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    THE MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) SECTOR

    General BackgroundNigeria presents a paradox- poverty in the midst of plenty. Since the beginningof the 1980s the Nigerian economy has been wading through the muddy watersof economic imbalance, financial dislocation, cultural infiltration and politicalinstability. This is the direct result of years of inbuilt distortions in macroeconomic variables and indices. With the discovery of crude oil in commercialquantity in the early 1970s, developmental emphasis shifted from agriculturalproduction, resulting to the total alienation and neglect of the micro, small andmedium enterprises as the stimulus for development and the doors of productionand entrepreneurship.

    The huge demand for oil in the world market provided enormous foreignexchange which supported the industrial policy of that era. Industries grewto depend on external inputs in the manufacturing process. Theconsumption pattern followed suit and Nigerians imported virtuallyeverything required for their daily living. Efforts were not made to properly

    invest the petro-dollars in self-sustaining and inward looking industries andthe development of micro, small and medium enterprises. Rather, the hugeforeign exchange earnings were monetized and recycled in pursuit offlamboyant and profligate consumption taste.

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    The period described above also saw the public sector as the dominantactor in the economic scene. The government grew to be the greatestspender, investor and employer in the economic management of thecountry. For one thing, no government anywhere in the world has ever

    been known to be good investors and economic manager, but rather excelin the provision of social infrastructural facilities and acting as catalyst toprivate initiatives. Because of these inherent in government economicmanagement, a lot of weaknesses and distortions developed in theeconomy. The rural areas were left unattended to and totally marginalized,subsidies were given in the prices of goods and services. Prices and wageswere controlled. Government investments realized zero or negative returns.Inefficiencies built up, corruption and nepotism developed. The economy

    became highly regulated as financial rates in the economy were centrallyregulated. The exchange rate was determined by administrative fiat . Thebusiness environment was very hostile and not competitive for innovationrequired for the growth and development of micro, small and mediumenterprises.

    The promotion and development of micro, small and medium enterprisesector is crucial to Nigeria socio-economic re-engineering. The centre pieceof modern economic transformation revolve around the sector. They

    constitute a viable economic segment with tremendous growth potentialdue largely to their ability to generate employment, create wealth, andconsequently reduce poverty. Hence they play a crucial role as a safety netfor the bulk of the population as well as breeding ground for nurturing localentrepreneurial capabilities, technical skills, technological innovativenessand managerial competence.

    In Nigeria, the MSME sector is structured across other key sectors,including manufacturing, agriculture, solid minerals, etc. and thus hasstrong linkages with the entire range of economic activities in the country.The MSME sector is, therefore, strategically positioned to generateemployment, create wealth, reduce the prevalence of poverty and sustaineconomic growth and development. It can absorb up to 85% of jobs,improve per capita income, increase value addition to raw materials supply,improve export earnings and step up capacity utilization in key industries. It

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    is also capable of diversifying the economy from a mono-based one (overlydependent on oil) to being broad- based and stable.

    MSMEs constitute over 90.0% of all business enterprises and cover theentire range of economic activities in the country. The dearth of managerialskill and other constraints hardly make MSMEs in Nigeria profitable. Thisremoves them from being involved in the issues that positively drive theeconomy. In view of the preponderance of MSMEs in the informal sector ofthe Nigerian economy, it has been difficult to quantify their contributions tothe GDP. When MSMEs in four countries -US, UK, Hong Kong and Indiaand their MSMEs strategies benchmarked against those of NigerianMSMEs, the rapidly growing state of their MSME sectors contrastedsharply with that of Nigeria.

    OVERVIEW OF THE MSMEs SECTOR IN NIGERIA

    The MSMEs sector comprises micro, small and medium enterprises whichare distinguished as a group separate from large organizations. Majority ofMSMEs businesses in Nigeria are family-owned, have a low capital base,are located in urban and semi-urban areas and largely reside in theinformal sector. The informal sector in Nigeria refers to economic activitiesin all sectors of the economy that are operated outside the purview ofgovernment regulations.

    As in developed economies, Nigeria with the introduction of the NationalPolicy on MSMEs has addressed the issue of definition as to whatconstitutes micro, small and medium enterprises. This classification, alsoadopted by SMEDAN, defines the size category, number of employees andasset holdings as follows:

    S/N Size Category Employment

    Assets (=N= Million) (excl.land and buildings)

    *Estimated Number (% ofMSMEs) -2004

    1 Micro enterprises Less than 10 Less than 5 6.7 million (80%)

    2 Small enterprises 10 to 49 5 to less than 50 1.3 million (15%)

    3 Medium enterprises 50 to 199 50 to less than 500 420,000 (5%)

    Table 1.1: Structure of SME Sub-Sector Source: National Policy on MSMEs, *Chemonics International Inc. 2005

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    The three categories of enterprises, as defined in table 1.1, play differentroles in the economy and are influenced by the characteristics of operatorsand the strictness of entry requirements. The government will need toinstitute the right kind of programmes and policies aimed at bringing areasonable percentage of the large number of informal micro enterprisesinto the formal sector and facilitate the transition of micro and smallenterprises to medium and large scale enterprises respectively.

