Africa Business News: Entrepreneurs. Investments. Banking & Finance. Emerging Markets. Start-Ups
Monday, 28 October 2013
Tapping great growth potential from SMEs
The Central Bank of Nigeria (CBN) defines small and medium scale enterprises (SMEs) as businesses with turnover of less than N100 million per annum and/or less than 300 employees.
Recent studies by the International Finance Corporation (IFC) show that about 96 percent of Nigerian businesses are SMEs, compared with 53 percent in the United States of America (USA) and 65 percent in Europe. It was also reported that SMEs represent about 90 percent of the Nigerian manufacturing/industrial sector in terms of number of enterprises.
For some time, it has been a professional practice to distribute SMEs by clusters within regions. For instance, leather, feather and fashion SMEs are found in Aba, Abia State, while automotive SMEs are found in Nnewi, Anambra State.
Otigba ICT SME clusters are stationed in Lagos, whereas tie and dye SME clusters are located in Abeokuta and Oshogbo in Ogun and Osun states, respectively. Leather SME clusters are found in Kano, North-West Nigeria.
Given the numerical strength of SMEs in the country, estimates validating enormous contributions of SMEs to Nigeria’s growth would not be debatable. 2012 Baseline Survey by Pro-Poor Growth and Promotion of Employment Programme, led by Manfred Matzdorf, in association with Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), showed there were 17, 284, 671 SMEs as at last year, employing 32,414,884 persons, which represented 25 percent of total employment. Their contributing to the gross domestic product (GDP) was 46.54 percent.
Analysts say this is not far away from SMEs 60 percent contribution to GDP in China, the fastest growing economy in the world.
But in spite of the compelling growth potential of SMEs, enormous opportunities and huge employment creation capacity, analysts and industry players insist intractable challenges facing them would forestall maximisation of their growth potential.
“Huge infrastructural gap, poor financial support and credit environment, high levels of unskilled workforce and low investment commitment to bring pilot plants to commercial sale are great challenges facing SMEs in Nigeria.
“Studies show that Nigeria has a low amount of domestic investment through loans vis-a-vis other emerging markets. Majority of loans granted are issued to large corporates and governments. SMEs survive mainly through informal financing.
“Manufacturing as percentage GDP in Nigeria has averaged 3-7 percent over the last few decades.
Fierce competition for the Nigerian manufacturing sector comes predominantly from Asia; manufacturing among Asian competitors account for 30-40 percent of GDP today.
“Majority of exporters are experiencing decreasing levels of exporting due to competitive pressures from their Asian counterparts,’’ stated Banji Oyelaran-Oyeyinka, a university professor, in his paper presented at an international conference entitled ‘’Financial System Strategy 2020 SME: Issues, Challenges and Prospects.’’
Goddie Ibru, president, Lagos Chamber of Commerce and Industry (LCCI), said infrastructure problems, lack of access to credit, multiple taxation and regulatory pressures inhibit the growth potential of SMEs.
“Most of SMEs provide their own electricity, access road, security and other industry-specific facilities in the midst of poor access to affordable credit and multiple taxation.
“Recently, we received complaints from companies bordering on regulations, monitoring and compliance. We conducted a survey on the activities of some public regulatory agencies including NAFDAC. It was discovered that businesses are increasingly at the receiving end, mostly in the following areas: delay in registration and certification of products, multiplicity and arbitrary charges, frequency of visits that come with costs to the companies, overlap of functions with other
agencies, excessive human interface in operational framework and collection of excessive quantity of products supposedly as samples,’’ said Ibru.
The director-general of LCCI, Muda Yusuf, said regulatory issues such as delays in registration and certification, excess charges and infrastructure problems have not helped drive growth of SMEs in the country.
However, stakeholders and industry experts say SMEs are drivers of economic growth in China and other emerging economies, insisting that tapping into growth potential or plugging growth loopholes in the country requires government intervention.
“SMEs have significant untapped growth potential, strong export, employment potentials, new
growing sectors, low- and high -tech sector clusters. Majority of private sector led initiatives outperform public sector led ones.
“The more successful emerging markets have high rankings as a result of government support in enabling the private sector, and SMEs specifically. SMEs surveys show weak overall support from Government,’’ said Banji Oyelaran-Oyeyinka. According to him, the Asian Challenge, low
finance and high tariff rank highest among numerous issues that need urgent and
dedicated government intervention.
Ibru also added that government support for SMEs was needed urgently as a result of their critical importance to the economy.
“The SMEs are critical to national economic development, especially in the area of job creation and poverty alleviation. Since government cannot generate the quantum of jobs needed to gainfully engage the teeming unemployed youths, the private sector and especially the SMEs should be empowered and supported,’’ said Ibru.
Industry analysts are, however, optimistic about the ongoing power sector reforms in the country,
saying anticipated improvement in power supply would reduce high running costs faced by many SMEs