The nation needs the Small and Medium Enterprises (SMEs) because they contribute meaningfully to economic development. They are in the forefront of output expansion, employment generation, income redistribution, promotion of indigenous entrepreneurship and production of primary goods to strengthen industrial linkages.
The sector is responsible for about 70 percent of the total industrial employment in our country and between 10-15 percent of the total manufacturing output. The agricultural sector which comprises mainly of SMEs have promoted indigenous technology and increased utilization of local raw materials. They are the strongest promise we have for industrial growth.
The era of 1980s can be said to be golden years of SMEs in Nigeria. Those were the years of the Nigerian Industrial Development Bank Ltd (NIDB) and the Nigerian Bank for Commerce and Industry (NBCI). They were Federal Government Development Banks specifically dedicated to the development of SMEs in the country.
They provided foreign exchange denominated loans for procurement of machinery and raw materials from foreign sources. The interest rate was friendly and the amortization ranged from 5-7 years with about two years moratorium during which only the interest was paid. The promoters used their equities to finance purchase of land and construction of buildings while the Commercial Banks provided the working capital. During this period, capacity utilization reached 73.3 percent and the sector contributed immensely to the GDP. Foreign exchange was abundant because the exchange rate was 65 kobo to the dollar. Promoters and banks were not discriminatory with regard to the types of project financed or promoted.
The economic policy in vogue was Import Substitution which means that one could substitute importation with local production without taking due cognizance of the local availability of the raw materials. Many projects that were over-dependent on foreign raw materials were incepted.
One can say without any fear of doubt that unemployment escalated when the mechanism for sustaining SMEs were dismantled by the Structural Adjustment Programme (SAP). Unemployment is now the greatest problem confronting our country and it is the major cause of urban unrest and escalation in violent crimes. About 48 percent of our population are presently unemployed while over one million students graduate from our tertiary institutions annually to join the army of unemployment people. We must build capacities to develop more SMEs by empowering these unemployed through technical training and financing. In countries where SMEs are given priority attention, they cater for over 65 percent of the national employment and contribute significantly to the GDP. In our country presently, the sector is moribund because of multiplicity of problems.
Nigeria presently ranks 140 out of 174 countries on the Human Development Index (HDI) and the official estimates put the poverty level at 70 percent of the population. In 1980, the poverty level was 27.1 percent but in 1992, it deteriorated to 42.8 percent and plummeted to 65.6 percent by 1996. These show that as unemployment deteriorates, the level of poverty in our country also deteriorates. The major demand of poor people is not food but various types of input and facilities that can help them generate income on the bases of their skills and proficiencies.
The government is determined to rebuild and reactivate the sector but the private sector must play a formidable part in the exercise. Government’s determination is exemplified by the inception of the Bank of Industry (BOI) which assumed the assets and functions of the old NIDB and NBCI. The BOI is tailored to be a reliable source of long term funds for SMEs and the interest and amortization rates should be more friendly than the commercial banks.
The Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) was established under the pattern of American Small business Administration (SBA) to offer technical assistance to SMEs. It has offices in 36 states of the federation including the federal capital. The agency can help new entrepreneurs draw business plans and can reactive old businesses. The agency needs to be more proactive by conducting workshops and seminars for SMEs and future entrepreneurs.
A more efficient and productive SME sector, means more and better products and services for our country. It also means better and more skilled workforce for our nation, ore contribution to our GDP and an improvement in the real sector. Our unemployment situation will improve and the frequent migration of our youths to foreign lands as destitute and refugees will reduce. Our products will become more competitive and can easily be exported to other countries. Also, the notorious emphasis on importation will relax and the pressure on the Naira will be abated. Inflation will reduce and the real sector will once more become the engine of growth.
All the above will contribute in eventuating our dream of becoming one of the 20 largest economies by the year 2020.
Culled from Cassavamillers.com