    The concept of MSMEs cuts across real / productive and service-relatedsectors of the economy. The informal sector refers to the part of theeconomy that does not fall under the purview of organized economicactivities. They are outside the regulation of government. This paper hasinfused the informal sector into the MSME sector. Hence while discussingthe MSME sector, the informal sector is been discussed. Due to this broadcoverage, MSMEs are typically linked to more than one business or sectorof the economy. The distribution of MSMEs across the different sectors ofthe economy as defined in the FS Plan for MSMEs is as follows:S/N Sector Enterprise Products and Activities

    1 Real Sector Agriculture Lumbering, farming of cassava, cereals, tubers, cocoa,rubber, groundnuts, etc.

    Agro-Allied Primary agricultural processing of raw agriculturalproduce such as oil palm, cocoa, groundnut, cassava,fruits, rice, etc.

    Manufacturing Food and beverage; metal, iron & steel; paper,printing & publishing; chemicals, paints, pharmaceuticals &plastics; textiles, garments &leather; wood, furniture & paper; automobilecomponents and assembly; tanning; fabricators; foundry,etc.

    Building and Building, structures, roads, etc.Construction

    r

    Solid Minerals Artisanal mining, small and medium scale mining,

    quarrying etc.2 Service-Related

    SectorInformationTechnology andCommunications

    Software development, hardware assembly, computersupply and maintenance companies, internet serviceproviders, communication accessories companies,

    etc.

    Educational Schools, colleges, continuing education centres,

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    Establishments training centres, vocational skills centres, etc.

    Tourism and Hotels, resorts, entertainment, restaurants,Leisure recreational services, arts, etc.

    Transportation Road transport, water transport, logistics, haulage,storage and warehousing etc.

    Trade and Wholesale and retail, supermarkets, shops, importCommerce and/or export etc.

    Other Services Consulting, law, healthcare, financial services, realestate etc.

    Table 1.2 Distribution of MSMEs across Sectors

    In addition to the many challenges being faced by MSMEs in the country,they lack well-developed and well-managed funding systems strategicallydesigned and targeted to meet their specific needs. Accordingly, theircontributions to the growth and development of the country had beenminimal. This is vividly shown in Table 1 below where the contribution ofthe MSMEs sector to the GDP, export earnings, and employment inNigeria are compared with those of selected countries to emphasize thepoor performance of the sector in the period under review.

    Countries Employment Export Earnings Contribution to GDP

    UK 53 27 52

    USA 52 30 50

    India 79 38 40

    Hong Kong 78 37 51

    Japan 70 40 51

    Nigeria 75 2 10

    Table 1.3 Source: CBN SMI Surveys (2005) and SMEDEC of Malaysia

    From Table 1.3 above, it could be seen that the Nigerian MSMEs sector

    contributed just 2 percent and 10 percent to export earnings and GDP in

    2006 respectively. The low export contribution is attributed to lack of

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    skills/management capacity, poor product quality, low production capacity,

    poor access to international markets, and lack of working capital hence the

    sector has tended to serve the bottom end of the domestic market.

    Overall, while some progress has been made in respect of change inbusiness registration procedures and micro finance, the problem of poorinfrastructure (power, rail, road, water, etc.) remained a very seriouschallenge.

    THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY OFNIGERIAN (SMEDAN)

    In its continued search for a solution towards a vibrant and virile micro, small,

    and medium enterprises sector, and to entrench the sector into the main stream

    of the Nigerian economy. The Small and Medium Enterprises Development

    Agency of Nigeria (SMEDAN) was established vide the Small and Medium Scale

    Industries Development Agency (Establishment) Act 2003 and charged with the

    responsibility of promoting and facilitating the development programmes in the

    micro, small and medium enterprises sector. The Act enacted by the National

    Assembly came into force on 19 th June, 2003. The Agency is a one stop shop for

    nursing and nurturing micro, small, and medium enterprises in Nigeria.

