From Uche Usim, Abuja
All over the world, small and medium enterprises (SMEs) account for the majority of businesses and are important contributors to job creation and global economic development. SMEs are also considered key drivers of industrialisation and agents of socio-economic transformation.
They represent about 90 per cent of businesses and more than 50 per cent of employment worldwide. Formal SMEs contribute up to 40 per cent of gross domestic product (GDP) in emerging economies.
The Organisation for Economic Co-operation and Development (OECD) reports that 98 per cent of Chinese firms are SMEs, contributing around 68 per cent to exports and a whopping 60 per cent to China’s GDP, while employing 75 per cent of the Chinese workforce. The experiences of Japan, Korea, Indonesia, the Philippines, Thailand and Hong Kong are like China, with about 90 per cent of their industries classified as SMEs. In South Africa, over 90 per cent of businesses are SMEs, employing about 60 per cent of the country’s workforce and contributing about 52 per cent share of GDP.
Available surveys by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) indicate that Nigeria has over 40 million micro, small and medium-scale enterprises (MSMEs). These enterprises are distributed among five main economic sectors, namely, manufacturing, wholesale and retail trade, education, agriculture and food services. It is important to note that about 90 per cent of these SMEs operate in the manufacturing sector, which influences nearly 50 per cent of all industry employment.
However, despite the strides recorded by SMEs, there are still challenges that hinder them from realising their full potential in Nigeria. Some of these challenges include lack of access to capital, poor infrastructure, weak managerial and organisational skills, low adoption of technology and innovation and poor knowledge networks. In order to address these challenges, the role of government is vital, especially in providing an enabling environment for greater growth of SMEs.
Providing support for SMEs to thrive is a win-win situation for government and firms, and it has been the core agenda of developed economies. While government could invest in infrastructure and provide other support to SMEs, SMEs, in turn, create employment opportunities and pay taxes to government, which helps to support more inclusive growth of the economy.
It was on from that standpoint that the governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, designed robust intervention programmes for players in this space when he assumed office about seven years ago. He expanded the scope last year when COVID-19 came calling.
Long before the pestilence, the Federal Government had rolled out several policies such as the National Information Technology Policy with the establishment of the National IT Development Trust Fund (NITDEF). The fund was intended to facilitate the provision of venture capital finance to the start-up of SMEs in the IT sector under the management of the National Information Technology Development Agency (NITDA). In addition, the framework articulates strategies for empowering the labour force within the SME sector with necessary IT skills that will increase productivity and facilitate exports through e-commerce.
Today, several SMEs that showcase their products on major Internet platforms such as Facebook, Jumia and Instagram have seen significant expansion of their respective businesses because of their ability to conduct business transactions online, along with the presence of a robust payment system that enables instant payment for goods and services online.
With the abundant human resources in Nigeria, including a large population of over 200 million, natural resources and favourable climate, among others, Emefiele noted that extensive measures must be put in place to accelerate the development of the economy and make it more globally competitive.
He maintained that special consideration should be given to the strengthening of physical and ICT infrastructure to enable SMEs perform more efficiently and become competitive. He also pushed for increased efforts towards accelerated diffusion of technology among SMEs and deepening reforms that improve human capital development through skills enhancement and proper linkage of research to industry to improve the performance of SMEs.
Nevertheless, in 2020, the world was hit by the COVID-19 pandemic and it threw vulnerable economies like Nigeria into unprecedented economic spasm. It led to an over 60 per cent drop in the price of crude oil in the first half of 2020, along with a significant disruption in global supply chains and significant decline in government revenue, and foreign exchange earnings.
In response to the impact of the virus on the economy, the monetary and fiscal authorities deployed unprecedented countercyclical measures aimed at containing the effects of the pandemic and driving the recovery of the economy. These targeted measures were aimed at supporting vulnerable segments of the society, as well as stimulating growth in key sectors of the economy such as agriculture and manufacturing. As a result of these measures, the Nigerian economy exited the recession in the fourth quarter of 2020 and is now on a path of gradual but sustained recovery.
At the 2021 convocation of the University of Lagos, recently, Emefiele, while presenting his paper, “National Development and Knowledge Economy in the Digital Age: Leapfrogging SMEs into the 21st Century,” noted that a vibrant and growing SMEs sector was critical for achieving the goals of enabling greater growth of the Nigerian economy and in creating jobs for the teeming youths.
