#1Structure and Development of SMEs in Southwest Nigeria By Seye Oyeleye Delivered at the 2022 Strategy meeting of the South West Regional office of the Bank of Industry. Friday 28th January 2022 DAWN Development Agenda for Western Nigeria COMMISSION Development Ages WESTCON NIGERIA DAWN Commission Onde#2• • . • Introduction SMEs serve as the backbone of major developed economies. In Nigeria, SMEs contribute 48% to national GDP, account for 96% of businesses and provide about 85% of total industrial employment. SMES play significant roles as engines of socio-economic transformation and industrialization of many economies of the world. The sector offers great potentials for improving local technology, output diversification and development of indigenous entrepreneurship. Facilitate wealth creation and income re-distribution within the society. DAWN Development Agenda for Western Nigeria DAWN Commission SMES Business *** Ondo Onde#3• . Introduction (Cont'd) According to the NBS-SMEDAN survey of 2017, Nigeria has over 41.5 million MSMEs with 99.8% of this figure dominated by micro- businesses while Small and Medium Scale Enterprises were only 73,081 (0.2%) Although, the study suggests that there may be an hypothetical 811,890 uncaptured SMEs due to their characteristics However, the fact remains that the bulk of businesses in Nigeria are still at the micro-level. DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#4Classification of SMEs in Nigeria BOI definition of business enterprises in Nigeria Micro-scale Enterprise Small scale Enterprise Indicator/parameter No. of employees ≤10 >11 ≤ 50 Total assets (N) ≤5 million >5 ≤ 100 million Annual turnover (N) ≤ 20 million ≤ 100 million Medium scale Enterprise > 51 ≤ 200 >100 ≤ 500 million ≤ 500 million SMEDAN definition of business enterprises in Nigeria Indicator/parameter Micro-scale Small scale Enterprise Enterprise No. of employees <10 10 to 49 Total assets (N) <5million >5<50million Medium scale Enterprise 50 to 100 >50< 500million DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#5Global contributions of SMEs Country % of businesses GDP Employment South Africa USA 99% 52% 29% > 99% 44% 48% UK 99.7% 51% 54% Germany 99.5% 54% 63% Nigeria 99.8% Source: European Commission, U.S. SBA, FMITI, PwC research DAWN Development Agenda for Western Nigeria DAWN Commission 49% 84% Onde#6• Structure of SMES in Southwest The number of people/persons employed is small Low initial capital with consequent low annual business turnover Operations mostly local and employees live within business location • Management structure is mainly sole-proprietorship . Relatively small market when compared with other industries The capital is mainly supplied by an individual or small group or individuals/persons or shareholders DAWN Development Agenda for Western Nigeria DAWN Commission Onde#737 36 Structure of SMES in Southwest (Cont'd) Growth of SMEs in Southwest, Nigeria (%) 35 34 33 32.2% 32 31 30 2013 SMEs in Southwest Nigeria (2013) 36.3% 2017 2013 ■2017 27.9% of the total 41.5million MSMEs in Nigeria in 2017 are in Southwest SMEs in Southwest Nigeria (2017) 9000 8396 14000 7987 8000 11663 12000 7000 10000 6000 5000 8000 4000 2013 6000 6131 2017 3000 2272 1999 1794 4000 3007 2000 1029 2465 2363 1000 2000 928 0 0 Ekiti Lagos Ogun Ondo Osun Oyo Source: NBS, SMEDAN, DAWN Research Ekiti Lagos Ogun Ondo Osun Oyo DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#8Structure of SMES in Southwest (Cont'd) SME distribution by sector (%) 42.3% 45 40 35 30 25 20.9% 20 15 10 13.1% 9.0% 9.0% 5.7% 5 0 Wholesale/Retail Trade Agriculture Manufacturing Accomodation/Food Other services services Other sectors Employment generation by economic sector (%) 27.9% of the 56million job opportunities generated in Nigeria in 2017 are by SMEs in SW 60 52.4% 50 40 30 20 12.1% 13.3% 10 5.1% 13.0% 4.1% 0 Agriculture Manufacturing Wholesale & retail Hotel /food services Transportation Source: NBS, SMEDAN, DAWN Research Other services DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#91% Ownership structure 14% 6% 5% 1% SOLE PROPRIETORSHIP 73% Source: NBS, SMEDAN, PwC analysis DAWN Development Agenda for Western Nigeria DAWN Commission ■ PARTNERSHIP ■ PRIVATE LIMITED LIABILITY ■COOPERATIVE FAITH BASED ORGANISATION ■ OTHER 70.4% are within the age bracket of 26-50yrs Predominantly male (51.3%) Ondo Onde#10Financing structure of SMEs Source of start-up capital (%) 80 68.3% 70 60 50 40 30 21.6% 20 14.4% 8.6% 6.6% 10 3.3% 0 Personal savings Loan Family source Cooperative Grants Others Source: NBS, SMEDAN, DAWN Research DAWN Development Agenda for Western Nigeria DAWN Commission 85% of these businesses had initial start-up funds of less than #100,000 Onde#11ICT SME Clusters Solar (off grid) Fashion and Beauty Gas Processing Engineering Movie Production Greenhouses Arts & Craft Gas Processing Light Manufacturing Solar (off grid) Healthcare Livestock and Livestock processing Arts & Craft Fashion & Beauty Leisure & Hospitality