‘The most important thing as a nation is to keep our eyes on the goal’

  Q:Can we get the full names of the MIINTs? You said Mexico, Indonesia, India, Nigeria and Turkey. And the “S” is for?

A:I will also like to put ASIAN to MIINT because of the recognition of free trade in those countries. Singapore, Malaysia, Thailand, Vietnam, Myanmar and Indonesia are a large market of about 750 million people where there is common infrastructure, planning and customs regime.

Investors are looking at that and I think they can compete with China. I think part of the point for Nigeria is that it actually competes now for investments with Indonesia, India, South America and Mexico. When international investors look at these countries, there are certain features that they will like to see, which actually influence their investment.

Let me take you up on KPMG’s impression of Nigeria. Most times when global CEOs go into a market, it’s not just to give a pat on the back to those who are running the operations in those economies domestically. What is the biggest ambition that has brought you here to this market as a global CEO?

Well, it is probably better to keep a broader perspective on Africa. Africa is going to be the engine of growth of the global economy for the next 10, 20 years. We actually regard the Nigerian practice as the best practice in Africa, so if we can replicate what happens here and leverage the skills, the talents we have across broader Africa, then that is a smart business strategy for us to employ. So I’ve just been here talking to them about what we call Project Africa; that is how we can actually tap into the skills and talents and business models we have here for other markets. So, what we are doing is more broadly across West Africa and even pan-African.

A lot of people say Africa is going to provide food for the global economy…are you looking at that area, the area of investment in agriculture in Nigeria?

Certainly, I think 43 percent of people here are employed in the agricultural sector and there has got to be tremendous capacity to be more efficient and productive over time. We are also looking at consumer markets, we are looking at financial services, we are looking at energy in particular-the downstream aspect of energy.

So if you have oil and gas reserves, to petrochemicals, to fertilisers, which again links into agriculture, which also forms a manufacturing base, if you actually have the ability to start to utilise the substantial population that you have here. So agriculture would be a small part of what we are actually looking at. We are looking at services, energy and the financial system in particular.

What is your opinion on the power sector reform in Nigeria, particularly the recent sale of the Discos and Gencos?

I for sure, welcome the sale, the privatisation of the Discos and Gencos. Of course what you have to do is ensure we sell these assets at the right valuation, and that the process for doing it is very transparent. And from what I understand, the process is being handled by someone I have a lot of respect for-Mr. Atedo Peterside.

The process has been very transparent. You are not going to satisfy everybody in this particular deal. My own opinion is that we need to move forward. We need to move forward in this particular direction because if we don’t, we are going to have a real problem. It has been shown quite clear that the public sector cannot deliver the megawatts of power that we need to form an effective industrial base in this particular country.

We need the resources, we need the expertise of the private sector. So, on overall basis, I will say I welcome the process; the process has been fair; the valuation from what I understand has also been fair. What can I say? Let’s move on and deliver the power objectives that we say we want to deliver.

Still on the power sector reforms, there is this impression that the Federal Government set up a task force which did a very fantastic job; it disbanded it and set up another one and even with the new Power Minister in place; and the private sector is not sure, perhaps the Federal Government is not even ready for the reform they are talking about. Are there any concerns?

I will tell you this without going into why this task force is being set up while another one is being disbanded. We all know government procedures. But I have been in functions and I have interacted with very senior people in government. The conclusion is that deregulation and privatisation is the way forward. Government has no business in business; that is the reality.

If we look at it, we have priority sectors: education and health sectors, which are major for us. The kind of Gross Domestic Product (GDP) contribution from those sectors is very minimal so the thrust of the reforms is that we change the way we use to do business.

The key thing is that proper due diligence has being done, and liabilities are properly accounted for because all these agitations are coming from unions and pensioners and the rest of them. When the proper diligence has been done and the liabilities are properly accounted for in a structured manner, there will be no problem.

The reality is that we are generating just 4,000 megawatts, There is a company that has just been set up in Dubai, where they are getting coal for aluminium smelting from Australia. That company alone requires 6,000 megawatts for operation. We are talking about one plant. Then we are talking about 4,000 megawatts for the entire country.

Right now, its time we say, let’s move forward. Let’s face it, there will be vested interests both in the public sector and private sector and even inside government that will not want us to go ahead with the reforms in the power sector simply because they are vested interests. These vested interests, let me tell you, are very, very strong. We have seen them in pension, we have seen them in the petroleum subsidy scam.

I think the most important thing for us as a nation is to keep our eyes on the goal itself; on the goal of what we want to achieve for the common good. I’m not kidding myself here and saying there aren’t oppositions to these power sector reforms even within government itself. But I’m saying, what is profitable for the common good?

The thing that is good for all of us is to have enough power so that we can generate the middle class that we want to generate and develop the SMEs. I think that should always be the focus. Let’s say to government: ‘deliver on your promise; deliver the deliverables in the energy sector and let us move ahead.’

Government cannot deliver, they have had how many years to deliver? Yet they haven’t delivered; let’s try something else.

Given what you must have read about Nigeria and this is your first time of coming here and what you have seen so far, can you juxtapose?

First of all, what I see is a very vibrant economy and a very good class and sophisticated business people.

I see a massive population who are very nationalistic and very focused on the direction of the country; I see a lot of unity here, and I see huge potentials having studied the amount of oil reserves, the agricultural sector and the stability in the banking system and the entrepreneurial ability of some of your large companies.

What I have seen so far are very positive things. And I think you have a brand image that is still negative, there is still this global perception about security and corruption issues, which I think are largely being addressed. People’s thinking out there is still very much behind the reality here. I think what strikes me is just the need for investment in infrastructure here. And the focus on investments needs to be in place.

There is a need to invest in rail, sea ports, airports and roads to attract more international investors. From day one I’m sure of the need for internationally standard infrastructures. But having come from India, Indonesia and Mexico, I can tell you that you all have the same issues.

Looking at Nigeria which earns 80 percent of its revenue from oil and the US which was a major buyer of Nigeria’s oil is developing its own internal energy, and very soon it will be energy self sufficient and Europe is facing sovereign debt crisis; if you (KPMG) were to advise Nigeria what will you tell the government to do?

First of all, let me cover the energy sector. I think the very disruptive force in the energy sector now is the discovery of shale gas in the United States, which is basically providing the US with a huge competitive advantage over the rest of the world because it now can produce gas for $4 a giga joule whereas the rest of the world is on $14 or $15. And oil costs six times the cost of shale gas.

And if you get the US to reduce its import reliance and become an exporter, that changes dramatically, the focus on oil in the world economy. But this is going to take a long time to happen. First, there are environmental issues, capacity issues and the US will soak up a lot of its domestic reserves before it can start to impact the global economy.

On the long term when shale gas is efficiently exploited around the world, you can see a long term adjustment in the oil price downwards. So my advice is to diversify the economy and to make sure you don’t actually put your risk on any particular commodity and use the competitive cost advantage of other economies to drive other industries.

With the proceeds from gas, you can make other industries here competitive using the advantage you have to access to low cost and efficient amount of oil reserves.

You have a window of opportunity; it is not growing bigger, it is narrowing. You better use that window of opportunity to diversify the base of your economy. And you know, I’ll tell you something: I have always been a proponent of this idea that if you take oil out of the equation of this country, we will be a much better country.

Things are not going to work that way; that is not the real world. In the real world, they say, ‘Concentrate on your area of comparative advantage; develop your entire value chain. I tell you, if you neuter oil from this country, we have people with sufficient energy and entrepreneurial skills in this country to develop this country without the oil hang-on that we have now.

But oil will still play an important part but utilise it to develop your infrastructure, to educate your people and diversify your economic base. If I was advising government, that is exactly what I’ll say.

My question has to do with the aviation sector. The government has moved away from owning airlines but you find that many of the airlines are fundamentally weakened; even the so called new carriers are in debt and are at the verge of collapsing. The government has intervened once or twice but yet you still have lots of issues in aviation. So from your own understanding what are the problems and how can we arrest them? 

I can tell you something. You are not going to solve the aviation industry problems with government becoming a major player, with government buying 30 aircraft and saying, ‘We are going to have Nigerian Airways’ or whatever. You are not going to solve that problem that way. We have all been through this before. When I was growing up I knew we had the Nigerian Airways and you knew exactly what happened to the airways.

What has to happen basically is that you have to empower; you have to trust the private sector, you have to have people put their capital on the ground and make sure that it works. And honestly, as you know in this country, we were going to make it that way. Richard Branson came into Nigeria and made an investment in Virgin Nigeria. The only thing he asked for was basically, ‘Look, let me use MM1 as hub, as a regional hub’ and the Federal Government of Nigeria agreed to this. Isa Yuguda who was the minister of aviation at that time signed off on it and said ‘Yes, it is ok. Use that.’

