Asia’s richest man, Jack Ma (founder and Executive Chairman of Alibaba Group), recently paid a 2 day visit to Kenya and Rwanda on his maiden visit to Africa. He came in the company of his 38 billionaire friends from Beijing, looking to fund smart and innovative African entrepreneurs.
Here are 10 major things we learnt from his visit;
The Future of E-commerce is huge
Jack Ma spoke of how opportunities for trade can increase through the use of e-commerce. There is a huge potential for e-commerce and poor infrastructure represents an opportunity.
“It is time to invest in e-commerce because 80-90% of all businesses in the world in the future will be online”. He urged African youths to become “netpreneurs” as opposed to traditional entrepreneurs.
Anything is Achievable if You Develop a Problem-Solving Mindset
The story of how Jack Ma started is inspiring. He applied for about 30 jobs and was rejected from all of them. He struggled to go to college as he failed entrance exam 3 times, and started Alibaba from his apartment.
“My parents did not believe I could be rich. I do not have a single gene of wealth running in my family. But I am living the dream because I was determined to solve other people’s problems”.
SMEs are the backbone of the Economy
To build the Economy, build small businesses. The Government of African countries should give favourable tax policies to small businesses. These companies should be encouraged, and this will create more jobs in the Economy.
Young Entrepreneurs Should Compete for the Future
If you don’t have money and you have no resources, the way you compete is not by competing with people in the present. Start by asking what are the problems Africa will meet in 5/10 years. Also find people who believe in your vision, and then build your team.
Spend a lot of time thinking about future problems and you will end up the winner if you always think ahead.
Africa Should tap into Big Data Technology
Africa has the best opportunity for big data and should start from now to gather and use this data to develop the continent.
Europe and Africa have developed a lot from IT but the world is shifting to DT – Data technology. Information is edited by human beings but data is about human behaviour; data predicts behaviour and trends.
Data technology empowers firms and countries. The future is going to be so scary for those firms and companies that are very strong in IT. SMEs in Africa must take advantage of this shift and invest in data technology.
How is the Time to Build?
Africa has many challenges business wise; logistics, trust, and infrastructure. The only way to respond to this is by building them. Start to Build now! Alibaba has been built for the past 18 years. You can build without tearing your country/region down with pessimism.
When e-Commerce started in China, the country didn’t have the best logistics systems, infrastructure, payment systems, but they responded by building them.
Universities have a Big Role to Play
Universities and other tertiary institutions should inspire and nurture innovations. Some of the most successful innovators in the world quit university to pursue their innovative dream on their own after being frustrated by academic institutions.
Alibaba will work with universities in Africa and governments to train specific courses including; Internet, Artificial Intelligence, and e-Commerce.
Jack Ma Has Great Faith in African Youths
“I want to show my confidence in Africa, so I start with my foundation to Africa entrepreneurship fund to support young entrepreneurs to realize their dreams”, he said.
Jack Ma said he will invest $10 million in the fund, and added ‘I believe more people will come in to support the fund and make it bigger”.
The Internet is the Infrastructure of the Economy and Education
African Governments have a duty to invest in making the internet more accessible and cheaper if young people in Africa are to prosper. The young people also ought to recognise that the internet is not just the best learning tool ever created, it is also one of the best enablers of e-commerce. Use it the best way possible.
- The Government of other Africa countries must take a cue from Kenya send Rwanda to create the enabling environment for small businesses to thrive.
Kenya and Rwanda have invested heavily in the areas of social infrastructure. According to Ernst & Young, with Africa attractiveness program, East African countries recorded the highest share of Foreign Direct Investment in Africa in 2016. Rwanda, presently has one of the easiest means of doing business on the continent, which includes 6 hours of getting the necessary papers in floating a business enterprise. Little wonder the Chinese billionaires are rushing there to do business.
Why SMEs wealth is not diversified
Multiple taxes remain a problem as the constitution gives the 3 government tiers distinct taxing powers.
Nigeria became Africa’s largest economy in 2014 when its gross domestic product (GDP) data was rebased but the country lags behind South Africa, the second-largest, in terms of the tax to GDP ratio. That is not all. While Nigeria’s tax to GDP is estimated at about 6%, South Africa’s is 28%, and the average tax to GDP in Sub-Saharan Africa is 17%.
What could be responsible for this disparity? A recent Small and Medium Enterprises survey conducted by PricewaterhouseCoopers (PwC) and obtained by Nairametrics revealed that business owners, especially SMEs would suffer more from the development, as it found that Nigeria probably has more tax authorities than any other country in the World with the exception of the United States. But, unlike Nigeria’s tax administration system, the United States’ tax to GDP ratio is 26% (over 4 times higher than Nigeria’s) with a much more robust database of taxpayers and payments.
Findings of the survey
PwC surveyed over 1600 business owners across 29 states (6 geopolitical zones in Nigeria) to bring more light to reasons SMEs employ over 80% of the workforce but wealth is not diversified.
- 49% of SMEs pay 20% to 40% of their income or profits on taxes and levies.