Metal Fabrication Engineering Mining and Beneficiation Food & Agro Commodity Processing Gas Processing Greenhouses Engineering Healthcare DAWN Development Agenda for Western Nigeria DAWN Commission Onde#12Some Regional and sectoral distribution SME clusters in Nigeria • Tie & Dye SME Clusters Abeokuta Tie & Dye SME Clusters WWIRE Kano Leather SME Clusters NATAIN ZANEXIA KANC VODE TUME DORNU GOMEC DAUCEN JONGOWA PLATCHU TCT MASSARAWA SPHODEL - DOTE LONGJA KOG CALN ANDRITE 000 ONDO LAGOS CHUGO COONYE ADIA ELTA Lagos Otigba ICT SME Clusters Source: Oyelaran-Oyeyinka, 2020 DAWN Development Agenda for Western Nigeria DAWN Commission TARAGA Abe Leather, Feather & Fashion SME Clusters Nnewi Automotive SME Clusters ARLINA GOV RIVERS Ondo Onde#13. Effect of SMEs on economic development • Employment generation . They generate 95% of employments compared to 5% from large scale businesses • Economic growth (GDP) SMEs contribute 48% to national GDP Poverty reduction GDP Income generation (Wages and salaries) . ⚫ Revenue generation (IGR) DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#14● Rural development . Development of local technology ● Encourages less dependence on imported goods DAWN Development Agenda for Western Nigeria DAWN Commission shutterstock Onde Onde#15Challenges of SMEs in Southwest Nigeria Irregular power supply and other . infrastructural inadequacies Unfavourable fiscal policies, multiple taxes, levies and rates Policy inconsistencies, reversals and shocks, poor policy implementation Uneasy access to funding, restricted market access shutterstock CHALLENGE CHALLENGE shutterstock CHALLENGE • DAWN Development Agenda for Western Nigeria DAWN Commission Ondo#16. • Challenges of SMEs in Southwest Nigeria Problems of inter-sectoral linkages as most large scale firms source some of their raw materials outside instead of sub contracting to SMEs. • Raw materials sourcing problems, competition with cheaper imported products Insecurity of people and property Lack of requisite skill & experience Lack of preservation, processing and storage technology and facilities shutterstock CHALLENGE CHALLENGE shutterstock CHALLENGE Ondo DAWN Development Agenda for Western Nigeria DAWN Commission#17. Potential framework for Regional SME development Leverage on technology to profile and document the demographic characteristics of SMEs in the region. Conduct sectoral analysis to identify regional specific characteristics in order to develop requisite framework for regional SME development. Introduce technological based solutions to facilitate efficient process of SME development in the region. Promote SME policy coherence at regional level. This includes improving the Ease of Doing Business (EODB) in the region. Develop a regional oriented financing model to accommodate precarious SME owners to improve access to finance. shutterstock DAWN Development Agenda for Western Nigeria DAWN Commission Onde#18Potential Framework for Regional SME Development (Cont'd) Encourage cluster participation through SME associations to facilitate the development of requisite strategic framework for regional SME development. Strengthen the SME capacities in the region to improve their competitiveness. This includes encouraging SME associations to provide information on markets and standards. Carry out value chain analysis to identify specific problems and challenges as well as best approach to solve them. ICT SME Clusters Arts & Craft Solar (off grid) Fashion and Beauty Gas Processing Engineering Movie Production Greenhouses Gas Processing Light Manufacturing Solar (off grid) Healthcare Livestock and Livestock processing Arts & Craft Fashion & Beauty Leisure & Hospitality Metal Fabrication Engineering Mining and Beneficiation Food & Agro Commodity Processing Gas Processing Greenhouses Engineering Healthcare Shutterstock DAWN Development Agenda for Western Nigeria DAWN Commission Onde#19Potential Framework for Regional SME Development (Cont'd) Maximise the spill over of management skill and knowledge from regional and national spaces to support SMEs. Achieving this, requires development of a policy framework that allows SMEs to harness spillovers of knowledge and management skills. • Leverage on shared information, capacity, knowledge and management skills to develop regional oriented SMEs in line with global best practices $ REGIONAL ECONOMY % ↑ shutte ers lilil lilil DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#20. Conclusion The renewed determination of BOI to focus on regional strategy to finance SMEs in the country is a welcome development. However, efforts should be made to develop regional specific financing schemes that leverage on existing regional structures to promote SMEs in the country DAWN Development Agenda for Western Nigeria DAWN Commission Ondo Onde#21Thank You DAWN COMMISSION Development Agendo for WESTERN NIGERIA Development Agenda for Western Nigeria DAWN Commission MENT ENT ENZTY STATE OGU STATE NIGERIA Ondo ISE LOOGUN ISE