    Consequently, the Small and Medium Development Agency of Nigeria (SMEDAN)

    has since inception been in the forefront of promoting and developing Micro,

    small and medium enterprises and entrepreneurs. The enterprises and

    entrepreneurs have continued to manage and grow their businesses. Through

    mind-blowing innovative concepts, they continue to stretch the frontiers and

    landscapes of their individuals enterprises, and accordingly, they are capturing a

    bigger slice of their target markets and establishing themselves as points of

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    reference in this sub sector. SMEDAN as a child of necessity is now the voice of

    the MSMEs in Nigeria.

    Vision: To establish a structured and efficient micro, small and medium

    enterprises sector that will enhance sustainable economic development of

    Nigeria.

    Mission: To facilitate the access of micro, small and medium

    entrepreneurs/investors to all resources required for development.

    Mandate- The mandate of SMEDAN as contained in the enabling Act can be

    summarized thus:

    I. Stimulating, Monitoring and Coordinating the development of the

    MSMEs Sector;

    II. Initiating and articulating policy ideas for small and medium enterprises

    growth and development;

    III. Promoting and facilitating development programmes, instruments and

    support services to accelerate the development and modernization of

    MSME operations;

    IV. Serving as vanguard for rural industrialization, poverty reduction, job

    creation and enhanced livelihoods;

    V. Linking MSMEs to internal and external sources of finance, appropriate

    technology, technical skills as well as to large enterprises;

    VI. Promoting and Providing access to industrial infrastructure such as

    layouts, industrial parks, etc;

    VII. Intermediating between MSMEs and Government;

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    VIII. Working in contact with other institutions in both public and private

    sector to create a good enabling environment of business in general and

    MSME activities in particular.

    SMEDAN Intervention Strategy

    Conscious of our mandate and the strategic position we occupy in fostering a

    viable and vibrant MSMEs in Nigeria. The Agency s intervention strategy

    centres on the following areas:

    I. Sourcing , Processing and Disseminating Business Information to MSMEs

    II. Policy DevelopmentFormulate and ensure due approval and implementation of an MSMEs policy

    for Nigeria, conduct impact assessment studies and use same to recommend

    improvements in policy intervention and conduct regular stakeholders fora.

    III. Establishment of Business Support Centres and Business Information

    Centres (BSCs and BICs) in collaboration with State and Local

    Governments.

    IV. Capacity Building and Promotional Services for MSMEs

    V. Facilitating the establishment of Industrial Parks through public-private

    partnership.

    VI. Enhance MSMEs Access to Finance and liaise with other institutions for the

    establishment and operation of MSMEs Credit Guarantee Scheme.

    VII. Collaborating with Trade Groups, Business Membership Organisations, NGOs,

    Government Ministries and Agencies, Research institutions,

    Multilateral/Donor Agencies, etc to create a dynamic network of stakeholders

    in the development of MSMEs sector;

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    VIII. Collaborating with Networking and Counseling MSMEs to ensure

    sustainability

    IX. The National Policy on Micro, Small and Medium Enterprises

    We have recently emerged with a policy geared towards the development of

    MSMEs in Nigeria in a structured and efficient manner. The implementation is

    being awaited.

    X. Entrepreneurship Development Training Programmes to enhance the

    capacity of existing and potential entrepreneurs/business persons;

    XI. Organising Seminars, Conferences and Workshops to sensitize the public

    towards being their own bosses as well as deepening and broadening

    entrepreneurship and business management;

    XII. Organising MSMEs trade fairs and exhibitions to create markets.

    MSMEs BENCHMARKING ASSESSMENT

    In assessing where Nigeria is today vis--vis other countries worldwide thegreater concern is given to the developed and emerging economies sincethey are the nations Nigeria will have to catch up with if she is to becomeone of the leading 20 economies by 2020.

    Enterprise Creation and Employment Generation:

    Nigerias definition of MSMEs compares with the EU single definition.Based on this we can easily assess where we are in this regard withrelevant countries as follows:

    UK Belgium Ireland Nigeria*

    No of SMEs (%) 99.6 99.8 99.5 87

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    No of Persons Employed (%) 54.0 66.6 66.5 10

    Value Added 51.6 57.4 55.6 NA

    Table 1.4 Enterprise creation and employment generation benchmark comparison Index Source: European Commission Enterprise and *Industry SBA fact sheet.

    With such high number of MSMEs and share in total employment, it isobvious that SMEs in Europe form the backbone of the economy. On thewhole, MSMEs in Europe are more internationalized and have easieraccess to finance, public procurement and public aid. Nigeria needs toboost the creation of MSMEs by at least 10 percent to reach the level ofvalue added by MSMEs in developed economies.

