The President of the Association of Small Business Owners of Nigeria, Dr. Femi Egbesola, has warned that Nigeria’s ongoing economic reforms, though necessary, are crippling the country’s micro, small and medium enterprises, with millions of businesses already forced to shut down under rising costs and limited access to funding.
Speaking at the half-year private sector forum of the Nigerian Economy Summit Group on Tuesday, Egbesola painted a picture of a barely surviving sector.
He said the survival of MSMEs has never been more uncertain, with many shutting down, describing the government’s intervention programmes as inadequate compared to the magnitude of the financing gap.
He said, “Yes, the reforms are very necessary. At the same time, the effect on SMEs has been devastating. Like the corporations, we also experienced it, but much more. While they have stunted growth, we are struggling for survival, to the point that a number of MSMEs are dead. According to a report this year, about 7.2 million businesses went under. That’s about 30 per cent of our population. That’s like you have 10 children, and three died within a period of two years. This is a big issue. Again, the apathy for business is so strong now that we don’t see new ones coming to the system because the economy is bad.
“One of our biggest challenges is financing. If you look at it today, the financing gap is about N13tn. The system is so stressed, and it is impossible for MSMEs to access funding. When we cannot access funding, we can’t survive, grow, or scale. The government has been able to provide some form of intervention fund. If you look at it, the recent one was announced about two years or so ago for N75bn for the MSMEs. Now, compare N75bn to that huge financial gap of N13tn. It also shows that it is not the responsibility of the government alone to support MSMEs. When it comes to funding, the question is, what are others in the ecosystem doing? There are so many things that can be done,” he said.
He asserted that the government can mandate banks to put a certain percentage of their profits to support MSMEs.
He asserted, “However, this should not be done as a business. If you want to do it as a business, it will not give you the kind of profits you want, and you may not want to do it as a bank.
What you need is to develop the ecosystem and provide a cushion for the MSMEs during this reform period. I think it will work, and it will be able to help us grow and scale. So by and large, the reforms are good, but the result is devastating. When you want to measure results, you measure them in households and small businesses.”
He added that SMEs have not been able to access the available funds.
“The talk about having so much funding in the system and the SMEs not being able to access it is the truth. The Bank of Industry has about N75bn in funds, and we have about 50,000 members. None has been able to access it. SMEDAN partnered with a bank on another fund, and over two years, only eight people have accessed it. It means there’s a major gap. It means that if there’s a structure that is not working, then we need to be able to get up and move forward. What is the reason for the gap? Begin to find new solutions to this. Also, MSMEs, most of the time, don’t have the capacity to access a loan or manage a loan. Yes, they say they need a loan. But do they have the capacity? So, there’s a need for us to be strategic about building the capacity of MSMEs to be able to access loans and to be able to manage loans. More importantly, to be able to float businesses that will be loan-friendly,” he noted.
Egbesola also lamented about the poor rate of scaling of businesses in the country, saying, “We have a challenge at this point. The challenge is that it is difficult to scale. You may want to ask yourself, over the period of the past even 10 years, how many small businesses have been able to metamorphose into medium-sized or large corporations? Very few, if any, and that shows that there’s something wrong with the system. If we have been doing one thing over the decades, and it’s not working, it means that we must do something new.”
Expressing concerns about the impact of the reforms of the President Bola Tinubu administration on large corporates, the Group Managing Director of Flour Mills of Nigeria, Omoboyede Olusanya, said manufacturers have also been hard hit by the reforms, which have combined to push costs through the roof and squeeze consumer demand.
Olusanya noted that before the current administration came into office, the private sector had drawn up a list of reforms it considered urgent: deregulation of PMS, liberalisation of the FX regime, tax reform, and energy sector restructuring. While these have been implemented, he said, the immediate pain has been immense.
If you were on the private sector side, sitting in front of the government before their entry, and you were giving them a short list of things that needed to be done. I think a lot of what they have done, you would have said immediately, is deregulation of the PMS sector. You would have said liberalisation of the FX regime. You would have said an extensive tax reform. And you would have also said, ‘Deal with oil and gas and deal with energy.’ And they’ve done all four. The problem that we’ve got now is all four come with significant initial pain,” he said.
Highlighting the impact of the reforms, Olusanya said, “The pain that came to our sector was simple. We just had a huge increase in costs. Huge increase in costs. Plus, if you remember at the start, as we were trying to liberalise the FX market, FX went, I mean, not crazy, crazy, crazy. There was an inability to comply with the movement in FX. A significant increase in production costs. A significant decrease in consumer purchasing power.”
The impact, he said, was visible in how companies adjusted their strategies, with many switching to indirect sales methods to survive in a price-sensitive market.
“You saw the effect of that, like your manufacturing week, with different strategic initiatives being taken by existing businesses who decided their method for selling in the market would become indirect rather than direct. That was a real fallout of this,” he said.
Olusanya added that manufacturers have also been unable to pursue expansion projects because of prohibitive interest rates, which made borrowing unfeasible.
“Added to that, you couldn’t even do any significant capex for growth because rates of funding are high. I mean, at that point, if you were borrowing at the kind of interest rates that exist in the market, your business would be doing money doubling, not manufacturing. So those pains meant, if you looked at last year’s financials, for most of the manufacturing sectors, their businesses were hugely in the red. Plus, they were then carrying ongoing finance costs,” he said.
According to him, the industry has been forced into a wholesale reassessment of its operations, from cost structures and raw material sourcing to routes to market.
“And that led to a total set of reassessments of, ‘How is it that you operate your cost to do business?’ How do you resource your materials, your raw materials? How would you fund whatever it is that you wanted to do? And importantly, how would you find a route to market that enabled you to sell in a market where price was key?” he concluded.
