THE MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) SECTOR General Background Nigeria presents a paradox- poverty in the

e midst of plenty. Since the beginning of the 1980s the Nigerian economy has been wading through the muddy waters of economic imbalance, financial dislocation, cultural infiltration and political instability. This is the direct result of years of inbuilt distortions in macro economic variables and indices. With the discovery of crude oil in commercial quantity in the early 1970s, developmental emphasis shifted from agricultural production, resulting to the total alienation and neglect of the micro, small and medium enterprises as the stimulus for development and the doors of production and entrepreneurship. The huge demand for oil in the world market provided enormous foreign exchange which supported the industrial policy of that era. Industries grew to depend on external inputs in the manufacturing process. The consumption pattern followed suit and Nigerians imported virtually everything required for their daily living. Efforts were not made to properly invest the petro-dollars in self-sustaining and inward looking industries and the development of micro, small and medium enterprises. Rather, the huge foreign exchange earnings were monetized and recycled in pursuit of flamboyant and profligate consumption taste.

The period described above also saw the public sector as the dominant actor in the economic scene. The government grew to be the greatest spender, investor and employer in the economic management of the country. For one thing, no government anywhere in the world has ever been known to be good investors and economic manager, but rather excel in the provision of social infrastructural facilities and acting as catalyst to private initiatives. Because of these inherent in government economic management, a lot of weaknesses and distortions developed in the economy. The rural areas were left unattended to and totally marginalized, subsidies were given in the prices of goods and services. Prices and wages were controlled. Government investments realized zero or negative returns. Inefficiencies built up, corruption and nepotism developed. The economy became highly regulated as financial rates in the economy were centrally regulated. The exchange rate was determined by administrative fiat . The business environment was very hostile and not competitive for innovation required for the growth and development of micro, small and medium enterprises. The promotion and development of micro, small and medium enterprise sector is crucial to Nigeria socio-economic re-engineering. The centre piece of modern economic transformation revolve around the sector. They constitute a viable economic segment with tremendous growth potential due largely to their ability to generate employment, create wealth, and consequently reduce poverty. Hence they play a crucial role as a safety net for the bulk of the population as well as breeding ground for nurturing local entrepreneurial capabilities, technical skills, technological innovativeness and managerial competence. In Nigeria, the MSME sector is structured across other key sectors, including manufacturing, agriculture, solid minerals, etc. and thus has strong linkages with the entire range of economic activities in the country. The MSME sector is, therefore, strategically positioned to generate employment, create wealth, reduce the prevalence of poverty and sustain economic growth and development. It can absorb up to 85% of jobs, improve per capita income, increase value addition to raw materials supply, improve export earnings and step up capacity utilization in key industries. It
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is also capable of diversifying the economy from a mono-based one (overly dependent on oil) to being broad- based and stable. MSMEs constitute over 90.0% of all business enterprises and cover the entire range of economic activities in the country. The dearth of managerial skill and other constraints hardly make MSMEs in Nigeria profitable. This removes them from being involved in the issues that positively drive the economy. In view of the preponderance of MSMEs in the informal sector of the Nigerian economy, it has been difficult to quantify their contributions to the GDP. When MSMEs in four countries -US, UK, Hong Kong and India and their MSMEs strategies benchmarked against those of Nigerian MSMEs, the rapidly growing state of their MSME sectors contrasted sharply with that of Nigeria. OVERVIEW OF THE MSMEs SECTOR IN NIGERIA The MSMEs sector comprises micro, small and medium enterprises which are distinguished as a group separate from large organizations. Majority of MSMEs businesses in Nigeria are family-owned, have a low capital base, are located in urban and semi-urban areas and largely reside in the informal sector. The informal sector in Nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulations. As in developed economies, Nigeria with the introduction of the National Policy on MSMEs has addressed the issue of definition as to what constitutes micro, small and medium enterprises. This classification, also adopted by SMEDAN, defines the size category, number of employees and asset holdings as follows:
S/N 1 2 3 Size Category Micro enterprises Small enterprises Medium enterprises Employment Less than 10 10 to 49 50 to 199 Assets (=N= Million) (excl. land and buildings) Less than 5 5 to less than 50 50 to less than 500 *Estimated Number (% of MSMEs) -2004 6.7 million (80%) 1.3 million (15%) 420,000 (5%)