    GDP Contribution and Export Earnings:A 2006 CBN publication shows the contribution of MSMEs in someadvanced and emerging countries and Nigeria with respect to contributionto GDP and export earnings are as follows:

    US UK IndiaHongKong Japan Nigeria

    GDP contribution (%) 50 50 36 52 50 10

    Export earnings (%) 28 25 35 30 35 2

    Table 1.5 GDP contribution and export earnings benchmark comparison 2006DataSource: SMEDAN 2006

    Nigerias MSME sector grossly underperforms in contribution to GDP whencompared to other countries. Ariyo (1999) suggests that the difference liesin the importance ascribed to the sector, pointing out that while the sectornot only forms the bedrock of the UK economy, there is also an age-long,generally acceptability that it is the hub of economic activities in thecountry. However, in Nigeria, the issue of the MSMEs sector and itsdevelopment has been handled with levity by previous governments.

    The Nigerian MSME sector contributes just 2 percent to export earnings.The low export contribution is attributed to lack of skills/management

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    capacity, poor product quality, low production capacity, poor access tointernational markets, and lack of working capital hence the sector hastended to serve the bottom end of the domestic market.

    Global Competitiveness

    The World Economic Forum defines competitiveness as the set of institutions, policies and factors that determine the level of productivity in acountry. Nigeria and 133 other countries are assessed and ranked basedon twelve pillars or indices of competitiveness including: Governmentinstitutions; Infrastructure; Macroeconomic stability; Health and primaryeducation; Higher education and training; Goods market efficiency; Labourmarket efficiency; Technological readiness; Market size; Businesssophistication; and Innovation.

    The ranking of Nigeria and other economies, in select globalcompetitiveness indices highly relevant to SMEs, is depicted in the tablebelow:

    Global competitiveness benchmark comparison

    Competitiveness Index

    United States(Rank/134)

    UnitedKingdom(Rank/134)

    India(Rank/134) China(Rank/134) Nigeria(Rank/134)GovernmentInstitutions

    29 25 53 56 106

    Quality of OverallInfrastructure

    7 18 72 47 120

    Health and PrimaryEducation

    34 19 100 50 126

    Goods MarketEfficiency

    8 19 47 51 56

    TechnologicalReadiness

    11 8 69 77 94

    Innovation 1 17 32 28 65

    Financial MarketSophistication

    9 5 34 109 54

    Table 1.6 - Competitiveness Ranking of 134 Countries

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    Source: World Economic Forum Global Competitiveness Report 2008 - 2009

    When Nigeria is compared to other MSME driven economies based on theselected indices, it is inferred that the following factors have contributed tothe poor performance of Nigerias SMEs sector:

    Institutional framework: The UK, ranked 25th

    in this category, has asuperior institutional framework in place and Government has madevast efforts towards the development of MSMEs. In Nigeria, on theother hand, institutional framework and government support are bothmajor drawbacks to the development of MSMEs. This includes thelegal framework which encompasses business registration, protection

    of land and property rights, access to construction permits and taxissues. Quality of overall infrastructure: Nigeria is ranked 120

    thwhile the

    United States with its high quality infrastructure is ranked 7th

    . Poorinfrastructure is the biggest problem confronting MSMEs. Powersupply is epileptic, road networks are poor, telecommunicationsfacilities are costly and water supply is inadequate both in quality andquantity. It is estimated that infrastructural deficiencies contributeabout 40 percent to the cost of doing business in Nigeria and this

    impacts on the competitiveness of MSME products and services. Health and primary education: Nigerias poor ranking of 126

    th, in

    comparison to an emerging country, like China ranked 50th

    , isindicative of the low level of human capital development predominantin Nigeria. There is a large pool of untrained and unskilled manpowerin the MSME sector and the educational system is not structured tosatisfy the employment requirements of entrepreneurs.

    Goods market inefficiency: Another major drawback to MSMEperformance is trade across borders. Access to international markets

    is restricted and there is serious competition with cheaper, sub-standard imported goods. Technological readiness: Nigerian MSMEs rely more on traditional

    labour rather than on the use of modern technology. However theobsolete technologies implemented cannot meet the productionchallenges of today.

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    Innovation: Research and development efforts and investment aretotally insufficient and there is little coordination between MSMEs,innovative centres and universities. The downloading of information isweak and valuable intellectual property remains unprotected. Come

    2020, for Nigerian MSMEs to maintain a competitive edge overcountries like China and India, ranked 28th

    and 32nd

    respectively, theymust start designing and developing cutting-edge products andprocesses.

