According to Nigeria’s Ministry of Industry, Trade and Investment, there are over 37 million SMEs (small and medium enterprises) who account for over 70 percent of jobs created in the country, and about 48.5 percent of GDP, and about 7.27 percent of goods and services in export earnings. Of this number, micro-enterprises account for the bulk of MSMEs (micro small and medium enterprises)in Nigeria at 36,994,578 with small businesses 68, 168 and medium enterprises at 4,670.
The International Finance Corporation posits that 65 million enterprises or 40 percent of formal micro small and medium enterprises in developing countries have a finance friction of $5.2 trillion annually equivalent to 1.4 times the current level of global MSME finance. Nigeria’s total potential SME finance demand is $158 billion. Of this amount only a pittance of $101 million is the current available finance supply representing a meagre 0.06 percent of the total potential finance according to the IFC. In comparison to her African peers South Africa with $41 billion, Kenya $3.9 billion, Ghana $2.7 billion, Angola $2.7 billion and Mauritius $2.4 billion, Nigerian SMEs are starved of funding to help them become competitive. The funding gap between SME finance demand and supply in developed markets is equivalent to about 3 percent of GDP according to Allianz while in developing markets it is 18 percent of GDP resulting in $4.8 trillion in under funding according to the International Finance Corporation.
The Development Bank of Nigeria, a wholesale development finance institution, was established to provide long term financing and partial credit guarantees to eligible financial intermediaries for lending to SMEs. As at May 2019, the Development Bank of Nigeria’s has disbursed $243.7 million to primary financial institutions for lending to MSMEs with about 50,000 beneficiaries, 70 percent of which are women through 7 commercial banks and 10 microfinance banks.
The following pillars are essential for the sustainability of enterprises and their growth. They include
- Access To Infrastructure: Nigeria has an infrastructure paralysis in the energy, transportation, communication, housing, etc which affects operations of small businesses as they are forced to do business with alternative power supply which leads to an increase in the cost of production for their goods and service delivery. These make them non competitive as they compete with foreign cheaper similar products.
- Access To Talent: Nigeria has a human capital deficit with about 23 percent of her citizens unemployed, as her educationally institutions do not produce graduates who have skills needed for the labour market. These affect the cost of operations for SMEs as they are forced to outsource some of their jobs while others spend to retrain fresh hires with skills necessary for them to work in the enterprises.
- Capacity Building: SMEs in Nigeria are faced with a deficit in capacity needed for them to scale their enterprises to become successful as most of them lack updated skills and resources for them to succeed in the marketplace locally and globally.
- Policy and Regulation: Inconsistent government policies and multiple taxation by the various levels and agencies of government affect the cost of doing business for SMEs. These make it difficult for them to succeed as most of them don’t survive beyond the first five years as a result of this.
- Access To Resources: SMEs lack access to technological, financial, networks and other resources which are necessary for them to succeed in Nigeria.
- Access To Market: Most SMEs in Nigeria are constrained by lack of access to their markets of operation due to lack of support from government, large organizations for collaboration and the network effect, dampening their chances of scaling up to succeed.
- Access To Finance: Compared to developed countries which have large access to funding from banks, large organizations who they act as distributors of their products who provide finance for them to keep their businesses afloat and venture capital for startup companies, Nigerian SMEs suffer from a scarcity of available funding to make them successful.
First Bank of Nigeria, the premier financial institution in the country has intervened to provide an arm of support to SMEs in Nigeria as it believes they are critical to the economic growth and development of Nigeria. It has provided the sum of 170.30 billion up to date as credit facility to various SMEs, supporting about 70703 various small and medium businesses.
First Bank also believes in deepening SME’s capacity to help them scale up their operations with the aid of technology, and established a collaboration with Microsoft to provide its technology solutions, at an affordable rate for over 40 million Nigerian SMEs. Also, they can purchase Microsoft solutions in naira and gain access to after sales support on the products.
For all the solutions from Wragby, the SME Productivity which makes it possible for SMEs to purchase Microsoft solutions in Naira, and in piecemeal, is superb. Software accelerates productivity, and by making it easier for companies to have access to productivity tools, Wragby is powering efficiency across sectors and markets in the nation.
First Bank should establish economic clusters and co-working spaces with shared state of art infrastructure across the six geopolitical zones which will help SMEs and startups reduce their barriers to entry for market success.