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Over-regulation hurting Nigeria’s SMEs — former NASSI chairman

Kuti-george

Segun Kuti-George is the immediate past chairman of the Lagos branch of the Nigeria Association of Small Scale Industrialists. In this interview with EDIDIONG IKPOTO, he discusses the challenges faced by micro, small and medium businesses as well as the vital roles they play in economic development.

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.

Now, as an association, we have engaged in a lot of advocacy with the government and its funding agencies. And some of the programmes of the government in recent years are a product of our advocacy. For example, the various CBN interventions, the recent loans, the one hundred for one hundred intervention of the CBN, the creation of the Bank of Industry and the Bank of Agriculture are all results of our advocacy. Unfortunately, though, when these things come on board, they do not address the MSMEs. They put conditions that MSMEs cannot fulfill in their way.

 You mentioned access to technology and other elements as important factors. So how have these other areas affected the growth of MSMEs?

We have over 200 million people living in Nigeria, and population represents market. So, how can market be a problem for MSMEs? The answer is simple: We have a market that is outward-looking and has a taste for foreign goods, regardless of whether they are better than what is available here or not.

So, there is a need to advocate for a change of taste for our people, to begin to appreciate the things that we make locally, to wear what we make, eat the food that we make, use the things that are made in Nigeria. I make bold to say that we do not make fake products around here. We know where fake products come from. It is our packaging that needs to be addressed, and we are addressing that, such that if you see the packaging of some Nigerian products now, you will not believe that they are from here. So, let us consume what we produce, and then nobody will complain about the market again.

Another one is the issue of capacity. We admit that a lot of MSMEs don’t actually have the expertise in what they are doing. But as an association, we are already building the capacity of our members such that they are able to run profitable businesses that comply with corporate demands. On the issue of technology, you will agree with me that because we are not producing machines here, you have to import our equipment from China, America, Europe and so on and so forth. And because of lack of purchasing power, we settle for old and, in many cases, obsolete technology.

Speaking of regulation, how would you assess regulatory standards of MSMEs? Are they helpful? Are they under-regulated or over-regulated? Or are MSMEs poorly regulated?

If we are under-regulated, that would have been very favourable to us. But rather, we are being over-regulated, and I have said this in different fora. Regulation is good because we cannot leave the entire space unregulated. We will have trouble in our hands, we will have substandard goods, death and sicknesses in our hands. But we should not also over-regulate. What I have had to tell some of these agencies is that patriotism also has to play a role in the way we regulate.

We are signatories to some of these international regulatory agencies. And it is the laws and agreements that we reach at such fora that we come to implement. But these other nations also go back and adapt such regulations to their environment. For example, we belong to a world regulatory agency that also includes nations like America, Europe, China, and so on. The truth is, they will be talking based on their own standards that is backed by a functional environment, where you have high technology, business-friendly ecosystem. But, you come back to Nigeria, I do not have power, good roads and you want to implement the same thing, hook line and sinker, It is not going to work.

Apart from that, our market is also infiltrated with fake goods. They were not made in Nigeria, they come from outside Nigeria. After reaching an agreement at such fora, there is a need to come back home and see what capacity we have and what will be favourable to us.

Nigeria’s economy has battled with rising inflation for much of the year. How has this inflationary pressure affected MSMEs?

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.

Why are other nations not crying of foreign exchange? It is because they produce most of the things that they need, and that is all we need to be doing. They also consume the things that they produce. So, we need not only to produce what we need, we need to consume what we produce for the pressure of foreign exchange to reduce.

Now, because CBN cannot print the dollar, thank God for diaspora remittances that  are  supporting what they have, otherwise our naira would have been worse than this. The CBN has announced that come January, the banks will have to sort their foreign exchange by whatever means, and that shows how bad this forex crisis may go. I won’t be surprised if the dollar exchanges at N1000 in January 2023.

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