Consulting for SMEs in Nigeria requires - among other skills - peculiar understanding of the national and business terrain, and the tenacity to see things through.

Small and Medium Enterprises (SMEs) play a crucial role in most economies of the world - particularly those of developing countries. According to World Bank figures, up to 70% of jobs are generated by SMEs in developing countries, while formal SMEs contribute up to 40% of national income (GDP) in those economies. These numbers are significantly higher when informal SMEs are included.

In Nigeria, the SME Development Agency of Nigeria (SMEDAN) puts SME’s contribution to the country’s GDP at nearly 50% while they account for over 80% of employment in the country.

However, as important as this sector is, its operations are mostly sub-optimal, compounded by poor access to funding, lack of required managerial acumen, lack of effective corporate governance, and many other factors.

This undesirable situation has over the years generated concerns for successive governments in Nigeria who have tried from one initiative to another to address the major challenges facing these crucial economic agents. Much as has been done, SMEs in Nigeria still suffer the unpleasant challenges that have bedeviled them over the years. Perhaps, it’s getting worse.

SMEs IN NIGERIA

The two major categorisations used in Nigeria are those of the Bank of Industry (BOI) and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).

BANK OF INDUSTRY’S (BOI) DEFINITION FOR MICRO, SMALL, AND MEDIUM-SIZE ENTERPRISES

Enterprise category / Indicator Micro Enterprise Small Enterprise Medium-size Enterprise

Number of Employees ≤ 10 11 ≤ 50 51 ≤ 200
Total Assets (₦) ≤ 5 million > 5 ≤ 100 million > 100 ≤ 500 million
Annual Turnover (₦) ≤ 20 million ≤ 100 million ≤ 500 million


SMEDAN National Policy on MSMEs Definitions
 

Enterprise category / Indicator Micro Enterprise Small Enterprise Medium-size enterprise

Number of Employees < 5 million 10 to 49 50 to 199
Total Assets (₦) < 5 million ≥ 5 < 50 million ≥ 50 < 500 million


In terms of ownership, SMEs in Nigeria are mostly run as sole-proprietorship. A recent survey by PwC puts SME ownership in Nigeria as follows:

SME Ownership Type (in Nigeria) Percentage

Sole Proprietor 73%
Private Limited Liability 14%
Partnership 6%
Faith Based Organisations 5%
Cooperative 1%
Other 1%


From that survey, PwC came up with the following key findings. Understanding these challenges is key to consulting for SMEs in Nigeria

- Obtaining finance, finding customers and infrastructure deficits are the most pressing problems of SMEs.
- Electricity is responsible for the highest cost to operations followed by rent and cost of capital
- Top economic issues are pressure to reduce prices, rising inflation and low demand for products and services.
- Local government levies are the most difficult taxes to comply with.
- MSMEs would prefer private equity over debt financing.


SME CHALLENGES CODIFIED[/color]

Understandably, consulting for SMEs in Nigeria requires an in-depth appreciation of the major challenges small and medium-sized businesses face. We have in this article organised the challenges affecting SMEs in Nigeria into 5 categories.

Finance

Obtaining finance, finding customers and infrastructure deficits are the most pressing problems of SMEs. SMEs are less likely to have access to bank loans than large businesses. They mostly rely on their internal reserves, personal savings and funds from family and friends to start or perpetuate their businesses. The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year.

Truth be told, many start as really micro businesses but the frustrating challenge of scaling without sufficient limited working capital usually impacts on quality of products/services, which may ultimately lead to unabated market share and ultimate mortality.

Heavy Operational Costs

Irregular power supply (in some instances outright non-availability) and the attendant need to run high-cost powers generators has for years remained  major threat to continuity in business for many SMEs. This problem is compounded by ever-increasing cost of petrol and diesel. Interestingly, most SMEs are not able to transfer the rising cost to consumers so as to recover their operating overheads. There’s always the real fear or reality of losing their customers to competing imported products. This takes a toll on profitability, and at some point they start to run losses and ultimately may close business.

Inability to Recruit the Right-Staff

Businesses need people to run. Good people at that. A major problem for SMEs in Nigeria is the challenge of attracting and retaining good staff. Ability to pay for good staff is restricted, and in many cases, even when they got the right staff, those personnel are soon lured by better pay into bigger competitor or a high-paying industry.

Technology and Infrastructural Challenges

Right technology and appropriate infrastructure require funds. Where the funds are not available – as highlighted above – SMEs are left stranded, frustrated and moribund. Application of the right technology enhances and SME’s competition, not just against foreign brands but also larger businesses. The quality of products of many SMEs in Nigeria has been hampered by the use of outdated technology; hence they are not able to effectively compete both in terms of quality and cost.

Corporate Governance Challenges

Poor corporate governance creates a lot of issues for SMEs in Nigeria. Some of those problems include:

- Leadership tussles and conflicts within management and business owners,
- Over-centralisation of decision-making
- Reckless leadership tendencies
- Weak internal controls
- Tax problems created by improper book-keeping
- Stunted growth

Not often cited as a major problem by SME business owners, but this is one factor that has ruined the good dreams and goals of many SME owners.
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CONSULTING FOR SMEs IN NIGERIA

With the myriad of challenges highlighted above, it would seem that consulting for SMEs in Nigeria is full of problems. Yes, it may be quite challenging but this is where the right skills need to be applied while serving as advisors to SMEs.

Continue reading on https://teoaris.com/2024/02/07/peculiarities-of-consulting-for-smes-in-nigeria/