Back in July, Finance Minister, Kemi Adeosun disclosed that Nigeria had slipped into technical recession, confirming a widely predicted fallout of Nigeria’s economic dire straits. Addressing the Senate, Adeosun said, “Technically, Nigeria is in recession, but we should not go into definition.” Her admission came after the International Monetary Fund (IMF) had indicated that the Nigerian economy would contract by 1.8 percent in 2016, a downward revision from the 2.3 percent forecast for April.
Nigerians weren’t particularly jolted by the news. Over the past 18 months, as global crude oil prices crashed, Nigeria’s economy, which relies on oil for over 70 percent of its revenue, took a hit. In its wake came mass sackings, plunging currency, capital flight, external borrowing, and the inability of states to pay salaries as well as declining profitability by companies. This season of anomie has been further compounded by epileptic power supply, insecurity, inadequate infrastructure, and unstable monetary and fiscal policy environment “Things are tough, but we are not ignorant,” said Adeosun. “I want to assure Nigerians the economy is in good hands and we are absolutely doing our best. We want to assure Nigeria we are on the right path; we are on the right track.”
The new path, Adeosun stated, will entail a change in direction through diversification of the economy which will wean the country off its over-reliance on oil. Diversification, which is expected to enhance domestic competitiveness, has been vigorously canvassed across board as panacea to Nigeria’s economic woes. To serve as bedrock of the economic diversification drive is the Small and Medium Scale Enterprises (SMEs) segment. Such expectation stems from the segment’s catalytic role in economic development. A well-structured SME sector, among its many beneficial deliverables, includes the stimulation of trading, manufacturing, agricultural output and generation of market surpluses, innovation and new technologies, as well as improved access to markets. In the process, the segment contributes to employment and wealth creation, poverty alleviation and improved food security.
Harnessing these benefits is particularly imperative for a country like Nigeria where approximately 96 percent of businesses are SMEs, employing about 32 million people and generating 48 percent of the Gross Domestic Product (GDP). Amrei Botha, Head of SME Banking, Africa at Standard Bank, noted that SMEs are “the key driver of growth in most emerging markets around the world and represents a significant prospect for the African economy.”
On the flip side, because SMEs cut across all sectors of the economy, they are also hard hit by economic adversity, a delicate position that makes their vibrancy crucial for economic health. “When there is a shift in policy, shift in prices, or turbulence in the economy in general, the SMEs many times take a direct hit because they are many, and they are very fragmented,” said Head of SME Banking, Stanbic IBTC Bank, Obinna Ukachukwu.
Against the foregoing, the renewed focus on the sector by both the government and private sector becomes quite understandable. The Federal Government had over the years launched several initiatives and financial incentives to bolster the sector, with mixed outcome. For instance, the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) was established in 2003 to focus on entrepreneurship building and development. The Central Bank of Nigeria also established a N500 billion fund for investment in debenture stocks to be issued by the Bank of Industry (BOI). In addition, the apex bank floated a N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), to avail SMEs access to credit.
Believing that access to finance is not the only challenge Nigerian SMEs contend with, interventions by private sector players have largely focused on other frequently-ignored issues. For them, capacity building, planning and inventiveness are more enduring prerequisites that will naturally attract funding, especially from banks. For instance, the Stanbic IBTC Bank SME Capacity Building Sessions, which was launched two years ago, focuses on empowering SME operators with information and expertise needed to build successful businesses. The content curriculum run through Book Keeping and Financial Management; Operational Efficiency; People management; Customer Relationship Management and State of the Nigerian Economy. The recent sessions held in Abuja, Ibadan, Kano, Lagos, Port Harcourt and Aba on August 9, and in Onitsha and Enugu on August 10, engaged the over 2,000 participants on these topics.
