SMEs: The Solution To Unemployment In Nigeria

Youths In Search Of A Decent Job With Nigerian Immigration Service (NIS) At The National Stadium, Surulere, Lagos

 

FACT: “Unemployment rate is 24% with youth unemployment accounting for 38% of total unemployment.”

 

MYTH“We have about 17 million registered SMEs, and they employ over 32 million Nigerians.”

 

Background

NOIPolls has been evaluating opinions of Nigerians on the most important issues that need to be addressed. In the last eight polls over the seven-year period, the results have revealed the top issue for policy focus to be “Job Creation. This cannot be overemphasized especially with the unfortunate deaths of about 7 – 18 youths nationwide (actual number to be confirmed) in search for a decent job at the Nigerian Immigration Service (NIS) on Saturday 15 March 2014. It was estimated that at least 520,000 youths registered with N1,000 application fee with the hope of getting a position out of the about 5,000 job openings declared by NIS.

In all of this, the International Monetary Fund (IMF) is predicting Nigeria’s Gross Domestic Product (GDP) to grow at 7.3% this year while inflation will continue its downward path to 7%? Why is job creation still an issue? The answer: Headline economic growth is not enough. Inclusive growth that meets the expectations of citizens (at all levels) is needed more than ever before.

From experience, the only way to achieve job creation and inclusive growth is by tapping into the many innovations of the private sector, particularly Small and Medium Enterprises (SMEs). An army of about 50 million SMEs creating about 500 million jobs between 1980 and 2012 led the Chinese economic miracle. However, against international best practices Nigeria is rated poorly. For Nigeria to sustainably create jobs and forge inclusive growth, the solution is the robust growth and scaling of SMEs.

I am burdened when we I read or hear quotes about SMEs from both public and private authorities – “We have about 17 million registered SMEs, and they employ over 32 million Nigerians.”  This is a myth and the following data proves this.

The 182-page Nigerian Bureau of Statistics/Small and Medium Enterprise Development Agency of Nigeria (NBS/SMEDAN) 2010 National MSME Collaborative Survey reveals the following:

  • 17,284,671 MSMEs in Nigeria. The breakdown shows that micro businesses constitutes about 17,261,753 or 99.87%, the small enterprises accounted for about 21, 264 or 0.12%, while the medium scale enterprises is about 1, 654 or 0.01%. Hence, SMEs are only 22,918 representing 0.13%.
  • 32,414,884 employment created by MSMEs. SMEs created 39,478 jobs representing 0.12%.

The International Labour Organisation (ILO) in 2013 has the following statistics:

  • ILO noted that with 53% of new employment, Nigeria’s informal sector (i.e. micro businesses), constituted by over 17 million businesses, led the growth in total jobs creation.
  • ILO also noted that in spite of the positive developments in the jobs market, unemployment rate is 24% with youth unemployment accounting for 38% of total unemployment.

The truth about SMEs in Nigeria is that the sector does not currently account for job creation and inclusive growth.

I would like to bring forward another fact worth considering. “Do the over 32 million job opportunities created largely by micro enterprises help to raise incomes, increase living standards, and improve lives?”

Wearing my HR practitioner hat and my years of experience recruiting for SMEs, I have consistently surveyed jobseekers about their definition of a job that will improve their lives. From the responses, this is the summary of the definition they provided:

  • A salary at least three times the National minimum wage
  • Benefits such as: Health Insurance, Group Life Assurance, Pension and National Housing Scheme
  • Access to annual leave and leave allowance
  • Access to training and development
  • Access to welfare programs
  • A monthly PAYSLIP that can help them access consumer credit from banks

If we review the 32 million jobs created, how many can actually be categorized as a “job” based on this definition? This is the reason over 100,000 youths in Lagos alone will be looking to NIS for a decent job. This is also the reason that ILO launched the global “Decent Work For Youth” campaign. Hence, I have decided to contribute my quota in providing solutions to this situation we have found ourselves in Nigeria.

 

The Way Forward

1. Policy makers need to commit themselves to the creation of a business environment that is conducive to facilitating SME growth and development.

