With a population of 148 million and the second largest economy on the continent after South Africa, the state of Nigeria’s economy is one of extreme contradictions. The United States obtains 10% of its crude oil imports from abundant oil fields in the Niger Delta, a region that is also home to one of the largest known reserves of natural gas in the world. Despite these natural endowments, Nigeria is crippled by rampant poverty and dismal macroeconomic indicators and human development indices. Unemployment is endemic and more than 54% of its population lives on less than $1 a day. Decades of political turmoil, civil unrest and large-scale government mismanagement are largely to blame for this state of affairs in Nigeria.
The return of democracy in 1999 paved the way for economic reforms and the adoption of an ambitious plan to bring Nigeria into the world’s top 20 economies by 2020. A subsequent massive reprioritization of economic policy initiatives has produced tangible results: foreign exchange reserves quintupled between 2003 and 2006, while GDP growth averaged more than 7%. However, due to longstanding systemic imbalances, GDP per capita fell from $444 in 1997 to $430 in 2004, even as poverty levels increased.
Much of the problem has been Nigeria’s over-reliance on oil and gas exports, which have brought in some $600 billion over the last five decades, but made little difference to the non-oil sector, which was reeling in a climate political negligence and inadequate financial and economic resources. technical support. The impetus for Nigeria’s renewed economic goals must lie in developing entrepreneurship, taking into account its massive human resource capacity, and in a way that enables inclusive but rapidly accelerating economic growth. Eliminating dependency on non-renewable resources while simultaneously promoting micro, small and medium-sized enterprises (MSMEs) is crucial to achieving both the 2020 target and Nigeria’s Millennium Development Goals.
MSMEs have been responsible for the rapid growth of a multitude of economies around the world, historically starting with the UK and the Americas gradually moving to Europe, Latin America and lately in considerable parts of South and East Asia. Currently, it is estimated that more than 90% of all companies in the world are MSMEs, accounting for up to 80% of total employment prospects. In OECD countries, the MSME component reaches 97% of total business activity and contributes between 40% and 60% of GDP1 in member countries. These statistics hide a lot of ideas for Nigeria, in the context of its economic development goals.
The first of these is the fact that the comprehensive growth of MSMEs is essential for the expansion of rural economies as part of sustained macroeconomic development. MSMEs comprise a diverse mix of sectors based on agriculture, manufacturing, services, and trade; ranked based on asset value and employee base on a given scale of high and low scores for both counts. They often represent an extreme variety in terms of size and structure, from rural craft guilds, through small machine shops, to software and IT start-ups. They are, by definition, dynamic and comprise a wide range of growth-oriented skill sets, with special needs in terms of innovative solutions, technology and equipment, and knowledge updating. However, the central requirement to promote them is the development of a viable microfinance industry with integrated ease of access for small and medium-sized enterprises.
At the policy level, Nigeria has taken proactive steps to promote MSME initiatives, most notably a legislative amendment requiring commercial banks operating in the country to set aside 10% of pre-tax profits to invest in smaller businesses. . Both the IMF and the World Bank currently run separate outreach programs to assist Nigerian microfinance through customized procedures to optimize credit assessment and monitoring of microloans. The effectiveness of these measures has been confirmed to some extent by recent events.
In June this year, the Nigerian government announced the disbursement of $20 million2 in loans for small industry. This is a significant achievement considering that it multiplied from the initial US$8.4 billion World Bank grant to the sector in 2006. Policymakers negotiated the often poor access to loans and equity capital in Nigeria with the introduction of new microfinance institutions that enabled deeper financing solutions.
Despite this initial euphoria, the overall productivity and growth potential of Nigeria’s MSMEs remain extremely limited. Business development services remain generally underdeveloped in terms of projected potential, and are especially deficient in rural areas outside of major urban centers. In addition to inherent infrastructure deficits, MSME growth rates are further affected by a lack of business knowledge, especially the ability to identify rewarding business opportunities.
In view of the past and present realities on the ground in Nigeria, an appropriate environment for rapid growth in this key sector requires certain basic compliance measures, including:
* Effective government regulation and supervision of microfinance institutions (MFIs) and operations.
* Strengthening of MFIs through constant evaluation of best practices and sustainability.
* Improving the capacity of loan disbursement schemes for their applicability in wide areas.
* Greater coordination between the various agencies involved – public, private and donors.
Surely there are no shortcuts or panaceas for the efforts of companies. The World Bank outlines the broader perspectives of the MSME development program in Nigeria with five priorities3: improving the breadth and depth of finance available to MSMEs, creating markets for business development services, providing technical and capacity-building support , allocation of resources to access the best practices and, finally, financing for the execution, review and monitoring of individual projects.
The existential value of MSMEs derives from the fact that they provide products and services that their larger counterparts do not or cannot provide. Recognizing and harnessing this potential is only half the job. The real challenge for Nigeria is not in achieving the fullest prospects of MSMEs, but in integrating their success to create a more inclusive economy that is free of the flaws that have plagued the majority of its population for the better part of half a century. .