Nigeria in 2016: SMEs to our Rescue.

AS a percentage of output, SMEs create more jobs. SMEs account for 60 to 90 percent of jobs in most OECD countries, including Japan and Spain.
Even in the context of export production, the jobs are created locally. The mantra for US EXIM Bank is to finance U.S. export-related transactions in order to support U.S. jobs.
But in terms of which sectors Nigeria can scale up productivity, exports and job creation over the longer term, NEXIM Bank has held up Manufacturing, Agro-processing, Solid Minerals and Services as encapsulated in our “MASS Agenda.”


Since assuming office, President Buhari has repeatedly recognised the agriculture value chain and the solid minerals sectors for direct intervention.
This is quite astute. The most effective instrument for intervening in these sectors, based on their rudimentary levels of market development, is fiscal policy; and that is in the grasp of the Administration. Manufacturing and services should thrive on good policies that support market frameworks, including financing.

The current oil price slump might be a good psychological therapy for accelerating the pace of economic and export diversification for the country. But we are dealing with an issue that has long been identified. The solutions are in the most not new, as well. But this time around, a higher level of discipline and determination is required for us to achieve success, as the current circumstances are more challenging.
NEXIM Bank interacts with SMEs in these sectors all the time. They are the target of our export advisory services and risk-bearing facilities. We have recently been active in food processing where our interventions have financed over $100 million worth of exports in the last three years. However, at country level, the total financing support to SMEs has struggled to keep pace with the growing requirements of new enterprises and existing businesses needing the next round of growth funding. This explains why the various interventions have not made much leap in the aggregate impacts.
To address this conundrum, I more recently advised that the Development Finance Institutions should be co-opted on a larger scale. Africa’s regional DFIs – African Development Bank and African Export – Import Bank – can help scale up resources. Working with the national DFIs including NEXIM Bank, the critical channels for the transmission of financing interventions for SMEs growth would open wider.

DFIs are specifically mandated to support enterprise development, focusing on the real sectors, and in the case of NEXIM Bank, export market development for the longer term. Commercial banks don’t necessarily have this orientation because of their capital structure and opportunities that deliver returns in the short-term.
The Central Bank of Nigeria is now more intent in addressing this channel issue. Its November Monetary Policy Committee meeting decided to incentivise real sector lending by releasing additional liquidity to banks who are willing to participate. Indications are that the national DFIs would also be more resourced.

So what is the big picture that is expected in 2016? I think 2016 can be the best year for SMEs in Nigeria. Their role would be better recognised, and their operations would be better supported. A key frontier of the support is the fiscal plan the government has unfolded in the 2016 budget.
Part of it involves the much bigger capital expenditure which will increase business activities around infrastructure projects, including housing. A seemingly less appreciated part is how the poverty alleviation initiatives that puts money in the hands of the poor can boost patronage for SMEs.
2016 might become a year that enhances opportunities amid challenges. While we recognise the challenges, including the stress in the foreign exchange market, we should not fail to embrace the opportunities, and support the efforts of the government to reflate the economy.
*Mr. Orya, is Managing Director and CEO, Nigerian Export-Import Bank.

Source- Vanguard