Then we had a change in regime. When we had the change in regime, vested interests came and those vested interests said basically, ‘Listen, even though we had an agreement we don’t agree with this particular agreement; let’s do something else. You won’t have that as a hub.’ So the guy walked off and then what happened?

You then handed over that particular industry to somebody who didn’t have any real experience in it so what do you expect? Of course the whole thing collapsed and we are in the situation where we are now simply because of a wrong decision. So I am saying again that we are not going to resolve this matter by saying that government should own aircraft and start again in the aviation industry.

I can tell you now for free that it is not going to work and that if you do it in 10 years’ time that particular company you set up is going to fail. What we have to do is to put the incentive into place for people to go into the aviation industry which I can tell you now, is not an easy industry at all.

In fact, there are people who say if you are a billionaire and you want to become a millionaire, what industry should you go into? And people do say you go to the Aviation industry! So I am not saying that it is impossible but there are creative ways to fund these things. But it not by saying “We are going to have a Nigerian Airways again” because it is not going to work and it is just going to waste the resources of all of us.

Please, one more thing. I have a view that the world aviation industry would be dominated by Middle East airlines and you really need to know the capacity what the have in terms of models of their fleet, their regional hub and the fact that they have great access to cheaper fuel, they are going to be dominant. So you are going to have to leverage on the local flights.

In all your responses, you keep mentioning ‘vested interests’. How do you deal with these vested interests, with the kind of corruption going on around the country? How do you deal with these vested interests as a consultant?

It is not my responsibility alone. It is the responsibility of all of us; of civil societies. Every one of us has a role to play and if you take a look at the track record of KPMG for instance, you know what we did with pensions; the issue that we raised up with regards to pensions, with regards to the fuel subsidy.

We have done our part not only as a firm but also individually where we find ourselves. And journalists also have a responsibility to do that. To educate people responsibly, and say ‘you know, these are the issues’ and in this respect I have got to say that I respect some of you guys on this table.

When Emeka Eze at Procurement got into the transmission issues I knew the anger you expressed and what you said about the fact that you are angered beyond belief about the people who would like to derail this power sector reform maybe not for money sake, but just to prove a point that ‘I am in charge.’ We need to clean up the judiciary, so I am happy with what has happened recently with what the Nigerian Judicial Council has done together with the CJS. All I am saying basically is that the fighting of the vested interests is the responsibility of all of us. You are also included in that battle and I am sure it is a battle we can win if we all basically say ‘enough is enough.’ Let’s just get this country moving.

Let’s go back to the aviation industry where you said you don’t want to see government getting involved. Now if you take government out of it we feel that even those who manage the private sector of aviation don’t seem to manage properly. What do you think is the key issue with the running of those private / individual airlines?

First of all, you have got to have a regulator that does his job. You can’t have a regulator that goes to sleep or is in cahoots with the private airline operators on how to cut corners. You have got to be able to say to yourself: ‘I’m stand above the fray and insist on standards: ‘you have got to do this.’

What I am saying is that you need to have an effective regulator that says ‘these are the standards and they have to be adhered to.’

Back to what Andrew said. The business module of our operators is flawed, deeply flawed I told Jimoh Ibrahim when he said he wanted to go international. I said, ‘You are going to fail woefully; don’t fly international, go for a low cost carrier model. Stick to the regional and domestic market because you are incapable of competing on the international level.’

The same is applicable to Arik. So far as they think you see for them as an ego thing, so far as they think they can operate and compete with the likes of Emirates or Etihad or Qatar Airways or even British Airways, they will fail. And for your information, even the big airlines in Europe and US are suffering; most of them are operating on losses right now.

You cannot be borrowing money at 30% interest rate which you have to pay back in 90days, and think you will operate efficiently and effectively. So even the operating model, the cost of funds, these are the things that are hampering the operations and until they alter their models there is no way to succeed apart from the regulatory environment.

You did say something very important: as Africans, sometimes when we go into business, we go into it because we want to always represent. Sometimes, as Africans we prefer to own 100% of nothing rather than own only 10% of something profitable. Aviation is just like oil and gas, and telecoms; they are deep pocket business, they are capital intensive. It is not something you just stroll into.

And the reality again is the robustness of the regulatory environment and when I talk about ‘robustness’ I am not only talking about safety standards, but about the people who man those organisations. If you make the wrong assumptions or the wrong decisions on aviation fuel or safety standards, it can actually send you parking and those kinds of things are important to us. I think beyond all these things we have said, we need to know that the process of the regulatory environment is extremely important because even the safety and standard is truly important because in the sector, if something goes wrong it causes how many lives? Between 155 and 200 lives are lost.

Going round the states as a first timer you must have noticed that there is a huge informal sector here. What is your take on the potentials this offers viz a viz the financial inclusion that the Central Bank is talking about?

That is actually critical to the economy that you actually start the transition of the informal sector into the formal sector and that you encourage people by showing them benefits of being in the formal sector by way of subsidies, grants, programmes on entrepreneurship and demonstrate that you are better off in terms of your long term advancement by being in the system than outside the system and we do this through indirect tax mix?

There are ways of demonstrating to them that you benefit from greater government inclusion. There are many kinds of programmes and infrastructure available to you if you are in the system and if you stay outside the system you will be disadvantaged. So you need to have this level of settings in place and I think you have the quality of these economies.

It is incredibly important because you can do all the things we have talked about and you will create an entrepreneurial class and that will provide jobs and employment but if you have social unrest and you have massive unemployment and people don’t share in the benefit that is what starts to put tension on countries. So this is the biggest issue in China frankly. In China, it is growing enormously but not every single one of the population is actually benefitting from the progress in China and that has resulted in a number of the satellites.

In China, you are starting to see significance civil unrest questioning of the government module and that is becoming a very major issue not only for the government but for business. In Dallas this year, we voted a hub of the business council of the top 100 CEOs in the world and we said what is the biggest single risk to the global economy and they said, ‘civil unrest’ which you will basically see in Europe and many other countries where you have very high rates of youthful unemployment in a very socially disconnected generation who are quite organised through social media to cause immediate difficulties.

What is the size of Nigeria’s informal sector today?

I mean I cannot give you a precise figure but it is really huge. I mean there are some people who say it is up to about 50% of the entire economy. Let me tell you something: what is the key to inclusiveness? What the guys in the informal sector are asking is: ‘what have you done for me lately? What have you done for me today? If you want to take people from the informal sector to the formal sector you have to say to them, ‘Look, at the good roads that I have built, look at the hospitals, look at the quality of education.

When you see that people come around and say, Oh yea, it is a good thing, but you take things away from me, you take taxes and you do all those kind of stuffs, yet I look around and there is nothing.’ As all of you know, that is the basic. That is what is causing the issue over fuel subsidy removal because people are saying, ‘We don’t trust you; this is the only thing we have if you take it away, what are you going to give to us?’

Okay, you give us SURE-P but what is SURE-P? What has SURE-P done for me? So, in order to be able to take people away from that sector, you have to show them concrete things they can see themselves, so that people then realise that this is the advantage of being part of the formal sector; this is the advantage of being candid, this is the advantage of paying my taxes because I will get security, I will get good roads, I will get good education; the power is there.

But if you don’t do that, sure, I have stayed in my own cocoon because I don’t trust you. People say Nigeria is a country where you bring your everything you bring your own road, you bring your own water, you bring your own electricity, you bring your own security, why should I go into the formal sector when you don’t give me anything?

Over the years aviation has witnessed a reducing profile in its productive sector. On the graveyards of these production facilities are now churches, event centers and even self-service outlets with their huge stocks of products for their country. Now the government has been churning out the growth rate that somehow looks impressive. With this scenario how will you describe Nigeria’s growth trend in the context of global economy?

Let me just say something, and this is something I have said before. Several times growth rate doesn’t matter to me—6.15%, 6.5%, 9% means nothing if the ordinary man on the street is not seeing it. What does growth rate really mean? What we are talking about is economic development, what we are talking about is the common man? How does it begin to take people from poverty to the middle class and in that area we have a whole lot of things to do.

Sure, we have those growth rates in this country but it is heavily concentrated. Let me tell you, the country with the highest growth rate in Africa today on a per GDP basis is Equatorial Guinea. But you go into Equatorial Guinea and see what you see; it is concentrated in the hands of some people. Angola is the same thing; those are the two big leaders on the African continent. I am telling you if you have that then you are going to have what Mike is talking about—civil unrests.

I am telling you that and anytime I think about these things I remember the words of an American playwright who is dead now called James Baldwin, who wrote an essay called ‘The Fire Next Time’ and what he wrote is that God gave Man the rainbow sign which means no more water but it will be fire next time and we have to be very conscious of that in Nigeria.