Table 1.1: Structure of SME Sub-Sector

Source: National Policy on MSMEs, *Chemonics International Inc. 2005

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The three categories of enterprises, as defined in table 1.1, play different roles in the economy and are influenced by the characteristics of operators and the strictness of entry requirements. The government will need to institute the right kind of programmes and policies aimed at bringing a reasonable percentage of the large number of informal micro enterprises into the formal sector and facilitate the transition of micro and small enterprises to medium and large scale enterprises respectively. The concept of MSMEs cuts across real / productive and service-related sectors of the economy. The informal sector refers to the part of the economy that does not fall under the purview of organized economic activities. They are outside the regulation of government. This paper has infused the informal sector into the MSME sector. Hence while discussing the MSME sector, the informal sector is been discussed. Due to this broad coverage, MSMEs are typically linked to more than one business or sector of the economy. The distribution of MSMEs across the different sectors of the economy as defined in the FS Plan for MSMEs is as follows:
S/N 1 Sector Real Sector Enterprise Agriculture Agro-Allied Products and Activities Lumbering, farming of cassava, cereals, tubers, cocoa, rubber, groundnuts, etc. Primary agricultural processing of raw agricultural produce such as oil palm, cocoa, groundnut, cassava, fruits, rice, etc. Food and beverage; metal, iron & steel; paper, printing & publishing; chemicals, paints, pharmaceuticals & plastics; textiles, garments & leather; wood, furniture & paper; automobile components and assembly; tanning; fabricators; foundry, etc. Building, structures, roads, etc.

Manufacturing

Building and Construction r Solid Minerals 2 Service-Related Sector Information Technology and Communications

Artisanal mining, small and medium scale mining, quarrying etc. Software development, hardware assembly, computer supply and maintenance companies, internet service providers, communication accessories companies, etc.

Educational

Schools, colleges, continuing education centres,

Establishments Tourism and Leisure Transportation Trade and Commerce Other Services

training centres, vocational skills centres, etc. Hotels, resorts, entertainment, restaurants, recreational services, arts, etc. Road transport, water transport, logistics, haulage, storage and warehousing etc. Wholesale and retail, supermarkets, shops, import and/or export etc. Consulting, law, healthcare, financial services, real estate etc.

Table 1.2 Distribution of MSMEs across Sectors In addition to the many challenges being faced by MSMEs in the country, they lack well-developed and well-managed funding systems strategically designed and targeted to meet their specific needs. Accordingly, their contributions to the growth and development of the country had been minimal. This is vividly shown in Table 1 below where the contribution of the MSMEs sector to the GDP, export earnings, and employment in Nigeria are compared with those of selected countries to emphasize the poor performance of the sector in the period under review.
Countries Employment Export Earnings Contribution to GDP

UK USA India Hong Kong Japan Nigeria

53 52 79 78 70 75

27 30 38 37 40 2

52 50 40 51 51 10

Table 1.3 Source: CBN SMI Surveys (2005) and SMEDEC of Malaysia From Table 1.3 above, it could be seen that the Nigerian MSMEs sector contributed just 2 percent and 10 percent to export earnings and GDP in 2006 respectively. The low export contribution is attributed to lack of
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skills/management capacity, poor product quality, low production capacity, poor access to international markets, and lack of working capital hence the sector has tended to serve the bottom end of the domestic market. Overall, while some progress has been made in respect of change in business registration procedures and micro finance, the problem of poor infrastructure (power, rail, road, water, etc.) remained a very serious challenge. THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY OF NIGERIAN (SMEDAN) In its continued search for a solution towards a vibrant and virile micro, small, and medium enterprises sector, and to entrench the sector into the main stream of the Nigerian economy. The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was established vide the Small and Medium Scale Industries Development Agency (Establishment) Act 2003 and charged with the responsibility of promoting and facilitating the development programmes in the micro, small and medium enterprises sector. The Act enacted by the National Assembly came into force on 19th June, 2003. The Agency is a one stop shop for nursing and nurturing micro, small, and medium enterprises in Nigeria. Consequently, the Small and Medium Development Agency of Nigeria (SMEDAN) has since inception been in the forefront of promoting and developing Micro, small and medium enterprises and entrepreneurs. The enterprises and

entrepreneurs have continued to manage and grow their businesses. Through mind-blowing innovative concepts, they continue to stretch the frontiers and landscapes of their individuals enterprises, and accordingly, they are capturing a bigger slice of their target markets and establishing themselves as points of
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reference in this sub sector. SMEDAN as a child of necessity is now the voice of the MSMEs in Nigeria. Vision: To establish a structured and efficient micro, small and medium enterprises sector that will enhance sustainable economic development of Nigeria. Mission: To facilitate the access of micro, small and medium

