This is the eighth month in the year 2016 and one would think there should be some form of growth in our personal lives but most importantly our economy.
Initially, the problem for almost every Nigerian was signing into law the appropriation bill (2016 Budget) with the hope that we will begin to see an improvement in our lives afterwards. In hindsight however, it is apparent that signing the bill into law wasn’t the solution to the nation’s problem nor was it .
Where were we going to get money to fund the budget considering that revenue expectation had been cut short due to the shortage in oil production (partly due to activities of the Niger Delta Avengers) and dwindling oil prices.
Next calamity to hit Nigerians was the removal of fuel subsidy and its transmission effect on the economy. Before the fuel subsidy removal was the 40% increase in electricity tariff which Nigerians were still grappling with amidst epileptic power supply. As the year went by the Central Bank made things worse by introducing draconian policies that worsened the forex situation in the country. Exchange rate nose-dived from about N280/$1 to as high as N400/$1 in between December 2015 and August 2016.
These and many more challenges have made it mandatory that the government immediately implement policies that can help reverse the current trajectory of the economy from one in a recession to one that has inclusive growth.
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Small businesses also play a major role in ensuring that economic growth jump starts bottom up through a pragmatic approach that not only provides incentives for Nigerians to be resourceful but one that encourages job creation. Attracting foreign investors at the expense of domestic growth drivers cannot sustain economic development on the long run.
In growing an economy, small-scale businesses are an important component. Whether we like it or not these businesses contribute to the growth of the economy and I know they can contribute more if necessary investments are made by the government or well-to-do individuals.
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Outlined below are roles of small businesses in stimulating economic growth;
- Employment Generation: In the past small businesses in Nigeria have contributed to economic growth by generating jobs for the masses. Nigeria is currently facing the problem of unemployment especially with rising number of school drop-outs, university graduates, retired civil servants to mention a few. It would interest you to know that another 1.5 million people became unemployed in Nigeria just this year. Due to this there is huge rural urban migration because persons go to cities in search of greener pastures. Small businesses have proven to cover the unemployment gap in the past. In this period of economic recession with rising unemployment, the central bank or government should rather than spend money on hiring more economic experts invest in small businesses by helping increase inventory level, expansion which could lead to an increase in demand for goods by consumers, high labour demand by business owners thereby solving unemployment issues. The unemployment rate is currently at 12.1% and I’m certain this figure would decline if local production is encouraged.
- Free market: small businesses serve as a check in market activities. Every small business is unique to itself. There’s always room for innovation and we know innovation breeds competition. Without innovation there can’t be competition. Competition is very healthy for the growth of an economy. Nigeria currently ranks 124 out of 140 countries on the global competitiveness index. In a highly competitive market for example, prices or quantity produced are controlled. That is, no one consumer will be over charged for a particular commodity. With this consumer welfare is checked and inflation controlled. I believe we can rise from this level when there’s an improvement in institutions like copyright and piracy is sanctioned appropriately.
- Foreign Direct Investment: Every great business today in developed economies started small in some way or the other mainly due to low capital availability. Big profitable firms attract investors into an economy but these “Big” firms must first be small, get enough investment to be able to employ more persons, meet consumer demands and gradually increase profit. The government should first invest in these businesses before foreigners play their part. Every small business has a potential for extra ordinary growth.
Having said all these, some factors must be in place for these businesses to thrive and grow into big businesses to attract the necessary investments. They include;
- Tax Policy: Taxes imposed by the government have an effect on small businesses. If taxes are high there’ll be a reduction in profit after tax of the business which may also lead to low retained earnings. That is, profit put back into the business to make more profit.
- Security: No business can grow effectively in an insecure environment. A tour business can’t go on tour to different parts of the countries if there are security problems. Investors can’t come in to do business if the issue of security persist. The government should ensure that security agents are paid well so they can do their jobs effectively.
- Access to funds: currently the lending rate is as high as 20% (depends on the financial institution). This rate is too high for sustainable businesses and could discourage borrowing by foreign investors. This rise is partly due to the rise in MPR to 14%. If it cost more to borrow from the CBN then it should also cost more to borrow from commercial banks because they have to make money. However, there should be programs where entrepreneurs are given seed capitals in order to grow their business. Loans should be accessible with little interest. Basically, this is to increase operation, expand their business, purchase raw materials, hire more labour and meet demand thus stimulating economic growth.
- Infrastructure such as electricity, water, good roads and so on are needed for small businesses to survive. Electricity generation is currently as low as 1580 MW due to pipeline vandalism. This figure is very low for a country as big as Nigeria. Demand for electricity is high compared to supply. The government should provide security at these gas pipelines in order to generate enough to run businesses. This would help reduce production cost thereby reducing purchase price for consumers and also increase demand for goods. The government should ensure there’s almost constant supply of power and water for these businesses to thrive. For good roads, transportation cost would be reduced. This can help reduce production costs as well as and lower prices of goods and services.
- Advertising: Some of these business have little or no resources to sponsor publicity of their products. A well publicised business could get customers from home and abroad. This could lead to high demand for domestic products, strengthen the naira and even reduce demand for forex to purchase foreign goods especially the ones that can be produced domestically.
I think it’s time the government looked inward while seeking to attract investors.
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