EVOLUTION OF MICRO, SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA AS A KEY DRIVER OF THE MODERN ECONOMY

• Preamble

Since the industrial revolution of 1798 in Great Britain, the mode and methods of managing businesses and economic activities among countries of the world have experienced tremendous and significant changes which have since contributed to the economic growth of countries around the world. Acknowledging that industrial development requires a radical change of technical arrangement that moves an economy from the traditional approach of production to a multifaceted and sophisticated system capable of bringing about mass production of a variety of goods and services through the use of appropriate technologies and management techniques. This industrial process is capable of propelling economic growth and structural transformation, as it enables full utilization of both human and material resources with little dependence on the external sector for growth and sustenance.

The revolution of entrepreneurship in Nigeria in recent times enjoyed the attention of policymakers, researchers and academicians globally. Citizens with small finance, little or no education, and little or no experience can get income via entrepreneurship. Micro, Small, and Medium Enterprises (MSMEs) businesses are also crucial because they contribute to reducing inequalities by helping with wealth redistribution in the economy. Also, entrepreneurship serves as a means of growth in developing and underdeveloped economies.

For a sustainable economy, Micro, Small, and Medium Enterprises (MSMEs) have been highlighted as capable of helping in bringing about a positive economic turnaround and complementing the efforts of the existing medium and large scale industries. The recognition of the importance of the roles of the MSMEs as spark and engine of growth has prompted increased attention and specific education on the method and approach to build and sustain a truly viable private sector dominated by MSMEs.

The economic contributions of MSMEs are obvious in the mobilization of idle financial resources, the conservation of foreign exchange, utilization of local raw materials, specialist suppliers to large companies, adding varieties and choice for the consumers, checking the monopolistic tendency power, providing a source or innovation, breeding ground for new industries and above all employment creation by absorbing the larger percentage of the unemployed population in bits.

MSMEs formation is necessitated by a couple of drivers as follows: Necessity, Innovation and Opportunity. Necessity-driven entrepreneurs can be as a result of unemployment or just the drive for survival. Opportunity-driven entrepreneurship is typically around a business idea to fill a need or gap, while innovation-driven entrepreneurship is to improve on a process, market, service, or product. To bridge the entrepreneurship gap in Nigeria over time, forward thinking governments in Nigeria to date have initiated one scheme or the other for business opportunities and creation of employment opportunities. The schemes are still subject to further review if the schemes actually fulfil the mandates setting it:

• Mandatory Credit Guideline in respect of SMEs (1970);
• Small Scale Industries Credit Guarantee Scheme (1971);
• Agricultural Credit Guarantee Scheme (1973);
• Nigeria Agriculture and Co-operative Bank (1973);
• Nigerian Bank for Commerce and Industry (1973);
• Rural Banking Scheme (1977);
• Structural Adjustment Programme (SAP) (1980)
• The World Bank Assisted SME I (1985) and The World Bank Assisted SME II (1990);
• Second – Tier Security Market (1985);
• Peoples Bank (1989);
• National Economic Reconstruction Fund (1992);
• Small and Medium Scale Enterprises Loan Scheme (1992);
• Family Economic Advancement Programme (1997);
• African Development Bank – Export Stimulation Loan Scheme (ADB-ESL) in 1988;
• Bank of Industry (BOI) – being merger of NIDB, NBCI and NERFUND) in 2001;
• Nigerian Agricultural Co-operative and Rural Development Bank (NACRDB) – being merger of NACB, Peoples Bank and Family Economic Advancement Programme (FEAP) in 2002;
• Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in 2004;
• Microfinance banks;
• Small and Medium Enterprises Credit Guarantee Scheme for SMEs 2010;
• Real Sector Support Facility (RSSF) 2014;
• Textile Sector Intervention Fund 2015; etc
• Presidential Enabling Business Environment Council (PEBEC) 2016 tagged 7^th National Action Plan(NAP 7.0).

In addition to various government scheme and intervention funds for the sustainability and growth of MSMEs in Nigeria, the advent of Finance Act, 2019 and that of Finance Act, 2020) further amended companies income tax act to create opportunity and enabling business environment to ensure the growth of the sector, section 33, exempted companies that earns gross turnover of less than N25,000,000 in the relevant year of assessment and by interpretation and clarification, companies with gross turnover of N25,000,000 less franked investment income under the Acts  are small and medium companies.

2.0     Micro, Small, and Medium Enterprises and Economic Growth

MSMEs are the bedrock of the Nigerian economy. They serve as an important source of employment generation, economic dynamism, competition and innovation; thus, contributing to national growth and poverty alleviation. To create an enabling climate for MSMEs to thrive, there is need to create a favourable business and regulatory environment. Most large companies have their roots in MSMEs. In other words, the future large corporations in developing countries like Nigeria, are present day MSMEs that need to be nurtured.

MSMEs also promote industrial employment through the utilization of local resources production of intermediate goods and the transfer/transformation of rural technology. MSMEs are generally regarded as the structure driving the growth of the economy and provide the best opportunity for job creation and rural development. In most major economies, the critical role of MSMEs is recognized and special agencies of government are created to provide support for them.

