How crucial would you say MSMEs are to the Nigerian economy?
I would like to begin by saying that all over the world, Micro, Small and Medium Enterprises contribute immensely to the growth of nations’ economies. If we take America as an example, MSMEs represent about 60 per cent of their industries. If we look at India, China and other industrialised nations, MSMEs contribute around that percentage to their GDP.
You may wonder why that is so. It is so because MSMEs feed the large industries; they produce those small components and add value to agric products, turning them into raw materials for large industries.
When we come back home to Nigeria, according to the Small and Medium Enterprise Development Agencies of Nigeria, SMEDAN, MSMEs in Nigeria are about 41.5 million and over 95 per cent of that falls within the category of micro businesses . So, you can say that Nigerian industries are made up of MSMEs. That tells us how crucial and critical MSMEs are to the growth and development of not only the industrial base of our nation, but even our economy. In the same manner, they generate not less than 60 per cent of the employment of this country. So, for a sector that is generating that level of employment, it is a game that underscores how critical it is.
One of the issues with MSMEs over time has always been the issue of access to funding, including loans and grants. How much of a challenge does this pose to your association?
As an association, we recognise and we are able to clearly identify the challenges of MSMEs. They include market, infrastructure, support services, funding, information and then technology.
Funding has been a very big challenge for MSMEs. That is because they are considered high-risk. So, providers of funds do not want to touch them. But what those providers of funds do not understand is the economic theory that talks about, “the higher the risk of investment, the higher the returns.” Those high-risk areas are where they can get their huge returns, but they have concentrated their funding in the hands of larger industries to the extent that over 70 per cent of Nigeria’s funding loans are in the hands of less than 30 per cent.
Now, that means that MSMEs are not getting the kind of funding they need.
Apart from those who do not want to lend to MSMEs, the costs of the funds are high. Interest rates on of 24, 25 to 30 per cent cannot help production. If you are doing trading, maybe, but for someone to produce, you cannot use funding of 20 to 30 per cent. It has been a major contributor to the retardation of the growth of MSMEs in the country.
Before we look at the impact, it is important we look at the causes of inflation as it pertains to MSMEs. A series of MSMEs’ products are driven by the cost of production. If the cost of producing each product is low, then the price in the market will equally be low. But in a situation whereby to produce, you have to use generators; the raw materials that you are using are imported, and you are buying at current dollar rate of N726, the production cost will be high. I will give you a quick example. I use resin in the manufacturing of my marble and granite as a binding agent. Less than two years ago, I was buying at N135,000. My last consignment of two months ago was N425,000 per drum.
The consignment that is being cleared, that I will take delivery of next week, is N575,000 per drum. What is going to happen? My product will have to go up, otherwise I will go out of business. So, the cost of raw materials keeps going up. So, all these add up to form what we call the cost of production. For as long as the cost of production is high, the cost of charges will also be high.
Then, why are prices of products from other nations not high? It is because of these problems that are facing MSMEs here, which MSMEs in those countries are not facing. They are not facing the issue of infrastructure, information, technology. So, that is it. And because the cost of production is high, the prices of our products will be high and we cannot compete effectively with those coming from outside Nigeria. We cannot even export and unless we export, we cannot earn foreign exchange that will bring down the value of the dollar against the naira.
You just mentioned forex. How much of a challenge is this for MSMEs?
Yes, all these things are interwoven. That is why not a single one can be treated in isolation. If we are not exporting, we are not earning foreign exchange and if we are not earning foreign exchange, it cannot be available for those who need it. The antidote to that would be that we are producing machineries, equipment and raw materials that industries import from abroad. If those things are being produced locally, there won’t be need to import and there won’t be pressure on our foreign exchange. The need for foreign exchange will not reduce for as long as we remain a consumer nation.