SMEs: Government Collaboration A Necessity

TIMI OLUBIYI, Ph.D

Despite the huge potentials of Small Scale Enterprises (SME) sector to create employment opportunities for our teeming youthful population and economic development, the sector remains largely bedevilled by several issues with government policies as one of the drawbacks.

The Federal Government of Nigeria has had a history of feeble national economic policies for businesses and self-employed individuals. The ineffectiveness or inadequacies associated with these policies usually impact particularly SMEs and all other entrepreneurial activities negatively and depressingly. Further to this, the sampled opinion of SME operators revealed that Government policies affect their activities, directly and indirectly, but extremely it impacts on their business operations and profitability. According to SME operators, Government taxes, tariffs, foreign exchange regimes, market regulations or pronouncements, fiscal and monetary policies have rippling effects on their activities and the general entrepreneurial landscape.

A policy can simply be defined as a plan of action agreed and chosen by a group of people, organisations, governments or political parties. It can simply be categorised as either internal or external policies. It is internal when it is designed for business to use by the management and owners of a business entity often called business policies. The Government policies, therefore, are external policies which are not within the direct control of business owners, such as Tax or duties, trade regulations, restrictions and prohibitions, policies towards change in social behaviour, subsidy policy, policies implemented to discourage the importation of goods or cargo, established rules and regulations to guide or promote certain actions amongst others. 

There is, however, no gainsaying that no country can attain any form of development without putting in place sound policies and programs. The very crucial areas that Government policies affect businesses in Nigeria are in the economic and legal sphere. Having said that, Governments always strive to create rules and framework, in which SMEs can compete favourably in the country. However, from time to time these rules and frameworks should undergo reviews but such is not the case in Nigeria, forcing businesses to struggle with the way they operate. Businesses are left with limited choices to respond to the changing rules and policies of Government. Most time in ways that are detrimental to their survival, due to macroeconomic and economic challenges. Businesses in Nigeria are adversely affected by Government policies and regulations most of the time.

When the Government creates policies or regulations, it should generally gear towards achieving positive end and improve the state of things, especially for a more robust business operation. It can also gear towards increased revenue and higher performance through cost minimisation, expansion, improved technology as well as quality human capital as obtainable in other climes. More so, these policies should be precautionary measures but it is the reversal in Nigeria and Africa at large, where policies are made in reaction to a phenomenon or to promote an action plan. This action can be pardoned because Governments are usually run by politicians and not necessarily businessmen.

Notable policies in recent times in Nigeria are Bank Verification Number (BVN) policy, National Identification Number (NIN) rule, the Finance Bill essentially the VAT increase on transactions, the ease of doing business policy, Treasury Single Account (TSA) for Government revenue collections. Agriculture Promotion Policy, Nigerian Visa on arrival policy, National Economic Empowerment and Development Strategy (NEEDS), Privatization and Commercialization Policy, National Poverty Eradication Programme (NAPEP).

However, vital to SMEs among these policies of Government in recent time is the Land border closures particularly with Benin, Togo, Niger, Cameroon, and Chad on 20 August 2019, Government cited it as an effort to stem the smuggling (Cars, gasoline, food items) and insecurity in the country. Part of the justification for the border closures is that it will restrict illegal importation and exportation of goods through these land borders. That this policy should boost domestic food production and national productivity levels in all sectors according to the Federal Government. However, the border closures have impacted negatively on Nigerian SMEs particularly consumers, retail SME operators, importers, and exporters. The domestic production output is low and cannot match the expected consumption levels and this has contributed to the rise in inflation numbers.

The closure was sudden and it took many by surprise, thus affecting business operations of mostly SMEs in the country even though this form of enterprise accounts for 84 percent of jobs and accounts for about 48.5 percent of the gross domestic product, GDP, of the country. So, the Government needs the policy to boost the capacity of these SMEs, and also develop and promote their activities instead of policy shocks and lack of stakeholder engagements.

Likewise, in Lagos State the commercial and economic nerve of the country, with an estimated population of above 20 Million. The Government on Saturday, February 1, 2020, suddenly restricts all forms of commercial motorcycles (okada) and tricycles (Keke) which included startups hailing ride platforms like Max, ORide, and Gokada from major highways in the state owing to disorderliness, perceived criminality, law-breaking, and insecurity. Though the State presented records from 2016 to 2019, showing approximately 10,000 road accidents involving motorcycles and tricycles, where 600 deaths were recorded. Stakeholders’ engagement and adequate strict regulations would have been options to adopt since we still have them operational on our streets and hinterlands. Because their existence is truly a cultural reality and they support job creation at the micro-business level.

The small and medium development agency of Nigeria (SMEDAN) defines micro businesses as employing 1 to 9 persons while small businesses employ 10 to 49 persons. They are all contributing to boosting the Gross Domestic Product (GDP) of the nation, generating employment and creating sustainable entrepreneurship. Lagos is the hub of SMEs in Nigeria and caution should be applied when policies that affect this sector are formulated. 

Nonetheless, dysfunctional economic policies of the Government usually hurt SMEs particularly the micro-businesses. The Government has not shown satisfactory sensitivity to the plight of these numerous operators that form 90 percent of business entities in the country. But the vivid truth is that a well-functioning SME sector could add more value to the Gross Domestic Product (GDP) of the country, increase the standard of living and create more job opportunities in the economy more than any sector. Instead, SME operators and entrepreneurs are left to strive with strategies and tactics to absolve any Government policies or regulations shock to make any meaningful balance. The Government needs to realize that small businesses are crucial to job creation, economic diversification, innovation, and income redistribution. Therefore, proper monitoring and evaluation of any developed policies and programs are imperative.

That said key stakeholders such as the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), The Lagos Chamber of Commerce and Industry (LCCI), Manufacturer Association of Nigeria (MAN), Nigerian Association of Small & Medium Enterprises. (NASME), and groups in the Organized Private Sector (OPS) incessantly advocate for the Government to create an adequate enabling environment, improve on rule of law, encourage public-private initiatives, invest in infrastructure, improve access to finance, strengthen national security and consider policiesas the needed Market Catalyst. Corruption has also remained a very serious problem that needs to be genuinely addressed because it can likewise threaten any development policies and programs of the nation. These actions highlighted will go in no small measure to lessen business failures, increase foreign direct investment, and international rating of the SMEs.

In addition to the aforesaid, it is recommended that Government interventions, collaboration with SME stakeholders and desirable policy formulations should be targeted to promote income redistribution, innovations, research, and development, reduce inequality, encourage private investment and injection of funds that can boost the economy to derisk these SMEs and make them viable. By this, the SMEs will be able to attract needed local and foreign investors, this will make their businesses competitive globally and also achieve adequate market exposure.

Besides, a collaboration by SMEs with Government, it is important to equally engage experts and consultants in the provision of external advice. SMEs can benefit from expert engagements on a range of issues such as strategy, organizational management, wealth creation, business continuity, technology adoption, and innovation. Concisely, going forward it is proposed that Government SME policies and programs should be rooted in collaboration, transparency, and fiscal discipline to increase SME performance in the country.

Dr. Timi Olubiyi holds a Ph.D. in Entrepreneurship and Small Business Management. He is a prolific investment coach, Chartered Member of the Chartered Institute for Securities & Investment (CISI) and a financial literacy specialist. He can be reached on the twitter handle @drtimiolubiyi and via email: drtimiolubiyi@gmail.com.