The Federal Government’s recent disbursement of N869 million for onward lending to small businesses should redirect attention to the neglected micro, small and medium enterprises sector. Though acknowledged as a crucial accelerator of economic development and mass employment for Third World countries that successfully transited to industrialisation, successive Nigerian governments have failed to find the winning formula to make MSMEs vibrant.
Lack of access to low-interest, long-term funding, according to experts, has been the chief obstacle to the growth of this sector. Many funding schemes in the past had failed, having been victims of corruption, incompetence, nepotism, outright fraud and a harsh macroeconomic environment. President Goodluck Jonathan’s expressed determination to promote MSMEs should begin, therefore, with a resolve to ensure the strict implementation of the latest initiative.
The N869 million he gave out to some financial intermediaries was the first tranche of a N220 billion intervention fund set aside by the Central Bank of Nigeria for MSMEs. The benefitting financial intermediaries are to disburse loans to MSMEs that meet stipulated criteria. They include private and state-promoted microfinance banks, finance houses and cooperative finance agencies. End users are to pay a maximum of 9 per cent interest, “inclusive of all charges,” according to Godwin Emefiele, Governor of the CBN, who also said the loans would be administered in “an innovative way.” At the prevailing 17-30 per cent, small businesses have been squeezed out of the financial market, accounting for only 0.14 per cent of commercial banks’ loans, the CBN has said.
Innovation is essential to make MSMEs the game-changer in Nigeria’s bid to industrialise, diversify and create millions of jobs. Jonathan described the sector as the “engine of growth” and cited figures indicating that MSMEs contribute 47 per cent to global Gross Domestic Product.
Sixty per cent of the loans are reserved exclusively for women who will also compete for access to the remaining 40 per cent, and 2 per cent for physically challenged persons. These are steps in the right direction as UNIDO describes women running small businesses as the economic backbone of emerging economies.
Nigerians will take Jonathan for his word that he is “determined and poised to address challenges inhibiting the growth of MSMEs.” Small businesses or MSMEs are business operations that deploy much smaller capital, have smaller turnover and employ far fewer employees than large-scale business enterprises. The term varies depending on country and industry but range, according to the International Small Business Association, from firms hiring less than 15 employees in countries such as Nigeria and Australia, to those employing fewer than 500 as in the European Union and the United States. Also classified by methods, sales, assets and profits, they range from micro to small and medium scale.
The International Monetary Fund said small businesses propelled the rapid development of the Asian Tigers. They create jobs, serve specialised niches; are able to respond faster to market demands and foster accountability. The Small Business Administration of the United States reported that the 28 million US MSMEs accounted for over 50 per cent of America’s working population, generated 65 per cent of new jobs and created the most new jobs and associated employment in communities. UNCTAD identifies MSMEs as key accelerators in creating the export-led economies of Japan, Malaysia, South Korea, Hong Kong and Singapore, among others.
But small businesses have a high attrition rate everywhere, being prone to bankruptcy, poor management and lack of access to finance. According to the Institute of Development Administration of Nigeria, the problems of MSMEs are magnified in Nigeria where high interest rates, poor infrastructural and institutional support, lack of potable water, electricity, feeder roads, poor governance, insecurity, multiple taxes and fees, high inflation and unstable foreign exchange have kept the sector down. UNIDO adds that MSMEs provide 28 per cent of Malaysia’s manufacturing output and employ 33 per cent of the workforce compared to Nigeria where commercial banks’ lending to MSMEs declined from 7.5 per cent in 2003 to 0.14 per cent in 2013. Jonathan lamented that while Nigeria boasts 17.3 million MSMEs, Indonesia has over 40 million.
Since the job-creation, exports, industrialisation and skills acquisition capabilities of MSMEs have also been established in places like China, South Korea and India where MSMEs contribute 31 to 56 per cent of manufactured exports, Nigeria should use this scheme to jump-start the sector. The loans should go only to genuine small business operators, not cronies of officials and emergency entrepreneurs. All previous state intervention funds failed as the infernal factors of corruption, nepotism, fraud, mismanagement set in. SMEIES, designed to take away the corrosive hands of bureaucrats by making banks equity participants, also faltered due to the adverse operating environment.
We are concerned that MFBs promoted by state governments are also benefitting from this scheme despite the pervasive corruption in our public services. The CBN should strictly implement the regulations in its Revised Microfinance Policy, Regulatory and Supervisory Framework 2013 to prevent misuse and plunder.
But small businesses cannot thrive where they have no stable electric power supply; where multiple taxes and fees prevail and fiscal incentives are lacking; where entrepreneurial skills are sparse, and where insecurity renders capital unsafe. Jonathan and the 36 state governors can make a difference by investing massively in public infrastructure. State governments should make the provision of rural infrastructure and social services their priority and open up the hinterland, providing potable water, quality schools and roads.
The Federal Government needs to liberalise the railways, steel and downstream oil and gas sectors, while putting policies in place that will encourage farming, food processing and exports. Jonathan should align the fiscal policies with the CBN’s monetary policies to achieve low interest rates, reduce inflation and firm up the naira exchange rates against major world currencies.
