Improving the Nigerian Economy Through MSMEs

CONTRIBUTED BY ANTHONY AKEJELU

INTRODUCTION

The role of Micro, Small, and Medium Enterprises (MSMEs) in the development of the Nigerian economy cannot be overemphasized. With over 80% of the Nigerian population employed by MSMEs and contributing about half of the nation’s GDP, the Nigerian economy’s wheels are kept running by MSMEs.^[1] MSMEs are not only notorious for their ability to adapt rapidly to market changes, but they are also capable of driving local innovation, making them critical in determining the course of the Nigerian economy.^[2] Summarizing the specific contributions of MSMEs to the economy, they have been described as catalysts of “industrial diversification and the expansion of the industrial base, the utilization of local materials and skills, wealth creation and poverty reduction at the grassroots level, employment generation, and consequently the reduction of rural-urban economic migration, among many others.”^[3]

MSMEs generally refer to businesses with fewer than 200 employees,^[4] and they exist both in the formal and the informal sectors in Nigeria. Formal sector MSMEs refer to companies or businesses registered with the Corporate Affairs Commission and legally recognized as business entities while unregistered businesses exist in the informal sector.

In Nigeria, like any other civilized society, the role of the law in regulating human activities for the development of the economy is gigantic. Hence, recognizing the magnitude of MSMEs’ stake in the Nigerian economy, laws, and policies have over the years emerged for their regulation, and institutions have been established to facilitate a flourishing business environment for them.^[5] However, the effectiveness of these is still in doubt.^[6]

The Small and Medium-Scale Industries Development Agency was established by the Small and Medium-Scale Industries Development Agency (Establishment) Act.^[7] This Act was later amended by the Small and Medium Scale Enterprises Development Agency (Amendment) Act which changed the name of the Agency to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDEN). The Act aims to promote and facilitate development programs in the Small and Medium scale enterprises (SMEs) subsectors.^[8] SMEDAN has a mandate to facilitate a conducive business environment for MSMEs. Recognizing the peculiar role of MSMEs in the Nigerian economic atmosphere, examining the Agency’s role in these is imperative.

This article will examine the peculiar role of SMEDAN as provided by the enabling law, the extent and the effectiveness of the exercise of its power since its establishment, the attendant issues and challenges, as well as recommendations for improvement.

THE ROLE AND IMPACT OF SMEDAN IN THE FACILITATION OF MSMEs FOR IMPROVING THE NIGERIAN ECONOMY.

A careful perusal of the provisions of the SMEDAN Act elucidates the mandate of SMEDAN. While the ambit of the operations of the Agency is commendable, it is not devoid of vulnerabilities. For the sake of clarity and fluidity, the functions of SMEDAN as highlighted by Section 8 of the Act include:

1. initiating and articulating ideas for small and medium-scale industries policy thrusts.
2. serving as a vanguard agency and focal point for rural industrialization, poverty alleviation and eradication, technology acquisition and adaptation, job creation, and sustainable livelihood.
3. promoting and facilitating development programs, instruments, and support services to accelerate development, modernization, networking, and linkage of small and medium-scale industries,
4. mobilising internal and external resources, including technical assistance for small and medium-scale industries, their support institutions; trade associations, and non-governmental organizations,
5. overseeing, coordinating, and monitoring development in the small and medium industries sub-sector,
6. designing, packaging, and promoting cottage, micro small, and medium-scale industrial projects,
7. providing industrial extension services to small and medium-scale industries, fabricators of machinery, and beneficiaries of micro-credit loans,
8. establishing liaison between research institutes, local fabricators, and small and medium scale industries,
9. linking small-scale industrialists to sources of finance, technology, technical skill development, and management,
10. facilitating, promoting, and developing standard designs and quality assurance for machinery and equipment, and commercializing them to end-users, among other activities.

In the execution of its functions, SMEDAN is empowered to make demands for and to obtain relevant information, data, and reports on activities relating to the promotion and development of small and medium-scale industries from financial, research, and development institutions and other support organizations. It may also enter into joint-venture arrangements, prepare MOUs and other agreements with relevant institutions and organizations for the promotion and development of small and medium-scale industries, and exercise such other powers as may be vital for the effective implementation of its functions under the Act.^[9]

Since its inception, SMEDAN has been instrumental in assisting MSMEs to expand and develop. Its numerous projects, programs, and interventions have had a significant influence on MSMEs in a variety of ways, some of which will be considered anon.