In fact, indeed, all of the entire African continent because we are taking a look at the growth rate in the sense that it is not sustainable because you have not done that distribution because wealth is concentrated on a few hands like I said, the fire next time.

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2 Comments

  1. kigongabas@gmail.com'
    abdullah musa
    December 30, 2013 at 11:18 am Reply

    Quite revealing.
    May be all Nigerian journalists should have thorough financial and economic education.
    This is necessary in order for them to move from emotive issues of religion and tribe, to rational ones of economic wellbeing and fairplay, which the ethnicization of corruption precludes.

  2. ateresegun@yahoo.com'
    Association of cottage Industrialists of Nigeria
    March 5, 2014 at 12:00 pm Reply

    Report of the Vision 2020
    National Technical Working Group
    on
    Small and Medium Enterprises (SMEs)
    July, 2009
    2
    TABLE OF CONTENTS
    GLOSSARY OF TERMS………………………………………………………………………………………… 2
    LIST OF TABLES AND FIGURES…………………………………………………………………………… 5
    EXECUTIVE SUMMARY ……………………………………………………………………………………….. 6
    1. INTRODUCTION………………………………………………………………………………………… 10
    1.1 Methodology – Approach for Strategy Plan Development…………………………………………………………………… 11
    1.2 Scope of the Small and Medium Enterprises (SME) Sector…………………………………………………………………. 11
    1.2.1 Structure of the SME Sector …………………………………………………………………………………………………………….. 11
    1.2.2 SME Sub-Sector’s …………………………………………………………………………………………………………………………. 13
    1.3 SME Sector – Key Players ……………………………………………………………………………………………………………….. 17
    1.3.1 Public and Private Institutions…………………………………………………………………………………………………………. 17
    1.3.2 International Development Partners and NGOs ………………………………………………………………………………….. 19
    1.4 Review of Government Involvement ………………………………………………………………………………………………….. 20
    1.4.1 Previous Developmental Plans …………………………………………………………………………………………………………. 20
    1.4.2 Funding Arrangement and Management ……………………………………………………………………………………………. 22
    1.4.3 Incentive Schemes …………………………………………………………………………………………………………………………. 22
    1.5 Overall Targets for the SME Sector…………………………………………………………………………………………………… 23
    2. ASSESSMENT OF THE SME SECTOR………………………………………………………… 27
    2.1 Global SME Sector Assessment …………………………………………………………………………………………………………. 27
    2.1.1 Global Trends ……………………………………………………………………………………………………………………………….. 28
    2.1.2 Implications for SMEs……………………………………………………………………………………………………………………. 31
    2.2 Benchmarking & Best Practice Assessment ……………………………………………………………………………………….. 31
    2.2.1 SME Benchmarking Assessment……………………………………………………………………………………………………… 32
    2.2.2 SME Best Practice Assessment ………………………………………………………………………………………………………… 36
    2.3 Issues Facing Nigeria’s SMEs ……………………………………………………………………………………………………………. 40
    2.3.1 Exogenous Issues ………………………………………………………………………………………………………………………….. 40
    2.3.2 Endogenous Issues ………………………………………………………………………………………………………………………… 42
    2.4 Opportunities for the SME Sector……………………………………………………………………………………………………… 43
    2.5 Imperatives for Nigeria’s SME Sector ……………………………………………………………………………………………….. 45
    2.5.1 Key Strategic Imperatives ………………………………………………………………………………………………………………. 49
    3. SME SECTOR – 2020 VISION, OBJECTIVES AND GOALS……………………………. 51
    3.1 Vision ……………………………………………………………………………………………………………………………………………… 51
    3.2 Objectives and Goals ……………………………………………………………………………………………………………………….. 51
    3
    3.3 SME Sector – Potentials and Key Growth Drivers……………………………………………………………………………… 52
    3.3.1 Analysis of Potentials Across SME Sub-Sector’s ……………………………………………………………………………….. 53
    3.3.2 Prioritization of Key Growth Drivers ………………………………………………………………………………………………… 55
    4. IMPLEMENTATION ROADMAP…………………………………………………………………… 58
    4.1 Overview of the Implementation Roadmap………………………………………………………………………………………… 58
    4.2 SME Sector – Implementation Roadmap……………………………………………………………………………………………. 59
    REFERENCES……………………………………………………………………………………………………. 74
    APPENDIX………………………………………………………………………………………………………… 75
    Appendix 1 – Stakeholders in SME Development …………………………………………………………………………………………… 75
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 2
    Glossary of Terms
    APEC Asian Pacific Economic Commission
    BDS Business Development Services
    BMO Business Membership Organisation
    BSS Business Support Services
    CBN Central Bank of Nigeria
    CPC Consumer Protection Council
    DFID Department for International Development, U.K.
    ETF Education Trust Fund
    EM Emerging market
    ECN Energy Commission of Nigeria
    ECE European Commissions Enterprises
    EU European Union
    FAO Food and Agriculture Organization of the United Nations (FAO)
    FIRS Federal Inland Revenue Service
    FIRO Federal Institute for Industrial Research, Oshodi
    FWM Federal Ministry of Water Resources
    FOS Federal Office of Statistics
    FDI Foreign direct investment
    GDP Gross Domestic Product
    HPAEs High Performing Asian Economies
    HSE Health Safety and Environment
    IDC Industrial Development Centre
    IFC International Finance Corporation
    ITF Industrial Training Fund
    ICT Information and Communication Technology
    IP Intellectual Property
    IBS Internet Business Solutions
    MAN Manufacturers Association Of Nigeria
    MSE Medium Scale Enterprises
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 3
    MTEF Medium Term Expenditure Framework
    MFB Micro Finance Bank
    MSMEs Micro, Medium and Small Scale Enterprises
    MDAs Ministries, Departments and Agencies
    NASENI National Agency for Science and Engineering Infrastructure
    NABDA National Biotechnology Development Agency
    NBTE National Board for Technical Education
    NBTI National Board for Technology Incubation
    NBC National Bureau of Statistics
    NACETEM National Centre for Technology Management
    NACCIMA
    National Chamber of Commerce, Industry, Mines and Agriculture
    NCCE National Commission for Colleges of Education
    NDE National Directorate of Employment
    NEPAD National Economic Partnership for African Development
    NERFUND National Economic Recovery Fund
    NAFDAC National Food and Drug Administration Control
    NITDA National Information Technology Development Agency
    NITDA National Information Technology Development Agency
    NOTAP National Office of Technology Acquisition and Protection
    NOA National Orientation Agency
    NPC National Planning Commission
    NAPEP National Poverty Eradication Programme
    NTWGs National Technical Working Groups
    NUC National Universities Commission
    NBCI Nigeria Bank for Commerce and Industry
    NEPZA Nigeria Export Processing Zones Authority(NEPZA)
    NIDB Nigeria Industrial Development Bank
    NITDA Nigeria Information Technology Development Agency
    NASME Nigerian Association of Small and Medium Scale Enterprises
    NASSI Nigerian Association of Small Scale Industries
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 4
    NEXIM Nigerian Export and Import Bank
    NIPC Nigerian Investment Promotion Council
    NGO Non Governmental Organizations
    OPS Organised Private Sector
    PRODA Project Development Agency
    PPP Public Private Partnership
    PPP Purchasing power parity
    RMRDC Raw Materials Research and Development Council
    R&D Research and Development
    SMEDAN Small and Median Enterprises Development Agency of Nigeria
    NEEDS National Economic and Empowerment Development Strategy
    SMEEIS Small and Medium Enterprises Equity Investment Scheme
    SMEs Small and Medium Scale Enterprises
    UN United Nations
    UNDP United Nations Development Program (UNDP)
    UNIDO United Nations Industrial Development Organisation
    USAID United States Agency for International Development
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 5
    List of Tables and Figures
    Table 1.1: Structure of SME Sub-Sector
    Table 1.2: Distribution of SMEs across Sub-Sectors
    Table 2.1: Enterprise creation and employment generation benchmark comparison
    Table 2.2: GDP contribution and export earnings benchmark comparison
    Table 2.3: Global competitiveness benchmark comparison
    Table 3.1: Nigeria Sectoral GDP Distribution (2008)
    Table 3.2: SME Sector Growth Drivers
    Section 4.2: SME Sector – Implementation Roadmap
    Figure 3.1 – Annualized Sectoral Share in GDP (2002 – 2006)
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 6
    Executive Summary
    The effort to develop a blueprint for Small and Medium Enterprises (SMEs) development was borne
    out of the desire by the Federal Government to institute a development paradigm that would ensure
    Nigeria’s position as one of the twenty (20) most industrialised countries in the world.
    The development of the strategy plan for the SME sector progressed with a holistic review of Small
    and Medium Enterprises. It was highlighted that the wide spread of SMEs in Nigeria and the
    multiplier effects they have on the rest of the economy enable them to be the engine of economic
    progress. It was also noted that the SME sector is the main driving force behind job creation, export
    earnings, poverty reduction, wealth creation, income distribution and reduction in income
    disparities.
    With regards to linkages, the SME sector cuts across all other sectors of the economy and in its
    growth and developmental process, has the potential to transform these sectors and set them onto
    the path of sustained growth. There is no doubt that SMEs need to strengthen their linkages to
    large-scale enterprises as they are key players in the supply of raw materials and distribution of
    manufactured goods. High value added regions in the world demonstrate high interdependency
    between value added manufacturers and SME suppliers of all types. SME suppliers need to be
    encouraged to adapt products, demonstrate flexibility and support product development to enable
    their products feed easily into the value-chain of large-scale industries.
    Most of the challenges the SME sector faces arise from the nature and mode of operation of the
    enterprises (endogenous) and from the external environment which entrepreneurs have to grapple
    with (exogenous). Some of these challenges include lack of effective policies or appropriate legal
    framework, financial constraints, poor infrastructure (especially unstable power and fuel supply),
    poor linkages, lack of skilled labour, poor ethical conduct and work ethics, etc.
    Equally important are opportunities that exist for the sector such as support of global SME
    organizations, abundant human capital, large domestic market, rich agricultural and mineral