Managing Director, Customer CentriCity Limited, Uloma Umeano, while acknowledging that access to finance remains a key issue for small businesses, however emphasized that sustainability is only assured by strategy, planning, execution and profitability, and these outcomes are attainable via acquisition of relevant skills and tools that provide access to value chains and markets. Such challenges as branding, access to credit, marketing, operational costs, employee issues, succession planning, one-man show, innovation and inflexibility should be flagged as issues likely to derail success. In addition, lack of a clear business mission and vision ultimately limits the business owner from tapping market potential. Digital marketing, for instance, should be considered as an integral part of the everyday marketing arsenal to engage, acquire and retain consumers, Umeano said, adding that the internet and social media should not be seen as the sole preserve of big businesses with deep pockets. The internet provides a window through which small businesses can tap into global knowledge and networks, as well as market their products and services.
Kayode Oshin, a participant and partner at KCBC Partners, described the Stanbic IBTC Bank SME Capacity Building Sessions as a veritable platform for discerning operators to explore networking opportunities. The information and knowledge gained from the forum, he said, will help the participants, “navigate the confines of the Nigerian economy as far as the macro-economy is concerned.” Networking events, he added, provide an easy way to source potential partners and complementary services, as well as pooling resources and expertise for better service and product delivery. With operators from different sectors partnering, the potential to achieve almost exponential success is enhanced. The resultant partnerships can also help to create competitive advantages, open new markets as well as resolve challenges faster, more efficiently, and possibly in new ways. Sustainability and wealth creation are assured as a result, Oshin added.
Developments in the global economy, notably the plummeting oil prices, will impact on the local economy, with small and medium enterprises largely affected. Chief Executive Officer, West Atlantic Resource & Equity House Limited, Adegboyega Adebajo, who facilitated one of the sessions in Lagos, noted. To survive and succeed, SMEs have to be strategic in developing and executing their business objectives, while factoring in environmental issues and adopt appropriate business models. This is especially against the backdrop that lack of managerial and technical skills among Nigerian small-scale entrepreneurs, inadequate financial resources as well as infrastructural deficiencies are often cited as major drawbacks.
A similar view was shared by Eziukwu Princewill, Development Finance Strategist at Visionaries Nigeria Limited, who noted that with the Nigerian economy now in recession, SMEs will discover that their businesses and finances are in dire straits, a reason that makes it imperative to strategize and plan. To deal with this, he stated, will require putting more emphasis on increasing market shares through effective marketing strategies; adopting adequate cash flow management procedures; reclassification and remodelling of loans and other indebtedness; exploring informal borrowing windows and avoidance of foreign denominated loans and indebtedness, among others.
On his part, a tax consultant, Dominic Assim, who took the participants at the Port Harcourt centre through Finance and Accounting, emphasized that proper bookkeeping will not only help businesses manage their finances well, but also aid them to identify areas they can save on taxes, which will eventually boost the bottom-line. In setting a bookkeeping procedure, such factors as keeping track of cash flow, drawing up a working budget, planning for possible bad debts and quiet periods, tracking actual sales against planned sales, effectively managing debtors and creditors, and separating business account from personal finances, will be vital.
Anya Duroha, Head, Business Banking, Stanbic IBTC Bank, emphasized that it was to help SMEs prime their businesses for success that the capacity building session was inaugurated. By having well-structured business models in place, access to finance is assured. “Sound financial management is the bedrock of any successful business. Structuring your finances correctly is crucial for survival, and without a good financial plan, even the most promising business will falter,” he said.
The rich heritage and know-how of the Standard Bank Group, which has been in existence for 153 years, has been instrumental in Stanbic IBTC Bank’s commitment to building a strong SME base in Nigeria and one of the ways to demonstrate its commitment is by empowering operators with the right business skills and adequate funding. “We understand the important linkages provided by SMEs to industries and the economy. The benefits are there for all parties to harness. We believe that as more people enter the economy, the potential of SMEs to become drivers of the economy are further enhanced,” Duroha added.
There is a convergence that small businesses require loans, but their success is not guaranteed by the availability of finance alone. Key to success lies in ‘standing out’ through diligent application of those critical success factors that differentiate the business from the competition. Underlining this is finding creative and innovative ways of adding value to meet the needs of the market and clientele. Funding will flow. A school of thought qualifies the strategy as SMART: Simple, Measurable, Actionable, Realizable, and Total.
Hope Moses-Ashike