    Financial market sophistication: As stated in the WEF globalcompetitiveness report; Business investment is critical toproductivity. Therefore economies require sophisticated financialmarkets that can make capital available for private-sector investmentfrom such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financialproducts. In developed countries like the US ranked 9

    th, and the UK

    ranked 5th

    , the financial sector has placed adequate emphasis onsupporting and promoting MSMEs.

    . Nigerias respectable ranking of 54

    thin financial market sophistication

    shows that although funding is a constricting factor other issues ofinfrastructural inadequacy, inadequate legal framework, poor quality ofeducation and technology are more urgent. Notwithstanding, funding and

    financial services for Nigerias MSMEs are inadequate. Most entrepreneursresort to utilizing unpredictable and insecure sources of capital such aspersonal earnings and loans from family, friends and informal loanassociations. Those MSMEs able to source funds from the banking sectorare faced with high interest rates, complex application and approvalprocedures and provisos of high value collateral.

    MSMEs BEST PRACTICE ASSESSMENT

    MSME international best practice is itself dynamic however those bestpractices presented here, stress the fact that higher levels of investment inhuman and physical capital through MSMEs will result in higher rates ofgrowth in per capita income. Other factors that will bring about growth areeconomic organization, innovation and absorption of technology.

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    ChinaIn China, MSMEs account for 60% of industrial output, 55% of its GDP and75% of employment. The most remarkable aspect of China's small and

    medium enterprises is their rapid growth despite their inability to tap theofficial financial system. Two factors predispose even faster development inthe near term. One is their suitability for the post-WTO accession economy.MSMEs in China will continue to thrive as more responsive partners offoreign companies than large state firms. They will also have theopportunity to move into market segments once dominated by state firms.The other factor is that the policy environment for MSMEs appears to beimproving steadily. The MSME Promotion Law will help, especially if itleads to better access to bank lending, as would improvement, in andexpansion of the credit guarantee system. An important indicator to will bewhether the 16th Party Congress builds on the progress made at theprevious two Congresses in fostering an ideological framework conduciveto MSMEs.

    An MSME promotion law has been instituted codifying the official definitionof SMEs and clarifying what support government will be making available tothem and in the 1990s the Government created a network of creditguarantee agencies for MSMEs which ensures loan repayment to banks

    and assisting them in relaxing their financial constraints.

    IndiaIn laying a solid base for industrial development, the Government of Indiadirected a reasonable part of policy on the development of small scaleindustries. It provided the small scale industries necessary policy support,needed protection, facilities and incentives.

    As early as the 1950s and 1960s, through the Industrial Policy Resolutions,the government provided support for small scale industries on a protectivebasis by providing subsidies, concessions, small scale industryreservations and direct government support.

    With the changes that took place since 1991 when the Government of Indiaannounced the Small Scale Industries (SSI) Policy Statement, a great deal

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    of entrepreneurial spirit has emerged, which is being nurtured for futuregrowth. Many of the older restrictions on business ownership have beenremoved and fewer clearances are now required for foreign partnershipand direct investment.

    The Indian Government has supported MSMEs in the following areas: The setting up set up a host of institutions and organizations to

    nurture the growth and development of MSMEs

    Creation of supportive market conditions in the domestic market.

    Development of exports capability of small scale industries andexport of their products.

    Procurement, supply and distribution of indigenous and imported rawmaterials.

    Development of prototype machines, equipments and tools, whichare then passed on for commercial production.

    Supply of both indigenous and imported machines on easy hirepurchase terms and special concessions.

    Supply of indigenous and imported machines on lease basis toexisting units for expansion, diversification and modernization.

    Capacity development of entrepreneurs and training in severaltechnical grades.

    United KingdomThe UK has a well developed MSME sector -99.9% of businesses areSMEs providing 54.1% of employment and contributing over 50% of the

    countrys annual GDP. There are 3.7 million MSMEs in the UK, that is, oneenterprise for every ten people of working age. From 1983 to 1988, theBritish Government administered a credit guarantee scheme of 750 millionpounds in business expansion and tax relief to entrepreneurs in quotedcompanies; and effectively linked MSMES with appropriate technologiesand educational institutions. 19,000 MSMES benefited from the program.

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    South KoreaThe Korean government initially placed the burden of industrialdevelopment on the giant industries, but over time the government realizedthe importance of a dynamic, flexible and efficient MSME sector that canprovide specialized subcontracting services to the large firms. Laws werepassed to promote MSMEs, leading to a perceptible rise in their share ofeconomic activity. The system of policy support was crucial to the reversalin their performance. The policy options covered the setting up ofspecialized banks to finance MSMEs and the promotion of subcontractingby large-scale industries:

    TaiwanThere are about 700 thousand MSMEs in Taiwan, accounting for 70% ofemployment, 55% of GDP and 62% of total manufactured exports. Theindustrial structure is dominated by MSMEs and programs to promotesubcontracting have been of special significance of the country's industrialdevelopment.

