Insights from BusinessDay’s SME forum

Some 40 SMEs of various sizes and annual turnovers came together at the BusinessDay SME forum which took place two weeks ago. Participating SMEs were drawn from different sectors of the economy and from states apart from Lagos.

BusinessDay Research and Intelligence Unit (BRIU) deemed it a good opportunity to get insights on trends and developments among SMEs. The trends investigated in the survey include advertising techniques, methods of getting finance, major obstacle to business growth, among others.

Some of the responses to the questions which were asked showed that the SMEs are making steady progress while answers to other questions indicated that a lot still needs to be done to improve their businesses.

For sure, SMEs are getting more creative with their marketing strategies. Most of the ones we sampled have moved their advertising to social media which is less expensive yet reaches out to a good number of potential customers.

When we asked the representatives of the 40 SMEs about the medium through which they advertise, almost half (40 percent) said they do it through newspapers. The next most important medium is social media (34 percent), and word of mouth (20 percent), while television and radio are less important.

Eighty-six percent of those who took the survey have their businesses on social media, with the most popular platforms among them being Facebook and LinkedIn. Sixty-six percent of them promote their businesses on Facebook while 26 percent promote their businesses on LinkedIn. In all cases, the goal is to advertise new services and products, spread awareness about the company, and make announcements.

The surveyed SMEs still resort heavily to personal savings for financing their businesses. But a number of new methods are gaining ascendancy. Key among them are cloud financing and loans from government-backed financial institutions.

Cloud funding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically through the internet. It is the practice of raising funds from two or more people over the internet towards a common service, project, product, investment, cause, and experience, or spice (Wikipedia, 2015).

We asked the SME representatives why they have not listed on the Nigerian Stock Exchange. Sixty percent of them said their firms are too small. Seven percent tied their non-listing to the cost of listing, while 13 percent pointed to the requirements for listing which they perceive as too demanding and high. Others pointed to unexpected market conditions on the exchange which could adversely affect their businesses.

But the respondents pointed out that business and the operating environment have been a little better in the past four years. But they also identified marketing and getting new clients, the competitive environment, finding the right staff, power supply conditions, poor regulatory environment, and cost of production as major constraints to achieving their growth goals.

Other insights which emerged from the conference were tilted more to the macroeconomic environment in which SMEs operate.

The keynote speaker, Ikechukwu Kelikume, noted that the impact of naira devaluation on SMEs was devastating. He said it further compounds the problems of SMEs since their products are usually not competitive in the international market and their production base is still largely at the unfinished goods level. “Local SMEs 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,” he said.

Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), who also attended the event, 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”. He also warned business operators to reduce their exposure to dollar-denominated sources of funding.

In most developed and developing economies, SMEs are considered the engine of growth. They are an important part of the Nigerian economy. A study by the IFC shows that approximately 96 percent of SMEs in Nigeria represent about 90 percent of the manufacturing/industrial sector in terms of number of enterprises. However, in spite of the fact that the SMEs constitute more than 90 percent of Nigerian businesses, their contribution to GDP remains low.

“In countries at same levels of development with Nigeria, SMEs contribute a much higher proportion to GDP than currently observed in Nigeria. Compared to other emerging markets, Nigeria has historically shown lack of commitment to building a strong SME sector. These economies have shown consistent commitment to the development of SMEs by implementing: access to finance and financial incentives, basic and technological infrastructure, adequate legal and regulatory framework, and a commitment to building domestic expertise and knowledge,” according to a presentation on the Central Bank’s website.

In light of recent events in the Nigerian macroeconomic environment, SMEs have compelling growth potential and, like other emerging economies, are likely to constitute a significant portion of GDP in the near future.

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