entrepreneurs/investors to all resources required for development. Mandate- The mandate of SMEDAN as contained in the enabling Act can be summarized thus: I. Stimulating, Monitoring and Coordinating the development of the MSMEs Sector; II. Initiating and articulating policy ideas for small and medium enterprises growth and development; III. Promoting and facilitating development programmes, instruments and support services to accelerate the development and modernization of MSME operations; IV. Serving as vanguard for rural industrialization, poverty reduction, job creation and enhanced livelihoods; V. Linking MSMEs to internal and external sources of finance, appropriate technology, technical skills as well as to large enterprises; VI. Promoting and Providing access to industrial infrastructure such as layouts, industrial parks, etc; VII. Intermediating between MSMEs and Government;
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VIII. Working in contact with other institutions in both public and private sector to create a good enabling environment of business in general and MSME activities in particular. SMEDAN Intervention Strategy Conscious of our mandate and the strategic position we occupy in fostering a viable and vibrant MSMEs in Nigeria. The Agencys intervention strategy centres on the following areas: I. II. Sourcing , Processing and Disseminating Business Information to MSMEs Policy Development

Formulate and ensure due approval and implementation of an MSMEs policy for Nigeria, conduct impact assessment studies and use same to recommend improvements in policy intervention and conduct regular stakeholders fora. III. Establishment of Business Support Centres and Business Information Centres (BSCs and BICs) in collaboration with State and Local Governments. IV. V. Capacity Building and Promotional Services for MSMEs Facilitating the establishment of Industrial Parks through public-private partnership. VI. Enhance MSMEs Access to Finance and liaise with other institutions for the establishment and operation of MSMEs Credit Guarantee Scheme. VII. Collaborating with Trade Groups, Business Membership Organisations, NGOs, Government Ministries and Agencies, Research institutions,

Multilateral/Donor Agencies, etc to create a dynamic network of stakeholders in the development of MSMEs sector;
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VIII.

Collaborating with Networking and Counseling MSMEs to ensure sustainability

IX.

The National Policy on Micro, Small and Medium Enterprises

We have recently emerged with a policy geared towards the development of MSMEs in Nigeria in a structured and efficient manner. The implementation is being awaited. X. Entrepreneurship Development Training Programmes to enhance the capacity of existing and potential entrepreneurs/business persons; XI. Organising Seminars, Conferences and Workshops to sensitize the public towards being their own bosses as well as deepening and broadening entrepreneurship and business management; XII. Organising MSMEs trade fairs and exhibitions to create markets.

MSMEs BENCHMARKING ASSESSMENT In assessing where Nigeria is today vis--vis other countries worldwide the greater concern is given to the developed and emerging economies since they are the nations Nigeria will have to catch up with if she is to become one of the leading 20 economies by 2020. Enterprise Creation and Employment Generation: Nigerias definition of MSMEs compares with the EU single definition. Based on this we can easily assess where we are in this regard with relevant countries as follows:

UK No of SMEs (%) 99.6

Belgium 99.8

Ireland 99.5

Nigeria* 87

No of Persons Employed (%) Value Added

54.0 51.6

66.6 57.4

66.5 55.6

10 NA

Table 1.4 Enterprise creation and employment generation benchmark comparison Index

Source: European Commission Enterprise and *Industry SBA fact sheet. With such high number of MSMEs and share in total employment, it is obvious that SMEs in Europe form the backbone of the economy. On the whole, MSMEs in Europe are more internationalized and have easier access to finance, public procurement and public aid. Nigeria needs to boost the creation of MSMEs by at least 10 percent to reach the level of value added by MSMEs in developed economies. GDP Contribution and Export Earnings: A 2006 CBN publication shows the contribution of MSMEs in some advanced and emerging countries and Nigeria with respect to contribution to GDP and export earnings are as follows:
US GDP contribution (%) 50 Export earnings (%) 28 UK 50 25 India 36 35 Hong Kong 52 30 Japan 50 35 Nigeria 10 2

Table 1.5 GDP contribution and export earnings benchmark comparison 2006 Data

Source: SMEDAN 2006 Nigerias MSME sector grossly underperforms in contribution to GDP when compared to other countries. Ariyo (1999) suggests that the difference lies in the importance ascribed to the sector, pointing out that while the sector not only forms the bedrock of the UK economy, there is also an age-long, generally acceptability that it is the hub of economic activities in the country. However, in Nigeria, the issue of the MSMEs sector and its development has been handled with levity by previous governments. The Nigerian MSME sector contributes just 2 percent to export earnings. The low export contribution is attributed to lack of skills/management
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capacity, poor product quality, low production capacity, poor access to international markets, and lack of working capital hence the sector has tended to serve the bottom end of the domestic market.

