Still On JOBS…SMEs To The Rescue, By Oluseun Akinrinoye

By
Femi Adeoya
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I have read the government at the State and Federal levels talk about the current situation of the economy and the need to create jobs for the teeming youth populace. I have also read and heard many scholars, writers and public commentators express their opinion on the level of unemployment in Nigeria, some with solutions and others only highlighted the problems again and again.
 
One thing we all agree on is that the level of unemployment in the country is alarming and except something is done urgently, we may be heading for chaos. 
 
Although I am not a regular writer or maybe I have become lazy over time, I believe it is important I put this together with the hope that our leaders can glance through and formulate policies to reduce unemployment with SMEs as the driver. I am not a statistician so do not expect me to quote unemployment figures, my priority is what the practical problems are, how they can be solved, and what opportunities the SME hold.
 
 
 
 
I totally disagree with the belief that the greatest problem facing SMEs is lack of credit or inaccessibility to capital for business formation. My reasons for this assertion are highlighted below:
Managerial incompetence
Poor Product & Market Research
High Cost of doing business
Poor Access to funding
Bad attitude to loan repayment.
 
I am sure many expect multiple taxation to make the list, however, I personally do not see taxation as a problem hindering the growth of SMEs. The reason is income tax whose burden lies on the company is paid solely on profit, and you can only pay tax on the money you make. This is not to say other taxes do not exist, just that their incidence would not affect the growth of an SME.
Let us discuss briefly the above problems.
 
Managerial Incompetence
I am sure some of you are wondering why this tops the list. Yes, managerial incompetence is a major problem to SMEs in Nigeria. Many people have an idea or have a business they are not incompetent to run but due to fear of losing control they tend to run the company till it goes down. So tell me, why should I lend my money to someone I can see has no managerial capability from the first meeting?
 
Poor Product & Market Research
Virtually all SMEs I have interacted with do not know the meaning of product or market research. So they all believe once the idea sounds good, it will be successful. This is like jumping into a red sea because you have been learning how to swim in the neighborhood’s 3 star hotel; I leave you to decide what the outcome will be. This is why some
 
SMEs would never get funding from a structured finance company or bank and even if they do, they seem unsuccessful as they do not know the critical success factors in the market they play in.
 
High Cost of Doing Business
Sadly, lack of infrastructure is a major hindrance to the success of SMEs in Nigeria. A lot of business owners have to deal with challenges such as providing alternative power supply, high rents, poor road network and internet supply which in turn increases the cost of doing business. 
 
Bad Attitude to Loan Repayment
So you are wondering why this is part of the problem facing SMEs? Well, research has shown that most SME operators have a lackadaisical approach to repaying bank loans, and this is part of the reasons why the commercial banks would always prefer to lend to the big companies. 
Will I blame them? May be not, nobody wants to give loan to an SME only to hear that the burial of an in-law is one week away.
 
Practical Solutions
The story is not as gloomy as I painted in the preceding paragraphs as there are some solutions I believe will be useful in helping the growth of SMEs. These solutions will be discussed in brief below.
Technical Assistance Programs
Access to low interest financing
Establishment & Maintenance of industrial Parks
 
Technical Assistance Programs (TAP): Topmost of my solution to the problems facing SMEs is a Technical Assistance Program. It is a multifaceted program that will involve assisting with product& market research, sustainable & effective capacity building, managerial & book keeping assistance programs etc. If the above can be done effectively, through government sponsored but privately run initiatives, SMEs will boom and generate employment for Nigerian youths.
 
Access to Low Interest Financing: if the government can commence TAP for SMEs, the next will be to provide low interest financing which will be easily accessible but well monitored. I am not talking of Micro Finance Banks which charge a monthly flat rate of 5-7% giving an effective annual rate of 60-84% neither am I referring to Commercial
 
Banks that are only interested in the big corporations.
What we need is a genuine government intervention fund but privately managed, like the recently established Lagos State Employment Trust Fund by the Ambode led government. Upon accessing the fund, there is a need for intensive monitoring and proper financial management of the SMEs to avoid diversion of funds meant for the business to frivolous personal expenses.
 
Industrial Parks: In order to address the high cost of doing business in Nigeria, there is a need to establish privately run industrial parks with full supply of power, internet broadband etc. at a government subsidized rate. I hope Federal & State governments will consider this initiative as one of the solutions to bringing down the cost of doing business especially in SME clustered areas.
 
I expect the government across all levels to adopt a Stimulate, Monitor and Coordinate (SMC) approach to SMEs in order to explore their full potentials in creating gainful employment. SMEs have a huge potential to generate employment while also increasing its contribution to Gross Domestic Product in Nigeria. I believe SMEs will have a bigger impact on creating jobs in the formal and informal sectors than the big corporations and should therefore be encouraged by the government.
 
IMF Boss’s Visit
Ms. Lagarde was in Nigeria earlier in the week and she met with the President and a few stakeholders in the Nigerian government . While I believe the IMF is not entirely bad as most public commentators have made us believe, I am glad she believes the Buhari government is responding well to the drop in oil prices. In as much as I agree with her on most of her propositions to the Nigerian government, I disagree with her call for increase in VAT rate with the current situation in Nigeria.
 
Our focus should be on ensuring that 95-98% of probable tax payers are brought into the tax net, once this is done, we can start considering an amendment to the VAT Act as it relates to the rate.
 
Congratulations, Akin Oyebode!
As I put this together, news filtered in of Akin Oyebode’s appointment as the Executive Secretary of the Lagos Employment Trust fund. I must say this is one of the best decisions Gov. Ambode has made since he assumed office considering that Akin has spent about the last decade working on SME in different commercial banks. I also like the fact that the Governor can entrust a fund of such in the hands of a promising youth.
 
One thing I want the Executive Secretary to look at is the 1% rate of interest which is being planned. I believe this is too low and would be inadequate to even cover administrative costs of the fund. I hope this rate is reviewed upwardly while still maintaining it at single digit. I also hope that an effective credit assessment mechanism will be put in place before loans are granted to SMEs to guarantee ability to repay and a continuous monitoring team will be formed to ensure that funds are being used for the purpose intended while also ensuring growth of such SME.
 
I have no doubt that he would perform well and help the Governor to increase employment through SME in Lagos and environs. 
Accept my hearty congratulations and I wish you and your new team the best in your new role.
 
Oluseun is a Chartered Accountant and a Chartered Tax Expert.
 
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