How MSMEs are Reshaping Nigeria’s Economic Landscape: A Comprehensive Overview
Micro, small, and medium enterprises are the lifeblood of economies worldwide. These businesses, numbering around 350 million, represent over 90% of all firms globally and account for both of the global GDP. MSMEs provide the foundation for job creation, innovation, and collective global economic growth.
In emerging markets like Nigeria, Africa’s most populous nation and biggest economy, MSMEs take on an even greater role. They create around 80% of employment opportunities and contribute significantly to the national GDP. MSMEs help mitigate the lack of large industries in the country, by powering entrepreneurship and providing livelihoods to millions.
Nigeria’s Thriving MSME Ecosystem
Nigeria boasts a robust MSME ecosystem comprising around 42.5 million MSMEs. An astonishing 98% of these businesses are micro-enterprises with fewer than ten employees and assets of less than ₦5 million (excluding land and buildings). This dominance of this tiny enterprises is due to low barriers to entry. The remaining 2% is made up of small and medium enterprises, amounting to 1.29 million according to the 2020 SMEDAN survey.
According to a 2020 survey by SMEDAN and NBS, Nigeria’s MSMEs contribute 49.4% (roughly half) of the nation’s GDP. However, their contribution to gross exports is just 6.21%, quite small when compared to economies like China (60%) and India (40%)
Key Trends in Nigeria’s MSME Landscape
• Lagos State had the highest MEs (3,385,150), representing 8.89% of the total enterprises, closely followed by Oyo State 1,516,623 (4.9%). Nasarawa recorded the least with 472,546 (1.2%).
• Agriculture and wholesale/retail trade are the most prominent sectors, with the most enterprises at 38.4% and 33.4%, respectively. Other activities/services account for 9.7%, and manufacturing for 4.2%.
• Sole proprietorship makes up the majority of MSME business structures, with 96.2% of total ownership.
• About half of SMEs are registered with CAC, with most being liability firms, bearing the burden. For microenterprises, only about 1.5 million are registered out of a total of 38.5 million total enterprises, meaning approximately about 4% of MEs are registered with the Corporate Affairs Commission (CAC)
The Challenging Terrain for Nigeria’s MSMEs
The MSME sector has gone through thick and thin over the last couple of years, especially since 2020, with the Covid pandemic causing a global shutdown of businesses. This affected the conduct of business transactions, and although businesses adapted and resorted to more digital technologies and channels to bridge the physical gap, current economic headwinds like the removal of subsidies and a dwindling naira have hit MSMEs hard putting pressure putting more pressure on businesses who prior to now were already on life support.
Other challenges, including high electricity tariffs, high taxes, as well as a lack of access to finance. This has made operating a business in the country a Herculean task, with many businesses struggling to survive
Addressing MSME Obstacles Through Government Initiatives
Inherent deficiencies such as poor management, regulatory compliance, and lack of digital skills also constrain MSMEs, limiting their access to funding. The government has tried to address these deficiencies by rolling out several initiatives such as the MSME Development Fund, SMEDAN, YOUWIN, and TraderMoni to mitigate these deficiencies by providing much-needed access to credit, training, and more.
Recommendations for Unlocking MSME Potential
Unlocking the full potential of the Nigerian MSME ecosystem will require an integrated policy approach between the public and the private sector at state and federal levels with key recommendations to
• Prioritize the development of industries like manufacturing and agriculture to boost value-added exports.
• Incentivize tech startups to leverage the existing human resources for launching tech startups that will boost the services industry.
• Reduce regulatory hurdles to starting and sustaining a business.
With the proper environment, MSMEs can become key drivers of import substitution, job creation, innovation, and export diversification. This will help accelerate industrialization, elevate the Country’s GDP, and improve the overall standard of living. Backing MSMEs is one of the best and quite possible the most viable option we have in transforming the Nation’s Economy.