- 28% of businesses pointed out that the Local government charges, taxes and levies were the most difficult to comply with. The average income tax rate for companies is about 32% and for non-incorporated entities 19.2%. This may mean that the local government actually accounts for the remaining 10% to 20% of the tax contribution from SMEs.
- The percentages are significant when compared to actual contributions by LGAs to tax collection in 2019. Unlike data on Federal and State tax revenues, Local government tax revenues are relatively difficult to ascertain or obtain.
- There is a need for consensus and collaborative dialogue from all public and private sector stakeholders in dealing with the data gaps, issues and challenges at the LG level.
- Multiple taxes and levies remain a bane for tax-paying businesses in Nigeria, especially MSMEs.
- The lack of coordination between federal and state tax agencies is also an issue. There are 36 state tax authorities in Nigeria, in addition to the Federal Inland Revenue Service (FIRS) and the local governments. Each of these entities has constitutional rights to raise taxes and this has given rise to increased tax burden and complaints from businesses.
- Nigeria ranked 159th out of 190 economies on PwC’s ease of paying taxes index 2020.
- The absence of a central technology platform stall ease of payment of taxes.
- It took, on average, 343 hours for entities to comply with tax payments. This was the time taken to prepare, file and pay value-added or sales tax, profit tax, labour taxes and contributions.
- Most businesses made, on average, 48 tax payments to the tax authorities in a year.
Partner & Head, Private Wealth Services, PwC, Esiri Agbeyi, explained that for the nation’s economy to grow at the desired rate, a lot more of SMEs must be unicorns (i.e. a privately held startup company valued at over $1 billion). To achieve such a feat, she recommends:
- Review Constitution and tax laws: Multiple taxes remain a problem as the Constitution gives the 3 government tiers distinct taxing powers. Businesses will continue to struggle with this problem unless something more concrete is done about excluding overlapping powers e.g. with consumption taxes. The tax laws should be reviewed and amended annually through Finance Acts. Over time, Nigeria can lean towards a lower direct tax on income and more indirect tax on spending as we find in developed economies.
- Centralised administrative system: Deploying a single centralised technology platform for tax administration in the country will help to improve tax collection, enhance ease of payment, reduce the cost of tax collection, as well as a plug or eliminate the leakages in the system. The time saved in paying taxes could be put to more productive use by businesses and the nation as a whole.
- Single Tax Authority: Most countries adopt the model of a single tax authority for tax administration of both corporates and individuals. This is the case with the UK’s HMRC and South Africa’s SARS. Both countries have significantly higher tax to GDP ratios than Nigeria. Companies are run by individuals. Linking both provides much gain in closing gaps on non-taxation or evasion. The reverse is the case when information is disaggregated across several tax authorities.
- Formalise the informal sector: Multiple taxes may be an issue but what is worse is when tax is paid by a few and the tax net is not widened. Some say the missing piece has been the informal sector. However, players in the informal sector cry that they pay taxes too. The problem is there is no data and some of the taxes collected may only find their way into private pockets. Evening the playing field for all taxpayers would involve relaxing the entry rules and easing the barriers for informal businesses to get into the formal sector.
READ MORE: FIRS to brace up on tax compliance policies
In all, it is important for the nation to consider these recommendations for higher tax revenues and more profitable SMEs, which would translate to a profitable economy. Whichever strategy Nigeria adopts, ensuring the SME sector is free of the burden of multiple taxes is very critical.
How SMEs can reposition businesses for growth amid COVID-19
The pandemic may not leave anytime soon, best way to go about it is to find ways to leave with the virus for the foreseeable future.
The increasing cases of the COVID-19 do not only present an alarming health crisis to Nigeria but also come with human impact, the significant economic, business and commercial impact being felt across the nation, especially among Small and Medium Enterprises (SMEs).
These and how to reposition businesses for growth either Post-COVID or in the new normal were discussed at the recent PwC Nigeria webinar tagged ‘Repositioning your business for growth’.
At the webinar, Taiwo Oyedele, Fiscal Policy Partner, West Africa Tax Leader, explained that the pandemic may not leave anytime soon and the best way to go about it is to find ways to leave with the virus for the foreseeable future.
He said, “SME sector plays a vital role with about 40 million of them operating in all sector of the Nigerian economy, employing over 60% of the country’s workforce and providing a livelihood for the majority of homes.
“Some estimates have it that millions of MSMEs have shut production and they may not be able to open again, as they suffer from lack of liquidity, credit, income among others.”
Back story: Last June, Nairametrics had reported that an overwhelming 94.3% of businesses surveyed reported being negatively impacted by the pandemic particularly in the areas of Cashflow, Sales and Revenue.
“Financially, a good number of the businesses were doing poorly as about 13% reported having enough cash flow to stay operational for 1 – 3 months while about 33% had enough cash flow to stay operational for only 1 – 4 weeks and about 27% for only 1 – 7 days. A number of jobs were also impacted as 82.8% of the businesses reported that they were likely to lay off 1 – 5 employees,” a Fate Foundation report stated.