Firstly, SMEDAN has been instrumental in assisting MSMEs in Nigeria to obtain much-needed financing. Acknowledging the considerable obstacles MSMEs face in obtaining credit from conventional financial institutions, SMEDAN has provided several financial inclusion programs and initiatives aimed at giving MSMEs access to flexible and reasonably priced financing choices. In partnership with financial institutions, development finance organizations, and microfinance banks, loan facilities, grants, and credit guarantees have been provided for MSMEs,^[10] and with the aid of these financial support initiatives, MSMEs have been able to grow their companies, invest in new technology, hire more staff, and get past obstacles to financing.^[11]

Additionally, SMEDAN has been actively involved in institutional changes and policy lobbying to create a climate that is conducive to the growth of MSMEs. To support MSME development, expedite business registration procedures, lessen regulatory burdens, and improve the ease of doing business in Nigeria, the agency has partnered with legislators, government agencies, development partners, and other stakeholders. SMEDAN has impacted legislative changes that support MSME-friendly laws and programs through its lobbying work, fostering an environment that is favorable to entrepreneurship and the expansion of businesses.^[12]

Furthermore, SMEDAN has produced insightful research, data, and analysis on MSMEs in Nigeria.^[13] By gathering data on the dynamics, prospects, challenges, and economic contributions of the MSME sector, the agency provides policymakers, researchers, academia, and stakeholders with valuable insights to guide policy formulation, program design, and decision-making processes aimed at enhancing MSME development.

Moreover, SMEDAN has played a crucial role in promoting market linkages and enhancing MSMEs’ access to markets in Nigeria. The organization has facilitated business networking events, trade shows, exhibitions, and other networking opportunities for MSMEs to showcase their goods and services, establish connections with potential customers, suppliers, and investors, and explore joint venture prospects. By increasing market access and entrepreneurship development, SMEDAN has contributed to boosting economic growth, fostering innovation, and diversifying the Nigerian economy.

In addition, programs for entrepreneurship training and capacity building are two important ways SMEDAN has benefitted MSMEs.^[14] To give MSMEs the information, abilities, and skills they need to launch, expand, and maintain their businesses, SMEDAN has organized workshops, seminars, and skill-building initiatives. These capacity-building programs cover a wide range of topics, including product development, business management, financial literacy, marketing strategies, and technology adoption. By enhancing the capabilities of MSMEs, SMEDAN has empowered entrepreneurs to optimize their business operations, increase efficiency, and compete more effectively in the marketplace.^[15]

ISSUES AND CHALLENGES

It is undeniable that MSMEs are critical to employment generation and economic growth in Nigeria. The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) has consistently strived to fulfill its responsibilities as outlined in the relevant legislation through cooperative efforts and partnerships. Nevertheless, various obstacles continue to impede its endeavors.

Primarily, a thorough examination of the governing legislation elucidates that the primary purpose is to foster the promotion and growth of MSMEs, without extending to regulatory or supervisory functions. This presents a significant challenge, particularly considering the coexistence of MSMEs within both formal and informal sectors of the economy.^[16] What is more appalling is the growing number of businesses in the informal sector despite continuous efforts by the CAC as well as other stakeholders to ensure that businesses get registered in the country. The fact then remains that MSMEs in the informal sector are without any form of control or regulation, and this can have a ripple effect on the economy. An unregulated business environment results in stunted economic growth, lower standards, and ultimately market failure. At the same time, while SMEDAN’s mandate encompasses MSMEs broadly, its lack of regulatory authority leaves a substantial segment of the economy unregulated by statutory frameworks.

Furthermore, an assessment of the operations of MSMEs and their attendant challenges in the Nigerian clime is critical evidence of the effectiveness of SMEDAN. Despite the agency’s developmental efforts over the years, MSMEs continue to face challenges such as insufficient entrepreneurial experience, poor funding, and under-capitalization, inadequate infrastructural facilities, poor record keeping by small business owners/managers, insecurity in parts of the country, inadequate credit control/loan default, poor time management, high investment in luxury assets, poor macro-economic conditions. ^[17] These invariable casts a shadow on the effectiveness of the Agency’s training and developmental activities.

Another impediment is the limited awareness of SMEDAN’s activities within the formal and informal sectors. As a result of this, only a fraction of MSMEs have access to the benefits offered by the Agency and this defeats the purpose of its establishment. If the Nigerian economy is to witness a radical reform through MSMEs then the Agency’s activities and services need to be more pronounced among them.

Moreover, bureaucratic obstacles often prevent MSMEs from using SMEDAN’s support services. This is due to red-tapism, protracted and onerous administrative processes, and prolonged application processing times which can deter them from requesting support from the organization. ^[18]

RECOMMENDATIONS

In light of the preceding, it is recommended as follows:

1. The scope of SMEDAN’s powers under the enabling Act should be expanded to include regulation and control of MSMEs. This will make for effective monitoring and administration which will in turn positively impact the nation’s economy.
2. Moreover, more technical, financial, and other support is needed for the Agency to efficiently fulfill its mandate under the Act and it is expected that an institution saddled with responsibility for the development of MSMEs must be fully equipped to do so.
3. Awareness of and accessibility to SMEDAN’s activities, as well as their effectiveness need to be increased. Moreover, administrative bureaucracies need to be checked to streamline processes and remove obstacles.