    resources and many others. To sufficiently harness these opportunities, the sector must be
    supported with sufficient policies that can create the desired conducive environment.
    Government intervention over the years has been thoroughly assessed. The policy play, the
    institutional structures and programmes, the various funding arrangements and intervention through
    commercial banks designed to build up a viable SMEs sector are all notable. However these
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 7
    interventions failed to create a much needed transformation due to poor coordination and
    monitoring and policy inconsistencies.
    A proper analysis of the developed economies of the advanced countries highlighted key
    imperatives needed to support the SME sector in its bid to opening the floodgates of economic
    prosperity. The key strategic imperatives identified, in order of priority, are provision of adequate
    infrastructure, sustained and sufficient institutional support, education and skills upgrading,
    technological adaptation and innovation and availability and access to funding and financial
    services.
    Economic growth is critical to the existence and indeed the survival of any economy and by
    implication a nation. Hence it is a good indicator for assessing the potential of productive or real
    sectors of the economy. In advanced economies, the SME sector is acclaimed as the engine of
    economic growth and development however against international best practices Nigeria is rated
    poorly. In Nigeria’s SME sector, GDP is an aggregate of several sector’s economic performance.
    These sub-sectors include: manufacturing, solid minerals, metal fabrication, ICT, culture and
    tourism, transportation, agriculture, trade & commerce and other service related sectors.
    Consequently, improvement in economic performance requires changes and growth in these critical
    sectors that impact directly on GDP performance.
    SME issues and challenges have been well rehearsed; if these issues can be removed through
    sustainable improvements in business environment, infrastructure, access to credit and technology
    and other challenges positively addressed, the SME sector will be enabled to convert its huge
    potential to real achievement. This will drive growth in SME sector contribution-to-GDP via the subsectors
    with highest concentration of SMEs. The V20: 2020 program should therefore place
    significant effort on ensuring the SME sector plays a lead role in Nigeria’s economy come 2020.
    Hence, the objectives and goals, developed for the year 2020 are encapsulated by the vision for the
    sector which is “to be the main engine of economic growth, a driver of sustainable industrial
    development and a globally competitive SME sector”. The objectives and goals defined for the
    achievement of this vision are as follows:
    • OBJECTIVE 1 – Develop an SME sector that is the driver of national economic growth and
    development
    a. Goal 1: Increase entrepreneurship and raise employment contribution to 60% by 2015 &
    80% by 2020
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    b. Goal 2: Centralize management, monitoring, coordination, planning, promotion and
    development of SMEs
    c. Goal 3: To contribute 50% of GDP by 2015 and 75% by 2020
    • OBJECTIVE 2 – Develop a strong, virile, viable and sustainable SME sector capable of
    competing globally in terms of quality products and services at competitive prices
    a. Goal 1: To contribute 50% of exports by 2015 and 80% by 2020
    b. Goal 2: Increase production of capital goods by 40% annually up to 2020
    c. Goal 3: Improve the business environment by raising the country’s rating on Doing
    Business List to at most 80 by 2015 and to at most 50 by 2020
    • OBJECTIVE 3 – Develop and improve entrepreneurial skills and competencies of existing
    and potential entrepreneurs
    a. Goal 1: Improvement in investment on human capital by 20% annually up to 2015 & 15%
    in 2020
    b. Goal 2: Increase productivity at all micro, small and medium enterprise levels by 20%
    • OBJECTIVE 4 – Encourage Rural transformation and reduce rural-urban migration
    a. Goal 1: Reduce the rural poverty index from 54% to 30% in 2015 and 10% by 2020
    • OBJECTIVE – 5 Encourage the use of improved technology in the production of goods
    and services
    a. Goals 1: To increase the skills and know-how for industrial production and management
    by 30% on a yearly basis until 2020
    • OBJECTIVE – 6: Increase access to funding and financial services
    a. Goal 1: To increase access to credit by 20% annually until 2015 and 10% yearly up to
    2020
    • OBJECTIVE 7 – Encourage forward and backward linkages with other sectors of the
    economy
    a. Goal 1: To provide linkage with, and be a source of raw materials to, large-scale
    industries
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    b. Goal 2: To effectively utilize locally produced raw materials
    • OBJECTIVE 8 – To grow the domestic market for SMEs
    a. Goal 1: Increase procurement of SME goods and services by 60% in 2015 and 100% by
    2020
    b. Goal 2: Increase government procurement from SME sector by 50% annually
    Various strategies and initiatives crafted under each goal are to ensure the achievement of the
    vision and objectives for the sector. However the vision, objectives and goals for the SME sector
    cannot be achieved without an effective implementation monitoring framework in place. Hence the
    implementation roadmap for the SME sector, in addition to detailing timelines and implementing
    agencies for each initiative, also defines the suitable implementation monitoring framework for
    guaranteeing smooth roll out and execution of each initiative.
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    1. Introduction
    In the past, Nigeria’s over dependence on oil has often exposed the economy to macro-economic
    instability resulting from the effects of external shocks to oil prices. The recent world economic
    recession and the sustained slump in oil prices have placed a heavy toll on the county’s current
    account surplus and external resources and have diminished the nation’s capacity to finance much
    of its development needs. It is projected that as real GDP growth slows to 2.2% from 2009,
    population growth rate will climb to 2.5%. Such trends could plunge the country into severe
    recession and pose a major challenge to the Government.
    Since the dawn of democratic dispensation, particularly from 2003, the Government has taken
    similar situations head-on with the introduction of a plethora of reform programs. These reforms
    were designed to change the way the Government hitherto carried out its business through
    adoption of global best practices. Within the Medium Term Expenditure Framework (MTEF), the
    National Economic and Empowerment Development Strategy (NEEDS) reform program was aimed
    at reversing negative trends, such as the nation’s overdependence on oil, and repositioning the
    country for sustainable broad-based growth and development. Since 2003, NEEDS and other
    programs have sought to promote professionalism and efficiency in the management of Nigeria’s
    plan implementation process.
    The Vision 20: 2020 program will undoubtedly consolidate on the gains of NEEDS and other reform
    programs to propose an essential strategy plan with a long-term perspective designed to launch the
    country from being among eighty-four (84) leading economies worldwide to becoming one of the top
    20 economies by 2020. In order to realise the V20: 2020 intent, it is imperative that attention be
    given to the development of SMEs.
    It is acknowledged that a nurtured and well structured SME sector can contribute significantly to the
    country’s GDP. The SME sector is strategically positioned to generate employment, create wealth,
    reduce the prevalence of poverty and sustain economic growth and development. It can absorb up
    to 85% of jobs, improve per capita income, increase value addition to raw materials supply, improve
    export earnings and step up capacity utilization in key industries. The SME sector is structured
    across other key sectors, including Manufacturing, Agriculture, Solid Minerals, etc. and thus has
    strong linkages with the entire range of economic activities in the country. It is therefore also
    capable of diversifying the economy from a mono-based one, overly dependent on oil to being
    broad-based and stable.
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    In this regard, the growth of a sustainable and prosperous SME sector should therefore be a top
    political and economic agenda of the government and the SME sector V20: 2020 strategy plan
    should be highlighted as one of the country’s foremost priority development objectives.
    1.1 Methodology – Approach for Strategy Plan Development
    The SME National Technical Working Group (NTWG) employed a collaborative approach in the
    development of the strategy plan for the SME sector. This involved extensive technical meetings,
    comprehensive literature reviews, discussion, research, and consultation with industry operators,
    MDAs and other NTWGs.
    In the initial stages of the strategy plan programme, the issues and challenges facing SMEs and
    opportunities for SMEs in Nigeria today were highlighted. To gain additional insight into the current
    position of the SME sector, information obtained from various authoritative sources, including the
    CBN, UN, World Bank, FOS, was reviewed in detail.
    Benchmarking and best practice analyses were carried out to support the assessment of the sector
    in relation to other economies and to help in ascertaining the ambitions of the nations SME sector.
    Further, global trends and their implications for the SME sector were analysed. All these activities
    helped in comprehending the strategic imperatives for improvement, competitiveness and growth of
    the nations SME sector
    In the latter stages of the strategy development process, apposite vision, objectives and goals for
    the SME sector were identified. Key strategies and initiatives to promote growth and development
    of the sector were highlighted and resources, funding and timelines for each initiative were
    assigned. Finally an implementation roadmap inclusive of efficient implementation monitoring
    framework, to ensure smooth roll out and achievement of the SME sector V20: 2020 strategy plan,
    was defined.
