Apr 25, 2020

MSMEs IN NIGERIA AND THE EFFECT OF COVID 19 | NNAMDI MBANEFO LLM, MCIArb



MSMEs in Nigeria

 

S/N

Category

Employees

1

Micro Enterprises

Less than 10

2

Small Enterprises

10 to 49

3

Medium Enterprises

50 to 199

The significance of the role micro, small and medium enterprises (MSMEs) play in Nigerian economy is a subject that has been discussed, ad nauseam, by experts, analysts and authors. The Vice President described MSMEs as the bedrock of Nigeria’s industrialization and inclusive economic development; and the most important component of industrialization as set out in the Economic Recovery and Growth Plan.

This sector comprises the average and below average Nigerians and resultantly constitute about 95% of Nigerian population. Consequently, the challenges and difficulties experienced by this sector directly or indirectly affect every household in Nigeria. 

The corona virus pandemic is unprecedented and is causing large-scale death and severe human suffering globally. The fact that the pandemic is still unfolding makes it challenging to forecast the extent of its economic impact, however, the possibility of a global recession has become concrete.

The ‘Big companies’, with the liberty of well informed risk teams, certainly, did not factor in the corona pandemic and its effect on businesses. At the tail end of the year 2019, as in every other year, budgets were prepared and adopted and managements were tasked with projected revenue for the first quarter of the year 2020.  Here we are. Priorities have changed; companies are stress testing and jettisoning profit making for a chance at survival. 

Majority of Nigerian MSMEs have no structure and no business plan. Under seemingly normal circumstances, MSMEs struggle with a lot of business challenges. This pandemic has worsened the situation and majority of MSMEs are in over their heads and are short of ideas on how to navigate this storm.

Along with the rest of the populace, proprietors of MSMEs are on lock down and are locked in with their family responsibilities. Majority have ventured into their business capital to purchase food items and other necessities for their survival and that of their families.  It is an unequal bargain. While stakeholders of established companies are currently devising ways to keep their companies afloat, proprietors of MSMEs are constrained to grapple for daily bread and with staying alive.

Notably, one of the major challenges facing MSMEs is lack of capital. For the majority, personal savings was the most common source of capital. Nationally, only a limited number of MSMEs (that are sole proprietorships) reported having access to bank credit.

The National Bureau of Statistics identified access to finance as a top priority area for assistance for MSMEs. The corona pandemic and the ruins that it would leave behind have made this priority even more impetrative. For the survival of MSMEs, the government needs to be creative and proactive in addressing this concern.  

 

 

 

 

Government COVID 19 Initiatives that affects MSMEs

Thus far, the government has taken some commendable steps. President Muhammadu Buhari in his speech of 29 March 2020, indicated that he has mandated a three-month moratorium to be afforded to borrowers under social benefits schemes such as “Trader Moni” (a Federal Government empowerment scheme created for petty traders and artisans across Nigeria), “Market Moni” (Federal Government empowerment programme to provide financial aid to micro businesses) and “Farmer Moni” (collateral free loans designed to help petty traders expand their trade). This is also reflected in the COVID-19 Regulations 2020 (Regulations) issued by the president, which contain directives to the Bank of Industry, Bank of Agriculture and the Nigeria Export-Import Bank to grant the same moratorium to borrowers.

The Central Bank of Nigeria has created a N50 billion targeted credit facility for households, and small and medium enterprises. Also, CBN has set-up a N100 billion credit support facility for businesses in the healthcare sector.

The House of Representatives proposed and is considering a bill titled “Emergency Economic Stimulus Bill”. The bill has been passed for third reading. Amongst the objectives of the bill, is the proposal that any employer duly registered under the Companies and Allied Matters Act Cap C20 LFN 2004 which maintains the same employees status without retrenching their staff as at 1st of March 2020 till the 31st of December 2020 shall be entitled to 50% income tax rebate on the total amount due or paid as PAYE under the Personal Income Tax Act Cap C8 LFN 2004 as amended.

While these are steps in the right direction, we urge the government to do more and to put appropriate mechanisms in place for the implementation of these initiatives.

 

Facts

·         Nigeria’s over 41 million MSMEs, account for more than 84 per cent jobs in the country.  Nigeria’s over 41 million MSMEs, account for more than 84 per cent jobs in the country.  The enterprises also account for about 48.5 percent of the gross domestic product, GDP, as well as about 7.27 percent of goods and services exported out of the country.

