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There is no doubt that many Micro, Small and Medium Enterprises (MSMEs) in the country are struggling to survive due to multiple challenges. These are lack of access to capital, high interest rate, energy cost and shortage of foreign exchange. Other include lack of infrastructure, multiple taxation and poor ease of doing business. Arising from this ugly development, the manufacturing sector has this year borrowed N1.8trillion to survive. This represents 24.5 per cent increase against the N1.47trillion it borrowed in the corresponding period of 2022. In spite of these problems, the sector significantly contributes to the nation’s Gross Domestic Product (GDP).
Nonetheless, the plan to boost MSMEs with N125billion by Tinubu administration, as part of measures to cushion the impacts of fuel subsidy removal, is a welcome development. According to the plan, N50billion will be disbursed as conditional grant to one million small businesses between now and March next year, and N50,000 each to 1,300 nano business owners in each of the 774 local councils across the country. The scheme is designed to drive financial inclusion by bringing beneficiaries into the formal banking system. In addition, the new administration plans to fund 100,000 MSMEs and start-ups with N75billion.
Under this plan, each entrepreneur will get between N500,000 and N1 million at 9 per cent interest rate per annum, and a repayment period of 36 months. The overall objective is to strengthen the manufacturing sector and increase its capacity and create more jobs. The plan will help to revamp some of the struggling micro and small businesses.
Apart from increasing productivity, it will create the much-needed jobs and boosting the tottering economy. This will also enhance the competitiveness and quality of services rendered by MSMEs. However, the amount is grossly inadequate to address the challenges facing the sector. It is a far cry to what the sector needs at this time to contribute meaningfully to economic growth and development. According to available statistics, MSMEs account for 50 per cent of the nation’s GDP. It also accounts for about 96 per cent of businesses and 80 per cent of employment in the country.
The MSMEs are primary platforms for enterprises that play crucial roles for employment, wealth creation, economic growth and living standards and poverty alleviating. Currently, about 133 million Nigerians are grappling with multidimensional poverty. This represents about 63 per cent of the nation’s population. As of December, 2020, Nigeria had there were about 40 million registered MSMEs, according to a joint survey by the Small, Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS).
This represents 4.5 per cent decrease from what existed in 2017, a factor attributed to the outbreak of COVID-19 pandemic in early 2020. Of this number, 38.4 per cent are micro enterprises, while 1.24 million are SMEs, which contribute 46.3 per cent to Nigeria’s GDP.
Unfortunately, about 600,000 MSMEs reportedly shut down in the last two years due to unfavorable business environment and other challenges. Also, the renowned drug manufacturing giant, GlaxoSmithkline, has joined the list of companies leaving the country on account of harsh business environment. This speaks volumes of the tough business climate in Nigeria that must be quickly redressed. A recent survey by SMEDAN revealed that many companies fold up before their 5th anniversary.
A report by the Manufacturers Association of Nigeria (MAN), says that energy cost alone gulps over 30 per cent of operational costs of most businesses in Nigeria. With the depreciation of the naira, forex scarcity, the new impetus for MSMEs will put the economy on the path of growth. This is why improving access to credit for MSMEs at single digit interest rate has become imperative.
The plan for the MSMEs must be seamlessly implemented. Sadly, past efforts in this direction did not materialise. For instance, the 2015 plan to boost MSMEs with N200 billion intervention fund was not successful. The commercial banks involved in the disbursement of the facility were reluctant to at a single digit interest rate. Similarly, the World Bank intervention fund for MSMEs in 2014 through the International Bank for Reconstruction and Development, was equally mismanaged. More than ever before, MSMEs need much more support to enable them salvage the economy. The government should monitor the disbursement of the N125billion fund. We say this bearing in mind that MSMEs remain the backbone of the economy. Improving the ease of doing business will stimulate economic growth. Therefore, we urge the banks and other agencies charged with the disbursement of the fund to ensure transparency in the exercise.