Global Competitiveness The World Economic Forum defines competitiveness as the set of institutions, policies and factors that determine the level of productivity in a country. Nigeria and 133 other countries are assessed and ranked based on twelve pillars or indices of competitiveness including: Government institutions; Infrastructure; Macroeconomic stability; Health and primary education; Higher education and training; Goods market efficiency; Labour market efficiency; Technological readiness; Market size; Business sophistication; and Innovation. The ranking of Nigeria and other economies, in select global competitiveness indices highly relevant to SMEs, is depicted in the table below: Global competitiveness benchmark comparison
United States (Rank/134) United Kingdom (Rank/134) India (Rank/134) 29 7 25 18 53 72 China (Rank/134) 56 47 Nigeria (Rank/134) 106 120

Competitiveness Index Government Institutions Quality of Overall Infrastructure Health and Primary Education Goods Market Efficiency Technological Readiness Innovation Financial Market Sophistication

34

19

100

50

126

8 11 1 9

19 8 17 5

47 69 32 34

51 77 28 109

56 94 65 54

Table 1.6 - Competitiveness Ranking of 134 Countries

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Source: World Economic Forum Global Competitiveness Report 2008 2009 When Nigeria is compared to other MSME driven economies based on the selected indices, it is inferred that the following factors have contributed to the poor performance of Nigerias SMEs sector: Institutional framework: The UK, ranked 25 in this category, has a superior institutional framework in place and Government has made vast efforts towards the development of MSMEs. In Nigeria, on the other hand, institutional framework and government support are both major drawbacks to the development of MSMEs. This includes the legal framework which encompasses business registration, protection of land and property rights, access to construction permits and tax issues. th Quality of overall infrastructure: Nigeria is ranked 120 while the United States with its high quality infrastructure is ranked 7 . Poor infrastructure is the biggest problem confronting MSMEs. Power supply is epileptic, road networks are poor, telecommunications facilities are costly and water supply is inadequate both in quality and quantity. It is estimated that infrastructural deficiencies contribute about 40 percent to the cost of doing business in Nigeria and this impacts on the competitiveness of MSME products and services. th Health and primary education: Nigerias poor ranking of 126 , in comparison to an emerging country, like China ranked 50 , is indicative of the low level of human capital development predominant in Nigeria. There is a large pool of untrained and unskilled manpower in the MSME sector and the educational system is not structured to satisfy the employment requirements of entrepreneurs. Goods market inefficiency: Another major drawback to MSME performance is trade across borders. Access to international markets is restricted and there is serious competition with cheaper, substandard imported goods. Technological readiness: Nigerian MSMEs rely more on traditional labour rather than on the use of modern technology. However the obsolete technologies implemented cannot meet the production challenges of today.
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th th th

 Innovation: Research and development efforts and investment are totally insufficient and there is little coordination between MSMEs, innovative centres and universities. The downloading of information is weak and valuable intellectual property remains unprotected. Come 2020, for Nigerian MSMEs to maintain a competitive edge over countries like China and India, ranked 28 and 32 respectively, they must start designing and developing cutting-edge products and processes. Financial market sophistication: As stated in the WEF global competitiveness report; Business investment is critical to productivity. Therefore economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, wellregulated securities exchanges, venture capital, and other financial products. In developed countries like the US ranked 9 , and the UK th ranked 5 , the financial sector has placed adequate emphasis on supporting and promoting MSMEs. . Nigerias respectable ranking of 54 in financial market sophistication shows that although funding is a constricting factor other issues of infrastructural inadequacy, inadequate legal framework, poor quality of education and technology are more urgent. Notwithstanding, funding and financial services for Nigerias MSMEs are inadequate. Most entrepreneurs resort to utilizing unpredictable and insecure sources of capital such as personal earnings and loans from family, friends and informal loan associations. Those MSMEs able to source funds from the banking sector are faced with high interest rates, complex application and approval procedures and provisos of high value collateral. MSMEs BEST PRACTICE ASSESSMENT MSME international best practice is itself dynamic however those best practices presented here, stress the fact that higher levels of investment in human and physical capital through MSMEs will result in higher rates of growth in per capita income. Other factors that will bring about growth are economic organization, innovation and absorption of technology.
th th th nd