    1.2 Scope of the Small and Medium Enterprises (SME) Sector
    1.2.1 Structure of the SME Sector
    The SME sector comprises micro, small and medium enterprises which are distinguished as a
    group separate from large organizations. Majority of SME businesses in Nigeria are family-owned,
    have a low capital base, are located in urban and semi-urban areas and largely reside in the
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    informal sector. The informal sector in Nigeria refers to economic activities in all sectors of the
    economy that are operated outside the purview of government regulation.
    As in developed economies, Nigeria with the introduction of the National Policy on MSMEs has
    addressed the issue of definition as to what constitutes micro, small and medium enterprises. This
    classification, also adopted by SMEDAN, defines the size category, number of employees and
    asset holdings as follows:
    Table 1.1: Structure of SME Sub-Sector
    S/N Size Category Employment
    Assets (=N= Million)
    (excl. land and buildings)
    *Estimated Number (% of
    MSMEs) – 2004
    1 Micro enterprises Less than 10 Less than 5 6.7 million (80%)
    2 Small enterprises 10 to 49 5 to less than 50 1.3 million (15%)
    3 Medium enterprises 50 to 199 50 to less than 500 420,000 (5%)
    Source: National Policy on MSMEs, *Chemonics International Inc. 2005
    The three categories of enterprises, as defined in table 1.1, play different roles in the economy and
    are influenced by the characteristics of operators and the strictness of entry requirements. The
    government will need to institute the right kind of programs and policies that aim to drive a
    respectable percentage of the large number of informal micro enterprises into the formal sector and
    facilitate the transition of small and medium enterprises to medium and large scale enterprises
    respectively.
    Micro Enterprises
    According to the National Policy on MSMEs, micro enterprises in Nigeria are dominated by
    wholesale and retail trade, manufacturing, vehicle repair/servicing, transport, hotels and restaurants
    and building and construction. Majority of micro enterprises are informal, family owned businesses
    with low output value and low levels of skills and technology.
    Micro-enterprises are wide-spread throughout the nation and are numerous due to the nominal
    entry requirements. Targeted interventions in the form of funding, technology upgrade and training
    through will go a long way in increasing the very low number of micro-enterprises transitioning into
    small and medium enterprises. This will result in multiplier effects of employment generation and
    reduction of poverty incidence.
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    Small Enterprises
    Most small enterprises are registered businesses and they are usually more organised and
    efficiently run. Due to the fact that they have a larger number of well educated, technically skilled
    proprietors they have easier access to banks credit and with targeted assistance and support offer
    the highest potential for growth.
    Medium Enterprises
    The formal SME sector is dominated by medium enterprises, majority of which are in the
    manufacturing, transportation and ICT sectors. They have better access to credit and are the main
    recipients of most government initiatives targeted towards SMEs. Government initiatives like
    SMEDFUND and SMIES aimed to cover only enterprises with a maximum asset base of N200
    million and those that regularly complied with applicable tax laws. These criteria clearly ruled out
    most informal businesses providing majority of employment and constituting about 80 percent of
    SMEs.
    1.2.2 SME Sub-Sector’s
    The concept of SMEs cuts across ‘real/ productive’ and ‘service-related’ sub-sectors of the
    economy. Due to this broad coverage, SMEs are typically linked to more than one business or
    sector of the economy. The distribution of SMEs across sectors different sectors of the economy is
    defined in the FS 2020 Plan for SMEs is as follows:
    Table 1.2 – Distribution of SMEs across Sub-Sectors
    S/N Sector Enterprise Products and Activities
    Agriculture Lumbering, farming of cassava, cereals, tubers,
    cocoa, rubber, groundnuts, etc.
    Agro-Allied Primary agricultural processing of raw agricultural
    produce such as oil palm, cocoa, groundnut, cassava,
    fruits, rice, etc.
    Manufacturing Food and beverage; metal, iron & steel; paper,
    printing & publishing; chemicals, paints,
    pharmaceuticals & plastics; textiles, garments &
    leather; wood, furniture & paper; automobile
    components and assembly; tanning; fabricators;
    foundry, etc.
    1 Real Sector
    Building and
    Construction
    Building, structures, roads, etc.
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    S/N Sector Enterprise Products and Activities
    Solid Minerals Artisanal mining, small and medium scale mining,
    quarrying etc.
    Information
    Technology and
    Communications
    Software development, hardware assembly, computer
    supply and maintenance companies, internet service
    providers, communication accessories companies,
    etc.
    Educational
    Establishments
    Schools, colleges, continuing education centres,
    training centres, vocational skills centres, etc.
    Tourism and
    Leisure
    Hotels, resorts, entertainment, restaurants,
    recreational services, arts, etc.
    Transportation Road transport, water transport, logistics, haulage,
    storage and warehousing etc.
    Trade and
    Commerce
    Wholesale and retail, supermarkets, shops, import
    and/or export etc.
    2 Service-Related
    Sector
    Other Services Consulting, law, healthcare, financial services, real
    estate etc.
    Manufacturing and Agro-Allied
    The vast presence of basic raw material input across the country; the existence of relatively cheap
    labour, the existence of a huge domestic market and complementary markets in the ECOWAS subregion
    assure the existence of profitable patronage for emerging SMEs. Currently, due to the
    structure of the national economy and especially the low productivity of the SMEs, the huge
    potential for SMEs in the manufacturing and agro-allied sector’s is far from being realized. If the
    required steps are taken under the V20: 2020 program, to improve the business environment for
    SMEs, huge opportunities for them to generate employment and make rewarding profits will arise.
    Solid Minerals
    The nation’s solid mineral deposits are a largely untapped but massive resource endowment. Their
    spread across the country and the labour intensive nature of mining activities primes this sub-sector
    as a creator of employment. One of the strengths of the Nigerian economy is its endowment with
    assorted number of solid minerals which currently are being tapped in disorganized and inefficient
    ways. Yet, this is a sub-sector that allows for modest capital to participate and make gains while
    diversifying the economic base of the nation. With the streamlining of the relevant laws relating to
    mineral exploration and the relaxation of the business environment, the export potential for SMEs
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    will be, literally, unlimited. Participation of SMEs in export markets will greatly contribute to poverty
    reduction while strengthening the productivity and economic base of the various states of the
    confederation, all of which currently depend precariously on fund allocations from the federation
    account.
    Building and Construction
    Although construction typically accounts for a substantial percentage of GNP and total public
    spending in Nigeria, the indigenous construction industry is slow to benefit from this trend. Growth
    and development of the Nigerian building and construction industry through active participation of
    SMEs should be of highest priority to the government. Mechanisms such as cede contract
    payments to financial institutions, export market sourcing, credit base support, capital equipment
    support and fiscal policies need to be put in place to develop and indigenize the industry .
    Metal Fabrication
    There is consistent demand for basic metal products across the country – especially in the area of
    housing. There is no doubt that this is a sub-sector where Nigerians have demonstrated inspiring
    ingenuity and therefore contains huge promise for the emergence of engineering knowledge. Given
    the presence of the basic materials for metalwork within the country, especially with the expected
    boost in the iron and steel sub-sector, metal fabrication is capable of delivering substantially on both
    employment creation and profitability.
    Information and Communication Technology (ICT)
    ICT is the future, its promises are high and it constitutes the real test of the importance of a
    knowledge driven economy for the nation. Typically, very limited initial capital is required for entry
    and participation as it is essentially a skill-based sub-sector. The widespread need for ICT services
    is characterized by the growing demand and consequent profitability of the sector. Already, within
    the relatively short period of telecommunications sector explosion in the country, quite a number of
    entrepreneurs have emerged to take up services across related spheres of marketing, sales and
    most importantly, repairs of ICT products. This trend is expected to rise on the upswing especially
    given the growing importance of the sub-sector globally. The prospect for SME participation and
    realization in the domestic ICT market is therefore bright.
    Culture & Tourism
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    Culture and tourism are familiar terrains for SME with operations such as restaurants, hotels, craft
    making etc. This sub-sector has long been a standard entry-point for businesses that have a ready
    market. There is ample opportunity to learn, participate and compete effectively due to the vastness
    of the market which continues to grow with improved income and changes in lifestyle and taste.
    There is always room for participating SMEs to create a niche and this is a strong potential basis for
    substantial profit. The importance of tourism is increasingly being appreciated world-wide and with
    the nation’s diverse cultural composition, opportunities abound across the country for SME
    involvement and growth.
    Transport
    Transportation is a permanent requirement in economic activities across all other sectors hence it
