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Obtaining Finance, Finding Customers, and Infrastructure Deficit Top Challenges of Nigerian MSMEs – PwC Survey

By
Samuel Nwite
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2

Small Businesses in Nigeria have listed the most pressing problems impacting their operations to include obtaining finance, finding customers and infrastructure deficits. These are some of the findings from a survey of Micro, Small and Medium scale Enterprises (MSMEs) in Nigeria conducted by PwC Nigeria.

The survey findings were revealed during a recent webinar hosted by the firm for MSMEs on Managing the Impact of COVID-19 and Repositioning Your Business for Growth. The report titled PwC’s MSME Survey 2020- Building to last is the first in a series of surveys that aim to provide insights into a range of issues concerning MSMEs in Nigeria, and the challenges impacting business growth, particularly financing, taxation issues; and other factors – through the eyes of their CEOs.

The survey which was conducted prior to the COVID-19 Pandemic (between August and December 2019) sought the opinion of 1629 key decision makers in the MSME sector surveyed with annual sales turnover ranging from N5 million and above. The businesses surveyed had a geographical spread covering 29 states and across the 6 geopolitical zones in the country.

Presenting results of the findings Esiri Agbeyi, Partner and Lead, Private Wealth Services, PwC Nigeria noted that Obtaining finance (22%), Finding customers (16%) and Infrastructure deficits (15%) were identified by respondents as their most pressing problems. When asked what the biggest cost to their business operation is, 21% identified Electricity as being responsible for the highest cost to their daily operations. This was followed by Rent (17%) and Cost of Capital and Employee cost at 15% and 14% respectively.

“Access to finance, in particular credit, is a critical enabler for the growth and development of small and medium enterprises. The SME credit market, however, is notoriously characterised by market failures and imperfections. We estimate the financing gap for Nigerian MSMEs to be about N617.3 billion annually (pre-COVID-19 pandemic). More so, based on our analysis of data from the CBN annual statistical bulletin, small businesses accounted for less than 1% of total commercial banking credit in 2018.

“We also see that Electricity accounts for the biggest costs to daily operations of MSMEs. Nigeria’s power sector is overwhelmed by a myriad of challenges that have culminated in inadequate electricity supply. This has an adverse impact on the business environment in Nigeria; consequently, contributing to significant economic costs to SME and economic growth. The International Monetary Fund (IMF) states that lack of access to reliable electricity costs the Nigerian economy an estimated USD29 billion a year,” Agbeyi said.

The survey also found that the foremost economic issue affecting small businesses is the pressure to reduce prices (22%). This is followed by rising inflation (19%) and low demand for products/services. (16%). The economic recovery in Nigeria has been tepid. Despite positive economic growth in the last 3 years, Nigeria’s GDP trajectory still falls short of the projections set in the Economic Recovery and Growth Plan (ERGP) of 4.5% and 7% for 2019 and 2020 respectively.

On tax matters, MSMEs find local government levies (28%) the most difficult tax to comply with. This is closely followed by Company Income Tax (CIT) at 26% and Value Added Tax (VAT) at 25%.

Reasons for the difficulty in compliance comprised: the multiplicity of taxies and levies; lack of coordination between federal & state tax agencies, absence of technology platform(s) for ease of payment of all taxes and levies, as well as lack of fully functional tax refunds schemes at the state & federal level. Others included the absence of comprehensive tax payment schedule notification or calendar, and physical harassment/intimidation by local tax collectors.

Highlights of some of the other findings made in the survey include that 22% of MSMEs rely on the internet, media and research publications for business insights (vs 16%who rely on professional service providers), 48% said family & friends are the most popular financing sources (vs 15% who obtained credit facilities), A higher percentage (46%) would prefer private equity over debt financing (33%), and only 10% of MSMEs believe Artificial Intelligence (AI) and the Internet of Things (IoT) will have the most impact on the growth of their businesses in the next 3 years.

One remarkable finding was how payment policies imposed by big corporates severely affected 33% of MSMEs whose payments were delayed for more than a month. The impact on cash flows is worse when you consider the double-digit interest rates or inflation. It does not come as a surprise then when about 50% of the SMEs surveyed did not record growths above 20% over the last 3 years.

The objective of the study according to PwC is to capture the challenges the MSME sector faces, identify opportunities to unlock growth and investment, provide solutions, mitigate risks and assess the outlook for MSMEs across industries. Findings covered the Nigerian business environment and market conditions, tax issues, access to finance, growth obstacles, payment policies, the role of technology and the impact of women on the MSME sector in Nigeria. The report also includes case studies with leading SME players across various sectors, as well as interviews with key stakeholders and experts on the sector.