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China In China, MSMEs account for 60% of industrial output, 55% of its GDP and 75% of employment. The most remarkable aspect of China's small and medium enterprises is their rapid growth despite their inability to tap the official financial system. Two factors predispose even faster development in the near term. One is their suitability for the post-WTO accession economy. MSMEs in China will continue to thrive as more responsive partners of foreign companies than large state firms. They will also have the opportunity to move into market segments once dominated by state firms. The other factor is that the policy environment for MSMEs appears to be improving steadily. The MSME Promotion Law will help, especially if it leads to better access to bank lending, as would improvement, in and expansion of the credit guarantee system. An important indicator to will be whether the 16th Party Congress builds on the progress made at the previous two Congresses in fostering an ideological framework conducive to MSMEs. An MSME promotion law has been instituted codifying the official definition of SMEs and clarifying what support government will be making available to them and in the 1990s the Government created a network of credit guarantee agencies for MSMEs which ensures loan repayment to banks and assisting them in relaxing their financial constraints. India In laying a solid base for industrial development, the Government of India directed a reasonable part of policy on the development of small scale industries. It provided the small scale industries necessary policy support, needed protection, facilities and incentives. As early as the 1950s and 1960s, through the Industrial Policy Resolutions, the government provided support for small scale industries on a protective basis by providing subsidies, concessions, small scale industry reservations and direct government support. With the changes that took place since 1991 when the Government of India announced the Small Scale Industries (SSI) Policy Statement, a great deal
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of entrepreneurial spirit has emerged, which is being nurtured for future growth. Many of the older restrictions on business ownership have been removed and fewer clearances are now required for foreign partnership and direct investment. The Indian Government has supported MSMEs in the following areas: The setting up set up a host of institutions and organizations to nurture the growth and development of MSMEs Creation of supportive market conditions in the domestic market. Development of exports capability of small scale industries and export of their products. Procurement, supply and distribution of indigenous and imported raw materials. Development of prototype machines, equipments and tools, which are then passed on for commercial production. Supply of both indigenous and imported machines on easy hire purchase terms and special concessions. Supply of indigenous and imported machines on lease basis to existing units for expansion, diversification and modernization. Capacity development of entrepreneurs and training in several technical grades. United Kingdom The UK has a well developed MSME sector -99.9% of businesses are SMEs providing 54.1% of employment and contributing over 50% of the countrys annual GDP. There are 3.7 million MSMEs in the UK, that is, one enterprise for every ten people of working age. From 1983 to 1988, the British Government administered a credit guarantee scheme of 750 million pounds in business expansion and tax relief to entrepreneurs in quoted companies; and effectively linked MSMES with appropriate technologies and educational institutions. 19,000 MSMES benefited from the program.
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South Korea The Korean government initially placed the burden of industrial development on the giant industries, but over time the government realized the importance of a dynamic, flexible and efficient MSME sector that can provide specialized subcontracting services to the large firms. Laws were passed to promote MSMEs, leading to a perceptible rise in their share of economic activity. The system of policy support was crucial to the reversal in their performance. The policy options covered the setting up of specialized banks to finance MSMEs and the promotion of subcontracting by large-scale industries: Taiwan There are about 700 thousand MSMEs in Taiwan, accounting for 70% of employment, 55% of GDP and 62% of total manufactured exports. The industrial structure is dominated by MSMEs and programs to promote subcontracting have been of special significance of the country's industrial development. In 1982, the government set up the Medium and Small Business Administration to coordinate the efforts of several support agencies that provided financial, management, accounting, technological and marketing assistance to the MSMEs. The Taiwan Medium Business Bank, the Bank of Taiwan, the Small and Medium Business Credit Guarantee Fund, and the Small Business Integrated Assistance Centre also provide targeted financial assistance to MSMEs. In Taiwan, a large number of small and medium sized enterprises specialize in a variety of skilled intensive and flexible operations aimed at world markets but most are too small to conduct their own research and development. The government helped them with a range of technological support measures: One of the most important has been to transfer to MSMEs, production-ready technology that the government has imported and adapted. There is development in the use of MSMEs to implement local content measures, but more effective have been measures to raise
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the efficiency of local firms through programs of technical assistance and quality enhancement. A number of institutions were set up to provide credit, technology and marketing assistance. The China Productivity Centre is the best known for its efforts to promote automation in industry to cope with rising wages and increasing needs for precision and quality. CHALLENGES FACING MSMEs Though MSMEs are necessary for the economic development and growth in Nigeria, certain peculiar challenges continued to militate against their optimal performance. Some of these challenges are internal while some are external. Among the internal ones are: Poor entrepreneurial capacity of operators in successfully running MSMEs. Aversion to joint ownership is a major setback in achieving the desired relevance of MSME operations. Family ties/interferences are major constraints in running personnel recruitment/placements, discipline, etc. Weak financial management. Non-recruitment of qualitative staff as a result of keeping running cost low usually affects the quality of output from such organizations. Poor record keeping especially accounting books makes evaluation either by the business owner or potential investors difficult. Lack of standardization of products has the capacity of reducing market share with negative impact on funding. Low capacity to invest in R&D have not allowed for new, cheaper and better methods of production.
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Low use of ICT in operations has a direct effect on cost of production thereby making MSMEs unattractive.

