Nigeria recently overtook South Africa as the largest economy on the continent in terms of the value of its GDP based on production patterns in 2010. According to the Central Bank of Nigeria, SMEs are a critical part of the Nigerian economy, with studies showing that approximately 96% of Nigerian businesses are SMEs.
In South Africa, SMEs are as critical to the economy. The National Development Plan – the government’s economic blueprint – foresees that almost 90% of employment should be created in the small and medium-sized business sectors by year 2030.
A tale of two economies
The conditions between South Africa and Nigeria are vastly different, Nigeria’s population is triple that of South Africa. The differences don’t end there.
Petroleum is the leading mineral produced in Nigeria and provides about 95% of foreign exchange earnings and the majority of government revenues. Industries such as agriculture, manufacturing and film-making Nollywood also help boost the economy which grows above 6% year-on-year.
In South Africa, finance, real estate and business services sector are the backbone of the economy, contributing about 17% in real terms to the country’s GDP in an economy that grows not more than 3% year-on-year.
However both countries share similar socio-economic challenges of unemployment (which is more or less equal), poverty and rampant corruption.
We take a look at Nigeria’s support initiatives and attitude towards SMEs and entrepreneurship
1. Entrepreneurial culture
The enterprising spirit of Nigerians is well-regarded globally. The richest man in the continent is Nigerian. Ijeoma Ekwem in his paper ‘SME Scale Development in Nigeria: Constrains & Policy Options’ states that Nigerians understand that entrepreneurship is not the same as running an SME.
Nigerians are enterprising despite that there is a challenge of inadequate infrastructural and institutional support, weak infrastructural facilities such as electricity, portable water, feeder roads and no adequate protection of intellectual property. Nigerians, as Chika Onyeani defines it in his book Capitalist Nigger, operate by what he termed “Spider Web Doctrine”, whereby people consume what they produce and support local enterprises.
2. Clusters and regions
SMEs in Nigeria are currently distributed along sectors within regions, creating potential operational and cost synergies. These clusters give impetus to the creation of new growing sectors, such as entertainment and leisure clusters, low-tech sector clusters including footwear, clothing and garment, agro-processing (cassava, oil palm and other oils), and high-tech clusters including ICTs, telecoms, and biotechnology (agriculture and health).
For instance, in Kano – the north-eastern region of Nigeria – there’s a concentration of SME clusters dealing with leather, feather and furniture while the western region of Oshogbo deals with tie and dye and southern region in Lagos deals with the ICT.
South Africa is on the path to creating such initiatives with innovation hubs and incubation centres which are focused on developing competitive ICT businesses in major cities.
3. Financial incentives for innovations
Nigeria has a system in place that, while flawed, enables financial incentives and policies through a tax policy that targets electronics products, the exemption of production taxes, including half of the income taxes and tariffs of key equipments, and the exemption of importation taxes on significant imported projects.
Also, Nigeria allocates millions of dollars, up to$100 million per year, to support technology adaptation, technology and commercialisation of products, and funds are mostly used for several start-ups. Subsidies and importation licence management on computer and components also form part of the package.
4. Inter-ministerial intervention
Nigeria has established an inter-ministerial National Foundation for Innovation, and Competitiveness (NAFIC) that comprises of ministries of Industry, Finance, and even The Presidency. In collaboration with other agencies, NAFIC deepens the knowledge of the sector through surveys and studies of SMEs, organises periodic fora to bring together sectoral SME groups with suppliers and buyers and organise the Nigeria “SMEs on the Web” Project.
This has ensured a harmonisation of support initiatives for SMEs, instead of stakeholder institutions working in silos.
5. Economic expansion
The next frontier for Nigeria’s economy is the expansion of domestic oriented SMEs, through the creation of new and innovative firms, and the graduation of as many informal enterprises as possible into the formal sector.
The Central Bank of Nigeria notes that limited access to finance is a key obstacle to enterprise growth and entrepreneurship, particularly for young people, and it is a major obstacle faced by the SMEs. Only 6.7% of Nigerian firms reported having a loan or active line of credit in 2014, adding that SME lending made up only around 5% of the total commercial bank lending. The graduation of informal enterprises into the formal sector will deal with this challenge.