According to Emefiele, the CBN has rolled out massive developmental interventions in some critical sectors, especially in agriculture, manufacturing and SMEs.
“Attention has also been paid to advancing knowledge and innovation through various initiatives targeted at promoting youth’s entrepreneurship, research and development. Some of the specific achievements that we have recorded in this area are highlighted below.
“In terms of development finance interventions to directly support SMEs, the Bank has introduced several schemes and initiatives including the SME Credit Guarantee Scheme (SMECGS), Micro, Small and Medium Enterprises Development Fund (MSMEDF), Youth Entrepreneurship Development Programme (YEDP) and Agri-business/ Small and Medium Enterprises Investment Scheme (AGSMEIS). Others are the Entrepreneurship Development Centres (EDCs), National Collateral Registry (NCR), Creative Industry Financing Initiative (CIFI), Targeted Credit Facility (TCF) and the Nigeria Youth Investment Fund (NYIF)”.
He further revealed that one of the most recent schemes targeted at channelling low-interest wholesale funds to the MSME segment is the Small and Medium Enterprises Development Fund (MSMEDF). This scheme, which charges 9 per cent interest rate, has recorded the disbursement of over N83.9 billion to 216,704 beneficiaries at the end of 2020. The obligor limit ranges from N500,000 for micro enterprises to N50 billion for SMEs financed by DMBs/DFIs.
“Also, the initiative offers 10 per cent of the total loans for start-up businesses, 2% to economically active persons living with disabilities and 60 per cent of the fund’s wholesale component dedicated to women entrepreneurs or women-led MSMEs in order to promote financial inclusion.
“Another intervention is the Agri-business/SME Investment Scheme (AGSMEIS), an initiative of the Bankers’ Committee, in collaboration with the CBN was also set up to improve access to affordable and sustainable finance by agri-businesses and MSMEs. This will enhance the creation of productive employment opportunities and boost the managerial capacity of agri-businesses and MSMEs. So far, a total of N111.7 billion has been disbursed to 29,026 beneficiaries.
“Furthermore, a N50 billion Targeted Credit Facility was introduced in March 2020 as a stimulus package to cushion the effects of the COVID-19 pandemic on households and MSMEs across the country. So far, under AGSMEIS and our targeted credit facility, over N111.7 billion and N253.4 billion have been disbursed to 29,026 and 548,345 beneficiaries, respectively.
“The Central Bank also launched several youth investment-friendly programmes and interventions to empower Nigerian youths with necessary inputs to build successful SMEs and other businesses. One of such schemes is the Youth Entrepreneurship Development Programme (YEDP) which was launched in 2016 to enhance the deployment of the ingenuity and resourcefulness of Nigerian youths to achieve maximum economic development. Under the scheme, a total of N173.4 million has been disbursed to over 67 beneficiaries.
“The target beneficiaries are members of the National Youth Service Corps (NYSC), non-NYSC (but with not more than five years post-NYSC), holders of verifiable tertiary institution certificates, and artisans with First School Leaving Certificate or a technical certificate or accredited proficiency certificate from the National Board for Technical Education (NBTE). Relatedly, the Federal Executive Council on the 22nd of July 2020 approved the sum of N75 billion for the establishment of the Nigeria Youth Investment Fund (NYIF) for the period of 2020 – 2023 to be funded by the CBN. The objective of NYIF is to improve access to finance for youth and youth-owned enterprises for national development. Under the scheme, N2.04billion has been disbursed to 7,057 beneficiaries, of which 4,411 were individuals and 2,646 SMEs”, the CBN governor explained.
Furthermore, the apex bank has established the Creative Industry Financing Initiatives, aimed at improving access to long-term, low-cost financing to entrepreneurs and investors. It covers a wide range of sub sectors in the creative industries, some of which include, movie and music production, fashion and ICT. Among the target opportunities is the graduate software development loan. While the disbursement is in phases, in line with the agreed milestone, a sum of N3.1 billion, has so far been disbursed to 341 beneficiaries.
Another area championed by the bank towards SME development relates to entrepreneurship and youth training. The CBN, in 2006, in collaboration with Small and Medium Enterprises Agency of Nigeria, National Directorate of Employment, National Poverty Eradication Programme and Industrial Training Fund, began the establishment of Entrepreneurship Development Centre across six geo-political zones of Nigeria. The centres were mandated to develop entrepreneurship spirit amongst Nigerians and provide insight into the tools, techniques and framework for managing all functional areas of business enterprise, including production, marketing, personnel, and finance. These initiatives have significantly helped to bridge the skilled labour gap among SMEs.