Commenting on the report, Uyi Akpata, Country Senior Partner, PwC Nigeria in his foreword noted:

“Our MSME Survey 2020 is aimed at gauging experiences of sector players, assessing the underlying issues which MSMEs face and providing insights on this strategically important sector. You will find the survey headlines confirm some persistent problems and sheds light on those you never really considered to be issues such as payment policies.

“As part of our efforts in this national discourse, PwC Nigeria has established the SME Desk to support the growth, sustainability and development of the SME sector in Nigeria.

The SME Desk is our social impact initiative to support small businesses by providing insights, advice and support on a range of areas including Finance and Accounting, Tax and Audit. It is one of the ways we are helping to build a stronger economy by giving small businesses a greater chance to succeed in an often-difficult environment.”

MSMEs are critical to Nigerian’s economic development. According to the National Bureau of Statistics, SMEs in Nigeria have contributed about 48% – on average – to the national GDP in the last five years. Totalling about 17.4 million enterprises, they account for about 50% of industrial jobs and nearly 90% of activities in the manufacturing sector, in terms of number of enterprises. Despite the significant contribution of SMEs to the Nigerian economy, challenges still persist that hinder the growth and development of the sector. Challenges encountered by the sector include lack of skilled manpower, multiplicity of taxes, high cost of doing business, among others.

PwC’s 2020 SME survey report is the first of its kind in this sector. The firm hopes the findings will be useful to both policy makers and stakeholders in the sector and help to kickstart new solutions for this critical sector.

Challenges with the Implementation of COVID-19 Preventive Measures in Government Schools

By
Ozioma Okey-Kalu
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0

Tertiary institutions in Nigeria have been given the conditions they will meet before schools are reopened. These conditions were given in a speech presented by the Minister of State for Education, Emeka Nwajiuba, while representing the Minister for Education, Adamu Adamu, at the virtual policy meeting of the Joint Admissions and Matriculation Board (JAMB) held on Tuesday 16 June, 2020.

The minister said that all tertiary institutions within the country must have “hand washing facilities, body temperature checks, body disinfectants at all entry points to major facilities including the gates, hostels, classes and offices.” He further insisted that for tertiary institutions to reopen, “the whole premises of each institution must be decontaminated and all efforts must be geared toward the maintenance of the highest level of hygiene.” Schools were also given the condition to “ensure physical and social distancing in class sizes and eating spaces.”

The first time I read the news article that bore this piece of information, I asked myself, “Are these conditions for private schools alone? Or, are the state and federal government owned schools also part of this?”

It is not as if it is not certain that the guidelines set up by NCDC and WHO for preventing the spread of COVID-19 would not be enforced in schools, but, somehow, a lot of people were expecting miracles to happen. These measures can easily be put in place by private owned schools for reasons that government owned schools could not meet. Maybe, I will table out these challenges that government schools will encounter by indirectly comparing and contrasting them with their private-owned counterparts.

Factors that will Challenge the FG Conditions for School Reopening

a. Population
We all know that the population of state and federal government-owned institutions are almost at the level of explosion. In just a department you might see a stream with about 300 or more students. When you compare this number to that of private universities, where you might likely see 30 students or less in a class, you will understand why they can easily observe the physical and social distancing guidelines. The greater population of students in higher institutions will also make it more difficult for other measures, such as body temperature checks and hand washing, to be effective. Imagine the machine for checking body temperature being used for thousands of students in a day; it will definitely spoil within weeks. It will also be uneasy for the persons that will stand at strategic places to do the checking. It is possible that they will not do the work well.

b. Finance
It will be easier for private schools to raise funds than for government-owned ones to do so. This is to say that procurement of the needed facilities by government-owned schools may not be as fast as that of their private-owned counterparts. It is also possible that government schools may not be able to provide enough materials needed for this exercise.

c. Landmass
Government-owned institutions have greater landmass than the private-owned ones. For this, there are so many offices, laboratories, lecture halls, auditoriums, canteens, and what have you in government-owned higher institutions. Considering the landmass of these schools makes one wonder how they will decontaminate the area effectively and how they can procure the chemicals needed for it. This also raises concern about mounting of body disinfectants at the entrance of many facilities. It will, therefore, be proper for me to ask where these schools will start this decontamination exercise and where they will end.

d. Maintenance
It might be easier to start the precautionary measures against the spread of COVID-19 but continuing it might be a different story altogether. The major setback here, especially for government-owned institutions, is supervision and replacement of damaged gadgets. Like I stated earlier, the large population of students and staff in government-owned schools will over-work the temperature checking devices. It might be difficult for these schools to replace damaged ones on time because of the bottleneck that comes with bureaucracy. Unless plans for maintenance and replacements are put in place, imbibing the measures against COVID-19 will definitely be a waste of time.

