Given their strategic significance to developing economies, the recent report of the collapse of scores of Small and Medium Enterprises (SMEs) in Nigeria is bad news for the growth and development of the country’s national economy. Speaking to journalists on Monday, September 5, 2022, on the sideline of a sensitisation programme organised for indigenes of the Federal Capital Territory (FCT) by the Socio-Economic Research and Development Centre (SERDEC) in Kuje Area Council, the FCT Manager of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Mrs Mary Kolawole, disclosed that over two million SMEs collapsed between 2019 and 2021 across the 36 states of the federation and the FCT. The immediate past Director General (DG) of SMEDAN, Dr Dikko Radda, had in fact disclosed this earlier in April, this year.
Mrs Kolawole hinted that official figures from the National Bureau of Statistics (NBS) showed that FCT indigenes had the lowest number of Micro, Small and Medium Enterprises (MSMEs) in the country. She explained that during SMEDAN’s 2017 census of SMEs carried out in collaboration with NBS, the agency recorded 41 million SMEs; noting that the number reduced to 39 million when another census was carried out in 2021; attributing the decline to the COVID-19 pandemic.
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SMEDAN was established by the SMEDAN Act of 2003 to promote the development of the MSMEs sector of the Nigerian economy with a vision to “establish a structured and efficient Micro, Small and Medium Enterprises sector that will enhance sustainable economic development of Nigeria”. SMEDAN exists to stimulate, monitor and coordinate the development of the MSMEs sub-sector; initiate and articulate policy ideas for SMEs’ growth and development, among other functions.
The law establishing SMEDAN expects the agency to provide access to industrial infrastructure such as incubators; link MSMEs to internal and external sources of finance and appropriate technology, as well as to large enterprises. SMEDAN is also required to synergise with other institutions in both public and private sectors to create a friendly environment for businesses to thrive, particularly MSMEs. A well-developed and efficiently-managed MSMEs sector is one of the most veritable channels to combat poverty.
According to a World Bank report, SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90 per cent of businesses and more than 50 per cent of employment worldwide. Formal SMEs contribute up to 40 per cent of Gross Domestic Products (GDPs) in emerging economies. These numbers are even likely to be higher when informal SMEs are included.
SMEs contribute to national economies through employment creation, poverty alleviation and income generation. SMEs provide essential goods and services, especially to countryside populations. They meet critical daily needs, including consumables and healthcare products, in rural communities. Because an SME team comprises of few persons, they are able to quickly respond to changes in the market.
While the COVID-19 pandemic might have aided the collapse of some SMEs, a mortality figure of two million in two years is significant. Were SMEDAN efficient in its monitoring obligation, the rate at which SMEs collapsed in two years would have been minimal; suggesting that the SMEs are not monitored to assess, predict and forestall conceivable risk factors. The many challenges faced by SMEs in Nigeria include limited access to finance, lack of business skills and lack of access to useful information to aid decision making in business matters.
SMEs also fail due to problems arising from financial illiteracy represented in poor management practices. Access to finance, however, remains the greatest constraint to SMEs’ growth in Nigeria.
The business environment within which SMEs operate in Nigeria is also harsh. Poor electricity supply, high cost of petrol and diesel to power generators, insecurity of business premises and the cost of transporting goods to business outlets make the environment most unfriendly for SMEs to thrive. Where then is the much talked about “ease of doing business”? SMEDAN, which on behalf of government, has the mandate to link entrepreneurs with relevant service providers, including financial institutions that offer credit facilities and large enterprises owners, has substantially failed in this task.
Again, SMEDAN has also not been forthcoming in equipping SME entrepreneurs with necessary skills, guidance and financial literacy needed for them to be successful. SMEDAN should create immunity against failure for the MSEs by helping them to appreciate and effectively eliminate or manage risk factors. This involves decision-making elements that concern customers, products and marketing strategies. Some of these challenges would have been averted if SMEDAN had properly guided SMEs to take full advantage of the potentials stashed in business incubators.
The nation’s economy is affected when SMEs die from avoidable risk factors. Like a new baby fondly cared for by its parents, government, through SMEDAN, should be interested in the survival of SMEs, especially in their first five years of establishment. When an SME dies, SMEDAN should, by the same token, find out what killed it from among all potential threats, including poor management and ruinous market forces.
Given all the needed support, SMEs have the capacity to propel Nigeria’s economy to prosperity.
We, therefore, call on SMEDAN to wake up to its responsibilities and work hard to positively change the existing narrative.
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