Revitalising MSMEs key to economic revival

Revitalising MSMEs key to economic revival

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A recent report by the Small and Medium Enterprises Development Agency of Nigeria indicating that two million micro, small and medium enterprises across the country collapsed in five years rekindles the need to revitalise this critical sector of the economy. Although SMEDAN attributed the attrition partly to the COVID-19 pandemic, it also highlighted the longstanding problems that saw a reduction in the number of MSMEs from about 41 million in 2017 to 39 million in 2021. As the major catalyst of economic growth, the federal and state governments should move urgently to boost their growth to increase productivity, job creation and arrest poverty.

With Nigeria’s precarious economic situation, MSMEs hold the key to innovation, creating jobs and industrialisation. But the Director-General of SMEDAN, Dikko Radda, painted a gloomy picture. He said MSMEs had been particularly hit by the impact of the COVID-19 pandemic. This is in addition to familiar hazards afflicting them. These include lack of credit to start or grow their ventures, the impact of globalisation, and the energy and foreign exchange crises.

These and the issues of poor institutional capacity have to be addressed. Though small in size, MSMEs everywhere punch above their weight. In the developed and emerging economies, they are the backbone and propellers of employment, innovation, exports and growth.

According to the World Bank, MSMEs represent about 90 per cent of all businesses and over 50 per cent of employment globally. They provide 40-45 per cent of the GDP of emerging economies. Of every 10 new formal jobs in emerging markets, MSMEs provide seven. In the United States, 30 million MSMEs account for nearly two-thirds of private sector jobs.

In the United Kingdom, 5.6 million SMEs represented over 99.9 per cent of all businesses in 2021, with a total employment of 61 per cent and half of the country’s private sector turnover. The United Arab Emirates’ Ministry of Economy identifies them as “strategic drivers of industries,” accounting for 98 per cent of all companies and 52 per cent of non-oil GDP.

In Japan, MSMEs account for 99 per cent of all companies, 70 per cent of all employment and more than 50 per cent of the manufacturing sector. In Indonesia, they account for nearly 97 per cent of domestic employment and 56 per cent of total business investment. MSMEs in Bangladesh make up 7.8 million enterprises that contribute close to 25 per cent of the country’s GDP. Singapore recorded about 280,000 SMEs responsible for 70 per cent of employment and 99 per cent of all enterprises in 2020.

MSMEs in South Africa account for 91 per cent of businesses, 60 per cent of employment and contribute 52 per cent of total GDP. McKinsey, a global consultancy, describes MSMEs as “the lifeblood of South Africa’s economy,” employing 60 per cent of the workforce and representing 98 per cent of businesses. The sector promotes innovation, export diversification, industrialisation and technology acquisition, says UNCTAD.

In Nigeria too, despite the overly harsh operating environment, they are no laggards. According to the National Bureau of Statistics, MSMEs contributed about 48 per cent to GDP in the last five years. They account for about 50 per cent of industrial jobs and nearly 90 per cent of the manufacturing sector, in terms of number of enterprises.

Identifying and redressing their constraints should therefore be a major national task. One is credit. The government should step up its efforts and collaboration with the Central Bank of Nigeria, and other local and foreign development lenders to direct single-digit credit to genuine MSMEs. Federal and state governments should partner with management firms to fund entrepreneurial skills programmes to overcome the weak logistics chain, high management costs and access to global markets that throttle small companies.

The perennial power crisis hits MSMEs the hardest, forcing many out of business. They cannot afford the 40 per cent average extra costs of providing alternative energy borne by bigger producers as estimated by the Manufacturers Association of Nigeria. Similarly, lack of access to foreign exchange in the country’s chaotic, corruption-driven forex market chokes them.

MSMEs in Nigeria are also badly affected by multiple taxes, charges and fees, inadequate public infrastructure, which includes roads, transport, unavailability of local raw materials, high cost of procuring machinery and chaos at the ports for imports and exports.

The government has to solve the protracted power problem. There should be a policy in place that will encourage cheaper sources of power like solar, wind and water. Egypt is working on increasing the supply of electricity generated from renewable sources to 20 per cent by 2022 and 42 per cent by 2035, with wind providing 14 per cent, hydropower 1.98 per cent, photovoltaic 21.3 per cent, wind 14 per cent, concentrating solar power 5.52 per cent, and conventional energy sources 57.33 per cent by 2035.

India is relying on several infrastructure and financing initiatives to rejuvenate small businesses. States should invest in rural infrastructure, roads and transportation, agriculture, mining and power. Malaysia’s 2012-2020 SME Master-plan, developed in conjunction with the World Bank, emphasised innovation and technology adaptation, enabling SME growth to outpace that of the overall economy. Taiwan set aside up to $20 billion in 2020-21 in low interest loans to help SMEs weather the COVID-19-induced meltdown.

Nigeria’s government and the CBN must find better ways of managing intervention funds to ensure that they go only to genuine MSME operators and are repaid. Concerted efforts should be channelled towards fair taxation which will attract investments from within. Particular attention should be paid to the ICT sector and youth entrepreneurship. This encourages innovation and allows innocuous start-ups to transform quickly to multi-million dollar companies.

State governments have a big role to play in enacting and implementing policies to promote agriculture and MSMEs to their advantage and process it to generate revenue. The states must take up this challenge to drive private investments, which will boost productive activities, create jobs and improve tax earnings thereby reducing their current dependence on federal allocations.

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