As Nigerian businesses continue to grapple with the impact of the persistent rise in the price of Automotive Gas Oil (AGO) also known as diesel, and its negative impact on cost of operations, Small Medium Scale Enterprises (SMEs) have asked the federal government to intervene in the areas of tax holidays and regulatory forbearance.
This, they said, was imperative following implementation of the Ease of Doing Business policy (Executive Order) of the federal government.
SMEs have called for improvement in tax regime, regulatory forbearance, backward integration, among others.
Also, there are indications that Micro, Small and Medium Enterprises (MSMEs) in the country will need a whooping N674 trillion funding to make the right economic impacts, with funding sources for the sector shrinking day-by-day, LEADERSHIP learnt.
According to the SMEs, the tax holidays and forbearance were needed to drive the growth of SMEs sector, thereby, leading to business expansion, job creation and poverty alleviation in the country.
The continuous rise in the price of diesel, the fuel that powers a large part of the industrial and commercial activities in the Nigerian economy, has had its ripples felt throughout the economy, from manufacturing giants through medium-sized enterprises to small-scale organisations.
From gigantic diesel generating plants that turn the industrial machines in Nigeria, to the trucks used for long-distance haulage of both industrial and finished goods, to small machines used by small-scale enterprises, diesel has a stronghold on Africa’s largest economy.
This has put an unprecedented stress on the economy, threatening its ability to produce goods and services, as the nation battles the scourge of diesel price hike. The price of diesel rose from N300 at the beginning of the year to over N800 per litre, putting the cost beyond the reach of producers.
Reacting, national president, Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, stated that, the best parameter to measure the growth of the ease of doing business executive order is to access the statistical growth of surviving businesses in the country.
He added that, this bothers on the growth of SMEs, noting that, instead of growth, the MSMEs are closing shops and folding up because of the harsh economic reality.
He posited that the economy of the country is not stable as GDP growth is dropping with high inflation on persistent rise and forex rate is unstable and not accessible for manufacturers, insisting these are indices of doing business.
Egbesola said, businesses would grow because of the policy supporting the ease of doing business while stating that the impact of the executive order is close to nil.
He averred that multiple taxation has further eroded the activities of most businesses while urging that, the multiple tax system should be tackled to enable operators recoup on Investment.
He noted that, with the ease of doing business, government registration and approvals should be easier than before, rather it’s becoming more difficult to get National Agency for Food and Drug Administration and Control (NAFDAC) approval and Corporate Affairs Commission (CAC), while calling for improvement in the registration and formalisation of businesses by the regulated agencies
Recall that the Manufacturers Association of Nigeria (MAN) on Saturday, asked the federal government to remove the value-added tax (VAT) on diesel as an instant stimulus for an immediate price reduction.
Segun Ajayi-Kadir, director-general, MAN, made the call in a statement issued on Saturday in Lagos.
The association also called on the federal government to avert the total shutdown of production operations, adding that industries were being converted to warehouses of imported goods and event centres.
Meanwhile, the MSME funding, according to findings, will allow MSMEs drive the nation’s economy through creation of jobs, wealth and poverty alleviation.
Corroborating this, the experts, who spoke at the virtual FITC 2nd Quarterly Advisory Roundtable session, themed “Factoring: A game-changer for the growth of MSMEs and the Nigerian Financial Services Industry,” held recently, noted that, the MSMEs require the right attention from government and relevant stakeholders to have the right economic impacts.
On his part, the director, Financial Systems Strategy (FSS 2020), Central Bank of Nigeria(CBN), Ibrahim Hassan, stated that, Nigeria has an MSME financing gap of $15.8bn, hence, the need for innovative financing to bridge this gap.
He added that the overall objective of the Nigerian Factoring Working Group (NFWG) was to create an opportunity for every business in Nigeria to thrive.
The Secretary General, e Financial Services Industry(FCI), Netherlands, Peter Mulroy, in his keynote address, highlighted that factoring involves a shift from the usual mindset of securitising real assets to securitising financial assets, thus making receivables an investable asset class.
“For many SMEs, receivables are a significant component of the balance sheet liquid assets and unfortunately, they often lie dormant. Receivables financing thus aims to unlock the real value of these receivables.” Mulroy stated.
Speaking further, the FCI Secretary General pointed out that there are currently 41 FCI members in Africa, up from just 10 members, 10 years ago.
According to him, it signals the growth and acceptance of factoring as a means of SME financing in Africa.
Reacting on the definition of factoring, Mulroy described it as the assignment or sale of accounts receivables to a third party, in addition to other specific actions. He stated that awareness of factoring in Nigeria was still low, however, its increased adoption would be a game changer for MSMEs.
Peter Mulroy emphasised the need for regulation to enable capital flows. He also stated that the regulatory framework must anticipate all relevant tax considerations, to avoid surprises.
He, however, stated that, he was confident that there would soon be established demand for factoring in Nigeria.
