What are those major initiatives that are relevant to SMEs that your Ministry has introduced?
Let me start by congratulating Fidelity Bank for introducing this radio programme. It is so effective and is an important thing and it is also very relevant to our economy, given the size of SMEs in the country. Now, for the first time in the history of this country, we have done quite a number of things. Today, we see the micro, small and medium scale enterprises (MSMEs) as a sector. Up until now, they used to grow on their own and less than eight per cent of them had access to finance. They were not supported in anyway, which was why President Goodluck Jonathan in 2014, launched a new National Enterprise Development Programme (NEDP). What that means is that we see the MSMEs as a sector. We have identified the seven barriers to growth which includes access to affordable finance, cost of doing business in the country, access to market and linking innovation to SMEs and the training requirements.
So, for the first time in the history of this country, we now have an MSME Council which is chaired by the Vice President of this country. The idea is to coordinate and harmonise everything we do in that sector because there are so many ministries involved in this. What are we doing in making sure that the MSMEs have access to accordable finance? What are we doing in terms of business advisory services and skill? What are we doing in terms of market access? Those are the initiatives that we have because SMEs are the most important group in the economy today.
Let’s talk about what Fidelity Bank is doing. The bank has taken the cluster approach to funding SMEs. They have the Aba cluster. I know the federal government has the cotton, textile and garment (CGT) as well as the automotive cluster approach. What are the benefits of having these cluster approach?
First of all, let me congratulate Fidelity Bank for doing this. I was in Aba for two weeks and I saw the clusters. It is an innovative way of addressing the needs of SMEs in Nigeria by the bank. It has happened and it is in use in many other countries and it has worked. We are doing the same thing in the country today. The president has just approved the conversion of our 23 IDCs into industrial cluster parks for SMEs across the country. What it means is that all the necessary amenities they need, for example electricity at a cheaper rate, incentives would be there and other things that are barriers to growth of SMEs would be addressed there. Clusters helps to have access to market and more importantly, it also helps in terms of making funds available to them and enable them operate as cooperatives, which makes it easier. You know MSMEs don’t have the collateral we are looking for, neither do they have the assets to support it, but with that approach, it is easier for you to recover your money, it is easier for you to have small and growing businesses that employ people. So, overall, it is a win-win situation. In our case, what we are trying to do at the IDCs, is to make sure that they have shared services. Some of them do not have knowledge of how to start and grow a business.
So, the idea is to have some shared services there, in term of accounting and marketing, so that it is a lot easier for them. At some stage, we would also be targeting the export market. So, it is a brilliant idea and it is something the government has also adopted. We are working with the World Bank today, to appoint Special Advisers for the 23 IDCs. For three of them, we have an agreement with the World Bank to upgrade. What we are going to do with those three is that we are going to identify youths in some sectors of the economy, train them and make sure that they are capable of running their own business, put them in the parks, organise access to finance for them and give them a place to stay for at least one year to run their businesses before they move outside the park.
Nigeria doesn’t always rank very high on the World Bank’s ‘Ease of Doing Business’ report. What is the government doing to make sure that the ease of doing business in Nigeria is a lot smoother so as to boost our raking?
Again, for the first time in this country, we are taking this very serious. You are absolutely right about the importance of that survey. So, we have studied it and we have an investment climate reform programme which target states in terms of where we go. For example, according to the World Bank, it takes a minimum of one month to register a business in Nigeria, which is absurd. If you look at the SMEs today, 85 per cent of them operate in the informal sector. So, today, we now have online business registration and e-payment.
I tried that payment on the day of the launch and I did it in 10 minutes. So, we have moved from a country that actually takes a minimum of one month to register a business, to one that takes minutes and you will see that reflected in subsequent rankings. The second thing which we are doing is at the state level. So what we are doing is sub-national business ranking, and what we did was to rank all the states for those that came first, second and third and we are compiling these factors in each of the states. We share these factors among the states and work with them to improve viable access to land, the C-of-O signing. We would take these factors and share it with other states and in that way, we would improve our raking. So, it is important and we are addressing it.
What are you doing to make sure that SMEs have more access to long-term finance and equity finance?
If you look at the survey we conducted with the Lagos Business School recently, it is actually very disgraceful that as a country where you have 32 million people in the SME space, there is no support for them in terms of access to finance. Yes, we do have the Bank of Industry (BoI) and the others, but the amount of money they have for the sector is so small relative to the needs and as a country that wants to have inclusive economic growth, you cannot ignore the sector. So, it is a disgrace that past governments did not take this sector seriously and that is the change which President Goodluck Jonathan has introduced.
So, part of what we are doing to address this is to make sure we look at all the intervention funds we have in the country and make sure we put them together and know why people are not accessing them. For example, we just set up a committee to work with the CBN on the N220 billion to make sure that people get enough access to it. So, we are working with the CBN to make sure that it is quicker for SMEs to access the fund. Another thing which they ask for is collateral. They don’t have collateral and so there must be creative ways to do this. Indonesia does that and the recovery rate is 90 per cent. So, there are things we can learn from Indonesia and Brazil. Of course, we need to look at SMEs credit ranking scheme. One of the reasons why they are unsuccessful to raise funds is the quality of their account records and business plan. Today, we are now institutionalising a new scheme called the Business Development Support providers for SMEs across the board.
The BoI has contracted about 100 of these people. The World Bank is going to work with us to appoint at least one in each political zone and they would be working with the SMEs to prepare their business plans’ access funds and get them out into the market. Another way of doing this is encouraging the development of the private equity and venture capital sector. Venture capital will bring in, not just a loan which you get from banks, but they will bring in equity capital and they bring in the business development support services. They train you, help you develop your business, then at some stage, you hand over to the private equity, who buy it later. So, we are working on new rules, new regulations. We have had a committee working on this for eight months and now we are at the implementation stage. Hopefully, before the end of this administration, we shall have regulations and rules that makes it a lot easier for more venture capitalists to come in to play.
What is your ministry doing to make sure more SMEs have access to market?
It is clear that if you produce your products and you can’t sell it, you won’t MAKE MONEY. So, access to market is critical for a sector. There are number of things we are doing and have done, for example on what is happening in the United State of some percentage of federal government contracts going into the SMEs sector to encourage the sector, we now have a policy we are putting in place to ensure that a percentage FG contracts goes to that sector. Already, there is something that is not working enough, so we need to intensify and look into that again. So, that is a critical part for government.
Government spending must go into developing the economy itself and generating inclusive economic growth. So, we agree to that, it is not only the US that is doing this, Brazil is doing this and a number of countries are doing this already. Number two is to have a strong, viable and vibrant commodity exchange because even when you talk about SMEs it includes the farmers. Today, we say agric is a business, so, farmers are included too. Access to market is to have a strong and viable commodity exchange, again which we have in six geo-political region. But the innovative way we are doing this as well is value chain partnership is that we are looking at the top 50 corporations in the country and we are looking at the supply chains and how we can use SMEs as part of that supply chain. I will give you an example, Nigerian Bottling Company already does this and Nigerian Breweries is also doing this.
The idea is to find out the supply chains, look at where opportunities are for SMEs, and advertise those areas and get to work with large companies. When they do this, they get access to finance and they there is a system to produce their goods to international standard. So, to some extent you can start exporting, that will be a big way because we now be developing quite large companies that will be doing well. And, across the value chain, there are so many things that SMEs can supply but they are not aware of it. So, the first thing to do, is to identify them, make we publicise them and ensure that, they are part of that value. That will be an effective game changer in the country and that is what we are working on.