    In 1982, the government set up the Medium and Small BusinessAdministration to coordinate the efforts of several support agencies thatprovided financial, management, accounting, technological and marketingassistance to the MSMEs. The Taiwan Medium Business Bank, the Bank ofTaiwan, the Small and Medium Business Credit Guarantee Fund, and theSmall Business Integrated Assistance Centre also provide targetedfinancial assistance to MSMEs.

    In Taiwan, a large number of small and medium sized enterprisesspecialize in a variety of skilled intensive and flexible operations aimed atworld markets but most are too small to conduct their own research anddevelopment. The government helped them with a range of technologicalsupport measures:

    One of the most important has been to transfer to MSMEs,production-ready technology that the government has imported andadapted.

    There is development in the use of MSMEs to implement localcontent measures, but more effective have been measures to raise

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    the efficiency of local firms through programs of technical assistanceand quality enhancement.

    A number of institutions were set up to provide credit, technology and

    marketing assistance. The China Productivity Centre is the bestknown for its efforts to promote automation in industry to cope withrising wages and increasing needs for precision and quality.

    CHALLENGES FACING MSMEs

    Though MSMEs are necessary for the economic development andgrowth in Nigeria, certain peculiar challenges continued to militateagainst their optimal performance. Some of these challenges areinternal while some are external. Among the internal ones are:

    - Poor entrepreneurial capacity of operators in successfullyrunning MSMEs.

    - Aversion to joint ownership is a major setback in achieving thedesired relevance of MSME operations.

    - Family ties/interferences are major constraints in runningpersonnel recruitment/placements, discipline, etc.

    - Weak financial management.

    - Non-recruitment of qualitative staff as a result of keepingrunning cost low usually affects the quality of output from suchorganizations.

    - Poor record keeping especially accounting books makesevaluation either by the business owner or potential investorsdifficult.

    - Lack of standardization of products has the capacity of reducingmarket share with negative impact on funding.

    - Low capacity to invest in R&D have not allowed for new,cheaper and better methods of production.

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    - Low use of ICT in operations has a direct effect on cost ofproduction thereby making MSMEs unattractive.

    Among the external challenges are:

    - Poor state of infrastructure: MSMEs need steady power supply,water, roads, markets, etc for effectiveness.

    - Poor access to appropriate and affordable workspace.

    - Inability to access useable finance: Access to finance is a majorchallenge hindering MSMEs growth. Most financial institutionstend to address the financial needs of large enterprises leavingMSMEs unattended to.

    - Low synergy between various tiers of government: Theabsence of synergy between the different tiers of governmenthas not allowed the growth and development of the MSMEssub-sector.

    - Multiplicity of taxes: In an attempt to generate funds for theirdifferent levels of administration, governments at various levelshave imposed all kinds of taxes/levies on MSMEs therebyhampering their survival.

    - Inappropriate technology: The financial status of most MSMEsdoes not allow them to access appropriate technology.

    - Dearth of business information/data bank: Most MSMEsoperate with little or no business information or data. This doesnot allow them to make informed decisions necessary foroptimal performance.

    - Poor inter/intra sectoral linkages: The absence oflinkages/cooperation between MSME operators and the large

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    enterprises is a major problem affecting the growth of the sub-sector.

    Opportunities

    Despite the challenges and limitations, there are great opportunitiesin the MSMEs sub-sector in Nigeria:

    (1) Resource Endowments Since wealth is essentially value added to resources, ourcountrys enormous resource endowments clearly provideample opportunities for entrepreneurship and wealth creation.Our farm lands, our large cities, our water ways and coastalgeography, our mineral resources, our forests, our fauna andflora across the country provide boundless resources forconversion into higher value goods and services.

    (2) Population People are the ultimate generators as well as beneficiaries ofwealth. Markets in which exchange of value (trade) istransacted are created by the demand for goods and servicesconsumed by people. Our large population thereforeguarantees vast market opportunities for every kind ofenterprise.

    (3) An Emerging Democratic Environment Sustainability and growth of entrepreneurship and enterprisesrequires sin qua non the existence of a supportive democraticenvironment. This is to ensure that a consistent action toincrease wealth occurs in an atmosphere of peace, security andrule of law. Since investments are attracted to such investment-friendly environments, it would also require the institutions andfacilities that encourage a more concerted effort to createMSMEs and ultimately generate wealth. These will includeeffective and efficient infrastructure, regulations, ideas

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    protection system and an effective judicial system that ensuresexpeditious and cost effective resolution of commercialdisputes.

