SMEs count cost of naira devaluation at BusinessDay forum

On a day the the Federal Government launched a N39.6 billion Nigerian Business Development Services (NBDS) network for effective and productive performance of Micro, Small and Medium Enterprises in Nigeria (MSMEs) experts who met at the 8th annual BusinessDay SME Forum in Lagos yesterday, spoke of the high cost of currency devaluation to small and medium scale enterprises across the country.

The N39.6 billion ($200m) project is a network of private sector business development service providers that will work with MSMEs across the country to mentor them, provide support services and link them up with financial institutions.

Olusegun Aganga, the Minister of Industry, Trade and Investment (MITI) said that the new initiative marked another milestone in the current administration’s determination to reposition the MSME sector as the major driver of inclusive and sustainable economic growth in Nigeria.

The experts at the BusinessDay forum who assesed the impact of naira devaluation on businesses, said they needed to develop value chain strategies to mitigate the currency devaluation risk and boost productivity.

Ikechukwu Kelikume, faculty member at the Lagos Business School (LBS), delivered the keynote presentation at the event, explaining that the “cost of doing business is now very high for SMEs, especially companies that are heavily exposed to dollar denominated debt.”

Bayo Ogunnusi, a panellist at the Forum and Group Head SMEs at Heritage Bank, said the negative impact of the naira devaluation reflected in a number of SMEs defaulting this year and banks have had to extend loan tenors and restructure terms of payment to support the defaulters.

Kelikume, noted that the impact of naira devaluation on SMEs is compounded by the fact that products are “usually not competitive in the international market. Production base is still largely at the unfinished goods state.

“We have not been able to transform what we produce into what can be sold in dollars, our products are not competitive in the international market.” Kelikume argued.

Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), said the “exchange rate has a way of compelling companies to adjust, to look inwards, and rely less on what is imported.

“There is a huge transmission effect.” Yusuf emphasised during the interactive panel session, as he warned business operators to reduce their exposure to dollar denominated sources of funding.

Addressing the high cost of borrowing for SMEs, Ogunnusi explained that cost of deposited funds added on the monetary policy rate among other ‘menu costs’ would keep lending rates high.

However, the government has created sectoral funds in agriculture, real sector, and so on, which are available to eligible SMEs at single digit interest rates.

Wale Ogunsola of Nextzon Business Services and Brian David-West of Value Fronteira urged SMEs to cope with the present “short term” conditions by exploring local substitutes to imported goods, leveraging on economies of scale through SME clusters and pushing more Nigerian products out of our shores.

Earlier in his welcome address, Frank Aigbogun, Publisher and CEO, BusinessDay, urged SMEs as the drivers of their own businesses to hold their destinies in their hands.

“The capacity of government to shield your business is limited. Regardless of the difficult situation, there would always be winners and losers.We must aim to be winners.” Aigbogun said.

In Abuja, Aganga said the launch of the project marked another milestone in the development of the MSME sector in the country, adding that in the course of this administration, “we have championed the course of MSMEs and made them the centre of economic policy, treated them as a distinct sector and developed policies and programmes to enable them grow and contribute significantly to GDP growth.

Aganga noted that in the latest survey on MSMEs, it emerged that access to funding was the biggest challenge for MSMEs in the country, pointing out that approximately 84.6 per cent of small businesses in Nigeria had to resort to personal savings and borrowing from friends and families.

He said, in addition to helping MSMEs to formalise their operations, the NBDS would serve as indirect collateral for small business operators.

“One of the reasons formal financial institutions gave for not lending to this critical sector is the informal nature of their operations, their poor record keeping and their lack of collateral in support of loans. These are the issues to be addressed by business development service providers.

“They will help the small businesses with their accounting records, and with formalisation of their operations. In addition, they will serve as some form of indirect collateral, because financial institutions will be more comfortable lending to small businesses when they know that they are being guided by professional businesses development service providers,”he said.