One of the key attractions of the informal or SME sector is independence. In fact, it is the search for this independence that drives many people into the sector, though a lot of people find themselves there by default. The sector embodies freedom of choice and independence of economic agents. The classical free entry and exit, and players’ atomisticism, hallmarks of competitive markets, are maximally alive in the SME sector. But that seems to be just about it, regarding the freedom operators enjoy in the sector. In reality, the informal sector is not as autonomous as people think. It may make its own rules; choose those to obey and disobey but it is not exempted from public policy. It is indeed the most affected by the many steps and missteps of government.
Indeed, the SME sector is a part of the economy and is affected by those local and global events that impact other economic agents. Therefore, in anticipating its contribution to labour absorption and household income generation, account must be taken of the environment in which the members of the SME sector operate. This point may be trite but we are on throes of a new policy push. We can do with some reminders so we don’t make the same mistake always. If we proceed without adequate emphasis of the operating environment we may be clapping with one hand.
An Igbo proverb says that only those lacking in wisdom will clear one side of a pathway or road and complain that the road is narrow. Clearly, a pathway cleared on only one side will remain narrow. Doing business in environments where policy emphasis is not driven by clear knowledge of and interest in critical success factors is a disincentive. In Nigeria, public policy governance is often not functionally positively responsive because there are hardly any terms of reference for officeholders. This limits the sense of urgency to achieve, even as we watch the rest of the world hurry as if tomorrow has already passed.
The SME sector is known to support the formal sector by providing certain inputs to industrial production and soaking off surplus labour. These roles, especially the generation of employment, are borne out of the fact that the SME sector is a highly labour intensive sector. Technology adaptation may be progressing but it is still at very low levels. Much of the work is still done manually by both skilled and unskilled labour. While technology is good, our labour abundance status should be factored into our planning process for the time being. The SME sector is a useful part of the job hopes of the over 200 million people that will be out of jobs globally in 2017, according to the ILO.
The role of the SME sector, though acknowledged as positive, varies among the countries and zones of the world, in accordance with their policy effectiveness. Of the over 600 million jobs that need to be created by 2020, according to the World Bank, to douse the tension arising from high levels of unemployment around the world, most will come from the informal sector of developing countries. This sector already accounts for up to 45 per cent of employment and 33 per cent of GDP in these areas. They provide as much as 60 to 70 per cent of the jobs in the OEDC countries and about 55 per cent of their GDP, while driving innovation and social mobility. But the informal sector remains exactly what it is, informal, if public policy does not account for its disabilities and try to fix them.
The contribution of SMEs has made them very useful agents of development, providing a buffer for all that have been affected, especially in the badly managed African economies where insurgency and economic sabotage have become the only sounds audible to some leaders. In those places, leaders are quick to negotiate settlement with those who rebel but pay lip service to the obvious sources of the tension that breeds rebellion.
There has been a lot of emphasis on financing and capacity development in the sector, which are important requirements for growth. However, many more factors interact in the development and effective contribution of the SMEs to development. The fact that effective business environment is a major driver of growth appears to have taken the back seat in many domains. We need to decidedly focus on the operating environment. So much money has been wasted in the power sector, for instance, yet no progress. No common services and no effective cluster provisions. It has become urgent that we make some honest attempt at good leadership in the SME sector. There is too much waste and the controllers of the Treasury appear not to know where the door is such that strangers go in and out of it to remove the resources needed to provide good governance.
I believe it is time to devote the urgently needed attention to business and environmental reforms that will boost the economy. According to the World Bank, business environment is “the set of location specific factors shaping the opportunities and incentives for firms to invest productively, create jobs and expand”. Investing, producing and growing is at the heart of SME development. These are hardly possible without collaborative state-business relations that promote business optimism and firm survival. Only firms that survive create jobs. Most of our leadership effort seems to focus on the comfort of leaders, which is important but only one side of the story. Again, we are clapping with one hand.
We speak bout enabling environment mostly in terms of infrastructure, which is important but it is more than that. There are many indices we should elevate in importance so as to maximize the contribution of SMEs in our economy. For instance, the Ease of Doing Business ranking should be an important barometer for gauging the extent to which our business environment is enabling or disabling. Recently we gave the impression that the Trading Across Borders Indicator does not matter to us when by fiat we banned legitimate transactions across some borders. Our Global Competitive status should also be of great interest to us. We cannot make our own rules and present to the international community like North Korea. Luckily, we now have a National Competition Council, which hopefully is tooted to galvanize public policy that regard.
There are so many other equally important factors that we leave out in the design of a business-friendly environment. These have largely accounted for the inability of the SME sector to fulfil its mission. For instance, the regulatory environment is not properly weighted in our SME policies. Legal and compliance requirements are killing MSMEs that generate most of our jobs. A small business recently closed shop on the day it officially opened because taxmen who apparently assed it while renovation was on, locked up the place even before his first customers arrived – What MKO Abiola calls shaving one’s hear in one’s absence. The SME sector is nothing without a friendly environment in which all freedom-enthusiasts and driven individuals find their place in the sun.