If Nigeria would experience real development, if jobs in the required numbers would ever be created and if Nigerians would ever prosper in real terms, then micro, small and medium enterprises would have to be nurtured and promoted. Today, the government acknowledges this, talks the talk but never walks or works the talk. This is a shame that must be halted.
The National Policy on Micro, Small and Medium Enterprises, which was adopted in 2003 after broad-based consultations, acknowledges that “the importance of Micro, Small and Medium Enterprises (MSMEs) in employment generation, economic empowerment, poverty alleviation and even distribution of development has long been recognized”. Generally in Nigeria, establishments that engage up to 10 employees fall under micro-enterprises; those with up to 50 employees are considered to be small enterprises; and medium enterprises engage up to 250 workers. The structure of MSMEs here is different from what obtains in developed economies. What the National Policy termed “the notorious missing middle of Nigeria’s private enterprise system” was still evident in 2010 following a survey sponsored by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). Micro-enterprises made up 99.87 per cent of the MSME population with small and medium enterprises forming 0.12 per cent and 0.01 per cent respectively. This is the 11th year since the adoption of the National Policy and it is unlikely that the pattern of MSME distribution has witnessed any improvement.
Government policies which impact the MSME subsector deserve close attention and a more than cursory examination. In an advertorial last March, SMEDAN disclosed that “as of now, 96 per cent of all businesses in the country belong to this grouping (MSME) which contributes 75 per cent of national employment”. Thus any concerted efforts to improve the performance of MSMEs, ceteris paribus, should be expected to absorb a part of the current unemployment rate of over 23 per cent as well as reduce the incidence of poverty, which in 2010 stood at 72 per cent. However, the monotonic rise of both economic indicators over the years shows that relevant government policies have been working against the development of MSMEs. As a matter of fact, Federal Government fiscal policies down the years, which are in large part inappropriate, have produced adverse monetary measures which in turn have intensified all the well-known obstacles to the growth of MSMEs.
To begin with, MSMEs fare poorly under unstable macroeconomic conditions. Despite contrary official claims, there exists irrefutable and unbroken presence of the features of macroeconomic instability. They include persistent excess liquidity and the attendant harsh economic production environment characterised by high inflation, high lending rates and a progressively weak naira. Notwithstanding hefty devaluations of the naira over the years, the Central Bank of Nigeria (CBN), unceasingly fritters away withheld public sector dollar earnings purportedly to defend the perennially artificial naira exchange rate. The ensuing high lending rates compound the factors that deny MSMEs ready access to adequate bank finance. MSMEs are, therefore, compelled to depend mainly on non-bank financing.
A comparison with the level of bank loans to MSMEs elsewhere is quite revealing. A cross-country study carried out for the World Bank which was published in 2011 concluded that the median ratio of SME loans to GDP in high-income countries is 13 per cent compared with only three per cent in developing countries. Because data on Nigerian bank loans to MSMEs are not available, the CBN’s MSME Development Fund (MDF) of N220 billion may serve as a proxy. The MDF as a ratio of the rebased 2013 GDP is a measly 0.27 per cent. That is grossly inadequate for the subsector that provides, you will recall, 75 per cent of national jobs. Even then, the MDF, which is unlikely to be fully subscribed in any year, attracts the high interest rate of nine per cent per annum. From experience, however, it is doubtful whether disbursements from the fund would reach any interested MSMEs at less than an annualised interest rate of 72 per cent.
The killer bank interest rates make nugatory the touted waiving by the CBN of conditions like provision of collateral, proof of credit worthiness (yet guarantors are required for microloans), bank credit transaction history and so on. And yet still as a mark of celebration of the CBN measures which suffocate MSMEs, the banks, for instance, in 2012 sat on 76 per cent of unutilized lending capacity that amounted to N45.6 trillion. Also as at last March, the CBN had granted banks the sinecure of pilling up the national domestic debt that is made up of sterilized excess liquidity amounting to N8.8 trillion (which is non-investable on government projects). The banks are rewarded with unearned income of about N1 trillion as service cost on the baseless debt annually which is borne by the Federal Government. In the circumstance, it is mere window dressing intended to mock MSMEs for some banks to use international cable news networks to promote SME loans or to sponsor radio programmes that urge SMEs to float their establishments on the capital market for cheap funds when that option has a history of many a failed enterprise.
Expectedly, the very high cost of bank loans to MSMEs where available, the prevailing high inflation and the progressively weakening naira currency lead to high cost of the output of MSMEs as with all other producers. Thus burdened with uncompetitive output, the MSMEs face the intensified form of another obstacle to their growth, namely, difficulty in gaining access to domestic and foreign markets. Also the MSMEs have a field deliberately made uneven by the Federal Government to play on. Unfair competition hampers the access of the final and intermediate output of MSMEs to the market. Government policies encourage importation of all manners of foreign goods (and services too), a large proportion of which is dumped on the country. There are several explicit examples.
Firstly, at frequent intervals and like the maximum rulers of the military era, the Federal fiscal authorities usurp legislative functions, unilaterally waive sections of the import tariff regime and flood the country with selected goods of their fancy. The tariff regime is intended to protect the various stages of local production and local jobs. It is irresponsible to unilaterally grant import waivers and the practice should stop. Secondly, instead of making sure that goods are produced locally in accordance with desired quality and set standards, the two Federal agencies of NAFDAC and Standard Organisation of Nigeria go out of the way to license foreign-based firms to manufacture Nigerian specification-compliant products for export to the country. That way both agencies create jobs abroad and joblessness at home, make it possible for favoured foreign firms to underprice local manufactures with resulting high rate of under-utilized installed manufacturing capacity at home as well as drive away foreign direct investment in similar lines together with beneficial linkage industries and requisite technological transfer.
Thirdly, the CBN’s deliberate incorrect handling of public sector oil proceeds promotes an import-dependent economy through uncontrolled access by all and sundry to foreign exchange even at street corners. As a result, a substantial amount of the country’s foreign exchange finds its way abroad through unorthodox channels. Such foreign exchange facilitates, among other anti-economic activities, the importation of large volumes of contraband to the detriment of the manufacturing sector. Not long ago, SON revealed that 80 per cent of goods in Nigerian markets were imported. Any wonder that the manufacturing sector’s share of the forecast rebased 2013 GDP is a lowly 6.8 per cent?
What best serves the national interest is for the Federal Government to urgently reverse all policies which cause MSMEs to wilt and large establishments to be prostrate and the economy to permanently underperform. The root cause of the earlier identified unstable macroeconomic regime, which leads to the crippling of MSMEs and the economy at large, is because of the forced reliance by the three tiers of government on the deficit financing substituted by the apex bank for shared Federation Account dollar accruals which the CBN withholds. The resulting unintended and ruinous excessive fiscal deficits should be done away with the correctly converting public sector dollar earnings to non-inflationary naira revenue through deposit money banks in order to unfurl conducive economic conditions.
A strong economy produces the preponderance of what it consumes. MSMEs account for much of that production. The country possesses the resources for achieving that objective. Nigeria should, therefore, not continue to be made to underperform through deliberate policies.
