SMEs seek cheap funds to pull economy out of recession
Small businesses are seeking low-interest funds that will enable them create enough jobs and grow the gross domestic product, which has just nosedived from $510 billion to $296 billion in two years.
SME operators who spoke with Start-Up Digest said 20 to 35 percent lending rates by banks will only deepen recession in the economy, asking the Federal Government to recapitalise development banks to steer growth rebound.
“We create more jobs than large enterprises and contribute 47 percent to the GDP,” said Mathew Ibeabuchi, managing director of MD Services, a small-scale services and chemical producing firm with offices in Abuja and Enugu State.
“One of the reasons we easily slumped into recession and why South Africa just overtook us as largest economy on the continent is the lip service we pay to SMEs. In an era of recession, what you do is to cut rates for SMEs, particularly those in agriculture, manufacturing and creative industry, which are areas we have comparative advantage. Now, small-scale farmers struggle to access funds from BoA, and the BoI needs more funds to do more. If you are diversifying and want a dramatic change in solid minerals, you need a specialised bank that will formalise and fund artisanal (small-scale) miners at single-digits as deposit money banks do not have the capacity to do so and demand for untenable rates,” Ibeabuchi said.
Nigeria’s 37 million SMEs employ more than half of the population, but the majority of them say they need cheap funds to expand. Nigeria has slipped into technical recession, with inflation rate hitting 16.5 percent and unemployment rate edging close to 30 percent.
John Tudy Kachikwu, CEO of John Tudy Interbiz, and chairman of SME operators in the Lagos Chamber of Commerce and Industry (LCCI), said high interest rate in the country excludes SMEs from having funding access with which to stimulate an economic rebound.
Kachikwu told Start-Up Digest recently told that SMEs in the export sector are constantly frustrated by lack of incentives in the form of grant and corruption.
A recent report by The Economist entitled, ‘Enabling a More Productive Nigeria: Empowering SMEs’, said that Adamu Waziri, creator of a popular Nigerian animation series, Bino and Fino, sought access to a range of dedicated grants and funding schemes for the
entertainment sector, but could not get because decision makers did not understand the sector and tended to prefer safe investments (such as cinema chains). The CBN recently raised its monetary policy rate (MPR) from 12 to 14 percent. The MPR is a benchmark interest rate for deposit money banks in the country.
“Businesses are already exposed to FX rate, high energy cost and import duty, and weak consumer spending, among others. They could just have left it at 12 percent because the pressure is too much on businesses,” said Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI) on the phone.
Femi Egbesola, national president, Association of Small Business Owners said, high interest rate is bad for businesses.
“With the high exchange rate differentials coupled with the recent increase in interest rate, businesses are going to suffer and this would have a tremendous impact on jobs,” Egbesola said.
According to Friday Opara, director, strategic partnership, Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), high interest rate implies that many SMEs will be out of business because the environment is getting tougher for them.
The BoI and the central bank have many SME funds available for on-lending. The BoI, particularly, has made efforts, amid limited available finance, to steer small businesses through six to nine percent lending rates.
“We need to understand that finance is not the biggest problem of SMEs. We have bigger issues such as capacity building, access to market, among others,” said Waheed Olagunju, acting managing director of BoI.
ODINAKA ANUDU & JOSEPHINE OKOJIE