Last week, I gave notice to the effect that we will be drawing the curtain on this column in about two months’ time and thereafter begin ‘The Retirement Planner’ column. Within the two months, I will strive to present what I believe our governments at various levels should be doing at macro level to further entrench entrepreneurship culture and success in our country and then ‘put everything together’ on entrepreneurship at a micro level for entrepreneurs.
I mentioned last week that indeed between our local, states and federal governments, literally trillions of Naira have been thrown into various entrepreneurship programs over the last four decades. There is no doubt that some successes have been recorded, but we are yet to get the kind of desirable cultural change and economic traction possible from the quantum of resources expended. What are we not understanding? What are we not saying right? What are not doing right?
How important are Micro, Small, and Medium Enterprises (‘MSMEs’)? The definitions of what MSMEs are differ from one economy to another. Even within the same economy, the definition can change over time and from one location to another. For our purposes here, we will adopt the Bank of Industry (BoI, Nigeria) definition of MSMES as follows:
It is easy for us to get carried away by the sheer size and ubiquity of MTN, Dangote Group, Nigerian Flour Mills, etc. And indeed, these are big and successful companies positively touching our lives in various ways. They produce and make available goods and services that we require in our lives. They employ us, our friends, and nationals. They pay their taxes and levies to governments, etc. But what else do the statistics tell us?
According to the World Bank, Small and Medium Enterprises (‘SMEs’) represent about 90% of businesses and more than 50% of employment worldwide. In addition, formal SMEs contribute up to 40% of GDP in emerging economies. These numbers are significantly higher when informal SMEs are included. Even among the developed Organisation for Economic Cooperation and Development (‘OECD’) member countries, MSMEs are said to account for 60% to 70% of jobs. In Nigeria, it was estimated that about 40 million MSMEs account for 88% of employment and 50% of the country’s Gross Domestic Product (‘GDP’) in 2022. Another World Bank estimate is that some 600 million jobs will be needed globally by 2030 to absorb growing workforce.
MSMEs in general are a substantial component of the economic engine rooms of most countries. They are relatively easily owned as sole proprietorships, partnerships, cooperatives, private limited liability, faith-based etc. MSMEs can make use of unlettered and uneducated labour to create value; they engender the use of local raw materials, serve as supply chain feeders to the larger corporations, etc.
The above highlight the importance of MSMEs not just in job and wealth creation, revenue generation to governments, contribution to GDP, etc., but also their impact on national security. Thus, it goes without saying that the more successful entrepreneurs and entrepreneurships any nation can create, the more economically and culturally vibrant the nation can be.
‘All business is local’: The cliché that ‘all politics is local’ can easily be transposed as ‘all business is local’ as well. I mean, think about it, if Lever Brothers produces a toilet soap with pig oil base and sell successfully in a Western nation, the same soap, no matter how good it might be in cleaning the human body will be rejected in Kano markets in which the buyers will be predominantly Muslim. Furthermore, most businesses are structurally and operationally best suited as MSMEs. Think of bakeries, restaurants, tailoring services, laundromats, car mechanics, logistics, warehousing, etc. In fact, even in innovation, MSMEs are known to be leaders in many fields because what they lack in large financial resources, they partially cover in creativity and agility. The import of these is that while multinational businesses might have the quantum of resources that local MSME entrepreneurs do not have, the latter could draw on business size advantages, nimbleness, and their better understanding of the indigenous environments to achieve massive entrepreneurship successes.
For the goods and services that they provide, as well as their many benefits mentioned above, governments must have more than a passing interest in the creation, nurturing and protection of MSMES to survive, grow, succeed, and blossom. This is particularly so in a developing country like Nigeria where we desperately need to get our twenty- to thirty-five-year-olds gainfully employed. Fast.
What are MSMEs’ challenges in Nigeria? According to a survey by PricewaterhouseCoopers (PwC) in 2020, (difficulty in) ‘obtaining finance’ is the most pressing problem that MSMEs face at 22% incidence. This is followed by ‘finding customers’ at 16%, ‘infrastructure deficit’ at 15%, ‘insufficient cash flow’ (which should be related to the difficulty in obtaining finance and finding customers) at 14%, ‘multiple taxation’ at 7%, ‘competition’ at 7%, ‘unskilled workforce’ at 7%, ‘Advancements in technology and technology disruptions’ at 5%, ‘Regulatory challenges’ at 4%, ‘Corruption’ at 2% and ‘Slow judiciary/court processes’ at 1%. Beyond establishing the major challenges facing MSMEs, PwC went on to estimate that the financing gap for Nigerian MSMEs was about N617.3 billion annually pre-Covid-19 pandemic.
Whilst these results might be what MSME entrepreneurs bring out as the challenges they face, and reflect the ‘he who wears the shoe knows where it pinches’ adage, I am of the opinion that they do not necessarily bring out what the root causes of the problems might be. Understanding what the root causes are is necessary if lasting solutions to the challenges are to be brilliantly conceptualized, sustainably developed, and implemented. What I consider as the root causes to MSME challenges in Nigeria will be taken up next week before we begin to consider the measures that I think our governments must take up differently and/or more seriously to help develop entrepreneurship culture and success in our country.
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