While almost 50% of the businesses were able to identify opportunities despite the negative impacts of the pandemic along the lines of creating new products and services, expansion and diversification etc, most businesses reported needing support with cash flow and sales and would like support in the area of funding, access to markets and business support.
Recovery opportunities for SMEs
As far as Tara Durotoye, CEO House of Tara International is concerned SMEs owners should be strategic by dissecting the issues affecting their operations into two i.e What they have control over and what they do not.
According to her, Nigeria does not have a government that supports the reality of the challenges the SMEs are going through, advising business owners not to look up to the government but rather find ways to work around issues and find the solutions.
She said, “This is the time to be closed to your customers, time to call them and find out what they want as the pandemic has created a new normal. For instance, in the makeup industry, findings revealed that customers demand products like powder and lipsticks have dropped. What customers want now is to take care of their skin and not just to cover them, we would not have known that except we engaged our customers.”
Technology has become an important part of SMEs operations and operators have to think of the current resources they have and what they can do more about the resources in terms of skill set. There are people who were in makeup that is now doing consultancy, others in Agro and now doing logistics.
She cited an event centre in Lekki corridor, who due to COVID-19 have not been engaged for social gatherings as usual. spoke with its customers using social media platforms and decided to meet their needs by turning the centre to an open market on Saturday.
“It realised that some women in the area were not comfortable going to Balogun or Mile 12 market during the pandemic and decided to create that open market for them.
“Also, there is a Game Centre that has started offering video conferencing services to its clients. It observed a gap in the video conferencing space and explore it. They created a video conference app that would not require much space like Zoom to download and that works on small phones,” Tara said.
She added that this is the time for all business owners to create a will to forge ahead and understand that they do not have a government like Canada or US that would meet their needs as expected.
However, Abubakar Kure, MD NIRSAL MFB in his presentation explained that the Federal Government introduced the TSF and other loans to cushion the effect of the pandemic on SMEs and households when it realised business owners lack the required cash flow to survive the shock arriving from the COVID-19 pandemic.
Kure agreed with Tara that SMEs have to think out of the box and not wait for the government but explained that despite the fact that the government has limited resources, it has introduced several facilities across sectors to cushion the effect of the pandemic on businesses.
Shortly after the July Monetary Policy Committee meeting, Nairametrics had reported that between April when the TSF loan was launched and July 12, 2020, the Central Bank of Nigeria has disbursed N49.19 billion out of the N50 billion Household and SME facility to over 92,000 beneficiaries.
Also, the apex bank disbursed over N152.9 billion to the manufacturing sector to finance 61 manufacturing projects and another N93.6 billion to the Healthcare sector, amongst many other sector-specific facilities.
He said, “The facilities are token but SMEs need to strategies and think out of the box as suggested, The facilities are actually subsidised because they are between 1 to 3 years at 5% for 1 year and 9% subsequently.”
He added that the facilities are actually subsidised for businesses to survive and for people to retain their jobs and for the economy to recover from the shock created by the pandemic.
In conclusion, PwC made in-depth recommendations for government, SMEs and stakeholders on policy and strategies to cushion the effects of the pandemic on the nation’s ailing economy.
Click here to watch the webinar
CBN reserves 60% of N220 billion MSMEs fund for women
The sub-sector is characterised by huge financing gap, which hinders the development of MSMEs.
The Central Bank of Nigeria (CBN) said it reserves 60% of its N220 billion Micro, Small and Medium Enterprises Development Fund for women entrepreneurs.
The apex bank added that 2% of the wholesale component of the fund would be given to economically active persons that are living with disabilities, as 10% is meant for start-up businesses.
This was disclosed by the bank in the guidelines it issued for micro, small and medium enterprises development fund for non-interest financial institutions.
Back story: Last June, the Federal Government of Nigeria had announced it would roll out palliatives to assist women-owned medium and small businesses (MSME’s) recover from the impact of the pandemic.
Minister of Women Affairs, Mrs. Pauline Tallen, explained that the National Survey on the impact of COVID-19 on women-owned businesses in Nigeria captured trends and patterns of the losses caused by the pandemic on women-owned businesses, and will now guide the government’s move to revive the affected businesses.
She said, “The impact of the pandemic on micro, small and medium enterprises (MSMEs) has been quite massive, and resulted in unforeseen losses for business owners.”
Why it matters: The sub-sector is characterised by huge financing gap, which hinders the development of MSMEs.
“Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, stipulates that ‘a Microfinance Development Fund shall be set up, primarily to provide for the wholesale funding requirements of MFBs/MFIs’.
“To fulfil the provisions of section 4.2 (iv) of the policy, which stipulates that women’s access to financial services to increase by at least 15% annually to eliminate gender disparity, 60% of the Fund has been earmarked for providing financial services to women.”
It added that this informed the decision of the CBN to establish the MSMEDF, which has a take-off seed capital of N220bn.
What it means: The fund prescribes 50:50 ratio for on-financing to micro enterprises and SMEs respectively by Participating Financial Institutions.
The commercial component will constitute 90% of the Fund which to be disbursed in the form of wholesale funding to the PFIs.