EMPOWERING THE PRIVATE SECTOR
At the Launching of the Small and Medium Industries Equity Investment Scheme
of the Bankers Committee
Abuja, 21 August, 2001
It gives me great pleasure to be involved in the formal launching of the Small and Medium Industries Equity Investment Scheme, an initiative of the Bankers' Committee, which is geared towards sustainable development of the small and medium industries sub-sector in Nigeria. This event is indeed a major milestone in the collective desire of all the major stakeholders in the Nigerian economy, to revitalize and reactivate the industrial and agricultural sectors of the economy, so as to achieve high and sustainable output and employment growth.
This scheme represents one of the first major responses of the organized private sector to a cardinal economic objective of the present Administration, the centrepiece of which is the repositioning and empowering of the private sector to become the prime engine of growth and development.
While it is important to see that the Scheme takes off, it is equally necessary to ensure its long-term sustainability, if the scheme is to achieve the desired objectives. It is the outcome of this important aspect that we have all come here today to celebrate and, I am indeed proud to be associated with the event.
Distinguished ladies and gentlemen, let me underscore why this Administration has decided to pay greater emphasis on the development of the SME’s. The promotion of SME’s has potential long-term benefits in several areas in the economic recovery efforts:
► First, given that large-scale industrial enterprises have limited scope for expanding employment, a viable SMEs sub-sector has great potential for job creation, as was experienced in some South East Asian countries. Thus, a scheme that will enhance the performance of our SMEs will go a long way in tackling the present high level of unemployment amongst our youths.
► Second, a vibrant SMEs sub-sector would facilitate the active use of our abundant local raw materials, as most of them are likely to be engaged in the processing of local inputs into either intermediate or final products.
► Third, focusing on SMEs would bring about increased entrepreneurship and innovation, as most of them have successfully adapted imported machinery for local usage, thus positioning themselves as veritable tools for promoting technical know-how and developing indigenous entrepreneurship.
► Fourth, because the SMEs are mostly resource-based and, therefore, well-dispersed throughout the country, they could facilitate the opening up of the rural areas and mitigate rural-urban drift through wealth creation effects, which will result in improvement in per capita income and higher standards of living as well as poverty reduction.
► Fifth, a viable and vibrant SMEs sub-sector is capable of boosting economic growth, and enhancing investor's confidence while strengthening social, economic and political stability, and eventually lead to increased government revenue over the medium- to long-term.
I recall that it was at my Saturday Forum with the banking community exactly a year ago where an understanding was reached on how best to assist in revitalising and reactivating agriculture and the small and medium-scale enterprises sub-sector of the economy by the direct involvement of the banks. That the pledge commitment made by them a year ago, to set aside ten per cent of their profits before tax is being redeemed today, greatly encourages me to continue believing that we are on the right track to finding a lasting solution to the intractable problem of providing adequate funding for these vital sub-sectors of the economy, for sustained economic growth.
I have been informed that 33 banks whose financial year have ended, had set aside the sum of over Four Billion Naira (4.151) as at 31 July, 2001, for equity participation in enterprises under the Small and Medium Industries Equity Investment Scheme.
Distinguished ladies and gentlemen, I am aware that several financial support programmes had been undertaken in the past, and specialized institutions had been established to promote small and medium scale enterprises. Notable among these were:
► the Small Scale Industries Credit Guarantee Scheme, which was established in 1971, as a matching grant arrangement between the federal and state governments;
► the Nigerian Bank for Commerce and Industry (NBCI) established in 1973;
► the National Economic Reconstruction Fund (NERFUND) established in 1989;
► the World Bank SME II Loan Scheme of 1990;
► the directed credit programme of the CBN under the erstwhile credit guideline system;
► the second-tier window on the floor of the Nigeria Stock Exchange, designed to accommodate small enterprises that cannot satisfy the listing requirements of the main window; and
► the numerous fiscal incentives in the form of tax relief, pioneer status and periodic downward adjustment of tariffs specifically targeted at the SMEs to reduce production cost, amongst others.
