by Overview
An immense human resource reservoir, Nigeria is struggling to address cumbersome poverty issues; according to recent official estimates the poverty rate increased to 70%. Despite the economic crisis, the country enjoys economic growth while moving away from the oil industry led economy. The volume of public and private initiatives focusing on fostering entrepreneurship and small business is sizable, but coherence and communication among diverse measures and programs that would enhance the outcome, is yet to be achieved.
Business Environment
With over 150 million people, Nigeria is Africa’s most populous country, largest oil exporter and owner of the biggest natural gas reserves of the continent. Former food exporter turned into a food importer, its 2010 economic growth was estimated at around 7.8%, up from 7% the previous year, fueled by non-oil industries according to Central Bank of Nigeria (CBN).
The non-oil economy grew by 9% per year from 2003 to 2009, driven by strong performance in agriculture, manufacturing, solid minerals and telecommunications. Economic growth, however, was not accompanied by higher employment rates, and unemployment remains a major issue for Nigeria, with about 50 million underemployed youth, according to World Bank (WB) data.
Recent official statements and measures indicate that small business and entrepreneurship are gaining momentum, and their role in creating wealth and helping to solve Nigeria’s problems is acknowledged. Connected to this, and strongly supported by international financial organizations, there is also an administrative interest to reduce Nigeria’s dependency on oil.
Thus, in August 2010 the Minister of Finance expressed his determination to mainstream job creation in the government’s strategy and signed a pact with stakeholders from ICT, entertainment, meat, leather, and construction and tourism sectors, supported by WB’s proposed Growth and Employment Project, a $400m initiative co-financed with DFID ($120m) and AFD ($100m).
However, there is plenty of room for improvement. Thus, it takes about one month to fulfill the administrative procedures required to start a business in Nigeria, according to 2010 WB data. Although since 2005 this interval decreased by about two weeks, at the level of 2009 Nigeria lagged behind other African countries, such as Rwanda, where a business could be opened in three days, Mauritius (six days) and Senegal (eight days). However, with 31 days, Nigeria fared better than Guinea-Bissau where 216 days were needed before a business could start operating, or Congo, with about half a year.
Overall, at the 2009 level, the Easiness of Doing Business Index, computed by the World Bank, ranked Nigeria 134 out of 183 countries, a position that indicates that the regulatory environment is less conducive to business operation.
Incentives for Entrepreneurs and Administration’s Presence
Nigeria has a governmental body, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), in charge of small entrepreneurs. Established in 2005, SMEDAN has ambitious goals: source, process and disseminate business information; policy development; establish Business Support Centres; capacity building and promotional services; establishment of industrial parks; and enhance micro, small and medium entrepreneurs/investors’ access to finance. However, it’s unclear how strong the mandate of the agency is, and how sound the support it receives, given that SMEDAN’s name is not even mentioned on the government’s website.
Other official initiatives targeting small and medium enterprises come from diverse sources, such as Central Bank of Nigeria, Finance Minister and National Economic Council. At the state level, initiatives are launched also by local structures, like the Youth Affairs and Strategy Ministry in Niger State. Supported programmes aim to educate entrepreneurs and/or give them access to funding.
Thus, the Central Bank of Nigeria has planned Entrepreneurship Development Centres (EDCs) in six geo-political zones of the country. The entrepreneurship training programme targets students, graduates, non-graduates, would be retirees, and even employed persons, and is run, so far, in three centres (Kano, Onitsha and Lagos). CBN also promised a N200 billion credit guarantee fund to assist the centres’ products. After the training, trainees are monitored and mentored by EDCs for 18 months; some 10,000 persons have benefited from EDC’s services since the programme started in 2008.
Access to funding is also key to small economic agents. Data released by World Bank show that the proportion of domestic credit to private sector in GDP progressed steadily from 13.2% in 2005 to 34% in 2008. Nonetheless, this value is almost four times smaller than at the world level. One of the most recent measures was the creation of a $500 million lending fund to small businesses, announced in September 2010 by the Finance Ministry. The fund is managed by the state-owned Bank of Industries.
In August 2010, Nigeria’s National Economic Council (NEC) has approved the release of N70billion directed to small and medium farmers. The initial fund, totaling N200 billion, was approved in 2009 to help agriculture agents to improve productions and guarantee food security in the country.
Microfinance is another funding source available, although in countries with significant experience the system faces significant challenges. The Live Above Poverty Organisation, LAPO, a local microfinance organisation based in Edo and Delta states, claims to have disbursed over N4 billion since mid 2010 to more than 11 million clients, an increase higher than 40% on a year-to-year basis. LAPO is present in 23 states and offers microloans in agriculture and urban informal sector.
At state level, in May 2010, Niger State SME’s and Microfinance Agency announced that Niger State would facilitate the establishment of 18 microfinance banks (MFB) across local government areas of the state. Thus, the number of microfinance banks located in this state will go up to 31.
On the other hand, even when funding is available, businesses have problems accessing it, claim officials. Moreover, the spread of MFBs is not a guarantee that funds are available, as many of these organizations do not function properly and are sanctioned by the regulatory bodies. Thus, the Central Bank of Nigeria revoked in 2010 the licenses of more than 220 MFB and granted provisional approval for new licenses only to 121 of them that were able to meet specific requirements within three months.
Beside microfinance, on the private side, organizations like Lateral-Links Limited, a business consulting/advisory service firm came up with a SME toolkit, Entrepreneur’s Handbook, sold over the internet. The Nigeria Leadership Initiative organizes a business plan competition for entrepreneurs and runs seminars, leadership projects, and essay competitions. Private-public partnerships are also present and aim to create jobs, wealth and stimulate entrepreneurship, one of the major levers in the reductions of unemployment. Thus, a project supported by the Federal Government and the World Bank tries to boost investment in agriculture. Furthermore, a collaboration between SMEDAN, the United States Department, and Barry University brought 16 Nigerians to the US for entrepreneurship and business development training through a four-week entrepreneurship program.
Possible Drawbacks
Official and private interest to support the small and medium enterprise sector exists and is palpable, and diverse structures are put in place like Business Support Centres and Entrepreneurship Development Centres. However, it would definitely be useful to ensure their complementary.
Initiatives are launched from various sources and at diverse levels (state, federal), but how do target beneficiaries access and use them? How is their coherence and convergence assured? Communication and transparency have a long road ahead. The federal government’s website is basic, not very helpful, while some of the federal ministries’websites, like the Industry and Commerce Ministry do not work, so having access to pertinent information could be challenging.
Problems faced by the microfinance sector will most likely impact the development of entrepreneurship, as access to funds is vital to small and medium investors. Education, a capital requirement for entrepreneurship, is also at stake. While about 55% of Nigeria’s population (over 80 million people) is in the bracket 15-64 years, only 68% of these are able to read and write, according to CIA World Factbook. Last but not least, the majority of initiatives is geared toward graduates and young people, leaving behind those less educated and of older ages.
By Isipos