    (4) Deepening Supportive Economic Reforms On-going economic and institutional reforms aimed at privatesector development provide an increasingly conduciveenvironment and positive incentives for MSMEs especially inthe form of reliable infrastructure, open competitive and levelplaying field, transparent and accountable institutions and agrowing anti-corruption policy stance which promotes initiative,innovation and entrepreneurship.

    (5) Improving Human Capital Given the continuing reforms of our educational sector and ourlarge and young population, the availability of educated andskilled people is set to increase rapidly and ensure thesustained growth of the most critical resource for enterprisedevelopment and sustainable wealth creation.

    (6) Technology The advent of technology has fast-tracked all systems involved

    in MSMEs development. Not only has it expanded the frontiersof economic possibilities, it has also enhanced access toseveral economic engagements by a larger number of thecritical mass of society. Through technology, the entire worldhas been reduced to a virtual village and enabled businessesand interactions across borders that have opened up limitlessmarket opportunities for even the smallest of enterprises.

    (7) Emerging new ideas

    New innovative ideas for sustaining enterprise creationopportunities, especially by linking the opportunities to thefinancial mainstream are also emerging. New approaches couldbe programmed to affect the critical mass, as has been

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    exemplified by the Grameen Bank innovation by ProfessorMohammed Yunus.

    THE WAY FORWARD

    Moving Nigerias economy from its present level to o ne of the top 20 worldeconomies by the year 2020 requires major changes involving operationalinstitutional realignments and redefinitions of our national economic goalsand objectives. The MSME sector must now join the rest of the economiesin pooling resources in pursuit of best practice. In this regard, certainfactors have been identified as critical for the MSMEs sector:S

    Innovation The MSME sector needs to put in place effective innovative schemes thatcan bring together small enterprises in various industries to exploit theimmense national business opportunities. After all, the best ideas comefrom operators (MSME workers and managers) and clients.

    Information There is a huge amount of information available to small businesses whichare often times wasted. MSMEs have little time to wade through the massof available information that could be vital to their survival. MSMEs couldcome together and establish business links; a national network of one-stopshops designed to bring together the e xisting confetti of agencies andinformation. MSMEs could be encouraged to view business links aspotential focal points. Availability of information on access to credit/loan,profitable market, appropriate technology and business support serviceswill spur increase in the number of new business and guarantee thesurvival of existing ones.

    Enterprise Creation and Competitiveness Increasing the number of new businesses (start-ups) annually for the nextfive years will ensure targets for nationwide employment generation andpoverty alleviation are met. Sufficient information on new technology and

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    innovations will ensure global competitiveness in terms of product qualityand pricing. We must start early to address issues of quality and prices.The issues of both corporate governance and best practice must be on theMSMEs front burner as should be the need for information, communicationtechnology.

    Funding To fuel MSME growth and development, stable and secure access tofinance and credit facilities are required. Developed economies are stillmobilizing credit for their MSMEs to be used for either business start-ups,expansion or simply for technological upgrades, innovations, and thesourcing of more profitable markets. The government can initiate grants for

    capital projects, research and development, vocational training andadvisory services. This is expected to have multiplier effects on humancapital capacity in general, technical skill development and promotion of e-business applications. The end result would be noticeable qualityimprovements and international standard best practices adopting andadaptation by MSMEs.

    Energy Energy, especially sustainable power supply is one other factor making theMSME sector tick world over. A review of the top 20 economies revealeddrastic changes in the quantum and quality of power supply. Withoutregular power supply at reasonable cost, MSMEs in Nigeria may never beglobally competitive. MSMEs currently spend significant proportion of theiroperating costs on electricity alone either involving acquisition of generator,spare parts, fuel and other related costs and in the end suffer significantlosses.

    Enterprise Clusters, Industrial Parks and Incubation Concepts Now is the time to take issues of enterprise clusters, industrial parks andincubation concepts seriously as such concepts will encourage MSMEs topool their resources to reduce costs. These concepts will also encourage

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    the provision of other enterprise resources such as Business DevelopmentServices (BDS) or Business Support Services. Public-private partnership inthis direction can be quite effective since most MSMEs may be willing topay a little extra to have such facilities in a more sustainable manner. Thebusiness cluster and incubation concepts will also promote theformalization of the huge informal sector thus enhancing governmentcapacity to generate revenues and rates from the sector. They will alsoassist government in administering incentives to actual beneficiaries forwaste elimination. Business cluster and incubation concepts also havepositive implication for profitable market since they allow MSMEs to poolproducts and services to meet export demand thus guaranteeing a steadyor ready market for their products.