·         MSMEs generated 59,647,954 jobs as of December 2017, 5% or 2,889,715 of those jobs were created by small and medium enterprises (SMEs).

·         It was observed that owners of Micro enterprises are less educated – 76.4% have Senior Secondary certification or less. Similarly, 78.2% of employees of Micro enterprises have Senior Secondary certification or less. By contrast, 51% of SME owners have attained either a Bachelors or Masters degree.

·         The enterprises also account for about 48.5 percent of the gross domestic product, GDP, as well as about 7.27 percent of goods and services exported out of the country.

·         MSMEs generated 59,647,954 jobs as of December 2017, 5% or 2,889,715 of those jobs were created by small and medium enterprises (SMEs).

·         It was observed that owners of Micro enterprises are less educated – 76.4% have Senior Secondary certification or less. Similarly, 78.2% of employees of Micro enterprises have Senior Secondary certification or less. By contrast, 51% of SME owners have attained either a Bachelors or Masters degree.[1]

·         75.6% of Nigerian Micro enterprises have no business plan.  65% of Nigerian SMEs have no business plan.

·         The MSME National Survey reports that Nigeria Micro enterprises startup capital is as indicated in the table below.

 

S/N

% of Micro enterprise

Business startup capital

1.

63.8%

below N50,000

2.

20.6%

N50,000 –N100,000

3.

7.9%

N101,000 –N200,000

4.

3.1%

N201,000 – N300,000

5.

4.7%

over N300,000

The same report indicates Nigeria SMEs business startup capital as shown in the table below

 

S/N

% of SMEs

Business startup capital

1.

74.9%

below N10,000,000

2.

8.0%

N10,000,000 –N20,000,000

3.

2.0%

N21,000,000–N30,000,000

4.

0.9%

N31,000,000 – N40,000,000

5.

5.2%

N41,000,000 – N50,000,000

6

1.1%

Above N50,000,000

 

 

 

·     61.2% of micro enterprises (MEs) and 55.6% of SMEs depend on personal savings for startup capital.

·      5.3% MEs and 17.5% SMEs are able to access loans as a source of startup capital.

·     23.6% MEs and 11.7% SMEs are able to get startup capital from family members.

·     8.3% MEs and 5.4% SMEs get their startup capital from cooperative/Esusu.

·     For SMEs who had access to bank credit, commercial banks were the main source of these funds (91.9%), while 4.7% accessed credit from Micro-Finance Institutions, and 1% from Development Institutions.[2]

 

 

 

 

 

 

 

 

 

 

 


Conclusion

In addition to the human impact of COVID-19 there is enormous economic, business and commercial impact being felt globally.

Proprietors of Nigeria MSMEs are navigating uncertain times. They are in over their heads and now more than ever, they need all the affordable assistance from all quarters especially from the government. 

MSMEs are the foundation, of our society. They are fabrics woven into the very core of our economy. Such that the survival of Nigerian economy is to a huge extent dependent on the survival of our MSMEs. In the spirit of self preservation, it is imperative that Nigerian government devise practical approaches to ensure the survival of these enterprises,.

 

Commendably, the MSME National Survey Report, identified financing, taxation, unfavorable policies, power, water supply etc as priority areas for government assistance for MSMES.  There should be concrete plans to address the deficiencies in these areas within the shortest possible time.

It is important that the funds made available to MSMEs are well segmented and the process of acquisition simplified, to ensure its accessibility to proprietors of these enterprises especially the Micro enterprises.

During the course of this pandemic, There is need for initiatives that will train and inform proprietors of MSMEs of their options and foster financial literacy. At this time, requisite information and directions could be passed through the media. If the government is religious in implementing these initiatives, and committed to developing more helpful ones, then there is hope for MSMEs and for our economy post COVID 19.

 

 

 

 

 

 

Nnamdi Mbanefo LLM, MCIArb

Email: mbanefonnamdi@yahoo.com

Phone No: +2348034800288


 

                                                         

 



[1] Micro, Small, and Medium Enterprises (MSME) National Survey 2017 Report by National Bureau of Statistics

[2] Ibid


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