GOVERNMENTS DRIVE TOWARDS SMEs DEVELOPMENT IN NIGERIA A Paper Delivered By OLUSEGUN AGANGA HONOURABLE MINISTER OF TRADE AND INVESTMENT AT THE UK-NIGERIA.

GOVERNMENT’S DRIVE TOWARDS SMEs

DEVELOPMENT IN NIGERIA

A Paper Delivered By

OLUSEGUN AGANGAHONOURABLE MINISTER OF TRADE AND INVESTMENT

AT THEUK-NIGERIA SME NETWORKING EVENT

7TH MARCH, 2013

Welcome to NIGERIAFig. 1 MAP OF NIGERIA Showing Major Towns and Neighbouring Countries

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NIGERIA-GENERAL OVERVIEWIt is Africa’s most populous country with a total land area of 923,678Km2.

Growth rate of 2.45%.Nigeria, a multi-ethnic country of about 170 million people, is located on the west coast of Africa.Nigeria operates a democratic, decentralized, federal system of government comprising a federal capital territory (FCT), 36 States and 774 LGAs.There are six geo-political zones.The Federal Capital and seat of government is Abuja.There are three dominant ethnic groups: the Hausa-Fulani, the Yoruba and the Ibos. However, about 250 ethnic nationalities co-exist with them. Huge untapped investment opportunities in the SME Sector and a mixed economy framework.

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INTRODUCTIONThe Micro, Small and Medium Enterprises (MSMEs) have been known, all over the world, to be engines of economic growth and contributors to employment generation, wealth creation, poverty alleviation and food security.Recent data provided by the National MSMEs collaborative survey 2010, put the number of Micro, Small and Medium Enterprises (MSMEs) in Nigeria at 17,284,671 with total employment put at 32,414,884.Deliberate efforts must be put in place to grow these numbers if we must achieve our national vision of being among the 20 most industrialised nations by the year 2020.Hence SME contemporary development challenges must be critically addressed in a structured and efficient manner in order to achieve our national goal of job creation in tandem with the Transformation Agenda.

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MSMEs DEFINED

NB: Where there is an inconsistency between employment and asset base, employment criterion will prevail.

CATEGORY EMPLOYEES ASSETS (N’M) (excluding land and buildings)

MICRO Less than 10 Less than 5

SMALL 10-49 5-less than 50

MEDIUM 50-199 50-less than 500

SMEs AND THEIR RELEVANCE

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SMEs

Employment Generation

Creation of

potential entrepreneur

s

Ensuring sound competition

Mobilization of local resources

Mitigation of rural-urban migration

Wealth creation, income generation and poverty alleviation

Enabling adaptive technology and skill acquisition

Production of intermediate products for uses by large enterprises.

Creation of new industries

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Platform for Industrialization

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CURRENT STATE OF MSMEs IN NIGERIA

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SME CONTRIBUTION TO GDP AND EMPLOYMENT GLOBALLY

SMEs in high income countries contribute 55% to GDP and over 65% of total employment .

In middle income countries SMEs and informal enterprises account for over 70% of GDP and over 95% of total employment

In low income countries SMEs and informal enterprises account for over 60% of GDP and over 70% of total employment

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DETAILS ON THE NIGERIAN MSME SURVEY

The survey was conducted in all 36 states of the Federation including the Federal Capital Territory, Abuja

Divided into household, agriculture and business components.

Over 300 micro enterprise households per state were visited while 4000 small and medium enterprises cutting across 12 sectors of the economy were covered.

Enterprise Group Company Size (Employees)

Survey

Micro 1-9 National Integrated Survey of Households (NISH)

Small 10-49 National Integrated Survey of Enterprise (NISE)

Medium 50-199 National Integrated Survey of Enterprise (NISE)

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MSME’s Contributions to the Nigerian Economy

Q4 2012 Nigeria GDP grew by 6.17% surpassing the forecasted 5.34%

MSMEs account for 46% of Nigeria’s GDP (2010)

Q4 2012 Nigeria GDP grew by 6.17% surpassing the forecasted 5.34%

MSMEs account for 46% of Nigeria’s GDP (2010)

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MSME’s Contributions to GDP by sector

For example MSMEs contributes 99.13% of real estate, renting and related business activities to GDP while 98.01% of GDP is contributed by the Agricultural sector.

For example MSMEs contributes 99.13% of real estate, renting and related business activities to GDP while 98.01% of GDP is contributed by the Agricultural sector.

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Breakdown of SME Headline figures

Total estimated to be 17,284,671 MSMEs in Nigeria.

Of the total number micro enterprises account for the majority (99.87%) of the MSMEs in Nigeria with 17.26 million enterprises

Lagos state has the highest number of small and medium enterprises (4,535) while Osun state has the least (100).

Lagos state has the highest number of micro enterprises (880,805), followed by Kano state (872,552), while FCT recorded the least (272,579).

