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How SMEs can scale up under the AfCFTA

SMEs can take advantage of the incentives provided under the new Finance Act to scale up under the AfCFTA.

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Development Bank of Nigeria , Companies Allied Matters Act (CAMA)
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Independent of the AfCFTA, the Federal Government of Nigeria has in recent times embarked on some far-reaching reforms aimed at enhancing ease of doing business both for the Small and Medium-sized Enterprises (“SMEs”) and across other strata of business in Nigeria. Some of these reforms can be seen in the areas of policies, laws, business formation and registration, post-incorporation filings and taxation. Two of the legislative instruments which are critical to these reforms deserve some mention here:

Companies and Allied Matters Act, 2020 (CAMA, 2020)

The signing of CAMA, 2020 into law by President Muhammad Buhari on 7th August 2020 came as a very cheering news to the SMEs community. Some of the provisions which impact directly on SMEs include but not limited to the following (i) a single member/shareholder for a private company (ii) minimum share capital in place of authorized share capital. This allows promoters of business to pay for only shares that are needed at the point of incorporation; (iii) exemption of SMEs, small companies or companies with single shareholders from the requirement of appointing Auditors to audit their financial records (iv) filing, share transfer and meetings can be done electronically by private companies (v) Statement of compliance which was hitherto signed by legal practitioners can now be signed by the business owner or his agent (vi) introduction of Limited Partnerships and Limited Liability Partnership thereby providing options for promoters who may want to incorporate partnership instead of limited liability companies (vii) Appointment of company secretary now optional for private companies (viii) AGMs and other company meetings can now be held virtually, amongst other reforms.

READ: How new CAMA 2020 will enhance SMEs’ ease of doing business

Finance Act, 2020

Complementing the reforms under the CAMA 2020 is the Finance Act. Enacted first in 2019, the Act was further expanded and re-enacted to among other things address the negative impacts of COVID 19 on small businesses and this led to the new Finance Act, 2020. The new Finance Act was signed into law on 31 December 2020 and took effect from 1st January 2021. It introduced over 80 amendments to 14 different laws such as the Personal Income Tax Act, Companies Income Tax Act, Capital Gains Tax Act, Value Added Tax Act, Customs & Excise Tariff Act, Tertiary Education Trust (TET) Fund Act, Fiscal Responsibility Act, Public Procurement Act, CAMA, Nigerian Export Processing Zone Act and Oil and Gas Export Processing Free Zone Act. SMEs are expected to take advantage of the incentives provided under the new Act. SMEs with a turnover of less than N25 Million are exempted from Companies Income Tax and TET tax amongst other incentives. SMEs engaged in primary agricultural production are qualified for pioneer status for an initial period of four years and an additional two years.

READ: Finance Act 2020: FG can borrow from unclaimed dividends and dormant account balances

MSME Survival Fund

In a bid to ameliorate the impact of COVID-19 on small businesses, the Federal Government of Nigeria launched the N75 Billion Survival Fund for Micro, Small and Medium Enterprises (MSME). The Fund which was touted as part of the economic sustainability Plan of the Federal government is meant to support small businesses to meet basic operational needs and provide funding in order to boost the production capacity of MSMEs in Nigeria.

The AfCFTA

The aforementioned reforms and policy interventions provide the needed environment for small businesses in Nigeria and the coming of the AfCFTA could not have been at a better time. The critical question remains, how SMEs can leverage the opportunities provided under the AfCFTA to scale up their operations. SMEs are often considered the economic backbones particularly in developing countries as they account as major contributors to the GDP and in the area of job creation. Nigeria has a vibrant SME ecosystem. Out of the 95 Million SMEs in Africa, over 45 Million of them are in Nigeria. Thus, on the continent Nigeria plays a huge role, accounting for close to 50% of SMEs. In terms of economic impact, SMEs contribute 48% of national GDP in Nigeria, make up the 96% of businesses and contribute 84% of employment. Despite the contribution to the economy, SMEs in Nigeria in particular, have continued to grapple with the challenges of high cost of capital and lack of access to funding as well the inability to compete globally. Due to the largely informal nature of SMEs in Nigeria, obtaining data for the purpose of planning has also been difficult. On this, the role of Small & Media Enterprises Development Agency of Nigeria (SMEDAN) in amongst other things, formalization of SMEs in Nigeria should be encouraged.

READ: FHC faults FIRS using banks as collection agents unduly 

One of the objectives of AfCFTA is providing free movement of goods and services on the continent and it is expected that the new trade bloc will afford SMEs the opportunities to scale up and lead to value chain aggregation across Africa. In addition to the limitations identified above, poor infrastructure, multiplicity of regulations and taxes and lack of skills in international trade equally militate against the growth of SMEs. To make matters worse, most SMEs often fail to appreciate the role of professional advisors such as lawyers in the formative stage of their business. The role of trusted professional advisors in navigating the regulatory bottlenecks should not be a trade-off for cost-saving measures as the value of these technical and professional services to SMEs cannot be over-emphasized.

