Experts want rate cut, consistent policy to save SMEs from further closures
Following the reported closure of 222 small and medium enterprises (SMEs) in the last one year, experts and business leaders say there is a need to reduce interest rate while winning the confidence of investors back with consistent monetary and fiscal policies.
“You need a consistent monetary policy to win the confidence of investors. I understand why the Monetary Policy Rate is rising, but raising it from 12 to 14 percent isn’t the best at this period,” said Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), on a telephone interview after the Central Bank of Nigeria (CBN) announced MPR hike recently.
The CBN recently raised MPR, which is the benchmark for the interest rate in the country, from 12 to 14 percent. Usually, banks respond to MPR changes, according to experts. With excessively high rates at deposit money bank, experts see no SMEs will not be strangulated. Banks charge rates ranging between 20 and 35 percent.
“I don’t see how SMEs will not close down with this kind of interest rate we have today,” said Jon Kachikwu, chairman of SME Group at the Lagos Chamber of Commerce and Industry.
Kachikwu said at a period China is charging between one and two percent rate, Nigeria is charging well above 20 percent, adding that even Britain charges about one percent, despite that its inflation rate is over five percent.
Frank Jacobs, president, Manufacturers Association of Nigeria (MAN), said at a recent press briefing that what is needed at the moment is single-digit rate to steer the economy once again.
“What we need is an interest rate of five percent. We also want the recapitalisation of the Bank of Industry as this will enable the financial institution to do more,” Jacobs said.
Manufacturers claimed in a recent NOI Polls that the economy lost 180,000 jobs from the closures that took place in the last twelve months. One key issue pointed out by experts is the use of monetary policy to spike SMEs.
“The policy makers need to ensure that there is FX available for businesses in the short run. Fixing the FX is a quick win that can revive some of these companies,” said Vincent Nwani, director of research and advocacy, LCCI.
“In the long run, Nigeria needs to enact policies that will attract FDI inflows into the country,” Nwani said.
Nigeria has 37 million SMEs, contrinuting 47 percent to the gross domestic product (GDP). this category of businesses create over 60 percent in the economy, according to aggregated data obtained by Start-Up Digest.
Friday Opara, director-strategic partnership, Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), said: “The FX issues have made the Nigerian business environment tougher. We need to look at our funding position for SMEs because businesses cannot access cheap funds, and this is why the government should fast track central bank movable asset collateral initiative.”
“The government needs to provide enabling environment so that business can survive,” Opara said.
Entrepreneurs and small business owners cannot easily access finance to expand business and they are usually faced with problems of collaterals, high interest rates, extra bank charges, inability to evaluate financial proposals and limited financial knowledge, among others, analysts say.
The cost of doing business for SMEs and business in general has continued to increase with the rise in interest rates and increased bureaucracy caused by new currency restrictions. In addition, increase in the prices of many commodity goods has spiked inflation in recent times,
“Fund these small business with single-digit rates and they will bring back jobs lost. Many of them in export should be assisted with grants,” said an analyst.
Odinaka Anudu & Josephine Okojie