    constitutes a veritable investment outlet for SMEs. Indeed, currently and historically, this sub-sector
    has been a natural selection avenue for SME participation as the demand for transport services is
    ubiquitous and the initial capital required can be modest. Although it carries a high risk element, it
    has proved to be an effective starting point for many SME investors.
    Agriculture
    This is another traditional refuge for SMEs as it allows for application of improved inputs for
    enhanced profit. Fortunately, there is growing awareness for needed public support on the
    relaxation of credit access conditions for farmers in the country and there is unlimited market
    potential. Also, there is room for forward and backward linkages with promise for employment and
    profit making. One of the great strengths of the sub-sector is the multi-purpose service it provides in
    terms of food and inputs for the manufacturing sector and the potentials along these directions are
    literally limitless. Traditional methods of farming are a tedious constraint but the emergence of
    aquaculture and modern animal husbandry is opening doors for the realization of huger profits in
    the sub-sector.
    Trade & Commerce
    Trade and commerce is already the traditional medium of engagement for entrepreneurs. The
    modest take-off capital required permits a large number of entrants and by promoting partnership
    and alliances there is opportunity for participants to grow returns and contribute to economic
    growth, especially with increased access to world markets.
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    Water & Sanitation
    The potential gain for SMEs in the water and sanitation business is rapidly growing, especially with
    the rising awareness on environmental issues and the increasing embrace of the public-private
    partnership paradigm. SMEs need to be strengthened, through their involvement in the industry, to
    contribute to the improving the environment we live in.
    1.3 SME Sector – Key Players
    1.3.1 Public and Private Institutions
    Small and Medium Enterprises Development Agency (SMEDAN): SMEDAN was established by
    the SMEDAN Act of 2003 to promote the development of the MSME sector of the Nigerian
    Economy. Being the official bedrock of SME in the country, its Vision is: to establish a structured
    and efficient micro, small and medium enterprises sector that will enhance sustainable development
    of Nigeria while its Mission is: to facilitate the access of micro, small and medium
    entrepreneurs/investors to all resources required for their development. There is a national policy
    documents on SME that should ideally be the guide for SMEDAN; however the persisting paucity of
    data on the sector points to an enduring challenge for the Agency.
    Nigerian Economic Summit Group (NESG): The NESG is as umbrella for the organized private
    sector; it is Nigeria’s primary private sector economic think tank. It has succeeded in getting the
    ears of government on matters affecting the private sector-with spill over to the SMEs. Indeed, it
    has a sector sub-group on SME. On April 2009, in collaboration with the World Bank, it held its
    second annual dialogue aimed at offering stakeholders a forum in which to define problems within
    Nigeria’s competitive business environment and create solutions. At that occasion, the World bank
    annual doing Business report was presented to the public with opportunity for the re-examination of
    the key problems faced by entrepreneurs in Nigeria. The Group had its member as Chair of a joint
    Planning Committee comprising key SME Stakeholders, including SMEDAN, UNDP, the World
    Bank, USAID, GTE, NASME, NASSI, amongst others, which organized and successfully hosted a
    groundbreaking two day First National Forum for Synergy in the SME Sector Development in
    Nigeria. The forum, the first of its type in Nigeria had eight simultaneous break-out sessions that
    addressed diverse issues in the SME Sector, such as finance, capacity building, coordination,
    policy and legal framework, infrastructure, et cetera. It aimed to harmonise the parallel,
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    uncoordinated initiatives and duplicative programmes of several government agencies and private
    intervention agencies in the SME sector such that the SME Sector could be development in a
    harmonious and orderly manner.
    National Association of Small-Scale Industrialists (NASSI): NASSI is a registered government
    agency that acts as a sourcing agent for government ministries and state and local government, for
    their desired needs. More important, it exists for the development of small and medium scale
    business companies in the country and it has the right to represent a registered company abroad
    for the purpose of investments and also importation. Currently, the Association is operating a 5-year
    strategic plan that includes the creation of 2 million jobs. Its membership of the Nigerian Association
    of Chambers of Commerce, Industry, Mines & Agriculture (NACCIMA) which is the umbrella
    organization for the chamber movement in Nigeria, it enjoys them networking facility of having its
    voice heard at high quarters on problems facing SME. NASSI seeks to strengthen the participation
    of the private sector in the new democratic process of policy formulation in Nigeria. Towards this
    end, it is undertaking a series of policy advocacy workshops in that will bring together
    representatives of the small business sector and government representatives to discuss the
    necessary elements of a clear and coherent small business policy for Nigeria.
    Manufacturers Association of Nigeria (MAN): Established in 1971, the coming into being of the
    association was motivated by the desire to have a focal point of communication and consultation
    between industry on one hand and the government and the general public on the other. MAN is in
    the business to create a climate of opinion in this country in which manufacturers can operate
    efficiently and profitably for the benefit of all. MAN promotes and protects manufacturers’ collective
    interest. Its five-pronged objectives includes providing manufacturers all over Nigeria the means of
    formulating, making known and influencing general policy in regard to industrial, labour, social,
    legal, training, and technical matters. Although its embrace excludes micro business units, it
    nonetheless has room for the medium business units as its membership is open to manufacturing
    companies employing not less than 10 persons in permanent establishment and its interests largely
    coincide with those of SME. Indeed, SME constitutes the recruitment platform for MAN.
    A list of several other public and private sector agencies with responsibility for the SME sector is
    provided in Appendix 1.
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    1.3.2 International Development Partners and NGOs
    There are a number of international donor agencies and development partners working to promote
    the growth of SMEs in the country including the World Bank, United Nations Industrial Development
    Organization (UNIDO), United Nations Development Program (UNDP), Department for International
    Development, U.K. (DFID), United States Agency for International Development (USAID), Food and
    Agriculture Organization of the United Nations (FAO), International Finance Corporation (IFC) and
    others. Those cited here, constitute a sample of those on which information was readily available.
    German Technical Cooperation (GTZ): GTZ is the German equivalent of the British DFID, the
    American USAID in Nigeria. It is an international cooperation enterprise for sustainable
    development with worldwide operations. The organization’s brochure states: “…In a desire for
    sharper focus, the Nigerian and German governments agreed in 2002 to concentrate the technical
    cooperation on sustainable economic development from which arose the Employment-oriented
    Private Sector Development programme (EoPSD) which aims to improve the performance of micro,
    small and medium-sized enterprises in Nasarawa and Niger States in order to create income
    opportunities and employment. The EoPSD is directly linked with the MSME through their
    association and numerous private service providers including microfinance institutions, which
    EoPSD supports. MSME benefit from its development services, skills training in several sectors and
    better access to financial services.”
    The World Bank: While focusing on business development in general, the Bank inevitably takes on
    board the interests of SMEs. For example, its public presentation of the annual Business Outlook
    Report provides a useful guide on the Nigerian economy to investors. The World Bank ‘MSME
    Project’ in Nigeria aims to increase the performance and employment levels of MSMEs in selected
    non-oil industry sub-sectors and in targeted states of the country.
    National Association of Nigerian Traders (NANTS): Among the array of NGOs with interest in
    the sector, NANTS appears to be one of the most active and visible. It started out as the umbrella of
    traders in raw materials, industrial goods and finished goods (both locally made and imported) in
    Nigeria. However, to encourage and improve the interlink between market access and production
    of goods, its membership and focus has recently been expanded to include local manufacturers of
    consumer goods and local farmers networks who are mostly SMEs. In 2008 alone, the Association
    carried out needs assessment studies of SMEs in two sites in Nigeria; one on farmers in the middle
    belt comprising Benue, Nasarawa and Plateau States, the second on the industrial cluster in Aba
    covering makers of shoes, bags and garments. The unifying concern underpinning these studies is
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    the facilitation of access by the SMEs to affordable finance and other cooperating factors for
    enhanced productivity and consequent rise in income.
    1.4 Review of Government Involvement
    1.4.1 Previous Developmental Plans
    Over the years Government has also enunciated several national policies that have implications for
    SME development. During the era of the five-year National Development Plans 1960 – 1975, the
    general perception was that countries were classified as poor or rich, developed or developing
    depending on their respective levels of industrialization. The conventional wisdom at the time was