Mulroy also underscored the need to educate MSMEs to take advantage of factoring. He urged banks to change their mindset from risk acceptance, to enable the financing of intangibles. According to him, a formal Factoring Association is also needed locally, to drive growth.
In her welcome address, the managing director/ CEO FITC, Chizor Malize, noted that the roundtable discussion was timely, given the benefits of factoring, especially in an economy like Nigeria.
“As a big supporter of SME’s, FITC remains committed to not only identifying key challenges faced by these important group, but also creating the platforms where solutions can arise. I am certain that significant outcomes will be reached to move factoring forward for the ultimate benefit of small and medium businesses and the long-term growth of the Nigerian economy” she said.
The deputy general manager, Access Bank Plc, Yewande Soneye-Vaughan, in the panel discussion, at the event, acknowledged the challenges Nigerian MSMEs face in acquiring bank credit. According to her, despite contributing 48% of GDP and at least 94% of employment, MSMEs currently receive approximately 0.3% of total credits administered in the country.
Addressing factoring from a taxation standpoint, Tax partner, KPMG Professional Services, Nike James recommended that regulators work with the accounting industry to set up the regulatory framework for factoring.
According to her, this was critical to preventing a similar situation which arose from the Securities Lending Act for capital markets, which then had to be amended via the Finance Act.
Managing director, Factoring & Supply Chain Finance Limited;Lanre Bakare suggested that the most important requirements to kick off the factoring market in Nigeria, are the legal and regulatory requirements. He emphasised that this was crucial for invoices to be recognized by law as an asset class, as MSMEs typically cannot meet the collateral requirements demanded by banks.
Lanre Bakare added that the Collateral Registry Legislation, which creates Receivables as a Security was passed in 2017. According to him, it makes receivables an acceptable asset pledge for MSMEs, and should improve the ease of doing business and provide credit insurance. He mentioned that the issuance of credit guarantees and credit insurance legislation, should be considered, to allow securitization, as without credible counterparties, the industry would struggle to grow.
Another panelist, Regional Chief Operating Officer, African Export Import Bank (AFREXIM Bank), Eric Monchu Intong identified the trade finance gap in Africa as currently over $81bn, stating that only approximately 40% of trade finance in Africa is currently financed by banks.
According to Intong, MSMEs suffer the most because of these gaps, as loan facilities are not advanced by banks, largely due to the risk acceptance criteria deployed by financial institutions, which require some form of guarantee or collateral.
Intong also identified that many MSMEs are unaware of alternative financing solutions like factoring, noting that many lack the capacity to take advantage of available opportunities.
He also mentioned the need for regulators to distinguish between factoring and banking, since receivables serve as collateral in factoring.
The panel discussion, at the event, ended with several recommendations and conclusions, including the need for a robust regulatory framework and education of MSMEs on how to take advantage of factoring as a means of financing.Also speaking on ease of doing business, economic stakeholders believe that the implementation of the executive order has impacted on SMEs survival to rebound the economy, expands Gross Domestic Product (GDP) growth, facilitate Nigeria’s export trade investment and boost local and manufacturing industries to create jobs.
However, they believe deepening of these interventions will lead to huge leap in their economic impacts.
CEO, Centre for the Promotion of Private Enterprise(CPPE), Dr. Muda Yusuf, urged the government to shun heavy reliance on debt while he recommended that the federal government should reconsider its strategy of depending on debt to grow the economy.
He also suggested that, the Nigeria’s major revenue resource, crude oil, should be priced in Naira rather than the dollar.
Yusuf further affirmed that other issues affecting the ease of doing business in the country include; the regulatory environment, the required skills set and the multiplicity of taxes being levied on businesses in the country.
Earlier, vice president, Prof. Yemi Osinbajo, decried how regulatory requirements and elongated certification process are killing Nigeria businesses and the trade facilitations with bureaucratic bottlenecks, stressing that, the ease of doing business executive order will deepen the implementation across the various MDAs to increase productivity, enhance export, create jobs and reduce poverty.
According to Osinbajo, this informed the federal government’s decision to position and prepare the Nigerian economy for the future by taking urgent steps to respond with Economic Sustainability Plan(ESP) that will address the needs of the socio-economic crisis affected by recession.
The Nigeria economy dipped into recession in mid-2020 and President Muhammadu Buhari established the Economic Sustainability Committee to come up with the plan to respond to the crisis and ameliorate the situation.
The resulting Economic Sustainability Plan emphasised the need for rapid health interventions, keeping businesses going, creating and protecting jobs, boosting local production and providing social protection for the most vulnerable sections of society.
The ESP also included a suite of macroeconomic policies including fiscal grants, tax breaks, regulatory forbearance to banks as well as reduced interest and moratorium on CBN intervention facilities amongst other things.
Speaking on the executive order, Osinbajo said this informed the decision of the Federal Executive Council (FEC) to sign-off the new Medium Term National Development Plan 2021-2025 (MTNDP).