CHALLENGES FACING MSMEs

An article by Godfrey    2 Comments

by Muhammad Nadada Umar, Director-General, Small & Medium Enterprises Development Agency Of Nigeria (SMEDAN)

Though MSMEs are necessary for Nigeria’s economic growth and development, certain peculiar challenges continued to militate against their optimal performance. Some of these are internal, while others are external. Among the internal are:

• Poor entrepreneurial capacity of operators in successfully running MSMEs.
• Aversion to joint ownership is a major setback in achieving the desired relevance of MSME operations.
• Family ties/interferences are major constraints in running personnel recruitment/placements, discipline, etc.
• Weak financial management
• Non-recruitment of qualitative staff as a result of keeping running cost low usually affects the quality of output from such organizations.
• Poor record keeping especially accounting books makes evaluation either by the business owner or potential investors difficult.
• Lack of standardization of products has the capacity of reducing market share with negative impact on funding.
• Low capacity to invest in R & D has not allowed for new, cheaper and better methods of production.
• Low use of ICT in operations ahs a direct effect on cost of production thereby making MSME 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 major challenge hindering MSMEs’ growth. Most financial institutions tend to address the financial needs of large enterprise leaving MSMEs unattended to.
• Low synergy between various tiers of government. The absence of synergy between the different tiers of government has not allowed the growth and development of the MSMEs sub sector.
• Multiple of taxes in an attempt to generate funds for their different levels of administration, governments at various levels have imposed all kinds of taxes/levies on MSMEs thereby hampering their survival.
• Inappropriate technology: The financial status of most MSMEs does not allow them to access appropriate technology.
• Dearth of business information/data bank: Most MSMEs operate with little or no business information or data. This does not allow them to make informed decisions necessary for optimal performance.
• Poor inter-intra sectoral linkages: The absence of linkages/cooperation between MSME operators and the large enterprises is a major problem affecting the growth of the sub sector.

Opportunities:
Despite the challenges and limitations, there are great opportunities in the MSMEs sub sector in Nigeria.

1. Resource Endowments
   Since wealth is essentially value added to resources, our country’s enormous resources endowments clearly provide ample opportunities for entrepreneurship and wealth creation. Our farmlands, our large cities, our waterways and coastal geography, our mineral resources, our forests, our fauna and flora across the country provide boundless resources for conversion into higher value goods and services
2. Population
   People are the ultimate generators as well as beneficiaries of wealth. Markets in which exchange of value (trade) is transacted are created by the demand for goods and services consumed by people. Our large population therefore guarantees vast market opportunities for every kind of enterprise.
3. An Emerging Democratic Environment
   Sustainability and growth of entrepreneurship and enterprises requires, sine qua non, the existence of a supportive democratic environment. This is to ensure that a consistent action to increase wealth occurs in an atmosphere of peace, security and rule of law. Since investments are attracted to such investment-friendly environments, it would also require the institutions and facilities that encourage a more concerted effort to create MSMEs and ultimately generate wealth. These will include effective and efficient infrastructure, regulations, ideas protection system and an effective judicial system that ensures expeditious and cost effective resolution of commercial disputes.
4. Deepening Supportive Economic Reforms
   On-going economic and institutional reforms aimed at private sector development provide an increasingly conducive environment and positive incentives for MSMEs especially in the form of reliable infrastructure, open competitive and level playing field, transparent and accountable institutions and a growing anti-corruption policy stance which promotes initiative, innovation and entrepreneurship.
5. Improving Human-Capital
   Given the continuing reforms of our educational sector and our large and young population, the availability of educated and skilled people is set to increase rapidly and ensure the sustained growth of the most critical resource for enterprise development 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 frontiers of economic possibilities, it has also enhanced access to several economic engagements by a larger number of the critical mass of society. Through technology, the entire world has been reduced to a virtual village and enabled businesses and interactions across borders that have opened up limitless market opportunities for even the smallest of enterprises.
7. Emerging new ideas
   New innovative ideas for sustaining enterprise creation opportunities, especially by linking the opportunities to the financial mainstream are also emerging. New approaches could be programmed to affect the critical mass, as has been exemplified by the Grameen Bank innovation by Professor Mohammed Yunus.

CRITICAL SUCCESS FACTORS FOR MSMEs IN NIGERIA
Moving Nigeria’s economy from its present level to one of the top 20 world economies by the year 2020 requires major changes involving operational institutional realignments and redefinitions of our national economic goals and objectives. The MSME sector must now join the rest of the nation’s economy in pooling resources in pursuit of best practice. In this regard, certain factors have been identified as critical for the MSMEs sector.

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

Information
There is a huge amount of information available to small businesses, which are often times wasted. MSMEs have little time to wade through the mass of available information that could be vital to their survival. MSMEs could come together and establish business links, a national network of one-stop shop designed to bring together the existing confetti of agencies and information.

MSMEs could be encouraged to view business links as potential focal points. Availability of information on access to credit/loan, profitable market, appropriate technology and business support services will spur increase in the number of new business and guarantee the survival of existing ones.

