Small and Medium Enterprises (SMEs) are central to the economic growth of any country. While Small Enterprises have between 10 and 49 employees, Medium Enterprises are those with 50 – 249 employees. The International Bank for Reconstruction and Development (or the ‘World Bank”) estimates that SMEs represent 90% of businesses worldwide, and they employ more than 50% of the people in the world’s workforce. What’s more, SMEs contribute up to 40% to the Gross Domestic Product (GDP) of most developing economies.
In Nigeria, the situation is no different. PwC, the global accountancy firm, estimates that 9 out of 10 businesses in Nigeria are SMEs, and 8 out of every 10 people who are employed in Nigeria work in an SME. SMEs also account for 50% of all the jobs in Nigeria’s industrial sector and 90% of the total jobs in the manufacturing sector. In total, there are about 17.4 million SME businesses in Nigeria, all of whom contribute up to 48% to the Nigerian GDP.
So if SMEs are massively important to the Nigerian economy, why isn’t the government working harder at creating a conducive environment for them to operate, grow and contribute even more to the economy? Well, here we take a look at the ways the government can support SMEs.
1. Adequate Financing
It is estimated that 61% of startups in Nigeria collapsed operations between 2010-2018 and this was due to the prevalent economic downturn in Nigeria. Economic issues like sustained foreign exchange volatility and incessant inflationary pressures all made it harder for ambitious entrepreneurs to raise much-needed capital to grow their businesses.
SMEs in Nigeria need to have access to loans from financial institutions, and the government can help with that. Available data shows that only 2% of SMEs in Nigeria raise funds from financial institutions. The Federal Government, through the Central Bank of Nigeria, can remedy this situation by creating a special office that formulates policy and liaises directly with commercial banks, on behalf of SMEs.
By so doing, SMEs can be granted loans faster when they apply to commercial banks, and many other operational issues that affect SME loan applications like poor accounting records, lack of a business plan, lack of collateral, and poor credit history can be easily worked out. Already, SMEs in Canada and Hong Kong operate under some of these preferential financing conditions.
2. Improved Infrastructure
To say that poor infrastructure affects SMEs in Nigeria is to put it mildly. Data has shown that 90% of the jobs in Nigeria’s manufacturing sector are created by SMEs, but available data also depicts the clear nexus between infrastructure development and manufacturing growth, which in turn impacts SME growth and economic growth. A 1% increase in electricity supply, for instance, allows a country’s economy to grow by up to 3.94%. Little wonder manufacturing only contributes about 12.67% to Nigeria’s GDP, a figure below the 20% and 25% manufacturing to GDP ratio in Indonesia and South Korea respectively. Talk less of the fact that 26% of China’s economy comes from the manufacturing sector.
To massively grow Nigeria’s economy, the manufacturing sector must be developed. However, the manufacturing sector cannot be developed if there is no conducive working environment for SMEs. Good road networks, reliable electricity, and potable water supply are just three of the basic infrastructures that SMEs need to do their business.
The Nigerian government can fix the large-scale infrastructural problems in the country by ramping up public-private partnerships and fast-tracking the commercialization of moribund assets like the Ajaokuta Steel Mill and the defunct oil refineries. The sooner the government begins to drive investment towards critical sectors like power, steel, energy, and road infrastructure, the earlier SMEs in Nigeria can begin to do business in a more conducive environment.
3. Eradication of Multiple Taxation
In a recent PwC report, 57% of SMEs in Nigeria cited multiple taxes, lack of coordination of federal and state agencies, and the absence of technology platforms when paying taxes as their most pressing business challenge. Indeed, multiple taxations in Nigeria refers to a situation where multiple taxes, levies, and fees are collected on the same businesses by different levels of government, many of which lack appropriate legal backing and are collected through harassment and intimidation.
To solve the menace of multiple taxations in Nigeria, an eminent tax lawyer and academic, Professor Abiola Sanni, has advocated that all the existing taxes in Nigeria should be abolished and replaced with only two taxes imposed at the rate of 10%: income tax and expenditure tax. Needless to add that this proposal will greatly reduce the ugly situation of multiple taxations affecting the business of many SMEs in Nigeria.
4. Ease of Business Registration and Incorporation
Part A of Nigeria’s Companies and Allied Matters Act, the principal legislation relating to commercial enterprise in Nigeria, mandates all SMEs in Nigeria to get registered before they can conduct business. However, registration of SMEs in Nigeria continues to prove to be a herculean task. Recently, the Corporate Affairs Commission (CAC), the body charged with registering companies in Nigeria, has moved the entire process online, much to the chagrin of many SMEs who complain that the exercise has only slowed down business registration.
To solve this challenge, the government, through the CAC, can work more closely with SMEs to ensure that most of their pressing issues relating to registration and incorporation are addressed.
An astute lawyer has noted that the reservation of a company’s name does not typically take more than 72 hours. However, many SMEs are still oblivious of this fact. So not only must the government make business incorporation easier, but it must also sensitize SME owners about the processes of registration. This way, more SMEs can be legally compliant and will be captured in the government’s official database.
Nigeria needs to create 5 million jobs every year for the next ten years. Therefore, SMEs must be given a conducive environment to function, because they are evidently the country’s biggest chance for fighting unemployment and growing the economy.
Photo by AMISOM via Iwaria
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