There is another heavy question that the FG is yet to address. We know that private-owned tertiary institutions will tax their students to raise funds for putting these measures in place. But then, we also know that government-owned schools cannot just ask students to pay for anything that isn’t in their schedule of school fees. Even if they could, many students in government-owned institutions are from working class families; so they might not afford the extra expenses. So the big question is, “Whose responsibility is it to bear the cost of procurement and maintenance of equipments that will be used in preventing COVID-19 in all government-owned schools?”

The Vice President’s Statement on “Large and Expensive Government” in Nigeria

By
Ndubuisi Ekekwe
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3

“We are by this notice telling all those importing contraband products to stop doing so. We know where you are. And if you do not stop this nefarious activity, we will come after you in two weeks”. You might have seen this type of notice in a newspaper, sponsored by a government agency in Nigeria. Whenever I see such, I chuckle that a Director General who has the power to take immediate action is wasting taxpayers money on newspaper advertisements, creating an illusion of doing his/her work.

That takes me  to Vice President Prof Yemi Osinbajo’s statement that Nigeria is running a large and expensive government. The question has been “who can fix it?” We know the problem – and we are looking for solutions. Like I keep saying, if President Buhari was never elected a president, he would have been the best president ever in the Nigerian history! Yes, many of us would have said, had he been given the opportunity, he would have fixed this and that. But here we are, talking over the problems instead of  fixing them. Mr. Vice President, your party controls the House, the Senate and the Presidency, you can fix the “large and expensive government” problem.

“There is no question that we are dealing with large and expensive government, but as you know, given the current constitutional structure, those who would have to vote to reduce (the size of) government, especially to become part-time legislators, are the very legislators themselves,” Mr Osinbajo was quoted to have said.

“So, you can imagine that we may not get very much traction if they are asked to vote themselves, as it were, out of their current relatively decent circumstances.

“So, I think there is a need for a national debate on this question and there is a need for us to ensure that we are not wasting the kind of resources that we ought to use for development on overheads. At the moment, our overheads are almost 70 per cent of revenues, so there is no question at all that we must reduce the size of government.”

According to him, “the problem was a major driving factor for the government’s decision to revisit the Steve Oronsaye report on public service reforms”.

He said: “Part of what you would see in the Economic Sustainability Plan also and several of the other initiatives is trying to go, to some extent, to what was recommended in the (Steve) Oransaye Report, to collapse a few of the agencies to become a bit more efficient and make government much more efficient with whatever it has.”

The Endless War: Are China and The United States Bound for Interdependency?

By
Adebayo Adeleke
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2
China and US leaders

Well, esteemed readers, you’ve already heard about China and the United States’ ongoing trade war. It’s an economic conflict borne of rising protectionism between two nations that are hashing it out for the winning spot in the first trade-based Royal Rumble of the 21st century. So, I needn’t bore you with the basics on that one. Whether you agree with the underlying principles or not, the trade war has done one good thing; it has shone the limelight on the notion that the U.S. needs to reduce its dependency on Chinese manufacturing for strategic goods. And, in 2020, as COVID-19 struck the global stage, politicians realized that we really do need to act ? so now they’re vowing to do so.

But I have to ask… do you think we can actually change anything? Because I’m starting to believe that President Donald Trump’s administration and its hunger for dominance is admirable but decidedly moronic. It seems to me that the baseline principles, understanding, and demands of the current administration reveal a fundamental issue in the higher echelons of the United States: it is stuck in a world, pre-1960s, where a country produces a product and ships directly to another.

Get with The Times and Get Global, Trump!

In the 60s, we saw the introduction of containerized shipping, and then the provision of the Internet for public use in the 90s. These two advancements made a massive difference to the supply chain, revolutionizing systems, and unlocking access to a wider world. One that features a complex and sophisticated web of global manufacturers providing goods and services interdependently, not independently. Unfortunately, Donald’s trumpets sound loudest for an archaic system that once served a purpose in the evolution of the global supply chain but is now outdated and past its use-by-date.

We can talk about making America “great again,” and we can listen to the current president’s warped view of global trade. We can guzzle down the “it’s them or us” claptrap that is firing up the underbelly of U.S. industry, and we can cry as much as we like for the loss of domestic business. But the fact of the matter remains, the lines that fuel the flames of the debate, “made in America” and “made in China,” mean the very same thing: “Made on Earth.” Today’s global economy is one of diversity, where cross-border collaboration and unity stand tall, and it is not a place for the division and segregation that the U.S.-China trade war, courtesy of Trump’s administration, endorses.