Among the external challenges are: Poor state of infrastructure: MSMEs need steady power supply, water, roads, markets, etc for effectiveness. Poor access to appropriate and affordable workspace. Inability to access useable finance: Access to finance is a major challenge hindering MSMEs growth. Most financial institutions tend to address the financial needs of large enterprises leaving MSMEs unattended to. Low synergy between various tiers of government: The absence of synergy between the different tiers of government has not allowed the growth and development of the MSMEs sub-sector. Multiplicity of taxes: In an attempt to generate funds for their different levels of administration, governments at various levels have imposed all kinds of taxes/levies on MSMEs thereby hampering their survival. Inappropriate technology: The financial status of most MSMEs does not allow them to access appropriate technology. Dearth of business information/data bank: Most MSMEs operate with little or no business information or data. This does not allow them to make informed decisions necessary for optimal performance. Poor inter/intra sectoral linkages: The absence of linkages/cooperation between MSME operators and the large

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enterprises is a major problem affecting the growth of the subsector. Opportunities Despite the challenges and limitations, there are great opportunities in the MSMEs sub-sector in Nigeria: (1) Resource Endowments Since wealth is essentially value added to resources, our countrys enormous resource endowments clearly provide ample opportunities for entrepreneurship and wealth creation. Our farm lands, our large cities, our water ways and coastal geography, our mineral resources, our forests, our fauna and flora across the country provide boundless resources for conversion into higher value goods and services. Population People are the ultimate generators as well as beneficiaries of wealth. Markets in which exchange of value (trade) is transacted are created by the demand for goods and services consumed by people. Our large population therefore guarantees vast market opportunities for every kind of enterprise.

(2)

(3)

An Emerging Democratic Environment Sustainability and growth of entrepreneurship and enterprises requires sin qua non the existence of a supportive democratic environment. This is to ensure that a consistent action to increase wealth occurs in an atmosphere of peace, security and rule of law. Since investments are attracted to such investmentfriendly environments, it would also require the institutions and facilities that encourage a more concerted effort to create MSMEs and ultimately generate wealth. These will include effective and efficient infrastructure, regulations, ideas
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protection system and an effective judicial system that ensures expeditious and cost effective resolution of commercial disputes. (4) Deepening Supportive Economic Reforms On-going economic and institutional reforms aimed at private sector development provide an increasingly conducive environment and positive incentives for MSMEs especially in the form of reliable infrastructure, open competitive and level playing field, transparent and accountable institutions and a growing anti-corruption policy stance which promotes initiative, innovation and entrepreneurship. Improving Human Capital Given the continuing reforms of our educational sector and our large and young population, the availability of educated and skilled people is set to increase rapidly and ensure the sustained growth of the most critical resource for enterprise development and sustainable wealth creation. Technology The advent of technology has fast-tracked all systems involved in MSMEs development. Not only has it expanded the frontiers of economic possibilities, it has also enhanced access to several economic engagements by a larger number of the critical mass of society. Through technology, the entire world has been reduced to a virtual village and enabled businesses and interactions across borders that have opened up limitless market opportunities for even the smallest of enterprises. Emerging new ideas New innovative ideas for sustaining enterprise creation opportunities, especially by linking the opportunities to the financial mainstream are also emerging. New approaches could be programmed to affect the critical mass, as has been
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(5)

(6)