    to group SMEs with the manufacturing sector all in a bid to achieve the rapid industrial
    transformation of the economy. Strategies for this included export (oil) driven growth, and
    employment generation through backward and forward linkages, which was expected to come from
    the broader policy thrust of import substitution.
    Buoyed by the oil windfall from the global crisis of the late 70s, Government embarked on several
    strategic turnkey projects in the hope that they would promote the transfer of technology.
    Unfortunately these policies failed to yield the desired results. The global economic crisis of that
    period brought in its wake distortions in factor prices, which rendered goods and services produced
    by import – substituting enterprises uncompetitive.
    Furthermore, embarking on turn-key projects in itself did not guarantee the transfer of technology
    which is only possible within a complex matrix of quality basic education, specific skills acquisition,
    comprehensive infrastructure development, capital deepening and leveraging and enabling legal
    framework.
    The National Development Plans gave way to the Rolling Plans, which were later replaced by
    NEEDS. It is only with the inception of NEEDS 2 that SMEs were treated as a sector in their own
    right rather than being grouped under the manufacturing sector. NEEDS unlike previous
    development plans was formulated in consultation through meetings and workshops to identify what
    the Nigerian people wanted for the future, what problems they faced and what could be done to
    overcome them. It is therefore not surprising that NEEDS was the first national policy document to
    specifically plan for the SME sector. The vision of the SME sector under NEEDS 2 was to deliver
    the maximum benefits of integration and growth, employment generation and wealth creation in the
    Nigerian economy. The NEEDS 2 tripartite policy thrust for the development of SMEs is aligned to
    tap resources form the NEPAD programmes. The NEEDS 2 policy itself aims to make SMEs
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    increasingly more dominant in the overall economy, provide and strengthen its institutional support
    systems and increase the access of SMEs to financial markets and credit schemes.
    The FSS 2020 program also recognised SMEs as “a major sub-sector of the Nigerian economy and
    therefore prospective beneficiaries of the gains of the FSS 2020 especially in the area of access to
    finance”. As part of the FSS 2020 vision for the Nigerian financial system a vision, mission, strategic
    objectives and initiatives for the SME sector were developed. The FSS 2020 vision for the SME
    sector is “to be the most productive SME sector among emerging markets by 2020” and the FSS
    2020 mission for the SME sector is “to foster a dynamic and globally competitive SME sub-sector
    that will enhance the productive base of the economy leading to increased job and wealth creation,
    promote economic growth and improved living standards as well as poverty reduction”.
    It is of interest to note that initiatives of the budding SME sector came under the purview and
    assessment of the African Peer Review Mechanism. The assessment report praised key initiatives,
    which included the establishment of SMEDAN, and measures to improve access to financing under
    BOI and SMIEIS. The report however warned that corruption and institutional weaknesses might
    prevent the funds from reaching intended beneficiaries thereby crippling its operations. Concern
    was also expressed concern over the wide regional disparities in gaining access to the SMIEIS
    fund.
    It is hoped that those concerns will be taken into account in the implementation of strategy plan of
    the SME Sector Vision 20:2020 program.
    The target of the Federal Government of Nigeria is for Nigeria to be one of the 20 most
    industrialized nations in the world. This implies:
    • A full development of infrastructural support for industrial growth;
    • Reduction in the percentage level of poverty to a single digit;
    • Appreciable growth in export for industrial good and services; and
    • A well developed information and communication technology.
    Nigeria’s SME sector will achieve its ambitions for the year 2020 if there is political will and
    determination to implement policies and programmes designed to achieve the vision objectives.
    This should be done bearing in mind the experiences of other countries that are grouped in the
    category of the 20 most industrialized nations.
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 22
    1.4.2 Funding Arrangement and Management
    There already exists a number of SME funding initiatives that are housed in various financial
    institutions. These include those undertaken by the CBN viz the Agricultural Credit Guarantee
    Scheme, the Commodity Surveillance Programme, the Micro-finance programme, the Small and
    Medium Enterprises Equity Investment Scheme SMEEIS and the Refinancing and Discounting, and
    Agricultural Credit Support Scheme. Other fund providers include BOI, NBCI, 10% after tax profit of
    Commercial Banks, World Bank, ADB, UNDP, UNIDO, NERFUND, SMEEIS, NEPC, National
    Pension Fund and of course investors’ equity. There is a need to create a special fund from the
    Budget to be funded from oil proceeds under a designated SME Trust Fund. There is also need for
    specific financial institutions with which it would be easier to identify and classify SMEs, facilitate
    their registration and bring in the many thriving SMEs in the informal sector into the formal sector.
    This would also enhance data collection and planning for the SME sector.
    It is recalled that the Assessment Report of the African Peer Review Mechanism voiced its
    concerns about the potential of corruption and institutional weaknesses combining to divert funds
    from intended beneficiaries and undermining the laudable objectives of the SME sector.
    Furthermore, Commercial Banks are failing to meet their financing obligation to SMEs partly due to
    the lack of sufficiently trained investment officers.
    With regards to preventing corrupt practices in management of these funds, the CBN should
    strengthen measures to investigate and prosecute fraudulent operations. Further, successful anticorruption,
    price intelligence and service delivery components of Due Process and Servicom should
    be grafted into the operations of these funds.
    1.4.3 Incentive Schemes
    Cognisant of the fact that SMEs act as a catalyst for economic growth and development,
    programmes of assistance, especially in the areas of finance, extension and advisory services, as
    well as provision of infrastructure have been designed by the Nigerian government for the
    development of SMEs. Specifically, successive governments in Nigeria have in the last three
    decades shown much interest in ensuring adequate financing for Small and Medium Enterprises
    (SMEs) by establishing various schemes and specialized financial institutions to provide appropriate
    financing to the sub-sector. Some of these schemes and initiatives include the establishment of
    Industrial Development Centres (IDCs), Small Scale Industries Credit Scheme (SSICS), the
    Nigerian Bank for Commerce and Industry (NBCI), the Nigerian Industrial Development Bank
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 23
    (NIDB), the World Bank Assisted SME II Loan Project and the National Economic Reconstruction
    Fund (NERFUND).
    A casual glance at these schemes reveals that they are not comprehensive enough and have failed
    to achieve their goals. Their failure reveals that the problem of SMEs in Nigeria is not limited to lack
    of long-term financing, but also inadequate management skill and entrepreneurial capacity.
    1.5 Overall Targets for the SME Sector
    There is generally a dearth of statistics on SME in Nigeria in terms of their current status to be able
    to project based on baseline information so it was necessary to make some assumptions on
    realistic goals/ targets for the sector.
    On the surface, some of the targets set for the sector within the visioning period may appear rather
    too high or overambitious. Therefore, it needs to be registered upfront that the choice of these
    targets, far from being arbitrary, were reasoned out based on three critical considerations, namely:
    i. Observed trends in SME role and performance level in both comparable and more advanced
    economies points to attainment levels at least as high as the rates by which Nigeria is now
    being challenged to attain within the visioning period.
    For example, when we consider Nigeria’s proposed SME target contribution of 50% to GDP by
    2015 and 75% by 2020, its realism can be tested against the current contributions of the sector
    in the following sample of countries: USA-48%, India-40%, Belgium-70%, Malaysia-57.4, China-
    58.5%.
    Currently, Nigeria’s SMEs are guesstimated to contribute 30-40% of well below the average for
    the economies she wants to rub shoulders with by 2020. The key message is that these
    projected challenging rates are either embraced or the visioning ambition downgraded.
    ii. The ambition of national vision attainment is taken as non-negotiable and must be realized. This
    throws up the challenge of the goals specified for Nigeria indeed as they represent the minimum
    level Nigeria must realize if the vision is to have meaning at the end of the day.
    iii. The targets for the sector had to be set bearing in mind the plans for accelerating growth in
    other countries grouped in the category of the 20 most industrialized nations, especially the
    Asian tigers, on their path to 2020.
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 24
    The fundamental growth target for the SME sector as the nation aspires to be one of the leading 20
    economies in the world by 2020 is sector contribution to GDP as follows:
    1. Economic Contribution
    Today 2020
    The overall economic activities of small and
    medium enterprises in Nigeria have been
    estimated to amount to less than ten percent
    of the country’s Gross Domestic Product
    (GDP) (SMEDAN 2006).
    Contribution of SMEs to GDP is projected to
    rise from 10 percent to 50 percent by 2020
    2. Enterprise Creation
    Today 2020
    As in most parts of the world, micro, small
    and medium enterprises currently represent
    about 87% of enterprises in the country
    (Chemonics International report for PRISM