SSKOHN

READ: 5 Things to know about account opening for your SME business

To increase global competitiveness of the SMEs, harmonization of business rules and regulations across Africa is required. Governments in the member States should invest heavily not only in physical infrastructures but in digital technology as most SMEs particularly those in service sector rely on internet and digital platforms to drive their operations. For instance, the expected gains under the CAMA, 2020 have not been fully actualized as recent experience has shown that SMEs still face challenges accessing and using the Corporate Affairs Commission’s online platform because of slow and poor services. Related to this is the need for patient capital to encourage start-ups in order to drive innovations amongst the teaming youths.

Lastly, given that the dispute settlement mechanism under the AfCFTA provides no remedy for private sector players, the various Arbitration and Mediation centres across Africa should design a small scale and cost-effective dispute settlement mechanism that will cater to the needs of the SMEs as disputes are bound to arise in the course of business interactions.

Stanbic 728 x 90
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Prince is a lawyer at Paul Usoro & Co and leads one of the Commercial Dispute Resolution & Litigation Teams of the Firm. As an international trade lawyer, he has advised and represented both local and international clients and organizations on a wide range of issues involving cross-border trades disputes, maritime and international arbitration.Prince recently worked with the Nigerian Bar Association (NBA) AfCFTA Committee charged with the responsibility of coordinating the NBA inputs on the AfCFTA Phase I Negotiations in 5 priority service sectors particularly as it relates to legal services. The Committee interfaced with the Nigerian Office for Trade Negotiations and AfCFTA National Action Committee in discussing the Schedule of Specific Commitments on Trade in Services.Prince has also written several articles including on the AfCFTA.

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Columnists

CIFI: Despite CBN funds, can the creative industry thrive in this environment?

The Nigerian technology ecosystem is at its nascent stage, and beyond money, there is the need to ensure an enabling environment for operators.

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Despite a frail 2020 for the Nigerian economy, there was a bit of silver lining. The Nigerian Information, Communication, and Technology (ICT) sector emerged as the leading segment of the economy aiding the country’s exit from recession by a whisker in Q4 2020.

The development, in effect, justifies to some extent, the earlier decision of the Central Bank of Nigeria (CBN) to create the Creative Industry Financing Initiative (CIFI) to support businesses in the following areas:

  • Fashion
  • Information Technology
  • Movie Production and Distribution
  • Music

The CBN began to contemplate the idea of the CIFI following the influx of private investment into the technology space in 2019. For instance, according to the African Tech Start-ups Funding report for 2019, Nigeria got foreign exchange inflows totalling US$137.9m in the period.

This continued into 2020, considering that despite the pandemic, the sector still attracted an additional US$122m in seed funding. Furthermore, the sector contributed 13.12% of the total real Gross Domestic Product (GDP) of Nigeria which came to N19.53tn as of Q4 2020.

Evaluating the progress made so far with the CIFI, as of Q3 2020, the CBN had reportedly disbursed c. N3.12bn in intervention to 320 beneficiaries. While there are concerns around the tenor of the loan for Software Engineers and accessibility of funds to other technological entrepreneurs, we laud the CIFI and encourage relevant agencies to do more.

The Nigerian technology ecosystem is at its nascent stage, and beyond money, there is the need to ensure an enabling environment for operators. For instance, the recent BVN concerns that rocked the financial technology space and the regulatory uncertainty which is a key risk for telecommunication operators among other concerns, are issues that should be decisively dealt with.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange

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Book of States 2020: Vast resources, low industrial development

State governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending. 

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Oil Price Crash: Governors to meet on budgetary and economic issues, Insecurity: Governors to meet on Wednesday over rising insecurity
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The Nigerian Investment Promotion Commission (NIPC) in a recent report titled “Book of States 2020” highlighted the investment prospects of the 36 states of the federation including the Federal Capital Territory (FCT) to steer attention to the subnational investment opportunities in Nigeria. We note that the report is an outcome of a partnership between the commission and the Nigeria Governors’ Forum (NGF) to showcase the key investment opportunities for each state.

The report focused on the key areas of physical capital (airports, railway stations and seaports), resources (natural and minerals) and demography (population and labour force) of each state including their Internally Generated Revenues (IGRs), budget spending and household consumption.

While we acknowledge the decrepit infrastructure as a major hindrance to the growth of businesses and economic prosperity of many states, we note the little emphasis placed by the states on financing capital projects to attract private sector investments. Over the years, state governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending.

The truth is that as long as state governments do not make desperate efforts to develop their internal revenue-generating capacity, the states in the country would continue to operate an inefficient rent collection system where they rely solely on FAAC allocation to meet basic needs such as paying workers’ salaries.

In our view, we believe the efforts to revive the ailing status of many states depend on the effectiveness and soundness of policies made to propel investments. Currently, Nigeria has enormous potentials to improve tourism given its ample amount of resources to attract both local and international tourists. Many countries in the continent such as South Africa, Kenya and Morocco have made great fortunes from tourism.

Over 50% of the states have recorded no foreign direct investments over time due to little or no requisite infrastructure needed to attract capital inflows amid untapped resources in these affected regions. Also, we believe the Federal Government needs to relax its control on some of the state-owned resources to enable the states better exploit these resources.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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