The Small and Medium-sized Enterprises faced sundry challenges in the business environment in the past, some of which still persist.
Some of these entrepreneurs about 10 years ago, were not included in the lending opportunities offered by commercial banks in the country due to the perceived risk and poor business management, which make it difficult for them to pay back loans.
According to experts, the ability to assess the credit worthiness of these enterprises and the awareness of a need for entrepreneurship training as well as increased acquisition of business management skills among business operators have however made the commercial banks extend their lending services to some of them.
However, some challenges facing the sector have not been tackled and they include poor infrastructure, erratic energy supplies and security concerns which affect their performance and productivity.
SMEs are also affected by problems such as low quality and cheap products that compete with the domestic ones. Examples are smuggled textile materials, substandard tyres and baby diapers among others.
A recent report by The Economist notes that in the present economic downturn, the vast network of micro, small and medium-sized enterprises will drive the much desired change.
The report titled, ‘Enabling a more productive Nigeria: Powering SMEs,’ states that the enterprising nature of the citizens of the country is evident in the large number of businesses which range from hairdressers to app developers and from welders to film production makers.
The survey highlights the changes in the business environment that will improve operations of SMEs.
Ease of doing business
To support SME productivity, Nigeria’s government must stabilise, simplify economic policies and install a more transparent tax and customs system, the report suggests.
It observes that the government has shown strong interest in nurturing SMEs through the provision of long-term funds, lowering business registration costs by 60 per cent and adopting pioneering technologies in agriculture and financial services.
The report also notes that most enterprises fail to register and prefer to remain informal because of the multiple tax administration, making it difficult for the government to generate revenue from them.
“A simpler system with fewer processes, and limited opportunities for tax officials to exercise discretion on fees, could bring more SMEs into the tax net. To support greater productivity gains, attention must now turn to simplifying the tax system, reducing import barriers, stabilizing macroeconomic policy and building a more transparent customs system,” it says.
Light-rail infrastructure and port development
According to the report, infrastructure is critical to support the country’s commercial ecosystem, and should be prioritised.
It notes that the existing transport projects are already delivering benefits for SMEs but new ones could bring significant gains and facilitate the movement of people and goods.
It adds that due to low oil prices, capital spending in infrastructural development may be affected and the government may face tough choices on what to prioritise.
“Investments should continue to be directed towards light rail transit to enable faster commuting for city workers, and towards infrastructure feeding the country’s vital port systems,”the report adds.
Information and Communication Technologies
The Economist observe that ICT is critical to the survival of SMEs because it stimulates productivity, helps to overcome tough operating environments and opens up new markets.
It says, “ICTs are enabling SMEs to emerge across Nigeria by helping them overcome infrastructure shortages, lowering operating costs and creating new business opportunities in areas like the creative industries, retail and services.
“Rural businesses, long isolated from the biggest market opportunities, are now able to operate over larger geographies.”
The report suggests that increasing broadband penetration and improving mobile network quality will boost the productivity of these enterprises.
According to the report, reducing costs and fees levied on broadband providers and quickening the processes for spectrum auctions can yield major gains for SME productivity.
Generate additional energy from solar
The report notes that the country has the ingredients for a vibrant solar energy market, including a sunny climate and unmet consumer need.
The country’s privatisation of the power sector holds promise for fixing the country’s energy supply, but its impact will not be felt in the near term, the report says.
“Solar energy is an affordable and effective energy source for SMEs. Based on positive experiences in other emerging markets, and an existing investment pipeline, there is a productive role for government and donors to play in stimulating the market through grants, incentives and concessional support,” it adds.
Adequate business management skills
To boost formal financing, SMEs must improve their book-keeping and corporate structures, and banks need to hire more SME business experts to inform lending decisions, The Economist report notes.
This is because they have little access to bank finance, relying on savings, loans from friends, families, or “angel investors” and venture capital.
It says that government funding schemes are helping, but not all SMEs are aware of public funds or how to access them.
On their part, SMEs must improve book-keeping, accounting and corporate governance structures to access credit, it adds.
Improve SME access to finance
In order to improve access to finance, the reports says that the government should embark on reducing the bureaucracy facing formal businesses so as to encourage business registration.
As observed by Mr. Akin Oyebode from Standard Bank Nigeria, 95 per cent of SMEs do not have financial statements and will often put fictitious numbers in application forms in an attempt to avoid paying pensions or personal income tax.
Experts note that a lack of corporate structure is another deterrent for banks as well as lack of a functional board of directors or advisers on the part of the enterprises.
The report advises financial institutions to increase in-house expertise in SME business models and review some outdated terms and conditions that needlessly prevent SMEs from accessing finance.
It says that external donors who can support SMEs with training academies and courses for business management will boost the sector.
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