There are several business environment issues (multiple taxation, infrastructure, etc) that affect SMEs. But let’s take the nagging issue of Power/Electricity as an example. This singular issue is responsible for the death of several SMEs in Nigeria. For instance, the manufacturing sector that accounts for the largest segment of SMEs (according to the 2010 NBS/SMEDAN Survey) is the hardest hit. 90% of this sector is run by SMEs but contributes just 1% to GDP. I was privileged to be the Consultant (ENABLE, funded by DfID) that worked with the Nigerian Association for Small and Medium Enterprises (NASME) on the Public Private Dialogue (PPD) with Nigerian Electricity Regulatory Council (NERC) on the “IMPACT OF MULTI-YEAR TARRIF ORDER II (MYTO II) ON MICRO, SMALL & MEDIUM ENTERPRISES (MSMEs)”.

The PPD was as a result of complaints by NASME members on how the fixed charge element of the MYTO II Tariff structure implemented for manufacturers (i.e. D2 category) was impacting their business. NOIPolls was commissioned to conduct research and fieldwork in all the geo-political zones – Lagos, Abuja, Cross River, Bauchi and Imo. 138 interviews were conducted and 127 were used in the analysis. The result revealed that all manufacturers whether a large business or an SME were subject to pay the same fixed charge for power whether they utilized it or not. So we had cases of fixed charges in Lagos being around N97,000 and as high as N107,000 in Kano. This fixed tariff has to be paid whether there is power supply or not. The implications were so bad that a survey respondent had resulted to cutting jobs worth the N97,000 and overwork his existing staff to produce the same quantity. This was because consumers were not willing to bear the cost, through a product price increase.

At the PPD, the NERC Chairman, Sam Amadi after seeing the evidence-based presentation indicated that this would be reviewed. At the Stakeholder’s Forum on 23 May 2013, Sam Amadi pronounced a 75% reduction in fixed charge tariffs for SMEs. Since the privatization exercise, the DISCOs have not implemented this pronouncement. NASME is now attempting to work at the Consumer Forum levels with the 11 DISCOs nationwide to chart a way forward but this is still at the infancy stage. How are SMEs (especially manufacturers) supposed to grow and create jobs in this situation?

2. Create interventions that will support the start-up, growth and scaling of SMEs

There are a few (I’ve actually not heard of any) interventions that focus on successfully growing SMEs that contribute to sustainable economic growth in a transition economy like Nigeria. Growth, if not properly managed, can overwhelm a business, destroying value and in many cases even causing the business to fail especially with the business environment we have in Nigeria. There are several SMEs in Nigeria that growth was responsible for their failure. SME interventions in this area should be the focus of policy makers and not only interventions and programs that will create more micro businesses.

In another project as a Consultant (ENABLE, funded by DfID), I was part of the team that trained staff of the new MSME desk created by the Lagos State Ministry of Commerce & Industry on MSME Development for the State. During this project, I was privy to read the proposed National MSME Policy for Nigeria. The objectives of the Policy can be summarized as follows:

  • Accelerating the profitable expansion of existing MSMEs along the chain of development thereby enabling them to increase their contribution to GDP and employment generation by ensuring that Micro businesses become Small; Small businesses become Medium; and Medium businesses become Large
  • Fostering the emergence of new MSMEs in Nigeria, especially among Women and Youth.

We are on the right path with the policy objectives. Is policy enough? We need to carefully think through the implementation plan especially along the lines of SMEs. We cannot keep falling into the trap of supporting just micro businesses while we leave SMEs to keep dying if we want to create jobs.

 

Conclusion

Its time to take the bull by the horn and I am calling on our leaders to focus on how we can start, grow and scale SMEs in our country to forge inclusive growth and create jobs. We particularly need extensive efforts in the creation of strategic policies, institutions and efficient and effective investments that will grow the real SMEs in Nigeria if we want to solve this unemployment challenge. We cannot continue to front micro business support as SME interventions.

W-Holistic Business solutions in its little way through its solutions has assisted in creating and sustaining over 1,000 decent jobs. We’re staying true to our mission:

“To help entrepreneurs succeed so they can attract investment, create jobs, grow sustainable economies, offer customers better products and services, realize great personal satisfaction and wealth, and fund programs that make the world a better place.”

My final advice for SMEs in Nigeria to succeed so that we can continue to create jobs for our teeming youth is to  “identify your market, and develop a business model that can work in the environment that you are in, and continue to innovate.”

What are your thoughts on how to solve the unemployment challenge in Nigeria? Thoughts from our international audience and Nigerians in Diaspora are also welcome.

 

To your success!

Olanrewaju Oniyitan

 

Note: Would you like to get the NBS/SMEDAN 2010 MSME Survey referenced in this article? Click here to download the survey.

 






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