Stimulating MSMEs for economic growth
Micro, small and medium enterprises (MSMEs) are seen as businesses that have less than 200 employees, assets below N500 million or an annual turnover of N500 million or less, according to Bank of Industry, Nigeria’s most active development bank.
By this classification, over 80 percent of businesses operating in the country fall into this category. The implication of this is that it is this category of businesses that create the most jobs, diversify the economy and provide the most revenues for various levels of government in the form of taxes, levies and other charges.
The 2013 National MSMEs Survey shows there are 37 million businesses in this group, employing 60 million Nigerians. The survey also shows that MSMEs currently account for 48 percent of the nation’s Gross Domestic Product (GDP). This contribution is miserable when compared with South Africa’s, China’s and India’s, which all are above 70 percent.
This underscores the challenges facing this class of businesses and enunciates the fact that more attention has been paid to large enterprises by successive governments at the expense of MSMEs. But despite that more attention has been paid to large enterprises owing to their investments strength, they, however, have created fewer jobs.
President Muhammadu Buhari started out on a good note by realising that MSMEs are the bedrock of growth, job creation and wealth. In his inaugural speech on May 29, Buhari had said, “We intend to attack the problem (of unemployment) frontally through… credits to small- and medium-size businesses to kick-start these enterprises.”
Analysts see Buhari’s emphasis on financing MSMEs as a stimulus and part of his plans to stem 24 percent unemployment rate and crime that pervade the country’s landscape. Data show MSMEs borrow from banks and other financial institutions at interest rates hovering between 17 and 35 percent. According to the Manufacturers Association of Nigeria (MAN) data for the first half of 2014, businesses, including MSMEs, borrowed at an average rate of 22 percent within the period.
In a recent interview with the leaders of shoes, bag, belt and trunk box manufacturers in Aba, Abia State, the industrial hub of South-Eastern Nigeria, it was gathered that some financial stimulus could have seen the $680 million sector dwarf peers in Africa. The talents and creativity are there, but sophisticated machinery and strong adhesives are lacking owing to finance gap. Worse still, bank loans are often short-term and do not give room for expansion and job creation.
The Buhari government needs to therefore fast-track the establishment of the Development Bank of Nigeria announced by the immediate past administration. Analysts say constraints to finance should be seriously addressed through the provision of specialised MSMEs funding windows at single-digit interest rate.
Apart from finance, most MSMEs consume tens of litres of fuel and diesel to keep up their productive activities. This not only diminishes their growth trajectories but also affects their margins and capacity to create jobs. Despite slight improvement over the last few months, stable power supply remains an uphill task. The Federal Government must therefore intervene in the power sector to save the economy.
Also, many operators of businesses in this category lack capacity and will require a national intervention that will provide mentorship and capacity-building on risk management and financial discipline.
President Buhari must also ensure that there is total reduction in the number of taxes charged to MSMEs. It has become a national disaster that investors receive over 15 tax collectors from the three tiers of governments, departments, agencies and parastatals in a month. This must stop if Buhari is desirous of placing MSMEs where they should belong.