In spite of the harsh economic conditions Nigeria is faced with, recent trends have shown there are opportunities for growth of the small and medium enterprise (SME) industry in Nigeria. As reported by Nigeria Bureau of Statistics, 2019 Q1 GDP grew by 2.01%, with majority of this growth being associated with the non-oil sector which is a positive sign and indicative of Nigeria’s possible diversification and less reliance on the oil sector to drive her economy.
One of the key drivers to economic development in an emerging economy has been the successful engagement of SMEs, while the growth of economic development has been an essential goal for many developing nations of the world. I wonder sometimes how a country with a 23% unemployment rate, inflation rate of 11.4% plans to get her citizen out of poverty which currently stands at 33.1% if not by empowering the populace that are living below the ‘Poverty Line. i.e. they live and sustain with less than $1 a day. The more people we have actively engaged, the better we are as a nation and with poverty alleviation.
The contribution of SMEs has been accepted as one of the primary supports for economic growth because of its ability to enhance economic output and improve human welfare. With so many challenges faced with SMEs in Nigeria today, low FDI inflows in 2018 is another critical indicator showing why tech firms like Google would establish an AI lab in Ghana and not in Nigeria despite current economic indicators showing that the Nigerian economy is stronger than Ghana’s economy. Before a technological investment is made in any economy, the investing party measures the opportunity for growth, existing infrastructure, and innovation. Such parameters have sidelined Nigeria for several years. FDI inflow in Nigeria for Q1 2019 was recorded at $1.1 B (Trading Economics Reports). Though many argue that FDI in Nigeria is usually low after a general election, the point remains that investors must see the basic amenities on ground before coming into any nation which of course stability and security is essential.
Agencies like Small and Medium Enterprises Development Agency (SMEDAN) can emulate Malaysia National SME Development Council (NSDC) as a use case where they demonstrated a positive impact on their economy since it was established in 2004. According to the Department of Statistics Malaysia, as at 2015, the contribution of SME to the Malaysian economy was measured in terms of their share of the total number of businesses (97.3%) and share of the total number of jobs created at 59%.
International Finance Cooperation & World Bank’s Support on SMEs
Without a doubt, government policies are one of the essential drivers for SMEs developments in any nation. Two decades ago, global financial institutions and economic organisations like World Bank and International Finance Corporation (IFC) emphasised the significance of small and medium-sized enterprises, especially in developing regions like Nigeria, these bodies had consistently sought the support of the government to implement policies for sustainable growth in human capital, financial inclusion, and technological advancement.
According to the World Bank Group, the country partnership strategy period (FY2014-FY2019) has an investment of $8.8 billion through the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD). Nigeria has been one of the International Finance Corporation’s (IFC) fastest growing portfolio and represents IFC’s fifth largest global country exposure, with a committed volume of $1.8 billion. Their support for Nigeria is structured around several priorities, which include promoting diversified growth and job creation with a focus on youth, women and the poor in marginalised areas; whilst improving social and financial inclusion.
The Bigger Problem
Nigeria’s population, according to the UN, stands at approx. 200 million with a median age of 18, which implies the Nigeria youth represents 42.54% of the total population. According to Trading Economics, the unemployment rate in the last 5 -10 years has continuously grown by 4% and was 23.1% as at the previous report generated in Q3 of 2018.
One may suggest that to address this employability gap and high dependency rate is to engage our technical schools actively and also revisit the curriculum of our institutions. Many have argued on the suitability of the faculties responsible for transferring knowledge to the students in today’s VUCA world. Not so much about the technical understanding of it, but more on the practicality of the same knowledge outside the walls of the classrooms. Sadly, the fact is that these institutions are not enough and ill-equipped.
While the government has only been able to establish 156 approved technical schools (NBTE Reports) across the 36 states with an average of four technical schools per state, these statistics show that the technical schools available can’t match the current population of Nigerian graduates (500,000/year). How then can we engage unskilled laborers when providing jobs for graduates is still a major challenge? Can the government establish more technical schools to accommodate the skilled and unskilled? (That’s a discussion for another day).
The World Bank has estimated annual growth of 2.6% of the Nigerian population, while the unemployment rate was recorded to be at 23.1% in Q4, 2018. Trading economics predicted that there will be a 4% YOY in unemployment in Nigeria. The math is simple; if all variables remain constant, the 4% YOY increase in six years would have resulted in an unemployment rate of 29.02%. This scenario would lead to an increase in crime rate, political instability, exploitation of labor, increase in poverty, and social problems.
It is quite important to note that the financial sector also plays a significant role in the sustainability of SMEs as they are a major player in providing loans to SMEs. Just as reported by Techpoint, Oyapay, a Fintech startup company, shut down due to a case of a family investment gone wrong. This approach shows that startups which depends on family members as a source for funding isn’t a sustainable model.
Workable models for SMEs funding
One viable model I have seen is the way some of the microfinance institution dispense loan. The group-lending template which is the Grameen Group Lending Model requires individuals to form a group of five and receive five-day financial training to obtain a loan from the lending institution. The emphasis from the very outset is to strengthen the SMEs organisationally and to build their capacity to plan and implement micro-level development decisions.
The government can thereby adopt this approach and provide loan to a group of different clusters of SMEs based on their demographics, business type, location and the raw materials required to run those businesses. Other lending models can also then be adopted here. Many would say such initiatives will not be successful in Nigeria going by the previous experience of bad debts, unaccountability, lack of adequate records, and poor or lack of identity management systems. My assumption is the same, however, one begs to wonder if the community lending Initiative could make a difference which allows one to be responsible for another?
In my days in the FMCG sector, working at the production line, a bonus is received when targets are met as a group and not as individuals. As the goals are met as a group, this qualifies the group to be engaged with a bigger task as they continue to grow as a unit. Is this method applicable to the SMEs? The TraderMoni initiative, for example, is focused on providing loans for petty traders that are unbanked but require access to funds to run their small businesses. Corporate Finance Houses might not be able to capture these sets of the population due to their locations, lack of interest to own a bank account or the knowledge gap on why being financially included is vital to them. TraderMoni can advance to the next stage on requirements where traders would only qualify for their next loan when they have successfully registered a bank account to their name through USSD service. Would such an initiative improve financial inclusion? I believe so.
- Adeyipo is Ag. CEO CWG Plc.
Leave a Reply