Strategies for Nigerian SMEs to Grow Economy - Prof. Chibundu

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(Vanguard (Nigeria) Via Thomson Dialog NewsEdge) Director NISER and Chairman Consultancy Committee, Nigerian Association of Small and Medium Enterprises (NASME), Sir (Prof.) Enmmanuel Chibundu in this interview with Vanguard identified why Nigerian SMEs are not engine of growth as in other economies, and proffer solutions which he thinks if addressed properly will make Nigerian SMEs catalysts of growth and development.



Excerpts:

On constraints of the Nigerian SMEs:

The role of Small and Medium-Scale Enterprise (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. The impact of SMEs is felt in the following ways: Greater utilisation of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilisation of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers.

On the challenges encountered by Nigerian SMEs

He said: "The fact that has emerged from the appraisal of the various past and policy initiatives on the promotion of SMEs in Nigeria is that although finance is a major constraint to the development of SMEs in Nigeria, it is by no means the only or most important constraint. The effective utilisation of substantial financial resources provided under the various past programmes, was constrained by such factors as lack of adequate entrepreneurship and managerial skills as well as absence of the enabling environment for investment in small and medium scale industries."

On constrained access to money and capital markets

The banking sector tends to be lukewarm in meeting the credit requirements of SMEs. This is because project proposals are poorly prepared, financial documentation and inadequate collateral are not provided, as well as the inability of the promoters of SME projects to raise the required equity contribution.

Moreover, the banks regard many SMEs as high risk ventures because of absence of succession plan in the event of the death of the proprietor. As a result, working capital is still a major constraint on production, as most SMEs are restricted to funds from family members and friends and are therefore unable to respond to unanticipated challenges in a timely manner. More worrisome is SMEs' inability to adequately tap available finance from the capital market. This had been attributed to by their aversion to disclosure and ownership dilution, although many SMEs blamed this phenomenon on the cumbersome requirements and procedures for listing on the Stock Exchange. The establishment of the second-tier security markets of the Nigerian Stock Exchange, which was expected to solve this problem, has been shunned by most of the SMEs.

On high rate of enterprise mortality

The incidence of inadequate working capital, which constrains productive capacities of the SMEs as well as absence of succession plan in the event of the death of the proprietor, leads in many cases to frequent early demise of SMEs. Moreover, the persistence of unstable macro-economic environment, arising mainly from fiscal policy excesses has often smothered many SMEs.

Shortage of skilled manpower

Inadequate financial resources, as well as desire to operate with limited openness on the part of proprietors lead many SMEs to employ semi-skilled labour. This of course, affect productivity, restrains expansion and hinders competitiveness.

Financial indiscipline: Some SME proprietors deliberately divert loans obtained for project support to ostentatious, expenditure. Others refuse to pay back as and when due, the interest and the principal, because of political involvement and the misconceived notion of sharing the so-called national cake.

There are however, genuine cases of loan defaults arising from operational difficulties and macro-economic shocks.

Lack of infrastructural facilities: Inadequate provision of essential services such as telecommunication, access roads, electricity water supply constitutes one of the greatest constrains to SME development. Most SMEs resort to private provisioning of these at great expense. A World Bank Study (1989) estimated that such cost accounted for 15-20 per cent of the cost of establishing a manufacturing enterprise in Nigeria. Contemporary evidence has shown that the relative burden of the private provisioning of infrastructural facilities is much heavier on SMEs than on large-scale enterprise.

Poor implementation of policies: The poor implementation of policies including administration of incentives and measures aimed at facilitating SMEs growth and development have had unintended effects on the sub-sector. This had resulted for instance, into confusion and uncertainty in business decisions and planning as well as weakened the confidence by the SMEs on government's capacity to execute faithfully its programme.

Poor management practices and low entrepreneurial skill: Many SMEs do not keep proper accounts of transaction. This hinders effective control and planning. Moreover, lack of relevant educational background and thorough business exposure constrains their ability to seize business opportunities that may lead to growth and expansion.

Restricted market access: Insufficient demand for the products of the SMEs also imposes constraint on their growth. Although many SMEs produce some inputs for larger industrial enterprises, the non-standardisation of their products, the problem of quality assurance as well as weak purchasing power, arising from consumers' dwindling real incomes, effectively restrict their market access. This is further compounded by the absence of knowledge about the existence of fringe markets by SMEs.

Overbearing regulatory and operational environment: The plethora of regulatory agencies, multiple taxes cumbersome importation procedure, and high port charges have continued to exert pressures on the industrial sector in general and SMEs in particular.

On the strategies for survival of Nigerian SMEs:

Over the years, the Federal Government has taken various steps, including monetary, fiscal and industrial policy measures to promote the development of Small and Medium Scale Enterprises (SMEs). Specifically, the government has been active in the following areas:

*Funding and setting up of industrial estates to reduce overhead costs.

*Establishing specialised financial institutions, including the Small Scale Industry Credit Scheme (SSICSs), Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI) to provide long-term credit;

*Facilitating and guaranteeing external finance by the World Bank, African Development Bank and other international financial institutions;

*Facilitating the establishment of the National Directorate of Employment (NDE), which also initiated the setting up of new SMEs;

*Establishment of the National Economic Reconstruction Fund (NERFUND) to provide medium to long-term local and foreign loans for small, and medium scale businesses, particularly those located in the rural areas; and

*Provision of technical training and advisory services through the Industrial Development Centres.

*Small and Medium Industry Equity Investment Scheme (SMIEIS)

What is SMIEIS?

The scheme requires all banks in Nigeria to set 10 per cent of their profit before tax (PBT) for equity investment and promotion of small and medium industries.

What are the activities covered by the scheme?

The range of activities in respect of which funds shall be applied are those in the real sector of the economy as listed below with the exclusion of trading, agro-allied, information technology, telecommunication, manufacturing, educational establishments, services, tourism and leisure, solid minerals, construction, any activity as may be determined from time to time by the Banker's Committee.

SME promoters and private sector effort to ensure survival of SMEs.

It is unfortunate that in Nigeria the full potential of SMEs is not being fully realized. This is partly related to harsh operating environment. But the major reasons inhibiting the growth and competitiveness of Nigeria SMEs according to extensive studies in NISER is managerial incompetence.

This incompetence is brought about by low quality of skills critically needed for successful business operations. Also discussions with top officials of the Banking and Financial Sector have revealed that part of the reasons for not financing some SME project is because of high risk and failure rate associated with low managerial know-how.

On proposed contents of survival core management principles for SMEs

Prof. Chibundu recommended the following policy stategy: Developing sound financial/accounting system, cost control measures i.e identifying key success factors for effective cost control, iInventory/working capital management, marketing management,the marketing environment, marketing strategies for SMEs (penetrating local and export market).

Distributed by AllAfrica Global Media. (allafrica.com)

Copyright 2006 Accra Mail. Distributed by Allafrica Global Media.
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