Vice President Yemi Osinbajo’s recent move to energise small and medium enterprises as the pivot of economic growth raises both hope and some scepticism. His charge at the virtual meeting he held with Medium, Small and Micro Enterprises stakeholders for greater innovation and of the government’s commitment to multiply the “scale and scope” of federal interventions sent positive signals to investors. However, the government needs to move swiftly, creatively and consistently pursue growth-enhancing policies to reassure the business community whose hopes have been repeatedly dashed by past failed policies.
Osinbajo was persuasive in laying out official backing for small businesses. “We must continue to be innovative…we really have to think out of the box,” he said as he acknowledged the importance of MSMEs in job and wealth creation. To this end, he highlighted the commitment to the implementation of the MSMEs Survival Fund, a component of the National Economic Sustainability Plan under which conditional grants will be given to small businesses to save 1.3 million jobs threatened by the COVID-19-induced recession. Successive administrations have acknowledged SMEs as national priority and rolled out endless policies, but success has eluded these efforts for reasons ranging from poor implementation, inconsistency, poor funding, primordial politics and corruption. The operating environment, generally unfavourable to all, is excruciatingly hostile to small businesses.
The President, Major General Muhammadu Buhari (retd.), and the state governors can change the narrative by according top priority to the SMEs, doggedly implementing programmes and avoiding past missteps and by adopting globally tested policies that transformed developed and emerging economies.
The SMEs are central to the development of countries and territories, “the backbone of major developed economies as well as important contributors to employment, economic and export growth.” Worldwide, they represent about 90 per cent of all businesses and over 50 per cent of employment, according to the World Bank and providing 40-45 per cent of the GDP of emerging economies. Of every 10 new formal jobs in emerging markets, the SMEs provide seven. The 30 million SMEs in the United States account for two thirds of private sector jobs; the United Kingdom’s 5.94 million SMEs represent 99.3 per cent of total business, 60 per cent of employment and half of the country’s private sector turnover. This trend holds true in emerging economies too: The UAE’s Ministry of Economy identifies them as “strategic drivers of industries,” accounting for 98 per cent of all companies and 52 per cent of non-oil GDP. McKinsey, a consultancy, calls the SMEs “the lifeblood of South Africa’s economy,” employing 60 per cent of the workforce and representing 98 per cent of businesses. The SMEs, said UNCTAD, also promote innovation, export diversification, competition, industrialisation and technology acquisition.
The SMEs drove the transition to, and sustain the industrialised economies of Japan, the Asian Tigers and the BRICS group of emerging economies – Brazil, Russia, India, China and South Africa. To realise its ambitions of joining this club to form BRINCS, Nigeria must take appropriate measures. According to the National Bureau of Statistics, the country had 41.5 million MSMEs in 2019, providing 59.6 million jobs, 48 per cent of GDP and 90 per cent of manufacturing jobs. To accomplish the dream of diversifying exports, ending the reliance on oil and gas, industrialisation and improving tax revenues, the SMEs hold the key. Government should pay particular attention to the ICT sector where innovation allows innocuous start-ups to transform quickly to multi-billion dollar companies.
Leveraging the SMEs requires overcoming the binding constraints on their path. Universally, these include limited capital, low access to credit and managerial deficit. In Nigeria, the problems are worryingly multiplied by high cost of borrowing, multiple taxes charges and fees, inadequate public infrastructure – power, roads, transport, unavailability of local raw materials, high cost of procuring machinery and export constraints. Corruption and red tape complete the mix. Funds for disbursement as low interest loans are stolen or given to non-operators. No country that throws its borders open to indiscriminate imports, allowing substandard products and dumping can grow its SMEs sector. The government needs to use tariffs and other fiscal policies to regulate imports, protect local producers and enable them compete in the global market. There should be zero tolerance for smuggling and the Nigeria Customs Service should be overhauled, well-funded and equipped with modern equipment and technology tools.
Taxes, rates, levies and charges by the three tiers of government need to be harmonised. Existing policies should be reviewed and those agreed upon faithfully implemented. With a youthful population and high unemployment, the government needs to work very closely with the private sector and make job creation the pre-eminent objective of all economic policies. Improving the country’s ranking on the Ease of Doing Business Report 2020 from 131 out of 190 countries should be a priority to attract local and foreign investment. New schemes to channel low interest credit to the SMEs should avoid the serial failures of the past and screen out corruption, cronyism and sectionalism.
There can be no success unless the federal and state governments solve the power sector crisis. The SMEs simply cannot afford the expensive alternative power arrangements of big companies. Power shortages add so much to costs and make local products uncompetitive. The Federal Government should review the 2013 power assets sales with a view to selling its own stakes in the power companies to reputable international operators, enforcing all agreements and regulations and opening the space for an influx of established investors and FDI. State governments should adopt policies to attract investors.
To overcome the country’s precarious economic situation, Buhari and the governors should act fast and decisively. Others are not waiting. The UAE aims to raise the SMEs’ share of non-oil GDP to 60 per cent this year despite the pandemic. India is relying on several stimulus initiatives to achieve a rebound from the hit the sector suffered in 2020, while Singapore is ramping up nine funding schemes for the SMEs that constitute 99 per cent of all businesses and provide 70 per cent of jobs in its highly rated economy.
Government should walk its talk and save the economy by drawing on expertise and forging close cooperation with the organised private sector to invigorate the SMEs.