The Growth-Promoting Institutional Structures That Involve Banks And The Stock Entrepreneurship and MSME – The Engine For Economic Growth and Wealth Creation

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Entrepreneurship and MSME – The Engine For Economic Growth and Wealth Creation

With a population of 148 million people and the second largest economy on the continent after South Africa, the state of Nigeria’s economy is a bundle of extreme contradictions. The US gets 10% of its crude oil imports from the rich oil fields of the Niger River Delta, a region that is also home to one of the largest known reserves of natural gas in the world. Despite these natural endowments, Nigeria is crippled by rampant poverty and depressing macroeconomic and human development indices. Unemployment is endemic and more than 54% of its population lives on less than $1 a day. Decades of political upheaval, civil unrest and large-scale government mismanagement are largely to blame for this state of affairs in Nigeria.

The return of democracy in 1999 paved the way for economic reforms and the adoption of an ambitious plan to place Nigeria among the world’s 20 largest economies by 2020. The massive subsequent realignment of economic policy initiatives produced tangible results: foreign exchange reserves increased fivefold between 2003 and 2006. , while GDP growth averaged more than 7%. However, due to long-standing systemic imbalances, GDP per capita fell from $444 in 1997 to $430 in 2004, even as the poverty rate actually increased.

A major part of the problem has been Nigeria’s over-reliance on oil and gas exports, which have earned it an estimated $600 billion over the past five decades, but have had little impact on the non-oil sector, which has languished in an atmosphere of political neglect and inadequate financial and technical support. The focus of Nigeria’s renewed economic goals should be to develop entrepreneurship in a way that takes into account its vast human resources and in such a way as to enable inclusive but rapidly accelerated economic growth. De-dependency on non-renewable resources while promoting micro, small and medium enterprises (MSMEs) is critical to achieving both the 2020 target and Nigeria’s Millennium Development Goals.

MSMEs are responsible for the rapid growth of many economies around the world, historically starting in the UK and America, gradually moving to Europe, Latin America and more recently in large parts of South and East Asia. Currently, it is estimated that more than 90% of all businesses in the world are MSMEs, which account for up to 80% of all employment opportunities. In OECD countries, the MSME component accounts for up to 97% of total business activity, contributing 40% to 60% of GDP1 in member countries. These statistics hold many insights for Nigeria in the context of its economic development goals.

First among them is the fact that the full growth of MSMEs is fundamental to the expansion of the rural economy as part of sustainable macroeconomic development. MSMEs are a diverse mix of agriculture, manufacturing, services and trade sectors; are classified based on asset value and number of employees on a given scale of maximum and minimum scores for both items. They are often extremely diverse in terms of size and structure, ranging from rural artisan guilds, small mechanical workshops, to new software and IT firms. They are dynamic by definition and include a wide range of growth-oriented skill sets, with particular needs in terms of innovative solutions, technology and equipment, and knowledge enhancement. However, the main requirement for their promotion is the development of a viable microfinance industry with built-in ease of access for SMEs.

At the policy level, Nigeria has taken proactive steps to promote MSME initiatives, the most notable of which is a legislative amendment requiring commercial banks operating in the country to set aside 10% of their pre-tax profits for investment in small businesses. Both the IMF and the World Bank currently run separate outreach programs to assist Nigerian microfinance through tailored procedures to optimize credit assessment and monitoring of microloans. The effectiveness of these measures is confirmed to some extent by recent events.

In June of this year, the Nigerian government announced the allocation of loans to small industries in the amount of 20 million dollars2. This is a significant achievement when you consider that it is multiplied by the original World Bank grant in 2006 of $8.4 billion. Policymakers have addressed Nigeria’s traditionally poor access to debt and equity capital with the introduction of new microfinance institutions that provide broader and deeper financing solutions.

Despite this initial euphoria, overall Nigerian MSME productivity and growth potential remain severely limited. Business development services remain underdeveloped in terms of projected potential, and are particularly poor in rural areas outside major urban centres. In addition to inherent infrastructural deficiencies, the growth rate of MSMEs is further affected by the lack of entrepreneurial knowledge, especially the ability to identify useful business opportunities.

Given Nigeria’s past and present, the right environment for rapid growth in this key sector requires certain basic measures, including:

* Effective government regulation and supervision of microfinance organizations (MFIs) and operations.

* Strengthening MFIs through continuous assessment of best practices and sustainability.

* Expanding the potential of loan repayment schemes for wide application.

* Improved coordination between the various agencies involved – public, private and donor.

There is definitely no shortcut or panacea for businesses. The World Bank outlines the broader perspective of the MSME development program in Nigeria with five priorities3: expanding the breadth and depth of financing available to MSMEs, creating markets for business development services, technical and capacity-building support, allocating resources to access the world’s best practices, and finally funding for implementation, review and monitoring of individual projects.

The existential value of MSMEs derives from the fact that they provide products and services that their larger counterparts do not or cannot. Recognizing and harnessing this potential is only half the battle. The real challenge for Nigeria is not to reach the full potential of MSMEs and then integrate their success to create a more inclusive economy that is free of the disadvantages that have plagued much of its population for the better part of half a century. .

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