit market, however, is notoriously characterised by market failures and imperfections. We estimate the financing gap for Nigerian MSMEs to be about N617.3 billion annually (pre-COVID-19 pandemic). More so, based on our analysis of data from the CBN annual statistical bulletin, small businesses accounted for less than 1% of total commercial banking credit in 2018.

“We also see that electricity accounts for the biggest costs to daily operations of MSMEs. Nigeria’s power sector is overwhelmed by a myriad of challenges that have culminated in inadequate electricity supply.

This has an adverse impact on the business environment in Nigeria; consequently, contributing to significant economic costs to SME and economic growth. The International Monetary Fund (IMF) states that lack of access to reliable electricity costs the Nigerian economy an estimated USD29 billion a year.”
The survey also found that the foremost economic issue affecting small businesses was the pressure to reduce prices (22%). This was followed by rising inflation (19%) and low demand for products/services. (16%).

The economic recovery in Nigeria has been tepid. Despite positive economic growth in the last three years, Nigeria’s GDP trajectory still falls short of the projections set in the Economic Recovery and Growth Plan (ERGP) of 4.5 per cent and seven per cent for 2019 and 2020 respectively.

On tax matters, MSMEs find local government levies (28%) the most difficult tax to comply with. This is closely followed by Company Income Tax (CIT) at 26% and Value Added Tax (VAT) at 25%.

Reasons for the difficulty in compliance comprised: the multiplicity of taxies and levies; lack of coordination between federal & state tax agencies, absence of technology platform(s) for ease of payment of all taxes and levies, as well as lack of fully functional tax refunds schemes at the state & federal level. Others included the absence of comprehensive tax payment schedule notification or calendar, and physical harassment/intimidation by local tax collectors.

Also commenting on the report, Country Senior Partner, PwC Nigeria, Uyi Akpata, said: “Our MSME Survey 2020 is aimed at gauging experiences of sector players, assessing the underlying issues which MSMEs face and providing insights on this strategically important sector. You will find the survey headlines confirm some persistent problems and sheds light on those you never really considered to be issues such as payment policies.”