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Recession: Anchoring growth initiatives on SMEs’ revenue, job creation potential

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by October 17, 2016 General

Small and Medium Enterprises, SMEs, are generally acknowledged as having huge potentials for employment generation and wealth creation in any economy, hence interest in their development continues to be in the forefront of policy debates. In Nigeria however, the sector remains relatively small in terms of its contribution to GDP or to gainful employment. Though the Nigerian oil and gas industry has played pivotal role in the economic development of the country since independence, with over 95 per cent of total export revenue accruing from this sector, the lingering crash in the oil prices at the global market has made it imperative for Nigeria to have a rethink on how to grow her economy.

SMEs, have been recognised as indispensable components of national development in both developed and developing economies. This sub-sector of the economy is globally acknowledged to contribute substantially in enhancing employment creation or generation, poverty alleviation, equitable distribution of resources, income redistribution, technical and technological innovation, entrepreneurial skills development, more uniform industrial and economic dispersal, and general improvement in the living standard of the populace within an economic region. Moreover, they have been touted as strategic in ensuring food security and encouraging rapid industrialisation and reversal of rural-urban migration.

Although SMEs are seen as veritable and viable engines of economic development, the growth and development of SMEs in Nigeria have been slow and in some cases even stunted, due to a number of problems and challenges confronting this all-important sub-sector of the economy.

Some of the problems reported as being responsible for their slow growth and development include deplorable infrastructural facilities; funding and financing challenges; inadequate managerial and entrepreneurial skills; limited capacity for research and development as well as innovations; limited demand for their products and services; burden of multiple taxes; and overbearing actions of government functionaries and agents.

Others include, difficulties associated with complying with regulatory requirements in the specific areas of operations of the SMEs; problems of undercapitalisation and difficulty with access to bank credits; bureaucratic bottlenecks; corruption and lack of transparency arising from government regulation and regulators; as well as government’s lack of interest or focus in addressing the specific factors responsible for the abysmal performance of the sub-sector.

Nigeria has been a monoeconomy, depending much on oil for survival. With the fall in the global price of crude oil and some other economic and fiscal factors, the country has been battling with economic recession.

And since the country has no comparative advantage on so many sectors of world economy, there have been campaign for diversification to those sectors in which it has development opportunity.

Meanwhile, experts believe that SMEs sub-sector remains the best alternative to oil that is capable of turning the nation’s economy around if well positioned and restructured.

For instance, the President, LCCI, Dr. Nike Akande said despite the presumed support by Nigerian government and several development partners by way of financial and capacity building interventions, there is an urgent need to reposition the SMEs’ contribution to Nigeria’s non-oil exports in line with the diversification objective of this administration.

She maintained that with the current harsh business environment which is underscored by the World Bank’s 2016 Ease of Doing Business ranking of Nigeria at 169 out of 189 countries, there is a clear need for an integrated policy to support the SMEs to thrive under these conditions, adding that it is apparent that the government needs to put more focus and efforts into mitigating the investment clime challenges. It is important as well for SMEs to scale up their business management practices for enhanced efficiency and effectiveness. It was reported that the poor performance of SMEs in Nigeria relative to their counterparts elsewhere revealed that although about 96 per cent of Nigerian businesses are SMEs compared to 53 per cent in US and 65 per cent in Europe, they contribute approximately 1 per cent of GDP compared to 40 per cent in Asian countries and 50 per cent in both US and Europe.

In essence, industry experts maintained that one of the challenges hindering Nigerian SMEs to facilitate economicm growth lies in its shortcoming in exportation process.

Similarly, the regulatory environment must be such as would complement the growth and development portfolio of the sub-sector. Government’s various policies and guidelines that have formed the regulating environment under which SMEs in Nigeria operate have to be reviewed as it is said that the regulatory environment constitutes an important component required to ensure the growth and development of a viable and vibrant SME sub-sector of the economy.

Industy experts have noted that the operating environment like government policies, effects of globalisation, activities of financial institutions, local government policies, and SMEs’ attitude to work and their inherent characteristics were factors responsible for the challenges that SMEs face in their operations. One of the opportunity areas where Nigerian SMEs are missing out is AGOA, a Statutory Trade Preference Program that allows duty and quota free incentives for the entry of 6,400 goods from Sub-Saharan Africa countries.

According to the Implementation support Specialist, Nigeria Expanded Trade and Transport, NEXTT/USAID, Liz Oluwadare, there are 4600 of African products that qualify for elimination of tariffs under the Generalized System of Preferences (GSP) of the U.S. while additional 2000 products now included under AGOA that are “import sensitive” under the GSP.

Speaking on the topic, “Agoa Export Readiness for Nigerian SMEs”, Oluwadare observed that Nigeria’s economy can grow through SMEs and do away partially with depending on oil if the country’s SME sector would take the AGOA advantage.

She however explained that for the SMEs to get full advantage of the programme, they must conform with some standard specification and procedure which are the key facts on exporting to the US under AGOA.

What to look for include the 5Ps, which are product, packaging and labeling, promotion, pricing as well as processes and procedures. She said the products may not be accepted if all these factors are not well observed to meet international quality standard.

