SMEs in Nigeria are still struggling
The recent ranking of economies by the World Bank in its 2014 Doing Business report showed that Nigeria dropped to 147th position from 138th in the previous year. Singapore, Hong Kong, New Zealand and the United States were placed 1st, 2nd, 3rd and 4th respectively. Within the Sub Sahara Africa region, Nigeria was ranked 20th, where Mauritius, Rwanda and South Africa ranked 1st, 2nd and 3rd respectively. The Word Bank’s Doing Business report examines the difficulty of establishing and running a small or medium sized business, while abiding to local work laws and regulations in the countries surveyed.
Over the 20-year history of the Index of Economic Freedom Nigeria’s scores in property rights and freedom of corruption have declined by more than 20 points. This, perhaps, explains why there are more micro and small enterprises than small and medium enterprises in the country.
That Small and Medium Enterprises (SMEs) are the bedrock of economic transformation and development for both developed and developing economies is now common knowledge. SMEs are acclaimed to contribute in terms of employment generation, dispersal and diversification of economic activities, wealth creation and distribution as well as the localization of resources, mobilization of savings, and stimulation of indigenous entrepreneurship and technology especially in developing economies.
SMEs are important drivers of growth in economies across sub-Saharan Africa, accounting for up to 90 percent of all businesses in these markets. No wonder there is now a consensus amongst policymakers in developing and emerging economies that SMEs are a strong driving force for their industrial growth and development. For this purpose, governments especially in developing economies are always searching for best ways to assist SMEs.
It is in this regard that the Nigerian government over the years has created several incentives to promote SMEs as well as to attract foreign direct investment to Nigeria. Some of these incentives include: incentives to boost cement production, stimulate bio-fuel industry, Investment Promotion and Protection Agreement (IPPA), Free Trade zone, and Small and Medium Enterprises Equity Industrial Scheme (SMEES). However, these incentives which are both financial and non-financial have been tilted in favour of financial support.
SMEs in Nigeria are still confronted with difficulties in operating environment. The poor state of roads increase the cost of transporting both raw materials and finished goods to and from markets. Limited availability of electricity and its high cost where and when available promote rather than discourage the continued use of traditional low technology or outdated methods of production apart from increasing cost. The problem of all kinds of regulatory and legal bottlenecks like licensing and registration often creates barriers to their smooth operations.
Also, it is common to find the activities in the SMEs sector under constant threats from different organs of government. Different tiers of government collect regressive and multiple taxes and levies as well as other unofficial fees from SMEs. This probably is the reason for the three major problems of SMEs as captured by the Doing Business report to be: getting electricity, registering property and paying taxes.
Measures to prop up SMEs should include ensuring power sector reforms remain on course, the reduction of corruption through transparent processes with no wriggle room for discretion, immediate elimination of multiple taxes as well as the simplification of the process of registering property (we are dismayed that the National Conference has elected to keep the Land Use Act when it’s long overdue for reform). Where fiscal incentives in form of tax reliefs, import restrictions and prohibitions are adopted they should have a sunset clause after which the industry will be open to competition.