(7)

exemplified by the Grameen Bank innovation by Professor Mohammed Yunus. THE WAY FORWARD Moving Nigerias economy from its present level to one of the top 20 world economies by the year 2020 requires major changes involving operational institutional realignments and redefinitions of our national economic goals and objectives. The MSME sector must now join the rest of the economies in pooling resources in pursuit of best practice. In this regard, certain factors have been identified as critical for the MSMEs sector:S Innovation The MSME sector needs to put in place effective innovative schemes that can bring together small enterprises in various industries to exploit the immense national business opportunities. After all, the best ideas come from operators (MSME workers and managers) and clients. Information There is a huge amount of information available to small businesses which are often times wasted. MSMEs have little time to wade through the mass of available information that could be vital to their survival. MSMEs could come together and establish business links; a national network of one-stop shops designed to bring together the existing confetti of agencies and information. MSMEs could be encouraged to view business links as potential focal points. Availability of information on access to credit/loan, profitable market, appropriate technology and business support services will spur increase in the number of new business and guarantee the survival of existing ones.

Enterprise Creation and Competitiveness Increasing the number of new businesses (start-ups) annually for the next five years will ensure targets for nationwide employment generation and poverty alleviation are met. Sufficient information on new technology and
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innovations will ensure global competitiveness in terms of product quality and pricing. We must start early to address issues of quality and prices. The issues of both corporate governance and best practice must be on the MSMEs front burner as should be the need for information, communication technology. Funding To fuel MSME growth and development, stable and secure access to finance and credit facilities are required. Developed economies are still mobilizing credit for their MSMEs to be used for either business start-ups, expansion or simply for technological upgrades, innovations, and the sourcing of more profitable markets. The government can initiate grants for capital projects, research and development, vocational training and advisory services. This is expected to have multiplier effects on human capital capacity in general, technical skill development and promotion of ebusiness applications. The end result would be noticeable quality improvements and international standard best practices adopting and adaptation by MSMEs. Energy Energy, especially sustainable power supply is one other factor making the MSME sector tick world over. A review of the top 20 economies revealed drastic changes in the quantum and quality of power supply. Without regular power supply at reasonable cost, MSMEs in Nigeria may never be globally competitive. MSMEs currently spend significant proportion of their operating costs on electricity alone either involving acquisition of generator, spare parts, fuel and other related costs and in the end suffer significant losses.

Enterprise Clusters, Industrial Parks and Incubation Concepts Now is the time to take issues of enterprise clusters, industrial parks and incubation concepts seriously as such concepts will encourage MSMEs to pool their resources to reduce costs. These concepts will also encourage
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the provision of other enterprise resources such as Business Development Services (BDS) or Business Support Services. Public-private partnership in this direction can be quite effective since most MSMEs may be willing to pay a little extra to have such facilities in a more sustainable manner. The business cluster and incubation concepts will also promote the formalization of the huge informal sector thus enhancing government capacity to generate revenues and rates from the sector. They will also assist government in administering incentives to actual beneficiaries for waste elimination. Business cluster and incubation concepts also have positive implication for profitable market since they allow MSMEs to pool products and services to meet export demand thus guaranteeing a steady or ready market for their products. Institutional Realignment In terms of institutional re-alignment, there is virtually absence of support institutions to coordinate the various efforts targeted at MSMEs. Institutions like CBN, BOI, SMEDAN and a host of others, function independently thus making coordination, evaluation and monitoring of MSME related activities cumbersome. The result is dearth of expertise necessary to grow the sector and more challenging management of MSMEs. In most benchmarked countries in both the developed and emerging economies, a minimum of three major institutions comprising a FG agency with a defined responsibility for policy related issues (formulation, evaluation and monitoring) and coordination of all MSME related activities. The second institution is that which brings together all MSME stakeholders; government Agencies, SME operators (owners/managers), and other interest groups for what could be known as Nigerias MSME Council to regularly review, update and streamline MSME activities. Enhanced Linkages with the Agric Sector Another factor which has incredible pull on MSME sector is agriculture. In the past, prior to the discovery of petroleum, Nigerian economy was virtually driven by a buoyant agric sector however before the sector could provide the missing link (via demand/supply value additions) most agric
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processing businesses in the economy lost their focus and became oil crazy to the extent that it became impossible to provide preservation facilities to prolong agric products shelf life that will ensure food security even in the face of the countrys teaming population. The spin-off effect of the agricultural sector on MSMEs is huge and therefore needs to be promoted to ensure steady supply of input and generation of new businesses and employment. For the MSME sector to take its proper position in the countrys economic mainstream, the agric sector needs to be reinvigorated to produce goods and services not only at the right quality but also at the right price to ensure competitiveness and profitability. Improved seedlings and better yield are factors that can promote viability and sustainability in both the agricultural and MSME sectors respectively and collectively. Aside from the employment generated by the number of spinoff businesses along the agricultural sector, the supply-demand value chain ultimately stimulates and creates additional multiplier effects on MSMEs along the same value chain. All these chain reactions have positive effects on employment, income levels, and disposable income and, by extension, life expectancy. Capacity Development Developing entrepreneurs and entrepreneurship is also a priority. As the proposed initiatives for the MSME sector are rolled out, it will be increasingly important to deepening the entrepreneurship programme of tertiary and other institutions to ensure a large pool of highly skilled graduates are participating in the sector. Capacity building in specific areas, technical skill development in identified industries and e-business application are also recommended. Enterprise development training should be introduced as part of the basic curriculum in both the secondary and tertiary institutions.

