Experts have decried bottlenecks created by government and financial institutions, noting that such challenges are stifling the expansion of Micro, Small and Medium Enterprises (MSMEs) in Nigeria despite their huge potential for economic growth.
They gave the submission at the Lagos Chamber of Commerce and Industry (LCCI) Small and Medium Enterprises Group (SMEG) Webinar on the theme: “Ensuring SME Growth in a Challenging Economy.”
Partner & West Africa Tax Leader, Deloitte, Yomi Olugbenro, who spoke on “Managing Inflation in a challenging economy,” said 90% of industrial enterprises, 63% of trade or agricultural businesses, and 86.3% of the workers in the nation are classified as SMEs, while microbusinesses alone account for 99.8% of all SMEs in the nation.
The rise in inflation, which is currently at 20.77% and has a significant influence on consumer spending as well as impeding SMEs’ expansion, is one of the problems Olugbenro listed as affecting MSMEs in Nigeria.
He also cited currency rate volatility as a factor in supply shocks and high operating expenses, as well as operational, logistical, and distribution limitations, particularly for businesses working in the agricultural sector.
Other factors, he added, include an unstable power supply that hinders the development of SMEs and industrialization, noting that alternative energy sources are more expensive than power from the national grid.
He bemoaned the difficulties SMEs had in obtaining financing, including the high cost of funding and short loan terms.
He claims that the interest rates on loans to SMEs range from 22% to 28% annually, citing SMEDAN data that shows 48% of MSMEs consider the high cost of credit to be a major obstacle.
Additionally, he mentioned having a bad credit history and added that most business owners do not accurately manage and record their transactions.
He recommended using an escrow funding model to reduce credit diversion, better SME credit rating systems, greater credit risk guarantee coverage, widespread cluster financing across key markets, and diversifying SME loan portfolios using a sector- and gender-neutral approach.
Olugbenro also asked for infrastructure-based strategies that include effective electricity distribution to growing industrial clusters and partnerships with business consultants to help SMEs with technical support and market access.
He also advocated for making SMEs more important by assuring their backward integration and involvement in the supply chain, as well as increased financial reporting capacity through access to tools and technologies.
The President, the Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole, said SMEs are the engine room of growth of every economy globally and a major contributor to Gross Domestic Product (GDP).
He said SMEs are in need of support as they are the worst hit by the pandemic and climate change, adding that they face barriers such as lack of access to finance and interest rate.
The LCCI boss called on policymakers to eliminate the barriers and ensure physical and monetary policies as well as an intervention to promote small businesses.
He urged SMEs to explore opportunities in exports and technology to expand productivity while calling on the government to engage the organised private sector to alleviate the harsh economic conditions affecting SMEs in the country.
The Director, Enterprise Development Centre, Dr. Peter Bamkole, who spoke on “capacity building for SMEs in a challenging economy,” said, while there are economic challenges, SMEs are caught unaware as they are not prepared to wade through them.
According to studies done on SMEs in the wake of the pandemic, 93% of them closed their doors, cut their workforce, and suffered losses, while 7% prospered despite the challenging circumstances.
Further investigation, according to Bamkole, showed that the success of the seven percent was attributed to collaboration and the digitalization of business processes, which led to the expansion of the logistics chain as well as the reimagining of business models and the adoption of circularity.
In order to maximize the benefits of the AfCFTA, he advised SMEs that rely on foreign exchange markets for their operations to reconsider their business model.
Head, of Digital Products Fate Foundation, Mrs. Oluchi Johnson, who spoke on “deployment of technology for SME growth in a challenging economy,” said digitisation is an important driver for business growth.
According to her, the majority of businesses that succeed in difficult conditions use technology to streamline their operations, including adoption of software, teamwork, cloud computing for data storage and security, QR codes for business accounts, high-bandwidth Internet, social media accounts, and the internet of things, among other electronic tools.
Johnson urged SMEs to adopt technology since it enables them to save costs, increase efficiency, and improve and expand access to international markets.