The bank has also provided substantial support to some selected higher institutions in the country in order to enhance training, and quality. This formed the basis for the construction of centres of excellence in eight universities across the country, two of which have been completed, with others at various stages of development.
“The Central Bank has prioritized financial inclusion as a deliberate strategy to reduce the percentage of adults excluded from financial services. This is intended to increase the access to finance for households and SMEs. To achieve increased financial inclusion, the revised strategy focuses on areas with significant gaps in inclusion rates”, Emefiele said.
Given the huge potential of SMEs in accelerating economic growth and employment generation, Emefiele said that there must be strategies that would maximize their contributions to national development as part of the activities aimed at catalysing further growth of the Nigerian economy, given that a vibrant and growing SME sector also offers a viable alternative that would aid job creation in rural and urban communities.
He emphasized that, for SMEs to contribute maximally to economic growth and inclusive development, they would need to fully harness the benefits of a knowledge-based, digital economy.
“As the effects of the COVID-19 pandemic has shown, countries that had strong digital ecosystems were better able to withstand the effects of restrictions on movements, as business activities were conducted using online digital platforms. In addition, educational institutions were able to leverage on similar digital channels in order to prevent significant interruptions in providing quality learning to their students. Countries that did not have these same services were at a disadvantage.
“Today the emergence of digital platforms, such as Amazon and Alibaba have provided SMEs with a significant ability to expand their operations by enabling them to sell and deliver their products to customers that are not within their immediate environment. A digitalized and knowledge-driven economy can accelerate the growth and development of SMEs as well as create new opportunities to strengthen productivity, especially in the services industry. Countries such as India, China, Korea, and Singapore have continued to harness the benefits of the knowledge economy to accelerate economic growth, largely, through the contributions of SMEs. This, therefore, poses a challenge for Nigeria such that to enable greater growth of our economy, we must work towards building a knowledge-based economy and enable SMEs to leverage digital channels in enhancing the growth of their operations”, he explained.
Notwithstanding the benefits that a vibrant SME sector provides, financial constraint has hindered SMEs from accessing innovative tools that could enable greater expansion of their activities as many of them remain trapped in our large informal sector.
In response, and in collaboration with key financial institutions, the CBN has deployed several measures aimed at improving access to finance for SMEs in order to enable greater expansion of their operations. Some of these activities include enabling SMEs to leverage their movable assets to obtain capital from financial institutions, and the development of credit reporting agencies, which would encourage SMEs to maintain good credit ratings in order to obtain access to credit at relatively lower cost from financial institutions.
The CBN Governor notes that the current economic situation in Nigeria requires an accelerated adoption of knowledge to drive our developmental goals. The fast pace of growth and innovation in the digital space along with the large and growing population of vibrant youths places Nigeria on a vantage position to harness these potentials for accelerated economic development. In this regard, our educational institutions and key institutions including the Central Bank of Nigeria, have critical roles to play in realizing the huge potentials of a digitized economy.
Many advanced economies have shifted focus from the adoption of traditional factors of production including labour and capital to a technology-driven development model, resulting in improved economic development indices. However, for emerging and developing economies like ours, a lot of efforts are still required to maximize the use of cutting-edge technologies and highly skilled human capital in fast-tracking national development.
For Nigeria to tap into the productivity-enhancing benefits of a knowledge-driven economy, experts posit that training of quality manpower through both formal and informal educational curricula is essential. Knowledge has become ubiquitous with the proliferation of digital channels. They maintain that universities and other learning institutions should be ready to tap into the educational trends that are significant drivers of productivity in advanced and emerging markets, in order to reshape the existing curriculum, enhance the learning experience of students and foster innovation amongst the faculty and staff in our educational institutions.
There have also been calls for enhanced collaboration between universities and players in key sectors of the economy such as agriculture, manufacturing and ICT because they are necessary to enable implementation of sound ideas generated from universities. There are concerns that universities in most developing countries have little or no formal linkages to industry. This often arises from the implementation of training curricula that is irrelevant to the industry, thereby, resulting in the production of ill-equipped graduates.