The total number of persons employed by the MSME sector as at December, 2010 stood at 32,414,884.

The female entrepreneurs accounted for 42.1% in the ownership structure of microenterprises as against 13.57% in small and medium enterprises.

MSME Contribution to the economy (Export earnings)

SME Development holds great potential for Nigerian export and Balance of Trade improvements

SME Development holds great potential for Nigerian export and Balance of Trade improvements

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Low Access to Finance from Commercial Banks

Despite Increased Government Support to SMEs, Commercial banks have reduced their support for SMEs over time.

Despite Increased Government Support to SMEs, Commercial banks have reduced their support for SMEs over time.

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Source: CBN

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CONTEMPORARY DEVELOPMENT CHALLENGES OF THE SMEs SECTOR

Poor access to affordable finance leading to inadequate working capital.Lack of work space.Poor access to both local, regional & international markets leading to poor business turnover.Obsolete technology leading to inability to compete globally.Inadequate government support and encouragement.Weak infrastructure leading to high cost of doing business

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CONTEMPORARY CHALLENGES CONTD…Absence of patent right and unprotected

intellectual property rights.Low capacity utilization.Non insurance of business risk.Non effective implementation of the National Policy on MSMEs.Poor management of business operation due to lack of business management skills.Administrative barriers in doing business, Multiple permits and fees are required at the state and municipal level, often spontaneously.Absence of a general rating schemeNon availability of qualified artisans (skill gap)

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GOVERNMENT PAST EFFORTS AT ADDRESSING THE CHALLENGES

The establishment of Industrial Development Centres (IDCs) in the 1960s.The establishment of the National Directorate of Employment (NDE) in 1989. The establishment of the Bank of Industry (BOI) in 2001 from the defunct Nigerian Industrial Development Bank (NIDB) and the Nigeria Bank for Commerce and Industry (NBCI).The establishment of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) via SMEDAN ACT 2003.The launching of the Micro Finance Policy, Regulatory and Supervisory Framework for Nigeria in 2005 which resulted in the establishment of Microfinance Banks.

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GOVERNMENT PAST EFFORTS AT ADDRESSING THE CHALLENGES

The N200 Billion intervention fund for re-financing and restructuring of Banks’ loans to the manufacturing sector.The establishment of the N200 Billion Small and Medium Enterprise Credit Guarantee Scheme (SMECGS) in 2010 by the Central Bank of Nigeria.The Agricultural Credit Guarantee Scheme Fund (ACGSF) launched in 1977.The Nigerian Incentive Based Risk Sharing System (NIRSAL) for agricultural lending launched in 2011.The National Economic Reconstruction Fund (NERFUND) was set up in 1989 to catalyze the SME sector’s growth through medium & long-term funding.

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GOVERNMENT PAST EFFORTS AT ADDRESSING THE CHALLENGES

The N100 Billion bond-funded Cotton, Textiles and Garment Industry Revival Scheme.The Bank of Agriculture (BOA) has emerged from the Nigerian Agricultural, Cooperative and Rural Development Bank (NACRDB ). Facilitating and guaranteeing external finance through the World Bank, African Development Bank (AfDB), International Finance Corporation (IFC) and other international institutions willing and capable of assisting MSMEs.Marching funds from big Entrepreneurs by BOI such as the N5 billion by Aliko Dangote.Marching funds from States by BOI.Youth Enterprise With Innovation In Nigeria (YOUWIN)

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WAY FORWARDRenewed commitment by all tiers of government to drive the overall development of the MSMEs sub-sector in Nigeria.Establish the National Credit Guarantee Scheme for MSMEs to create an effective access to affordable finance for MSMEs.Establish a comprehensive National MSME Rating Information and Database.Pump more funds into infrastructure development through PPP and ensure value for money.Effective implementation of the National Policy on MSMEs.Deliberate incentives should be put in place for the development of SMEs as is done in other jurisdictions. Eg,. Equipment incentive, Technology incentive, Marketing incentive and National Awards for MSMEs incentive.

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WAY FORWARD…Develop an integrated Industrial Development Centres (IDCs) with effective BDS.Establish the National Council on SMEs.Promote and develop the Venture Capital sector and other forms of making funds available at affordable rates including listing on the stock exchange.Undertake transformational projects that will take MSME development to specific sectors and rural areas e.g. OLOP for artisanal miners, S-VAP, etc.Remove barriers to access to finance, effective BDS and increased productivity.

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CONCLUSIONThe SME Sector provides the platform for opening the country to global competitiveness and prosperity required to elevate Nigeria to an economically advanced nation. MSMEs need all the support from all stakeholders in order to operate optimally and sustainably in this era of open markets, competition and global economic & financial crisis. FMTI will continue to support the development of SMEs in Nigeria for sustainable economic growth and development.

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