    Institutional Realignment In terms of institutional re-alignment, there is virtually absence of supportinstitutions to coordinate the various efforts targeted at MSMEs. Institutionslike CBN, BOI, SMEDAN and a host of others, function independently thusmaking coordination, evaluation and monitoring of MSME related activitiescumbersome. The result is dearth of expertise necessary to grow the sectorand more challenging management of MSMEs. In most benchmarked

    countries in both the developed and emerging economies, a minimum ofthree major institutions comprising a FG agency with a definedresponsibility for policy related issues (formulation, evaluation andmonitoring) and coordination of all MSME related activities. The secondinstitution is that which brings together all MSME stakeholders; governmentAgencies, SME operators (owners/managers), and other interest groups forwhat could be known as Nigerias MSME Council to regularly review,update and streamline MSME activities.

    Enhanced Linkages with the Agric Sector Another factor which has incredible pull on MSME sector is agriculture. Inthe past, prior to the discovery of petroleum, Nigerian economy wasvirtually driven by a buoyant agric sector however before the sector couldprovide the missing link (via demand/supply value additions) most agric

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    processing businesses in the economy lost their focus and became oilcrazy to the extent that it became impossible to provide preservationfacilities to prolong agric products shelf life that will ensure food securityeven in the face of the countrys teaming population. The spin -off effect ofthe agricultural sector on MSMEs is huge and therefore needs to bepromoted to ensure steady supply of input and generation of newbusinesses and employment. For the MSME sector to take its properposition in the countrys economic mainstream, the agric sector needs to bereinvigorated to produce goods and services not only at the right quality butalso at the right price to ensure competitiveness and profitability. Improvedseedlings and better yield are factors that can promote viability andsustainability in both the agricultural and MSME sectors respectively andcollectively. Aside from the employment generated by the number of spin-off businesses along the agricultural sector, the supply-demand value chainultimately stimulates and creates additional multiplier effects on MSMEsalong the same value chain. All these chain reactions have positive effectson employment, income levels, and disposable income and, by extension,life expectancy.

    Capacity Development

    Developing entrepreneurs and entrepreneurship is also a priority. As theproposed initiatives for the MSME sector are rolled out, it will beincreasingly important to deepening the entrepreneurship programme oftertiary and other institutions to ensure a large pool of highly skilledgraduates are participating in the sector. Capacity building in specificareas, technical skill development in identified industries and e-businessapplication are also recommended. Enterprise development training shouldbe introduced as part of the basic curriculum in both the secondary and

    tertiary institutions.

    Culture and Corporate Governance Culture and corporate governance are equally critical. Certain culturesimpose unnecessary restrictions, especially on women, which discourage

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    hard work and encourage laziness. The number of public holidays, strikesand shutdowns in Nigeria remains high. The issue of work ethics could alsobe considered a possible drag in our quest to achieve the goals andobjectives of the long-term strategy plan for the MSMEs sector. Thus keyfactors and laws promoting corporate governance need to be reviewed andkept in line with our national economic aspiration.

    National Reorientation and Social Responsibility National reorientation is another important aspect worthy of consideration.There is need for attitudinal changes. Work ethics and integrity need toadapt in line with global business dynamics. It also touches patriotism anddemonstrates passion for whatever and individual finds his/her hands

    doing. It also means dignity in labour and being responsible for onesactions and inactions. This has implications on adherence to the principlesof social responsibility. Reorientation must also occur requiring leadershipby example, humility on the part of government and commitment to goalsand aspirations.

    CONCLUSION

    MSMEs in the country are more likely to be able to play an important role in

    economic development if policies that promote the following are in place:

    Stable financial development, effective and secure financial systemsand targeted lending

    Good institutions at all levels of government supporting andpromoting MSMEs. This will ensure corruption and regulatoryburdens are minimized and rule of law, land and property rights,creditors rights etc. are overcome accordingly.

    Good infrastructure and facilities that encourage MSMEs to pool theirinformation and resources

    High level of entrepreneurship and sufficient human capitaldevelopment

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    Promotion of and access to innovation and technology and adequateopenness to foreign technology.

    Countries with good policies that encourage stable exchange rates,low inflation, minimize entry regulations and promote attainment ofhigher levels of education.

    As the economy grows, appropriate rules and regulations thatencourage fair competition should be in place to guide the increasingnumber of companies involved in the domestic and export markets.

    Stable policies targeted at MSMEs that provide sustained supportand guidance and encourage investment in the sector

    . Improved coordination, cooperation and collaboration among theAgencies and stakeholders in the promotion and development ofMSMEs.

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