The significant contributions of MSMEs to economic growth is seen in more developed climes where their potentials have been successfully harnessed. For instance, SMEs account for about 20% of patents (a measure of innovation), in bio-technology-related fields in Europe in 2014. SMEs are also known to account for over 95% of businesses, 60-70% of employment, 55% of gross domestic product (GDP) and generate the lion’s share of new employment. In Nigeria MSMEs have contributed about 48% of the national GDP in the last five years. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, in terms of number of enterprises. MSMEs policy provides the comprehensive framework for developing micro, small and medium enterprises, specifically the policy provides the following:

• Establish clarity around Nigeria’s goals and priorities regarding the development of MSMEs.

• Layout the objectives and priorities for Nigeria over the next 10 years (2015 – 2025) through the entrepreneurship strategy which is the foundation of the policy document.

• Link MSME development with the National Agenda, while embedding entrepreneurship within other national policies. The policy ensures close coordination between entrepreneurship development and sector-based policies such as the Agricultural Transformation Agenda.

• Create a platform for dialogue, engagement and collaboration between the Federal Government and State/Local Governments, the organised private sector, civil society organisations and others to develop MSMEs.

• Articulate baselines for monitoring and evaluating MSME development efforts from year to year. Key performance indicators and targets articulated in the policy document will be the yardstick by which the success of the policy will be measured. The 2013 MSME Survey conducted by SMEDAN in collaboration with the NBS provides an empirical basis for setting the baselines. The policy will be reviewed every four years to ensure that it remains relevant, adequately captures the needs of the MSMEs in the country and sufficiently reflects the priorities of the nation.

3.0     MSMEs and Taxation

There are certain tax policy measures geared toward improving MSMEs growth in Nigeria, the support needs to be increased, standardized and systematic. it is believed that the role of the government is to provide an enabling environment and social services that support businesses and individuals. This means enhancing the investment climate in Nigeria for increased economic growth and subsequent tax contribution from taxpayers operating in the informal sector. Over the years, tax administration of the MSMEs been improving and enhancing compliance through the amendment of our tax laws, however, there are fundamental objectives and strategies put in place by the government for tax efficiency:

OBJECTIVES	STRATEGIES
To reduce the cost and time taken to process tax payments by MSMEs.	Document and disseminate the tax obligations of MSMEs on a regular basis in order to improve awareness and predictability of tax payments. Across all states on a quarterly basis. For transparency and to avoid illegal taxation.
To streamline the taxes paid by MSMEs in order to reduce the incidence of multiple taxation, levies and fees.	Eliminate tax raids and multiple check points for collecting different types of rates, tolls, permits and levies from MSMEs. Working with the private sector
To simplify the tax administration system in order to make it more predictable, transparent and less cumbersome	Promote the reform of tax laws at the Federal, State and Local Government levels in order to make the tax institutions more friendly to MSMEs
	Establish pioneer status for qualifying MSMEs in strategic high growth sectors.
	Through dialogue and consultation between the various tiers of government and business organisations; rationalise, reduce and simplify the taxes paid by MSMEs
	Institute and/or extend tax incentives on specific MSMEs initiatives such as equipment fabrication and import substitution activities
	Reduce frequency of VAT returns from monthly to quarterly frequency.

In Nigeria, MSMEs are subjected to multiple taxes by the different tiers of government, each with its own rigorous process and significant compliance cost which makes it practically impossible for government to achieve the stated objectives and strategies. Considering the size of their operations, the absence of harmonized tax regime increases the strain on cash flow and other limited resources of SMEs when compared to large corporations. SMEs are also regulated by several government agencies; thereby leading to significant regulatory compliance costs, which in most cases are duplicated.

4.0     Conclusion

As a Nation, we have robust and existing policies to substantially grow the sector, however, there is a need to review those policies to implementable and realistic policies which will increase their contributions to economic growth and eliminate the numerous challenges facing the sector.

As we try to navigate through economic challenges occasioned by the pandemic, unsustainable and unreliable global oil price and socio-economic meltdown, the attention of the government must totally shift to MSMEs for economic reliability.

Government must deliberately collapse all levies and taxes collectable by harmonizing these levies and taxes to eliminate multiple taxation which has contributed negatively to the sustainability of MSMEs in Nigeria, however, harmonized tax regime will increase voluntary tax compliance.

It is well noted that various credit facilities are available for the MSMEs in Nigeria, however, the flexibility of assessing the loan is very crucial to business development. Therefore, MSMEs enlightenment and education at various levels of government will help to reduce these knowledge gaps.

References

National Bureau of Statistics (2013), “Micro, small and medium enterprise nationalsurvey”, available at: www.nigerianstat.gov.ng/pdfuploads/MSME Presentation.pdf.

National Bureau of Statistics report (2019), “National survey of micro small & medium enterprises (MSMEs) 2017”, available at: https://nigerianstat.gov.ng/elibrary.

Global Entrepreneurship and Development Institute (2018), available at: https://thegedi.org/countries/Nigeria.

“Small and Medium Scale Enterprises Contribution and Economic Growth in Nigeria” available at: https://www.researchgate.net/publication/338230968

https://smedan.gov.ng/images/PDF/NATIONAL-POLICY-ON-MSMEsNew.pdf

https://www.pwc.com/ng/en/events/nigeria-sme-survey.html