Fostering Nigerian MSMEs Competitiveness: A Review of the Report by SMEDAN and NBS
NIntroduction igerians greeted the inauguration of the Muhammadu Buhari – led government on May 29th 2015 with much hope and optimism. Many, seeing it as a resurgence of the people’s mandate to take the country to greater heights. For some others, scepticism reigned in their minds. Arguing that the present administration, though full of good intentions, is coming at a time when Nigeria’s economic fortune is at its lowest ebb. Oil which is the mainstay of the nation’s economy is selling at a price no one envisaged –one third the price of last year’s sale. This has compelled the Federal Government (FG) to take strict measures in controlling the economy – forex restriction, Foreign Direct Investment (FDI) promotion, amongst others.
In growing the economy, much emphasis should be placed on the potential of the Micro, Medium and Small Scale Enterprises (MSMEs) to be the panacea to Nigeria’s economic woes. The MSMEs accounts for over 57.9% of Nigeria’s rebased Gross Domestic Product (GDP), while employing over 60% of employed working class Nigerians. No doubt it has the potential for growth if the government makes necessary reforms with adequate infrastructure in place. The Central Bank of Nigeria (CBN) has however taken a giant stride in providing intervention funds to the MSMEs through various-FG intervention programs in conjunction with banks and relevant financial institutions.
No doubt, funding the MSMEs at this point would stimulate the economy and also be helpful in mitigating Nigeria’s economic tailspin. One must consider other factors that would ensure that these funds do not go down the drain like previous intervention funds. To this end, this article seeks to critically assess the SMES Development Agency of Nigeria (SMEDAN) and National Bureau of Statistics (NBS)’ Report on MSMEs Competitiveness.
The Report on MSMEs’ Competiveness On the 29th of February, 2016, the Senate President, Senator Bukola Saraki was presented with a report by SMEDAN and NBS on promoting Nigeria’s competitiveness (“the Report”). According to the Report, the growth of Nigeria’s economy is largely dependent on removing legal and institutional bottlenecks affecting MSMEs through sectoral reforms.
MSMEs have the potential to create myriads of jobs, thereby bringing to fruition the FG’s plan of creating a million jobs in the tenure of this administration. This position is however, being threatened by Nigeria’s declining foreign reserve due to instability in the price of oil. As a result, these MSMEs are unable to access funds needed for their business growth and where the funds are accessible, they are soon stiffened by the harsh business climate. To stem this growing tide, it is pertinent that the government provide the right environment for small businesses to thrive, this would in the long run help in stabilising the economy and prevent a looming, drawn out, recession.
The government, particularly the Legislature must create the right policy framework while amending or repealing any cantankerous legislation. The Report further itemised legislations it considers inimical to the growth of small business in Nigeria. Accordingly, these legislations were classified into high, medium and low categories based on their impact on the Nigerian business landscape.
The Report also identified some key findings for urgent legislative actions. These are:
In order to strengthen Nigeria’s ailing economy through the MSMEs, the government needs to urgently consider and pass some pending bills before the National Assembly. These bills are: (a) Federal Competitive and Consumer Protection Bill (2015), which is aimed at protecting the economy from untoward monopoly. If passed, it would invariably cover the oversight performed by the Securities and Exchange Commission (SEC) on mergers. This would be a welcome development as it would provide a clear cut direction on mergers in Nigeria; (b) Federal Roads Authority Bill (2015) which seeks to create an agency to oversee road networks within the country. By implication, the creation of an agency would increase the wage bill of the FG and duplicate functions as the Federal Roads Maintenance Agency (FERMA) already manages all federal roads. Rather than create this agency, the FG should ensure effective and efficient performance of the existing government agency; (c) National Inland Waterways Authority Bill (2015); National Transport Commission Bill (2015); Nigerian Postal Commission Bill (2015); and the Nigerian Railway Authority Bill (2015) all of which are geared towards the promotion of private sector participation in the delivery of services through Public-Private Partnership (PPP) arrangement.
With the exception of the Federal Road Authority Bill, when other bills are passed and they become operational, they would go a long way in strengthening investors’ confidence in the MSMEs thereby creating more jobs.
The report recommended the creation of a legislative clearing house whose responsibility would be to scrutinise bills before presentation to the National Assembly. If this proposition is carried out, dead time will be eliminated and efficiency in legislative activities will be promoted. Thus, any proposed bill from members of the National Assembly would be sent to the clearing house for scrutiny and recommendations would be made before such bill can be presented to the National Assembly.
However laudable this move might seem, it portends additional staff being employed which would increase the recurrent expenditure of the legislative house – apparently this was not the intention of the Report. Notwithstanding, this position can be consolidated with the training of legislative aid and staff of the National Assembly Service Commission to act in recognising duplicity and overlapping provisions in bills presented to the National Assembly. Further, the clearing house can be a department in the National Assembly Service Commission solely dedicated to the function. For this to be achieved, there is need for the amendment of Section 7 of the National Assembly Service Commission Act.