CONCLUSION

The impact of MSMEs on the development of the Nigerian economy cannot be overemphasized. This is despite the numerous challenges that bedevil their operations in the nation. SMEDAN was established for the development and promotion of the welfare of MSMEs in Nigeria, and it has undoubtedly made a laudable impact in this regard. However certain key areas as highlighted in this article need to be addressed to enhance the effectiveness of the Agency.

1. See Mary Izuaka, ‘How MSMEs Can Foster Economic Development in Nigeria- Ex-NACCIMA DG’ (PREMIUM TIMES, 2023) available at https://www.premiumtimesng.com/business/business-news/619182-how-msmes-can-foster-economic-development-in-nigeria-ex-naccima-dg.html?tztc=1 accessed on the 20^th of April 2024. ↑
2. Ibid. ↑
3. Udosen Jacob et al, ‘An Overview of Legal and Regulatory Framework for Micro, Small and Medium Enterpises in Nigeria’ International Conference on Sustainable Islamic Business and Finance (SIBF) 2022 pg. 252 available at https://www.researchgate.net/publication/365462747_An_overview_of_Legal_and_Regulatory_Framework_for_Micro_Small_and_Medium_Enterprises_in_Nigeria?enrichId=rgreq-c4359a8dee78fc46ce489d902178b79b-XXX&enrichSource=Y292ZXJQYWdlOzM2NTQ2Mjc0NztBUzoxMTQzMTI4MTExMzM2MjE5NUAxNjczODY3MjM5MDQ1&el=1_x_2&_esc=publicationCoverPdf accessed on the 20th of April 2024. ↑
4. Ibid. pg. 252 ↑
5. A. D. Ogechukwu, et al., “Small and Medium Scale Enterprises (SMEs) in Nigeria: The Marketing Interface” Global Journal of Management and Business Research. Vol. 13(9). 2013. ISSN 2249-4588. ↑
6. Babandi Ibrahim Gumel. Mitigating the Challenges of Small and Medium Enterprises in Nigeria. SEISENSE Journal of Management, 2019, 2 (3), pp.82 – 99 available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4438647 accessed on the 20^th of April 2024. ↑
7. 2003 ↑
8. See the Long title to the Act. ↑
9. Section 9 of the Act. ↑
10. SMEDAN Partners with Sterling Bank to Provide #5 Billion in Single-Digit Loans for Sall Businesses. (SMEDAN PUBLICATIONS, 2023) available at https://smedan.gov.ng/smedan-partners-with-sterling-bank-to-provide-%e2%82%a65-billion-in-single-digit-loans-for-small-businesses/ accessed on the 22^nd of April 2024. ↑
11. Gumel, Babandi & Bardai, Barjoyai, ‘The Mediating Impact of SMEDAN Initiative on the Relationship Between CSFs and SMEs’ Success’ A Conceptual Paper. International Journal of Business and Economics Research. (2021). 10. 66-75. Available at https://www.researchgate.net/publication/350157928_The_Mediating_Impact_of_SMEDAN_Initiative_on_the_Relationship_Between_CSFs_and_SMEs’_Success_A_Conceptual_Paper accessed on the 22nd of April 2024.. ↑
12. See Mary Izuaka. op cit. fn. 1 ↑
13. See Ilori, Emmanuel & Ile, Isioma & Allen-ILE, Charles, ‘A Review of the Impact of the National Micro Small and Medium Enterprise Policy on Youth Employment and Enterprise Development: A Case of the Small Medium Enterprises Development Agency of Nigeria’ Journal of Reviews on Global Economics. (2018) 7. 901-912. Available at https://www.researchgate.net/figure/Rating-of-SMEDAN-programmes-in-supports-of-small-business-development-for-youth_fig2_329540953 accessed on the 22nd of April 2024. ↑
14. Ibid. ↑
15. Ibid. ↑
16. Udosen Jacob et al op cit. fn. 3 ↑
17. Nnaemeka, Obidike Francis and Ezeabasili, Vincent Nnayerugo, ‘Small and edium Enterprises Development Agency of Nigeria’ in ‘Introduction to Entrepreneurship’ published by Bookpoint Ltd 2018.availableat (PDF) CHAPTER EIGHT SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY OF NIGERIA (SMEDAN) (researchgate.net) accessed on the 22^nd of April 2024. ↑
18. See Tejumade Siyanbola O., ‘Challenges to the Growth and Development of Manufacturing and Services SMES in Nigeria’ The 2015 WEI International Academic Conference Proceedings available at https://www.researchgate.net/publication/301339176_Challenges_to_the_Growth_and_Development_of_Manufacturing_and_Services_SMEs_in_Nigeria accessed on the 22nd of April 2024. ↑