Yemisi Izuora
The Chief Executive Officer, CEO, of the Center For The Promotion Of Private Enterprise, CPPE, Dr. Muda Yusuf, has called for accelerated policy initiation that will help Micro, Small and Medium Enterprises [MSMEs] continuously play its critical roles in the economic growth of the country.
In his paper delivered at the National Association of Small and Medium Enterprises [NASME], Business Roundtable in Lagos, Yusuf, noted the key support of the group to the economy as he said that they play even more important roles in the developing economies.
In the Nigerian economy, he observed that the MSMEs deliver value as catalyst to the economy in several other ways like promoting competitiveness and entrepreneurship across sectors and the entire economy and enhancing efficiency, innovation and aggregate productivity growth.
In addition he said they contribute a lot more to job creation more than large enterprises and are largely more labour intensive and contribute immensely to poverty reduction.
According to him, They are effective vehicles for the promotion of economic inclusion and compared to large enterprises, he observed that MSMEs tend to use less capital per worker and have the capacity to use capital more productively as well as promote entrepreneurial development and accelerate the use of local law materials.
“They are instrumental to the mobilization and utilization of small savings for investment. Some of these funds tend to exist outside the banking system.
They have high propensity to save and to invest even with less income levels.
They provide important linkages with large enterprises and offer a platform for subcontracting. They utilize a great deal of indigenous resources, consistent with the objective of backward integration and They generally have greater technological adaptability.” Yusuf told the gathering.
In his opinion, the role of MSMEs fits perfectly into the eight-point agenda espoused by President Bola Tinubu which includes, among others, food security; poverty eradication; economic growth, job creation; and inclusion. Five of the eight-point agenda rests squarely within the MSME space.
What this implies he explained is that for the Tinubu administration to accomplish the eight-point agenda, the government must leverage and strengthen the MSMEs in the economy, across all sectors of the economy.
Citing statistics, Yusuf said, “According to the Small and Medium Enterprises Agency of Nigeria [SMEDAN], we had 39.65 million MSMEs, in Nigeria as at 2020. 96.9% of these MSMEs are micro enterprises; 3.1% are small and medium enterprises. The highest number of these enterprises are in Lagos. The key sectors to which they belong are agriculture, 38.4%; Trade, 33.3%; other services, 9.8%; Manufacturing, 4.2%. ”
Speaking further he said that the “The SMEDAN survey further revealed that 96.2% of the MSMEs are sole proprietors, while partnerships constitute a mere 3.3%. The survey revealed that the biggest challenges of the small businesses were high energy cost, high electricity tariffs, multiple taxation, access to finance and high cost of funds. Lately the drastic depreciation of the naira has become a major factor impeding the growth of the small businesses. The same is true of the grave impact of insecurity on small holder farmers across the country.”
The CPPE boss also noted that the Labour Force Survey Report of the National Bureau of Statistics stated that 92.6% of employment in the first quarter of 2023 was in the informal sector.
Going by the statistics he said the foregoing has a number of implications for policy as it presents itself as best channel for an accelerated job creation.
He said that for instance if only 50% of them could create just one job each, that would generate about 20 million jobs adding that the employment multiplier of investments in small businesses is very high which is also an effective poverty reduction strategy for governments at all levels.
“What the data also shows is that policy makers need to robustly engage small businesses across all sectors in order to determine the appropriate policy interventions for the promotion of economic growth through the MSMEs pathways. The demands of the small businesses vary across sectors which is why sector specific engagements are very critical to unlock the job creation opportunities in the small business space.
“Such engagements would also be very useful for policy feedbacks that could be used for policy reviews and finetuning.
The sectoral distribution data is also very valuable for policy. It is useful for proportional intervention to promote the growth of small businesses and accelerate job creation. The disaggregated data is useful for effective policy targeting. It is further evident from the data that the prospects for accelerated job creation are much higher in the MSME space, especially in agriculture and services sector of the economy. This is not to diminish the importance of small-scale manufacturing in employment generation. But the truth is that the vulnerabilities of the manufacturing sector are much higher.” he stated.
Yusuf, further noted that the data also highlighted the major bottlenecks to the productivity and growth of the small businesses, adding, “These include access to capital, power supply, energy cos, multiple taxation, regulatory compliance costs and many more. Again, these are good pointers for policy makers to shape their intervention measures to boost the growth of small business and create more jobs. The labour data published by the National Bureau of Statistics [NBS] revealed that over 90 percent of jobs in the economy are created in the informal sector in the first quarter of 2023. This underscores the need for policy makers to develop a comprehensive framework for the integration of the informal sector into the mainstream of the economic policy process. ”
He expressed the opinion that if the government must promote economic inclusion, the mainstreaming of the informal sector should be accorded a bigger priority than it is presently the case, stressing that there is need for deliberate policy to support and protect the informal economy given their strategic contribution to the economy, especially with regards to job creation and economic inclusion.
He commended the Lagos State government for the consistent and unrelenting support to MSMEs in the state through this roundtable, trade fairs, the Lagos State Employment Trust Fund, among other initiatives and interventions.
“These are very challenging times for businesses, especially the MSMEs. Any MSME that is still standing, despite the prevailing difficulties deserves to be celebrated and specially commended. This is once again a demonstration of resilience for which our entrepreneurs are well reputed.” he said.
Yusuf, raised serious concerns about the mortality rate among the MSMEs in the economy which he observed is very high because of the numerous headwinds in the Nigerian business environment.
These challenges include the structural constraints, especially around infrastructure, the naira exchange rate depreciation and the related liquidity crises in the foreign exchange market, the galloping inflation, weak purchasing power, regulatory compliance costs, high transaction costs at our ports, the multiplicity of taxes and levies, high cost of logistics, insecurity effects on the agricultural sector, influx of cheap Asian products into the Nigerian markets, the cost of fund, to mention a few.
However, he noted that many of our MSMEs have demonstrated resilience despite these headwinds.
He said the theme of this roundtable is: MSMEs : The Catalyst for Nigeria’s Economic Rejuvenation and Growth” is apt and underlines the critical role of our MSMEs in our journey towards sustainable economic recovery and growth.
According to him, The MSMEs are the pillars and the life wire of the Nigerian economy. They are the major sources of the resilience that the Nigerian economy had long been reputed for, amid numerous shocks. We are currently going through another round of shocks inflicted by the Fuel subsidy removal and the partial unification of the exchange rate. Even though these reforms were desirable, the social outcomes have been very profound. We have seen significant surge in inflation across the broad spectrum of products, food and non-food, driven largely by sharp depreciation in the naira exchange rate and increases in energy costs. These have taken a huge toll on business sustainability, profit margins, job retention, and capacity of small businesses to service their loans. Meanwhile there is the lingering effects of the Russian – Ukraine war.”