Nigeria’s SMEs Struggles

In Nigeria, SMEs contribute approximately 48 per cent to the country’s GDP. It also makes up 84 per cent of Nigeria’s workforce. This shows SMEs’ importance in driving Nigeria’s economic growth and development. However, Nigerian SMEs are struggling, which has implications for the country’s economy.

Small and Medium-Sized Enterprises (SMEs) are crucial to developing nations like Nigeria. They are very vital to economic growth. They also contribute significantly to developing countries’ economic output levels due to their vast numbers. SMEs also play a crucial role in job creation and help reduce unemployment, promote innovation, and introduce new products and services.

The National Bureau of Statistics 2023 report showed that SMEs numbers went down by 45 per cent across various economic sectors. SMEs numbers dropped from 246,200 in 2020 to 170,098 in 2022. This drastic decline dentures Nigeria’s ambition to become a 1000,000,000,000 economy by 2030. Various SMEs owners listed over-taxation, electricity failure, and insecurity as major concerns of SMEs. These issues contribute to the decline of SMEs and Nigeria’s overall economic growth and prosperity.

One reason for Nigeria’s SMEs’ struggles is over-taxation. Nigeria has a complex and difficult-to-understand tax system. Nigeria’s over-taxation or multiple taxation comes from various levels of government on all economic activities and assets. The Federal Revenue Inland Service, which is at the federal level, administers corporate income tax, value-added tax (VAT), and withholding. At the state level are personal income, land use, and consumption taxes. Local government may impose tenement and property taxes. This makes taxpayers, especially SMEs, subject to over-taxation. Also, Nigerians pay over 60 official and 200 unofficial taxes. The Chairman of the Presidential Committee on Fiscal Policy and Tax Reform, Mr Taiwo Oyedele, stated that more unauthorised taxes affect all SMEs unevenly. This unnecessary and complicated tax burden stifles SMEs’ progress in Nigeria. Approximately 80 per cent of SMEs fail within five years. Over-taxation kills the growth of many SMEs in Nigeria.

Access to an uninterrupted electricity supply is vital for SMEs to realise profitability. Nonetheless, Nigeria constantly struggles with adequate and stable power supply. This significantly affects the generation of profits for SMEs and leads to loss of profits. A study on erratic power supply and SMEs in Akwa Ibom state, Nigeria, showed that SMEs owners recorded reductions in profit margins due to erratic power supply. This also led to a reduction in the production and sales of goods and services. These erratic power supplies stagnate the growth and development of SMEs. Inadequate power supply also leads to high operational costs. Nigerians spend ₦3.5 trillion on fuelling generators, making it difficult to effectively do business in the country. The negative impact of inadequate supply has a larger impact on the country’s growth and development. As SMEs struggle to grow due to unreliable electricity supply, this affects the attainability of the country’s sustainable development goals, especially eradicating poverty. Efficient growth and development of SMEs help lift people out of poverty. SMEs can create job opportunities for vulnerable and marginalised groups, spur economic development, and reduce income inequality and poverty. This becomes difficult to achieve with the constant struggles with electricity supply.

A strong and secure country will experience economic growth and development. When the property and lives of people are protected, businesses flourish. Nigeria has been grappling with insecurity for more than a decade. Northern Nigeria is struggling with banditry and terrorism. South-eastern Nigeria is struggling to contain the violent secessionist group known as the Indigenous People of Biafra (IPOB). Their compulsory sit-at-home orders make it harder for business owners to conduct business due to fear. This makes the country’s business unconducive for high-level performances. A scholarly study by Joseph Damjuma et al; on the effect of insecurity on SMEs performance in Nigeria found that insecurity issues such as terrorism negatively affected the output, capital utilisation, and value SMEs added to the country’s Gross Domestic Product. The stagnation of SMEs can also increase insecurity. Since insecurity contributes to the stagnation of SMEs growth, this further increases the country’s high unemployment and poverty rate, especially among youths. This makes people who are poor and without jobs vulnerable to recruitment by terrorist groups. As SMEs continue to struggle, fighting insecurity becomes harder because of high unemployment rates and poverty.

There is a need for tax harmonisation. The proposal for harmonising taxes promises to ease how businesses operate in Nigeria. The Nigerian government should ensure such a proposal becomes law. Before it is done, there should be relevant engagement with government agencies and business owners on the best way to harmonise taxes in the country. The tax process should be simplified and less cumbersome to foster economic growth and development. A new law that exempts SMEs from paying withholding tax will be fully implemented on the 1^st of January 2025. The government should properly evaluate its impact on SMEs two years after its implementation. This will create a better understanding of the strengths and weaknesses of the law and if there is a need for improvement.

To combat erratic power supply, expanding mini-grids will ease the means of doing business and help SMEs grow. It has the potential to provide a reliable power supply and can provide decentralised sustainable solutions. However, high the tariff design is troublesome. This is because developers charge high tariffs to cover investment and operational costs. To solve these developers should conduct thorough tariff studies to find a balance between consumers’ affordability and the financial viability of these projects. Innovative financing models such as pay-as-you-go can be utilised.

The government will need to effectively combat insecurity in Nigeria. One way to do this is to improve non-kinetic approaches to insecurity. Non-kinetic methods are simply using non-aggressive methods to combat insecurity. Between 2016 and 2017, the use of non-kinetic force led to 2000 Boko Harm members surrendering. Improving this method will be instrumental in combating insecurity. Fostering dialogues can also help fight insecurity. There should be a two-way dialogue between the Nigerian government and IPOB to bring critical solutions and long-lasting peace.