It was said that the benefits and incentives AGOA presents spans over 6400 products in various categories including Cashew e.g. raw, roasted, salted; Shea e.g. Shea butter- bulk and finished products; Home Décor & Fashion Accessories e.g. Furniture and wood products, hand-crafted pottery and baskets, leather handbags and shoes; Apparel e.g. Hand-woven cloth, ethnic printed fabrics, silver and beaded jewelry; Specialty Foods e.g. Boxed fruit juices, chips and cassava by products, vegetables, honey, palm-oil, spices; Sustainable Fish & Seafood e.g. Frozen, Dried or smoked fish, snail, shrimp which can be produced in larger quantity in Nigeria.

Oluwadare said: “The regulatory agencies involved in quality control in Nigeria are the Plant Quarantine Services of the Federal Ministry of Agriculture and NAFDAC. They issue certificates to exporters on the quality of goods, but their certificates are valid only on the export side; importers may not accept them. SGS, Cobalt, Codex Alimentarius, a UN agency, and the other third-party certifiers issue quality certificates that importers recognize.

“Most foods and drugs are regulated by the Food and Drug Administration (FDA), but the Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) regulates meat, poultry, and egg products. The USDA’s Animal and Plant Health Inspection Service (APHIS), Veterinary Services division, regulates the import (and export) of animals, animal products, and biological products.

The APHIS Plant Protection and Quarantine division regulates the importation of plants and plant products.”, she added She said SME exporters must follow two sets of procedures which are Nigerian laws and regulations that govern the export process and; the laws and regulations that govern the destination country’s imports- US.

The Managing Director, Successedge Int’l Ltd., Mr. Godwin Oyefeso, believed that SME is the only veritable tool that can rescue the economy of the country from its current status.

While noting that this could only be achieved if SMEs are fully empowered to export their products, he however lamented that the SMEs were faced with the challenge of getting foreign exchange inhibiting them from sourcing their materials, especially those that are not available locally.

He therefore advised that for SMEs to move forward and present alternative opportunity as export commodity to oil economy in revenue generation, they must take advantage of various trade fairs both local and international, must leverage on information and seek the right information on export requirements.

The Chairman of the LCCI SMEs Group, Kachikwu Jon, who also noted that the country was going through some economic challenges, which chiefly was caused by the fall in oil revenue and the attendant summersault of Nigerian currency, among other factors, said improving SMEs as significant drive of growth, job and economic prosperity at a time such as this was very important.

He said the sector has potential to absorb economic shock and that the current recession would have been controlled if the SMEs had been well positioned.

“I must not fail to say that Nigerian SMEs have shown resilience and stamina in absorbing all kinds of economic shocks. These shocks continue to have serious effect on SMEs’ cashflow and liquidity, forcing most into bankruptcy and thus contributing to the record level of unemployment in the country.

“We commend the transformation initiative of the government towards the diversification of the economy, nevertheless, it is our hope that governments at all tiers will continue to accord highest priority to the formulation of growth-driven policies and provision of infrastructure that will empower SMEs as catalyst for economic development in the country.

The Country Manager, Oracle Nigeria, Mr. Adebayo Sanni, who said SMEs in Nigeria are not only a catalyst of economic growth and development, but are also the bedrock of the nation, said SMEs were very important in the economic development of any country.

While maintaining that they are the building blocks of most economies and the fulcrum of industrialisation in most developed nations, the ICT expert pointed out that no business could thrive in the modern economy without leveraging on information and communication technology.

He said: “In many advanced industrialised countries like the UK, SMEs are valued as the backbone of the economy. The government has strategies in place to support SMEs in ensuring that they continue to be major avenues for economic vibrancy. Sadly, the same cannot be said in terms of support for the sustainability of SMEs in Nigeria.

“According to the National Bureau of Statistics’ report, 97 per cent of all businesses employ less than 100 employees. That equates to virtually all businesses in Nigeria! If majority of them continue to lag behind in terms of developing sustainable ICT strategies for their businesses, the impact on the Nigerian economy and its potential to continue to grow and be relevant and competitive in a technologically-savvy global market could be adversely affected.”, Sanni added.

He said the Nigerian SMEs have significant untapped growth potential, strong export and employment potentials, which are currently distributed along sectors within regions; creating potential operational and cost synergies.

According to him, ICT is one factor that can boost the growth of SMEs. ICT is increasingly becoming a dominant part of our everyday life and it is greatly affecting the way we live, learn and do business. ICT affects the way businesses communicate with customers and other businesses; it affects the way payment is made and received; and it affects the way information is received, processed and stored.

“Advances in technologies like the internet, social media, cloud and mobile have changed our way of life and the fundamentals of doing business, business ideas that looked crazy in the past are noble ideas today; projects that appeared impossible some years back are very feasible today.

“The business landscape has become so digital that businesses depend highly on ICT directly or indirectly, it can be established that there is a linear relationship between the degree of adoption of technology and the rate of growth and profitability of small and medium scale businesses.”

He further said, “The weakness of the economic recovery in Nigeria raises questions about the ability of all the fiddling by economic managers to underpin the economy.

“Now, having tried everything and failed, investment in innovation and knowledge economy can help the country navigate its way out of this recession.

“During period of economic recession, what most countries do to get out of the situation is to invest in human capital. Singapore, Korea, China, and India are clear examples of countries which deliberately invested in knowledge capital and today, the rest of the world are looking up to them to tap into their technology skills.

“For Nigeria, ICT presents a short cut out of the present economic conundrum.”

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