How Faulty Policies Emasculate SMEs

President Goodluck Jonathan

Crusoe Osagie analyses the weak policy response by the Federal Government to the challenges in the economy, noting that only targeted interventions based on evidence-based surveys and the right policy framework that can deliver inclusive growth in the SME sector

The first national survey on Small and Medium Enterprises (SMEs) released by the Federal government last month revealed that 99 percent of the businesses under the SME segment in Nigeria were actually micro enterprises. The outcome of this survey exposed the cluelessness of agencies of government responsible for the formulation of policies towards the transform the nation’s economy, because these agencies have always targeted larger businesses with their interventions.

 

Policies must be carefully developed and properly targeted if they are to have any meaningful impact. The government some years ago appeared to latch on to a slogan that the fastest way to grow the economy and create much needed employment was through the development of SMEs. But several years after, there has been no significant improvement in this sector aimed at inclusive growth and employment generation.

An assessment of some of the policy interventions of the Federal Government towards the attainment of the goal of repositioning the Nigerian economy for rapid growth and development clearly shows policies, which hardly consider all the variables before drawing inferences.

Need for Empirical Data

Analysts believe that most of these regulatory interventions were arrived at without adequate research into the nature of the problems they were intended to tackle and without the necessary number crunching efforts needed to determine the scale and dimension that these policies should take.

 

For example, a review of the new SME survey, when put side-by-side some policies that had been hitherto initiated by government to foster enterprise development through the SME sector in the country, the deficiency of these policies and the processes through which they were created become apparent.

The SME survey released in July, which was conducted by the National Bureau of Statistics (NBS) across the 36 states of the federation and the Federal Capital Territory (FCT) showed that there were a total of 17.28 million SMEs in the country, of which 17.26 million were said to be micro-enterprises valued at less than N5 million.

Evelyn Oputu, CEO, Bank of Industry

The survey also showed that only 3 per cent of the SMEs in Nigeria access the export market, a situation, which is inimical to the development of the nation’s economy. Unfortunately, the nature of government’s policy response towards securing the pivotal role of SMEs in the growth of the economy does not indicate that it was guided by such data.

Accordingly, stakeholders have expressed surprise that most of the initiatives of government currently in place to help the nation take advantage of the growth potential inherent in the SME sector have failed to address the 17.26 million micro-enterprises, which form 99 per cent of the total 17.28 SMEs in the country.

Failed Policy Initiatives

Steps taken by government to deal with the challenges of SMEs in the country include initiatives through the Bank of Industry intervention fund; Export Expansion Grants (EEG); Commercial Agricultural Credit Scheme (CACS); the National Poverty Eradication programme; and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), among others. But to say that these initiatives have performed below expectation is putting it mildly.

 

For instance, in the last three and half years, the Bank of Industry (BOI) has been inundated with funds. Although the nation’s development bank argues that the funds at its disposal are insignificant compared to the industrial development challenges it is expected to tackle, analysts still believe that compared to the recent past, BOI is now relatively well funded and should rise above its current mediocre performance.

Ngozi Okonjo-Iweala, Nigeria's Finance Minister

Some of the funds being managed by BOI currently include the N500 billion fund for the refinancing of facilities granted manufacturing companies, the aviation industry intervention fund and the power sector fund. There is also the N10 billion fund for rice processors and various counterpart funding provided by state governments. Even a key industrialist in the private sector, Aliko Dangote, has a N5 billion counterpart fund running with BOI to support industrial growth.

But with BOI somewhat structured to mostly meet the funding requirements of larger companies that only make up about one per cent of the SMEs, according to the recent survey, the bank clearly is not putting its money where its mouth is. So no matter how hard BOI tries, it will not come up short on the deliverables expected of it.

Independent Data

Yet another survey carried out independently by the Nigerian Association of Chambers of Commerce and Industry Mines and Agriculture (NACCIMA), an association of the organised private sector (OPS), which was released in Lagos last week, confirmed that the BOI may have failed to target the segment of the economy that deserves the lion share of its intervention initiatives.

Lamido Sanusi, CBN Governor

 

The OPS revealed that as much as 94 per cent of applicants who sought the Federal Government’s grants administered by the bank were unable to access the funds. The survey, which was conducted by NACCIMA in collaboration with Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE), showed that only about six per cent of real sector operators which applied for the funds received it.

Further analysis of these figures showed that the 94 per cent of the applicants who could not secure financing from BOI were micro-enterprises. Sadly, it is these micro-enterprises that are unable to pay consultants with the expertise in preparing the necessary documentation for these loans to be granted. They are the ones who may not have the expertise in the area of effectively communicating their business ideas through business plans and feasibility studies. Also, unlike larger enterprises, they are unable to come up with the necessary collaterals often requested by BOI to secure the credit they badly need.

The OPS survey revealed that the top three reasons for unsuccessful applications included: cumbersome application processes; inability to meet requirements; and financial constraints. It also showed that 24 per cent of respondents perceived the entire process as difficult, while 57 per cent claimed that it was very difficult to access the funds.

President of NACCIMA, Herb Ajayi, noted: “Financial institutions empowered to disburse the funds are rather hesitant in providing credit to the target groups for a number of understandable reasons. Hence businesses in the country particularly micro, small and medium enterprises (MSMEs) have continued to struggle, battle and haggle with intervention funds administrators,” he said.

The survey also showed that collateral was largely required to access intervention funds in Nigeria. A breakdown showed that 89 per cent of those who attempted to access the funds were required to produce collateral in the form of real estate valued at 250 per cent of the amount applied for.

Weak Agric Credit Scheme

As for the Commercial Agriculture Credit Scheme (CACS), it is obvious that micro-enterprises were never taken into account in the conceptualisation of the policy. It was designed to help only commercial farmer and large industries in the agriculture value chain.

 

But the question experts ask is, how could a government channel N200 billion towards only about 5 per cent of a sector and leave 95 per cent stranded? Smallholder and subsistence farmers are known to be engaged in over 90 per cent of the agricultural sector in Nigeria and so, common sense dictates that the fund is meant to target and deal with the challenges of these resource-poor farmers whose combined effort has ensured that the country has not become entirely dependent on other nations to feed its teeming population.

With the N200 billion CACS fund now fully disbursed, experts are of the view that the government would have to give feed back to Nigerians on the growth that has been induced by the policy and how inclusive this growth has been.

Most other policies and funding initiatives of the government have all followed the same path as the CACS and BOI intervention funds. For example, the federal government SME survey undertaken by NBS highlighted a segment, which sought to establish how many micro-enterprises had ever heard about the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). The response was alarming as less than 5 per cent of respondents nationwide answered in the affirmative.

Given the sorry trend, analysts believe that if government policies are ever going to make a meaningful impact on the economy, they must be research-based and deliberately fashioned to deal with the challenges faced by businesses and entrepreneurs at the bottom of the pyramid. Only then will the impressive GDP figures being bandied by government align with the bare-faced reality of the country’s development.

Culled from Thisday Newspaper