This has been the bane of MSMEs development in Nigeria. Most times, the government through the CBN would set aside certain intervention funds to assist these businesses, however, these funds are hardly ever accessed due to excessive charges and interest rate collected by the DMB. According to the Report, only 17% of the MSMEs under review accessed a bank loan for its start-up owing to the difficulty in obtaining a bank facility. To increase access to finance by MSMEs, it further recommended that with the passage of the Independent Warehouse Regulatory Agency Bill (2016), Secured Transactions in Movable Assets Bill (2015), and National Development Bank of Nigeria Bill (2016), these issues would be resolved. Accordingly, the Independent Warehouse Regulatory Agency Bill holds the potential of solving the challenge of collateral by allowing businesses to securitise their commercial warehouse receipts. Also, the Secured Transactions in Movable Assets Bill seeks to give creditors an effective way to discover whether a potential borrower has already granted a security interest in a collateral and, if so, what priority those rights have through the establishment of a National Collateral Registry. To consolidate the operations of development finance institutions, the National Development Bank of Nigeria Bill will be instrumental. With the passage of these bills into law, they could ensure that businesses, especially MSMEs have access to different avenues of financing their operations at reasonable interest rates.
One must acknowledge the contributions of the non-banking financial services from the private sector in providing the much needed funds for the MSMEs which has been aided by the e-commerce rave. However, these funds are accessed at cut-throat interest rate because of the nature and risk involved in the non-collateral loan transaction.
In the same vein, limited access to land for operations has also hindered the growth of MSMEs in Nigeria. Most especially, the requirement to obtain the Governor’s consent with regards to any transfer in land. One of the recommendations contained in the Report is the elimination of the requirement for the Governor’s consent. This underlines the inability of MSMEs to borrow from financial institutions as they more often than not, lack title documents evincing ownership of landed collateral.
In tackling this challenge, the Lagos State Government introduced electronic Certificate of Occupancy (e-C of O) in 2014 by automating her Lands Registry. Undoubtedly, this has eased doing business in Lagos by granting operators of MSMEs ease of obtaining title documents with which to access funds for operation, streamlined processing fees, and reduction of erstwhile corrupt practices which plagued the issuance of the C of O. This process can be improved upon with the signing of the Unemployment Trust Fund Law by the Lagos State Government which presents the prospect of disbursing more funds to MSMEs operators. However, there is need for other States in Nigeria to emulate this giant stride as it would open the States to investment opportunities in the MSME space.
The Report recommended that there should be a dialogue between the Federal and State Governments with a view to harmonising laws, regulations and practices affecting Nigeria’s Business Environment (NBE). This is mainly in the area where both tiers exercise concurrent jurisdiction.
The legislative forum would oversee the implementation of any of such agreed harmonisation with government parastatals and agencies through the performance of its oversight functions.
Nigeria occupied an unfavourable position at the recently released World Bank Doing Business (DB) Report of 2015 where it ranked 169 out of 189 economies assessed by the Bank. This is a pointer to the fact that the government has a lot to do in improving Nigeria’s competitiveness in the business community. As such, there is need to put in place regulatory framework as well as procedure and practices at all level of government to improve the ease of doing business in Nigeria, especially at the MSMEs level.
One of the factors that boost investors’ confidence in the BE of any country, is the sanctity of contract and the assurance of access to justice if such sanctity is voided by a party to the contract. More so, this follows the cliché: “justice delayed is justice denied” This therefore places an obligation on the government to put in place mechanisms to ensure speedy dispensation of commercial disputes.
It recommended that the draft Federal Arbitration and Conciliation Bill, 2007 be updated to repeal and re-enact the Arbitration and Conciliation Act. This would ensure that the law keeps pace with recent developments in the BE. For instance, the UNCITRAL Model Law on International Commercial Arbitration has been amended severally to keep pace with recent developments and reflect commercial realities. One of such amendments recognises the power of arbitral tribunals in granting preliminary orders.
Also, since contracts are governed by State Laws, it was advised that all states in Nigeria emulate the Lagos State example by setting up Multi-Door Courthouses with a view to promoting Alternate Dispute Resolution (ADR). This would invariably aid the speedy determination of investment and business disputes.
One of the canons of taxation is convenience. In the process of tax administration, the tax authority must ensure the convenience of the taxpayer. Also, the nature of tax being paid must be made known to the taxpayer in clear terms. To ensure that MSMEs are tax compliant, it is essential to simplify and streamline the nature and payment of tax. Currently, there are numerous tax obligations scattered across different legislations and are based on income profits. This shrinks the expected profits of the business and thereby extinguishing any hope of growth. It is worthy of note that the Taxes and Levies (Approved List for Collection) should be made public and handed to MSMEs operators to avoid instances of conflict in collection by revenue agencies. More so, the various Revenue authorities of the States should sensitise the general public on the disadvantages and implication of defaulting in one’s tax obligation.
Most importantly, the legislature should consider enacting legislation to streamline tax payment by introducing one tax for each tax base.
Conclusion If indeed the FG intends to achieve its plan to create more jobs, the MSMEs which have the potential to absorb unemployed Nigerians must be given necessary consideration to accelerate its growth. Funding is one of the requirements for such growth. However, the government needs to look beyond funding and consider other multifaceted factors to create an enabling environment. This can thus be achieved through the implementation of some of the recommendations of the Report. One can argue that the Report will not holistically solve the myriad of challenges confronting the MSME space. However, it would be a right step in the right direction as the gains from such implementation can be consolidated for future improved performance. It is therefore hoped that this would invariably promote the competitiveness of the MSMEs in the BE while increasing the ease of doing business in Nigeria.