    for USAID)
    Basically the aim is to increase the number of
    SMEs by about 10% to compare with the high
    levels of 99% recorded in developed and
    emerging economies
    3. Employment Generation and Poverty Reduction
    Today 2020
    Though Nigeria lacks adequate census on
    relevant economic indices, it is estimated that
    Small and Medium Enterprises in Nigeria
    currently account for over 75% of
    employment in the country (SMEDAN 2006).
    This relatively high percentage is however a
    paradox as 60% of Nigerians still live below
    the poverty level respectively (UNDP, 2005).
    For SMEs to have any significant effect on
    poverty reduction by 2020, effective
    employment generated by 2020 will have to
    grow from about 10 percent to 75 percent of
    total employment
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 25
    When the 26 percent of Nigerians that are
    unemployed and 60 percent living below the
    poverty line are taken into account, the share
    of those gainfully employed in the SME sector
    is more likely to be in the region of 10% as
    recorded by US Industry Small Business
    Administration (SBA)
    4. Export Earnings
    Today 2020
    The contribution of SMEs to the nations
    export earnings is a dismal 2 percent. This
    depicts the lack of competitiveness of
    Nigeria’s SME sector in this regard
    With regards to export earnings, SME
    contribution will rise from the present 2 percent
    to 35 percent by 2020
    Over the eleven year period from 2010 to 2020, other specific goals/ targets must be addressed in
    the short-, medium- and long- term for culmination of the SME sector’s vision. The diagram below
    depicts expected outcomes at key stages/ horizons in the Vision 2020 program.
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 26
    Horizon 1
    Horizon 2
    Horizon 3
    Large pool of highly
    skilled and
    competent SMEs
    supplying large-scale
    industries
    Large pool of highly
    skilled and
    competent SMEs
    supplying large-scale
    industries
    Technology driven
    production and of
    goods and services
    Technology driven
    production and of
    goods and services
    A strong, viable,
    sustainable and
    globally competitive
    SME sector
    A strong, viable,
    sustainable and
    globally competitive
    SME sector
    Growth
    Short Term Medium Term Long Term
    • Strengthen the technological base of
    the economy/industrial sector
    • To ensure the acquisition and effective
    utilization of new and improved
    technologies by 2015
    • Create space for the adoption of
    appropriate technology
    • Develop awareness and capabilities of
    SMEs and potential SMEs on the
    utilization of available technologies
    • Provide funds to SMEs specifically for
    the purpose of acquiring new
    technologies
    • Improvement in investment on human
    capital by 20% annually up to 2015
    • Increase procurement of SME
    goods and services by 100% by
    2020
    • Provide all round full proof liberal
    export incentives
    • To contribute 80% of exports by
    2020
    • Increase production of capital
    goods by 40% annually up to 2020
    • Reduce the rural poverty index
    from 54% to 10% by 2020
    • To increase the skills and knowhow
    for industrial production and
    management by 30% on a yearly
    basis until 2020
    • Increase entrepreneurship and raise
    employment contribution to 60% by
    2015
    • Establish special programs for
    upgrading the skills, technology and
    processes of enterprises
    • Empower rural dwellers to participate in
    the SME sector
    • Improve credibility of planning,
    economic and other types of
    information/ data on SMEs
    • Promote and establish Business
    Support Centres in States and LGAs
    • To provide linkage with, and be a
    source of raw materials to, large-scale
    industries
    • To effectively utilize locally produced
    raw materials
    2012 2015 2020
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 27
    2. Assessment of the SME Sector
    2.1 Global SME Sector Assessment
    SMEs are known to have significant relevance to all the world’s economies. In most parts of the
    world they constitute about 90 percent of all business enterprises. This and particularly their strong
    forward, backward and intra- linkages with all other businesses, establishes SMEs as the drivers of
    any economy and the engines of economic development worldwide. With this they are able to
    generate employment, create wealth and reduce poverty incidence index.
    Developed countries realised the potentials of SMEs long ago and undertook initiatives to ensure
    their productivity and competitiveness. Some of these initiatives at regional and national levels
    include:
    • EU Heads of Government’s identification of the SME sector as one of the pillars for
    transforming the EU into the most competitive and dynamic knowledge-based economy in
    the world by 2010
    • The OECD Bologna Process of 2000 which seeks to foster the entrepreneurship and
    competitiveness of SMEs in its member countries
    • The 2005 APEC Integrated Action Plan on SME Initiative which instituted annual ministerial
    meetings on SMEs of member countries of that economic group
    • SMEs in the US are given a position of prominence in their national policy as the “backbone
    of the American economy and the path to success for many Americans”
    • In Italy, Ireland and Germany, SMEs contribute to R&D in order to enhance their
    specialisation along the value chain and become successful global service providers.
    As a result of SME initiatives such as those listed above, these economies have experienced rapid
    and sustained growth characterised by substantial growth of exports and rapid demographic
    transition, agricultural transformation and industrialization. In terms of contribution to the economy:
    • In 2003 SMEs in Germany contributed the highest at 57% among developed economies in
    terms of output in the manufacturing sector;
    • With regards to employment in the manufacturing sector SMEs in the Republic of Korea
    contributed the highest at 81.9 percent among developed economies;
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 28
    • In Brazil, SMEs represent 81.4 % of 4.6 million enterprises with 54% investing in social
    responsibility. The SMEs in Brazil have been classified as the real motors behind the
    nation’s economic advancement; and
    • Russia’s SMEs contribute 13-17% of the country’s GDP – a contribution projected to rise to
    50% in the next 5-7 years with a plan to encourage 60-70% of Russia’s population to
    become involved in entrepreneurial activity by 2020.
    2.1.1 Global Trends
    A brief examination of some global trends reveals how they impact on SMEs worldwide.
    Globalisation
    Globalization is causing some big changes that are expected to drive the expansion of the global
    economy. These changes are important as globalisation significantly impacts the SME sector
    through added competition based on innovation, knowledge and cost. Increased trade liberalisation
    being promoted by the WTO also brings about adjustments and structural changes that are
    consequent on the changed business environment. These changes necessitate specialisation and
    repositioning of SMEs to ensure they are resilient enough to participate in both domestic and export
    markets.
    The globalised and liberalised economic environment implicates that Small and Medium Enterprises
    (SMEs), generally, have to sharpen their competitive edge, i.e. they have to create a fit between
    both their available resources and their environment. They also have to act on a trans-national level
    either by strengthening linkages with major global players or internationalizing themselves.
    Respecting environmental norms have also become important in today’s environment.
    Competition from Emerging Economies
    Emerging economies, particularly China and India have cheaper labour and are therefore low cost
    producers. They are also innovative as a result of their advances in technology. This is a major
    reason why India is increasingly a destination for outsourcing by multinationals and why China is
    able to penetrate the domestic markets of most economies. Some of these global trends and
    international policies only go to weaken Nigeria’s SMEs and impose strong constraints for their
    development.
    Nigeria Vision 2020 Program
    Report of the SME Sector National Technical Working Group 29
    Innovation
    Nations worldwide are driving innovation in their SMEs sectors by enhancing the role of Intellectual
    Property (IP) offices beyond the registration function to the promotion of technology. In other
    nations, Government SME support institutions are beginning to promote innovation in some of their
    activities and services to SMEs. Cooperation between various SMES support institutions including
    chambers of commerce and industry, SMES associations, incubators, R&D Centres and
    universities is being strengthened.
    Demographics/ Population Growth
    In general, aggregate population trends impact on the fortunes of SMEs. In addition, the
    demographic structure of a population has implications for the demand profile as a result of the
    needs of different age groups. As human populations rise, there is a change in the total market
    power which cannot but affect the supply and demand sides of the operations of SMEs. The
    importance of this point lies in the fact that SMEs are more responsive to local market needs than
    their big counterpart operators as the former are less alienated from the general public. However,
    the degree to which SMEs orient their supply and demand profiles between local and foreign
    market depends critically on government policy as for example the cassava initiative that was
    popularized in Nigeria on the assumption of the existence of huge external markets which
    encouraged local production of the product.
    Poverty Incidence
    Poverty interfaces with SMEs through its respective dimensions of income, purchasing power and
    living standard – all of which are of course closely interrelated. The level of poverty experienced by
    the inhabitants of a country exercises direct influence on the market in terms of effective demand
    that the people can make and this translates to the possibilities that producers, as economic agents
    see in from incentive

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