Lagos State: Key Points and Essential Actions on SMEs

TIMI OLUBIYI, Ph.D.

Lagos State is the economic capital of Nigeria and can be adjudged a country within a country considering the population size. It is one of the fastest and largest growing cities in Africa and the State has an estimated population of 20 million. The State officially has 3,224,324 micro-businesses and over 11,663 SME operators according to a recent statement from the Lagos State Ministry for Commerce, Industry, and Cooperatives.

SMEs in Lagos State can simply be classified into formal and informal operators, so it is believed that the record from the Ministry captured the formal SMEs. From context observation, it is seen that the informal SMEs especially the micro-businesses are not registered, if not the figures by the Ministry would have been higher. So, it suffices to state that adequate and reliable data on SMEs in the State is not available. 

Recall the population of Lagos State is higher than some west African countries namely Senegal (16,743,927) Guinea (13,132,795) Benin (12,123,200)and  Togo (8,278,724) Sierra Leone (7,976,983) and even developed countries such as Netherlands, Belgium, Sweden, Denmark, and Ireland. In fact the population is even higher than combined population of Liberia (5,057,681), Mauritania (4,649,658) , Gambia (2,416,668 ), Guinea-Bissau (1,968,001) at 15th April 2020. It is a fact that Lagos State has a huge population and is the hub of the largest concentration of MSMEs in Nigeria and perhaps in West Africa. Therefore, the need for structured measures to regulate and coordinate the affairs of this important sector is cogent. SMEs have been widely acknowledged as a sector with a significant impact on the nation’s economic growth especially.

SMEs particularly micro-businesses are crucial to job creation, economic diversification, creativity, and income redistribution. They are also critical to building an inclusive economy, generating employment and creating sustainable entrepreneurship. The activities of this crucial sector are visible and scattered all over the State. However, the geographical concentration of the informal business activities is noticeable in some locations such as Lagos Island, Ikeja, Oshodi, Agege but the formal SMEs’ activities are not usually concentrated.

Due to this significance, Lagos State frequently experiences a rapid influx of people from other States daily to transact or also to set up businesses to take advantage of the teeming population in the State. This trend could be attributed to the existence of vibrant commercial activities, ready market due to the population and good prospects of micro small and medium enterprises in the State. Lagos State is well recognized as a good destination for spirited entrepreneurs and SME operators from all the corners of the country. The State can offer wider opportunities even globally, with adequate involvement of Government regulations, support and enabling environment for SME operators particularly micro-businesses. 

The Small and Medium Development Agency of Nigeria (SMEDAN) is the institution established by the Nigerian government to develop the sector. However due to the peculiarity of Lagos State as the economic nerve and commercial center of the country, much is expected from the Government of Lagos State.

It is important to state that a lot of studies have been carried out on the role of SMEs on income generation. Understanding the connection between SMEs, and the economic growth of Lagos State is the focus of this article. The poverty rate and the alarming rate of unemployment in the State can be curbed with an adequate focus on the development of SMEs in the State. There is a large body of knowledge that indicates that SME development can boost economic growth, alleviate poverty, and lessen income inequality. Furthermore, tackling and fight against unemployment can be won to a large extent with an enabling environment that encourages SME development.

Therefore, the Lagos State Government needs to recognize the need to promote the development of SMEs in the State to reduce poverty, and further encourage self-employment and entrepreneurship. With SME development in the State, it is expected to contribute significantly to economic development, particularly through the easy startup of new enterprises and the expansion of existing ones. If this is achieved adequate job creations through entrepreneurship will be explored by vulnerable youths and independence will be achieved instead of seeking employments that are limited or not available. More so with the adequate enabling environment, the current SMEs in the State will derive the potential to grow exponentially and become a powerful engine of manufacturing export growth.

To substantiate the findings of this article, the opinion of entrepreneurs and business owners were surveyed. A high percentage of 97% of the SMEs were owned by single individuals, and surprisingly 48% of the respondents were unregistered with the Government from the survey. However, there is substantial gender equality with 57% of the respondents as male and 43% female in Lagos State.Although the majority of the SME respondents in Lagos State expressed concern over many bottlenecks that hinder the development of their businesses such as difficulties in local sourcing of raw materials, capital inadequacy, lack of Government support, as well as infrastructure deficiencies, the problem of long-term funds and working capital also reoccur steadily.

A high percentage of the surveyed SME operators and entrepreneurs, repeatedly raised issues such as difficult and harsh environments, the unpredictability of government policies, access to finance due to stringent banking procedures on loans and lack of basic infrastructures especially electricity as major bottlenecks in the State. The majority of the entrepreneurs and business owners (92.2%) in the State, had never attended any management or technical training this is a huge constraint to innovation and development of their businesses in Lagos State. Some SME operators in the manufacturing sector mentioned that intense competition with importers of substandard Chinese products is a distressing issue in the sector as well. Consequently, these issues raised by the SME operators could lead to repeated losses, increase the unemployment rate and could be ascribed to the prevalence of business failure in the State. 

The first point of call for change in the State is for the Government to enhance the development of sound policy for SMEs. It is an indispensable component of growth strategy and is particularly significant to the contribution of SMEs to the economic development of the State.

Small and Medium Scale Enterprises should be encouraged to register their businesses so that the government would have adequate data in the State for proper planning and business support. Government incentives should be attached to any registered business to encourage prompt business registration in the State. Taking up any new business or trading opportunities in the State should require formal registration as well as access to finance and credit processing.

The Government of Lagos State needs to launch policies and programs for Micro Small and Medium Business Development and the encouragement of startups in the State. Just like the initiative of Residents Registration Agency (LASRRA)for residents of the State, a registration of the operating businesses should be considered. The collection of basic information from MSMEs especially the informal microbusinesses is important to deepen the understanding of the informal sector and businesses in the State. A baseline survey should provide first and reliable data as to the nature, number and size of the businesses as well as some information on the people behind the businesses, their educational background, their specific knowledge and their needs in terms of support. A baseline study needs to be conducted in the State mainly to capture and set up a reliable database to reflect the actual number and types of micros small and medium businesses in the State.  

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 canbe reached on the twitter handle @drtimiolubiyi and via email: drtimiolubiyi@gmail.com.