Welcome to another episode of CLRNNCast! In this episode, CLRNN is in conversation with Ms Esiri Agbeyi – Partner, PwC Nigeria, who gives critical insight into the challenges facing the SME sector of the Nigerian economy, additional difficulties brought on by the corona virus pandemic and oil crisis, as well as suggestions for the recovery phase.
Esiri is a chartered accountant and chartered tax professional. She is a partner with PwC Nigeria, where she currently leads the International Tax Services and Private Wealth Services teams. She has several years of experience providing international tax services to multinational companies in various industry sectors including the oil and gas, private equity, telecommunications, retail and consumer sectors. She has also worked with the International Tax Services team of PwC New York, focused on Africa. She also provides specialised services to high net worth families, next generation family members and entrepreneurs.
As PwC’s Upskilling Territory Lead in Nigeria, Esiri champions the purpose-led initiative “New World. New skills” which seeks to help clients with their workforce of the future. She mentors, writes articles and speaks regularly at conferences.
Across the globe, small and medium-scale enterprises (SMEs) are recognized as engines of economic growth. It is no different in Nigeria, where they contribute over 40% of GDP. SMEs account for 96% of businesses in Nigeria and 90% of the manufacturing companies. Over 90% of SMEs in Nigeria are located in 5 sectors of the Nigerian economy including: Wholesale/Retail trade 42.3%, Agriculture 20.9% , Other Services – 13.1%, Manufacturing – 9.0%, and Accommodation & Food Services – 5.7%. 99.8% of SMEs are classified by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) as micro, with only 0.2% classified as small or medium scale. Yet, they generate over 70% of employment, including skilled and unskilled labour, as discussed by Mr Dele Alabi.
Esiri sets out some of the perennial challenges facing SMEs in Nigeria, drawing from PwC’s MSME Survey 2020:
“There continues to be issues around taxes – 57% actually cited multiple taxes as a big issue and the lack of coordination amongst the federal and state agencies as well. The absence of technology platforms consistently across all of these tax authorities continues to be an issue for paying taxes. Obtaining finance is also a very pressing problem, with 22% saying that was an issue for them. The pressure to reduce prices, the fact that SMEs only continue to get funding from family and friends – a staggering 48% – also an issue. But I think what was even more striking, just looking at the survey, is the fact that delays in paying SMEs contributes severely to the decline growth of SMEs… impacting their cash flows and revenues. And that’s about 33%, which we believe to be a very high number. “
On the impact of the Covid-19 pandemic and the oil crisis on the sector, Esiri says:
“The challenges here have really resonated around resilience and agility of SME businesses. So it’s really been a true test of whether SMEs have the right structures to carry them through times such as these. A lot of SMEs have come under that test and perhaps have not passed it…one of the key challenges that SMEs have in Nigeria is the fact that there is no structure…it goes right from just the ability to have your financials in place but just having also the foundation that allows a business thrive through these kind of scenarios – uncertainties. And it goes from setting your values right, setting your goals right, your mission and your purpose … having a governance structure in place…having a board for instance, that you can that can hold you accountable. Those kind of things add a bit more structure to SMEs. And to the extent that they had that, they would have been able to thrive through this period – and perhaps make those big changes that were required as a test of resilience and agility.”
Esiri outlines additional challenges that the government must remedy to enable SMEs thrive in Nigeria:
“The power sector continues to be a big challenge for SMEs and that’s also one of the biggest costs for business operations in Nigeria about 21% of SME cost is sitting with electricity.
…according to our survey 17% of SME costs relates to rent. The big issue there as well, is the fact that a lot of SMEs are having to pay up rent in advance…unlike other jurisdictions where you find that those costs are pretty much done monthly basis, here you may have to pay two years in advance or five years in advance. That’s holding cash flows severely and what we want is probably a replica of what Lagos states tried to do to enforce landlords to begin to collect just one year.
According to an annual PwC report – the ease of paying taxes 2020 – it takes on the average over 343 hours for entities to comply with tax payments and that’s significantly high. Most businesses make on the average about 48 tax payments to the tax authorities in a year. Interesting observation for that is that countries which rank low in paying taxes have a direct correlation to the drag in the GDP of their economy. So if we want to see the GDP of Nigeria go in the right direction, some of the efforts that have been put into paying taxes needs to be redirected to productive growth and the way we can easily do that is perhaps reducing the number of taxes that SMEs needs to pay or comply with.
And the fundamental change that should happen in that regard is around reviewing even the constitution that gives three government tiers different taxing powers…we had a review where we were trying to harmonise taxes, and that the objective for that organisation was so that we could reduce the number of taxes from the 39 that was there, but instead of reducing it from 39 on the list of approved taxes and levies, it went up to 61. And this is what SMEs are struggling with.
We also need to centralise our administrative system and work towards formalising the informal sector by relaxing the rules of entry into the formal sector. Other things as well that perhaps needs to be addressed is around financing and ensuring also that a lot more banks are dedicating loans to SMEs …”
To learn more about the challenges of the SME sector in Nigeria, the impact of the covid-19 pandemic and oil crisis, the response of the Federal Government of Nigeria and its Central Bank, as well as policy changes that are necessary to support the sector going forward, listen to the insightful interview below.
The interview was conducted 9 July 2020.