Culture and Corporate Governance Culture and corporate governance are equally critical. Certain cultures impose unnecessary restrictions, especially on women, which discourage
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hard work and encourage laziness. The number of public holidays, strikes and shutdowns in Nigeria remains high. The issue of work ethics could also be considered a possible drag in our quest to achieve the goals and objectives of the long-term strategy plan for the MSMEs sector. Thus key factors and laws promoting corporate governance need to be reviewed and kept in line with our national economic aspiration. National Reorientation and Social Responsibility National reorientation is another important aspect worthy of consideration. There is need for attitudinal changes. Work ethics and integrity need to adapt in line with global business dynamics. It also touches patriotism and demonstrates passion for whatever and individual finds his/her hands doing. It also means dignity in labour and being responsible for ones actions and inactions. This has implications on adherence to the principles of social responsibility. Reorientation must also occur requiring leadership by example, humility on the part of government and commitment to goals and aspirations.
CONCLUSION

MSMEs in the country are more likely to be able to play an important role in economic development if policies that promote the following are in place: Stable financial development, effective and secure financial systems and targeted lending Good institutions at all levels of government supporting and promoting MSMEs. This will ensure corruption and regulatory burdens are minimized and rule of law, land and property rights, creditors rights etc. are overcome accordingly. Good infrastructure and facilities that encourage MSMEs to pool their information and resources High level of entrepreneurship and sufficient human capital development
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 Promotion of and access to innovation and technology and adequate openness to foreign technology. Countries with good policies that encourage stable exchange rates, low inflation, minimize entry regulations and promote attainment of higher levels of education. As the economy grows, appropriate rules and regulations that encourage fair competition should be in place to guide the increasing number of companies involved in the domestic and export markets. Stable policies targeted at MSMEs that provide sustained support and guidance and encourage investment in the sector . Improved coordination, cooperation and collaboration among the Agencies and stakeholders in the promotion and development of MSMEs.

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Credit Guarantee Scheme in Nigeria: Lesson from the Operations of the Agricultural Credit Guarantee Scheme (ACGS). CBN Bullion Vol.31. No.1 Okpara, F.O.(2009) The Promotion and Development of MSMEs in Nigeria-The SMEDAN Approach. Paper submitted to the International Council of Small Business Management, England. Mohammad,N.U.(2010) The Nigerian SME Story: The SMEDAN Approach. Paper Presented at the 1st Northern States SME Summit, Kaduna-Nigeria. Birdir, U.B.(2010) Technology and Innovation for SME Development: Antidote for the Attainment of Vision 20:2020 of Nigeria. Paper Presented at the 1st Northern States SME Summit, Kaduna-Nigeria. CBN(1996-2008) Annual Reports and Statements of Account. Adelaja, M. (2006) The Role of MSMEs in Economic Development of Nigeria. Paper Presented at the University of Abuja MBA Forum. Obitayo, K.M.(2010) Creating an Enabling Environment for Small-Scale Industries. CBN Bullion, Vol.25, No.3. Kpakol, M.L. (2008) Poverty Solutions-What We Need to Do. Paper presented at the Rivers State Summit on Empowerment, Portharcourt, Nigeria. FGN(2003) Small and Medium Scale Industries Development Agency (Establishment) Act World Bank(1996) Nigeria-Poverty in the Midst of Plenty-The Challenge of Growth with Inclusion Report No.14733-UNI. World Bank(1996) Sustainable Banking with the Poor. Journal of International Development. World Bank (2008) World Development Report. World Bank (1998-2008) Annual Reports World Bank (2001) The Informal Sector Revisited: A Synthesis Across Space and Time. Social Protection Discussion Paper Series. Adelaja, M.A.(2003-2007) SMEDAN Scorecard

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