Admirable Aims, Reticent Reason

The current administration isn’t completely backward with trade, though, and has already publicly announced that the U.S. needs a group of Asian nations that could group together to supply them, as well as the rest of the world, with essential goods. And the president himself told a reporter that, if he severs the relationship with China, it’ll save $500 billion; so, if you put two and two together, you can clearly see how this would work. But there’s a problem. Although the United States has successfully pulled small elements of the tech supply chain away from China’s hold, it’s a massive task, trying to restructure the entire network.

The view from government officials in the Asia Pacific region, where manufacturing is on the rise, is overwhelmingly negative and suggests that the American dream of simply dismantling the current status quo to suit political ambitions is just a far-off fantasy. And they certainly can’t attempt to untangle the web in a world where businesses are struggling to survive, courtesy of COVID-19.

Sort of Leaving China Behind

However, the pandemic itself is, in some ways, pushing things in the direction that the Trump administration would like. How? By rapidly speeding up a change that was already underway ? a slow and steady withdrawal of lower-value manufacturing from China’s grasp by many nations, as a consequence of the Eastern powerhouses rising wages and production costs. That natural transition by some of the world’s biggest businesses was apolitical, and wholly economically fuelled, as it should be.

The conscious uncoupling between China and other countries for certain products is something that had to happen, and I believe that China knew it all along. As their volume of export and economic power grew exponentially, they were always going to be forced to, let’s say, “westernize” the workplace standards and regulations across the nation to maintain client relations, pricing them out of some manufacturing gigs.

Nope, Not Really!

Even if we all unanimously agree to pull out from China tomorrow, it just wouldn’t make sense to do so. The cost of production has risen slightly, and there are political tensions between the nation and its Western counterpart, but whatever we say or do, it will remain unmatched as a manufacturing hub, and no other country will ever have as many skilled workers at its disposal. And even if there is a lot of pressure from a government or administration or a more economically prudent solution, the development of global industry and supply chains is usually determined by market forces and profitability for businesses. The Chinese domestic market is immense and multiplying ? it’s a no-brainer for organizations to maintain their ties, and contrary to economic law to sever them.

But let’s be real for a moment… even if the West does rinse its hands of Chinese manufacturers on the face of things, the next best options are scattered throughout Southeast Asia ? a region that thrives only because of China    ’s rise to manufacturing dominance. So, in truth, wherever the United States looks, China is waiting to lend a helping hand.

The NCC-FIRS MOU And Nigeria’s 20th Century Problem

By
Ndubuisi Ekekwe
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2

The Nigerian Communications Commission (NCC) and the Federal Inland Revenue Service (FIRS) do not believe that telecom companies in Nigeria are remitting the correct amount of VAT (value added tax). It is a financial optical illusion: the mobile density is increasing, mobile penetration is going higher but VAT has remained largely flat. Government has relied on the telecom operators to self-report these tax elements. Interestingly, the government does not believe those numbers but at the same time cannot challenge them in the courts. So, what is the way out? Install a good “malware” in the servers of the telecoms to help you track, calculate and report accruable VATs for the government in real time.

Yes, Nigeria is trying to get over its 20th century problem: ability to organize its systems to have the ability to collect taxes in full and accurately, at least in this sector. An MOU has been signed between NCC and FIRS to “ensure the tax agency ascertain accuracy and completeness of value added tax (VAT) elements and other taxes payable in the transactions of telecoms operators. With the MoU, the FIRS will be able to integrate an application programming interface (API) technology solution with the systems of telecom Operators for independent verification of the amount of VAT that should be paid by mobile network operators (MNO) rather than relying entirely on the Operators’ books of accounts.”

Now, can you copy me? Affirmative, tune to Channel “more money in vault”. Because with this legal “malware”, the government could essentially generate the balance sheets and profit & loss statements for the telcos before their accountants begin work! But thou shall not judge because in Nigeria everyone is a victim. You pay VAT, yet you must run a local government of your own, providing your power, security, water, etc.  Yet, the government needs resources to have any chance of helping you. The game continues in Naija.

In line with its inter-agency collaboration, the Nigerian Communications Commission (NCC) has signed a Memorandum of Understanding (MoU) with the Federal Inland Revenue Service (FIRS) to ensure the tax agency ascertain accuracy and completeness of value added tax (VAT) elements and other taxes payable in the transactions of telecoms operators.

With the MoU, the FIRS will be able to integrate an application programming interface (API) technology solution with the systems of telecom Operators for independent verification of the amount of VAT that should be paid by mobile network operators (MNO) rather than relying entirely on the Operators’ books of accounts. Speaking during the MoU signing ceremony in Abuja on Tuesday, the Executive Vice Chairman of NCC, Prof. Umar Danbatta, said that diligence and appropriate due processes were undertaken to conclude the MoU, as the Commission took its time to understand the import of the MoU.

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