Creating Enabling Environment For SMEs

The recently signed 2024 budget presents a timely opportunity to focus on creating a viable environment for small and medium enterprises (SMEs) in Nigeria. This sector, contributing nearly half of the GDP and employing over 80% of the workforce, has long suffered from unfavorable conditions.

Amid rising unemployment and slowing growth, empowering SMEs to realise their potential is more crucial than ever.

For context, the National Bureau of Statistics reports that Nigeria’s GDP grew by 2.51% year-on-year in real terms in the second quarter of 2023. This rate is lower than the 3.54% recorded in the same period of 2022, reflecting challenging economic conditions.

The GDP’s performance in the second quarter of 2023 was mainly driven by the services sector, with a growth of 4.42%, contributing 58.42% to the aggregate GDP.

Agriculture grew by 1.50%, an improvement over the 1.20% growth in the second quarter of 2022.

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The industry sector contracted by 1.94%, which is slightly better than the -2.30% in the second quarter of 2022. Both agriculture and industry contributed less to the GDP in the second quarter of 2023 compared to the same period in 2022.

Moreover, the Bureau revealed that Nigeria’s public debt, including external and domestic debt, rose to N87.38 trillion (US$113.42 billion) in Q2 2023, up from N49.85 trillion (US$108.30 billion) in Q1 2023, a 75.27% quarter-on-quarter increase.

The unemployment rate, using a new methodology, increased to 4.2% in the second quarter of 2023.

This economic strain, combined with reduced disposable incomes from the removal of fuel subsidy, has intensified hardship across Nigeria.

However, in our view SMEs’ strategic role is undeniable at this time.

Defined as enterprises with fewer than 250 employees and annual turnover below N500 million, SMEs in Nigeria are categorized into micro, small, and medium enterprises based on workforce and asset base.

In fact, the NBS shows that SMEs can contribute 48% to Nigeria’s GDP and employ over 84% of the workforce, offering jobs for skilled and unskilled labour in sectors like agriculture, manufacturing, services, and retail.

Despite their significant economic contribution, SMEs in Nigeria face numerous challenges, including limited access to finance, inadequate infrastructure, poor market access, and a hostile business environment.

A critical issue is access to finance. Many SMEs struggle to secure funding due to high-interest rates and stringent collateral requirements from banks.

Coupled with inadequate infrastructure, like poor road networks and power supply, these challenges not only limit SMEs’ growth but also result in high operational costs, making it difficult for them to compete with larger firms.

Attempts to address some challenges include establishing the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and creating the National Collateral Registry. However, much more needs to be done.

While these policies aim to provide easier access to finance and address SMEs’ challenges, the business climate remains hostile.

President Bola Tinubu must do more to address these challenges and enable SMEs to reach their full potential, unlocking this sector’s potential for an emerging economy like Nigeria.

Instead of expensive welfare handouts, the government should focus on constructing an ecosystem conducive to SME growth. This approach will enhance job creation, entrepreneurship, and inclusive growth. Neglecting SMEs, key to economic revival, is a luxury Nigeria cannot afford.

The debate on creating a business-friendly climate cannot be overstated. Ensuring security and policy stability is critical. The task requires resolve. Such determination is non-negotiable in today’s world.

With appropriate policies and concerted efforts, the potential of SMEs to drive broad-based development can be unleashed. However, this requires making SMEs a top priority for the government.