THE recent agreement between the Federal Government and the World Bank Group on a $1.3 billion funding for Small and Medium Enterprises (SMEs) is good news for Nigeria’s SME operators who have for years been hampered by lack of access to financial support. Coming at this time of economic recession, it is a most welcome development.
This intervention is coming against the backdrop of the planned takeoff of the Development Bank of Nigeria (DBN). The Minister of Finance, Mrs. Kemi Adeosun, revealed the funding package at the post-event briefing of the recently-concluded annual meeting of the International Monetary Fund and the World Bank in Washington DC, United States.
According to the minister, the fund which will be managed and disbursed by the DBN, will serve as a tool for strengthening the financial know-how of SMEs to achieve inclusive growth. She also revealed that the agreement with the development partners was able to resolve all issues relating to recruitment processes that will put the management of the Development Bank in place. In addition, the other global partners which include the United States Treasury, United Kingdom Department for International Development, Canada and the World Bank Group, will assist Nigeria by repatriating illegal financial outflows from Nigeria back into the country and deploy such funds to develop critical infrastructure and the economic empowerment programmes of the Federal Government.
We heartily welcome the $1.3bn deal. For the SMEs that have for long groaned under severe financial inadequacy, the fund should play a vital role in their growth. Nigerian SMEs account for over 50 percent of the nation’s Gross Domestic product (GDP). But, in spite of the important role of SMEs in driving domestic and regional markets, they are severely hampered by access to finance. Data from the Bank of Industry (BoI) show that less than seven percent of over 17 million registered SMEs in the country had access to bank facilities in 2014. The situation may have become worse in the past two years. A World Bank report in 2013 also showed that the percentage of commercial banks lending to SMEs in Nigeria declined sharply from 48 percent 20 years ago to just five percent in 2012. The contribution of SMEs to the nation’s GDP has also decreased.
One of the implications is that the capacity of SMEs to innovate and create jobs has equally suffered a serious setback. This is largely as a result of high interest rates by banks. This has in turn led to high mortality rate of many business start-ups in the country, according to statistics from the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
While we commend the Federal Government for sealing this deal with the World Bank and other development partners, its success will depend largely on how transparent the disbursement of the funds is to the target beneficiaries. From hindsight, some of the challenges facing small businesses in the country include misappropriation and misapplication of funds meant to help them grow. Government’s effort to achieve inclusive growth may not be realised if such funds are not properly handled and disbursed to the target group. That is one of the reasons why intervention funds set aside to incentivize small businesses in the country are largely unaccounted for.
In that regard, we call for strict monitoring of the funds. We advise operators of SMEs to properly package their business plans so that it will be acceptable to the Development Bank of Nigeria. It is hoped that this fund will be the lifeline that our SMEs desperately need to get back on track. In addition, we urge the Central Bank of Nigeria (CBN) to keep its promise to review the foreign exchange policy to stimulate the real sector and hasten the processes for lending to small and medium enterprises.
Government should also improve the Ease of Doing business in the country. Besides improving access to credit for SMEs, government should address other challenges such as poor infrastructure, inadequate energy supply, unfriendly taxation laws and other problems that hinder their performance. We enjoin government to resolve all grey areas in the World Bank/SMEs deal so that the economy can begin to feel its impact as quickly as possible.