… This situation continues to frustrate and complicate the ease of doing business in Nigeria
Dr Muda Yusuf, CEO Centre for the Promotion of Private Enterprise (CPPE) and immediate former Director General of Lagos Chamber of Commerce and Industry (LCCI), poured out his mind on the state of the economy and business in Nigeria in a robust interview with SIAKA MOMOH. The abridged interview is published below.
Impact of fuel importation on exchange rate
A major source of pressure on our foreign reserves, which also affects the exchange rate is the importation of petroleum products. There is also huge forex demand for manufacturing raw materials, steel products and petrochemicals. If we make the right investment that are private sector led, we would achieve import substitution in all these areas. This would immediately ease the pressure on the forex market and stem the sliding trend of the exchange rate. This would require the right incentives to investors to bring capital into petroleum refining, petrochemicals production, iron and steel manufacturing etc. If we are able to drastically reduce imports through this import substitution strategy, the current slide of the currency would be halted.
Scaling up of investment to unlock the huge potentials in the gas sector would have a significant impact on our forex earnings.
SMES and the economy
SMEs play a significant role as the engine of economic transformation and industrialization in developed as well as developing countries. While SMEs are instrumental in improving income redistribution, creating employment opportunities, enhancing industrial diversification and alleviating poverty incidence, majority of SME operators in Nigeria are vulnerable to economic shocks due to low financial capabilities, even as the current operating environment is somewhat not supportive of SME growth.
Constraints to SME growth
Access to finance, especially bank loans and advances remains a constraint to SMEs operators. According to a report on MSMEs by PwC Nigeria, access to finance, which is an enabler of business growth, is the most pressing challenge faced by over 1, 600 sampled small businesses across Nigeria. The report put the financing gap for Nigerian MSMEs at about N617 billion annually. Technology adoption or digitalization is also very low in the SMEs space, particularly among SMEs in the informal segment of the broader economy.
Excessive regulation, notably multiplicity of taxes and levies, is yet another challenge facing SMEs. Often times, business operators are compelled to pay different kind of taxes, legitimate or otherwise. Nigeria has over 150 unofficial taxes and 60 official taxes. This situation continues to frustrate and complicate the ease of doing business in Nigeria. In addition to this, poor infrastructure, particularly inadequate grid supply and poor road networks, constitute a huge burden on small and medium operators in the country. According to the Manufacturing Association of Nigeria (MAN), about 35 percent to 40 percent of total costs incurred by small & medium manufacturers are expended on alternative source(s) of power alone. The cost of doing business in Nigeria is incredibly high due to the huge infrastructure deficit in excess of $1 trillion. The high cost of doing business has made it increasingly difficult for small and medium establishments to survive and thrive in the Nigerian operating environment.
Strategies to promote SMEs growth in Nigeria
Without digitalization, it will be almost impossible to upscale value addition across product and service value chains, and this is where financial technology (fintech) companies and financial institutions such as banks need to intervene by developing more affordable and efficient digital products that can help stimulate business operations for improved performance.
In recent months, we have seen few small and medium business operators adjust their operating models in the light of the pandemic, which makes it a compelling case for banks and fintech players to create digital products that would facilitate the viability and sustainability of these models in order to help SMEs survive and thrive in an increasingly complex business environment.
Overall, it is crucial for SME businesses to adopt technology as there are a lot of affordable applications businesses can utilize to manage their finance, deliveries, and inventories. Furthermore, it is imperative for businesses to leverage technology to improve the quality of service delivery. This might require spending time and data to study customer behaviour on ways of adapting to responses that aligns with their actions. In the post-pandemic period, full adoption of technology in business operations is non-negotiable for businesses aiming to succeed in the Nigerian business landscape.
There is the need for government (at all levels) and monetary authorities to formulate policies that would significantly help de-risk SMEs space. This could be through provision of credit guarantees to small and medium business operators, developing private-public partnership to address the huge infrastructure deficit, promoting ease of doing business policies to moderate production costs while also ensuring clarity in the policy environment. De-risking SMEs will make the general business community more attractive to various sources of private financing. Small and medium business operators would also find it easy to access funds at cheaper rates while minimizing the risk of business failure.