Key to SME growth in Lagos state

Small and medium-sized enterprises (SMEs) are generally regarded as the engine of economic growth in any developing economies. Similarly, a large concentration of SMEs including micro and nano businesses are easily noticeable in Lagos state, the economic hub of Nigeria. The state enjoys a high presence of SMEs, micro and nano businesses more than any state in Nigeria. Why is that? The simple metric to this is that Lagos has a population size of about 15 million, according to United Nations (UN) projections and it appears like a country within a country considering the strength of economic activity and populace.

In fact, without a doubt, Lagos has a population estimate that is higher than some West African countries, namely Guinea (13,132,795), Benin (12,123,200), and Togo (8,278,724), Sierra Leone (7,976,983). Even the population of the state is higher than that of some developed countries such as Finland (5,540,720),Belgium(11,589,623),Sweden(10,099,265), Denmark(5,792,202), and Ireland (4,937,786). Supportably, the population is even higher than the combined population of Liberia (5,057,681), Mauritania (4,649,658), Gambia (2,416,668), Guinea-Bissau (1,968,001) as of February 27, 2021. However, the painful reality is that over 60 percent of the residents of Lagos are poor and live in various high-density and informal settlements scattered across the state. These residents lack proper sanitation, power, and other basic services, and most of them eke a living from small businesses, which includes nano and micro businesses. A visible reference usually includes the operators of kiosks, commercial tricycles, motorcycles and many other informal business operations in the state.

The estimated figure of micro-businesses in Lagos is 3,224,324 and to add to this, over 11, 663 SMEs operate in the state, according to a recent statement from the Lagos ministry for commerce, industry, and cooperatives. In my opinion, this data is underreported and does not reflect the large informal economy that exists in the State particularly the nan businesses. From reliable data, the informal economy employs about 5.5 million people in Lagos, if not more. So, a reliable database is necessary for adequate planning in the state.

The small business economic activities in Lagos can contribute largely to the growth of the non-oil sector, employment generation, and the creation of sustainable entrepreneurship. These can largely be driven by businesses in the formal and informal sector in the state. Arguably, small business represents over 90 percent of private businesses in the state and contributes to more than 50 percent of employment. Yet the state government has not duly recognised the significance of this sector in the economic development of the state. For instance, the popular computer village in Ikeja, Ladipo spare part market in Oshodi and Balogun market in Lagos Island all consist of clusters of mostly micro-businesses with huge economic engagements but the government of Lagos state is yet to facilitate their formality and capacity building with the required policy and incentive considerations.

The novel Coronavirus (COVID19) and the harsh economic climate currently with us have made many of these businesses struggle and some have shut down due to these challenges which include perennial issues. That is, from infrastructure deficits (power, road, technology, and so on) to inconsistent government policies, security problems, multiple taxations, regulatory burdens, stiff competition from large companies, the entrepreneurial attitude of operators, huge financial and funding problems, lack of meaningful structure, longevity and succession plan among others. SME operators and entrepreneurs strive with different strategies and tactics to absolve many of these challenges and shocks to make any meaningful balance with little or no external support. However, the government needs to realise and recognise that small businesses are crucial to job creation, economic diversification, innovation, poverty reduction, wealth creation, and income redistribution in their policy-making activities. If this sector is well harnessed in Lagos state, it can be a huge catalyst in transforming the state economically.

The vivid truth is that a well-functioning SME sector would add more value to the economic fortunes of the state, sustain livelihoods, reduce poverty by creating more job opportunities in the economy than any other sector. Therefore, proper monitoring and evaluation of this sector are crucial for the economic development of Lagos state. When businesses survive, there will be a reduction in market failures and the more businesses are without survival threats the government can equally benefit from their growth and development. It can increase tax receipts and accelerate the growth of industrialisation in the state.

Therefore, the Lagos state government should focus more on policies and programs to widen the SMEs’ involvement in the formal sector particularly the micro and nano businesses. The state government, through the appropriate ministry, can implement policies that will enhance ease of doing business in the state to attract operators from the huge unregulated informal sector to the formal sector. The informal sector in Nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulation. Therefore, policies to attract business formality should be considered and formulated, and also the capacity and sustainability of these SMEs, micro and nano businesses should be enhanced. Because if all these are set in place it will encourage the development of the formal sector of the SME sector in the state.

That said, key stakeholders such as the Small and Medium Enterprise Development Agency (SMEDAN), Nigerian Association of Small & Medium Enterprises. (NASME), Association of Small Business Owners of Nigeria (ASBON), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Association of Micro Entrepreneurs of Nigeria (AMEN), The Lagos Chamber of Commerce and Industry (LCCI), Manufacturer Association of Nigeria (MAN), financial technology (FINTECH) associations, and groups in the organised private sector (OPS) advocate for ways government can create innovative measures to improve business formality, enable secured environment, improve on rule of law, encourage public-private initiatives, invest in infrastructure, and consider policies as the needed. Corruption has also remained a very serious problem that needs to be genuinely addressed because it can threaten any development policies and programs of the state.

The support of these teeming small, micro and nano businesses is also imperative and strategies to sustain their business operations should be key in the decision-making process of the government of Lagos. The National Bureau of Statistics suggested many Nigerian youths are unemployed, the majority of them can be meaningfully absorbed into this sector through self-employment, startups, and financial technology (FINTECH) if the SME sector is made viable with an adequate enabling environment.

In conclusion, the Lagos government should get more involved in the growth, development, and sustainability of SMEs within the state. More so, the state government needs to ensure the development and patronage of locally produced goods and content while putting in place adequate infrastructures. Besides corroboration with experts and consultants in the provision of external advice to government and these teeming small businesses on a range of topics such as strategy, having a business and organisational structure for business continuity, financial literacy, technology, and role of innovation to increase their output is equally significant. Concisely, going forward policies and programs of the government in the state should be rooted in deep rule of law, accountability, creation of a database on small business and uphold strict fiscal discipline. Good luck!

Dr. Timi Olubiyi is an entrepreneurship & business management expert with a Ph.D. in business administration from Babcock University Nigeria. He can be reached via @drtimiolubiyi on Twitter and [email protected].