Enterprise Creation and Competitiveness
Increasing the number of new business (start-ups) annually for the next five years will ensure targets for nationwide employment generation and poverty alleviation are met. Sufficient information on new technology and innovations will ensure global competitiveness in terms of product quality and pricing. This is very important since for Nigeria to be placed amongst the top 20 economies in the world come 2020, we must start early to address issues of quality and pricing. The issues of both corporate governance and best practice must be on the MSMEs front burner as should be the need for information, communication technology.

Funding
To fuel SME growth and development, stable and secure access to finance and credit/loan facilities is required. Developed economies are still mobilizing credit for their MSMEs to be used for either business start-ups, expansion or simply for technological upgrades, innovations and the sourcing of more profitable markets. The government can initiate grants for capital projects, research and development, vocational training and advisory services. This is expected to have multiplier effects on human capital capacity in general, technical skill development and promotion of e-business applications. The end result would be noticeable quality improvements and international standard best practices adopting and adaptation by SMEs.

Energy
Energy, especially sustainable power supply is one other factor making the MSME sector tick world over. A review of the top 20 economies revealed drastic changes in the quantum and quality of power supply. Without regular power supply at reasonable cost, MSMEs in Nigeria may never be globally competitive. MSMEs currently spend significant proportion of their operating cost on electricity alone either involving acquisition of generator, spare parts, fuel and other related costs and in the end suffer significant losses.

Enterprise Clusters, Industrial Parks and Incubation Concepts
Now is the time to take issues of enterprise clusters, industrial parks and incubation concepts seriously as such concepts will encourage MSMEs to pool their resources to reduce costs. These concepts will also encourage the provision of other enterprise resources such as Business Development Services (BDS) or Business Support Services. Public-private partnership in this direction can be quite effective since most SMEs may be willing to pay a little extra to have such facilities in a more sustainable manner.

The business cluster and incubation concepts will also promote the capacity to generate revenues and rates from the sector. They will also assist government in administering incentives to actual beneficiaries for waste elimination. Business cluster and incubation concepts also have positive implication for profitable market since they allow MSMEs to pool products and services to meet export demand thus guaranteeing a steady or ready market for their products.

Institutional Realignment
In terms of institutional re-alignment, there is virtually absence of support institutions to coordinate the various efforts targeted at MSMEs. Institutions like CBN, BoI, SMEDAN and a host of others, function independently, thus making coordination; evaluation and monitoring of MSME related activities cumbersome. The result is dearth of expertise necessary to grow the sector and more challenging management of MSMEs. In most benchmarked counties in both the developed and emerging economies, a minimum of three major institutions comprising a FG agency with a defined responsibility for policy related issues (formulation, evaluation and monitoring) and coordination of all MSME related activities. The second institution is that which brings together all MSMS stakeholders; government agencies, SME operators (owners/managers) and other interest groups for what could be known as Nigeria’s SME council to regularly review update and streamline SME activities.

Enhanced linkages with the Agric Sector
Another factor, which has incredible pull on MSME sector, is agriculture. In the past, prior to the discover of petroleum, Nigerian economy was virtually driven by a buoyant agric sector however before the sector could provide the missing link (via demand/supply value additions) most agric processing businesses in the economy lost their focus and became oil crazy to the extent that it became impossible to provide preservation facilities to prolong agric products shelf life that will ensure food security even in the face of the country’s teaming population. The spin-off effect of the agricultural sector on MSMEs is huge and therefore needs to be promoted to ensure steady supply of input and generation of new businesses and employment. For the MSME sector to take its proper position in the country’s economic mainstream, the agric sector needs to be reinvigorated to produce goods and services not only at the right quality but also at the right price to ensure competitiveness and profitability. Improved seedlings and better yield are factors that can promote viability and sustainability in both the agricultural and MSMEs sectors respectively and collectively. Aside from the employment generated by the number of spin-off businesses along the agricultural sector, the supply-demand value chain ultimately stimulates and creates additional multiplier effects on MSMEs along the same value chain. All these chain reactions have positive effects on employment, income levels and disposable income and by extension, life expectancy.

Capacity development
Developing entrepreneurs and entrepreneurship is also a priority. As the proposed initiatives for the MSME sector are rolled out, it will be increasingly important to deepening the entrepreneurship program of tertiary and other institutions to ensure a large pool of highly skilled graduates are participating in the sector. Capacity building in specific areas, technical skill development in identified industries and e-business application are also recommended. Enterprise development training should be 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 cultures impose unnecessary restrictions, especially on women, which discourage hard work and encourage laziness. The number of public holidays, strikes and shutdowns in Nigeria remains high. The issue of work ethics could also be considered a possible drag in our quest to achieve the goals and objectives of the long-term strategy plan for the MSMEs sector. Thus key factors and laws promoting corporate governance need to be reviewed and kept 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 to adapt in line with global business dynamics. It also touches patriotism and demonstrates passion for whatever and individual finds his/her hands doing. It also means dignity in labour and being responsible for ones actions and inactions. This has implications on adherence to the principles of social responsibility. Reorientation must also occur requiring leadership by example, humility on the part of government and commitment to goals and aspirations.