The impact of these numerous programmes and incentives on the development and performance of the SMEs over the years, has been less than satisfactory. Hence, sceptics may question the rationale for additional assistance to the sub-sector. However, to those skeptics I say: before we throw away the bath water with the baby, we should endeavour to find out why these programmes and incentives failed to impact positively on the development of the SMEs. Available evidence suggests that, the nature of these incentives and the haphazard manner of their administration coupled with official interference in the disbursement of funds meant for the SMEs, contributed largely to the failure of past initiatives to deliver the expected results.
The scheme being launched today is unique because it is private sector driven, borne out of our experience that the previous schemes, which were packaged and implemented by the government proved to be unsustainable. This new scheme has been conceived in such a manner that it goes beyond the banks providing the necessary funds and then folding their arms. It calls for the active participation of the banks in the setting-up, nurturing and development of the SMEs, which will require them to bring in their expertise to the businesses to ensure that they are run efficiently and profitably. These expectations from the banks have further been reinforced by the recent adoption of the universal banking framework, where experience of those countries that adopted this framework has shown that direct bank involvement in the ownership and running of industries, provided the impetus that stimulated economic growth and development in those countries, particularly after the Second World War. Here the three essentials of a viable enterprise will be provided, namely, money,
management, and technology.
Furthermore, I wish to put on record that it is in appreciation of the sacrifice that the banks and their numerous shareholders are willing to make, in terms of foregone profits, that the government has agreed to give some generous incentives to the banks, in the form of tax concessions.
Although inadequate financing is considered to be a major constraint facing SMEs in Nigeria, the issue of inadequate infrastructure remains a critical factor, affecting the performance of SMEs generally. In due consideration of this important factor, our Administration is focusing not only rehabilitating key infrastructural facilities like power and energy, but also initiating new projects to improve on the supply of water throughout the country. I believe you must have noticed some improvements in electricity supply in the last few weeks. We are warming up to December by the Grace of God. There is no going back on this target and all hands are on deck to bring this commitment to fruition.
In addition to the issue of infrastructure which the present Administration is tackling, the Federal Executive Council approved the establishment of Small and Medium Enterprise Development Agency (SMEDA), as part of its commitment to develop and enhance the performance of the small and medium industries. I am aware that since the establishment of SMEDA was announced in February 2000, the Agency has been hailed nationwide, as one of the landmark decisions of this Administration, and indeed, has been seen as a demonstration, in concrete terms, of the resolve of the present government to give priority attention to the promotion of the SMEs.
The SMEDA Bill is currently before the National Assembly, and I am optimistic it will be passed before the end of the year, so that the Agency can pursue the objectives for which it was set up, in earnest. Furthermore, a number of the development finance institutions (DFIs) have been merged, as part of efforts to streamline their operations, recapitalise them for effective performance, and avoid duplication of functions as well as unnecessary dispersal of scarce resources. The merging has given rise to the establishment of a bank for industry, which will be dedicated to providing soft loans for industrial research and development.
Distinguished ladies and gentlemen, I note with satisfaction that this scheme is a well-thought out one, and that it is the product of a comprehensive research by experts in the banking industry. Let me reiterate that a combination of the facilities of the SMIEIS with that of the new Bank for Industry, which will soon become operational, will go a long way in addressing the perennial problems of funds mismatch, high cost of funds, lack of collateral security, amongst others, which are associated with the previous schemes.
I enjoin the banks to sustain this scheme and ensure that it succeeds at all cost, for it is only when the real sector of the economy is performing as expected, that the business of banking can thrive and, indeed, it is in the banks' interest to ensure that the objectives for which the scheme has been designed are fully realised. It is my sincere hope that the stakeholders in this enterprise will seize this wonderful opportunity to cooperate with the present administration in its effort to resuscitate the comatose industrial sector in particular, and the economy in general.
I thank you. And may God bless you all.