Finance, inadequate infrastructure tops MSMEs challenges in Nigeria-PwC survey

Access to finance, finding customers and infrastructure deficits are considered as top challenges of Nigerian business operators, a survey of Micro, Small and Medium Enterprises (MSMEs) in Nigeria conducted by PwC Nigeria has revealed.

The survey findings were revealed during a recent webinar hosted by the firm for MSMEs on Managing the Impact of COVID-19 and Repositioning Your Business for Growth.

The report titled “PwC’s MSME Survey 2020- Building to last” is the first in a series of surveys that aim to provide insights into a range of issues concerning MSMEs in Nigeria, and the challenges impacting business growth, particularly financing, taxation issues; and other factors – through the eyes of their CEOs.

The survey which was conducted before the COVID-19 Pandemic (between August and December 2019) sought the opinion of 1629 key decision-makers in the MSME sector surveyed with annual sales turnover ranging from N5 million and above. 

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The businesses surveyed had a geographical spread covering 29 states and across the 6 geopolitical zones in the country.

Presenting results of the findings Esiri Agbeyi, Partner and Lead, Private Wealth Services, PwC Nigeria noted that Obtaining finance (22%), Finding customers (16%) and Infrastructure deficits (15%) were identified by respondents as their most pressing problems. 

When asked what the biggest cost to their business operation is, 21 per cent identified Electricity as being responsible for the highest cost to their daily operations. This was followed by Rent (17%) and Cost of Capital and Employee cost at 15 per cent and 14 per cent respectively.

Esiri Agbeyi said: “Access to finance, in particular credit, is a critical enabler for the growth and development of small and medium enterprises. The SME credit market, however, is notoriously characterised by market failures and imperfections. We estimate the financing gap for Nigerian MSMEs to be about N617.3 billion annually (pre-COVID-19 pandemic). More so, based on our analysis of data from the CBN annual statistical bulletin, small businesses accounted for less than one per cent of total commercial banking credit in 2018.

“We also see that Electricity accounts for the biggest costs to the daily operations of MSMEs. Nigeria’s power sector is overwhelmed by a myriad of challenges that have culminated in inadequate electricity supply. This hurts the business environment in Nigeria; consequently, contributing to significant economic costs to SME and economic growth. The International Monetary Fund (IMF) states that lack of access to reliable electricity costs the Nigerian economy an estimated USD29 billion a year.”

Speaking further, the survey also found that the foremost economic issue affecting small businesses is the pressure to reduce prices (22%). This is followed by rising inflation (19%) and low demand for products/services (16%). The economic recovery in Nigeria has been tepid. Despite positive economic growth in the last 3 years, Nigeria’s GDP trajectory still falls short of the projections set in the Economic Recovery and Growth Plan (ERGP) of 4.5 per cent and 7 per cent for 2019 and 2020 respectively.

On tax matters, MSMEs find local government levies (28%) the most difficult tax to comply with. This is closely followed by Company Income Tax (CIT) at 26 per cent and Value Added Tax (VAT) at 25 per cent.

Reasons for the difficulty in compliance comprised: the multiplicity of taxies and levies; lack of coordination between federal & state tax agencies, absence of technology platform(s) for ease of payment of all taxes and levies, as well as lack of fully functional tax refunds schemes at the state & federal level. Others included the absence of comprehensive tax payment schedule notification or calendar and physical harassment/intimidation by local tax collectors.

Highlights of some of the other findings made in the survey include that 22 per cent of MSMEs rely on the internet, media and research publications for business insights (vs 16%who rely on professional service providers), 48 per cent said family & friends are the most popular financing sources (vs 15% who obtained credit facilities), A higher percentage (46%) would prefer private equity over debt financing (33%), and only 10 per cent of MSMEs believe Artificial Intelligence (AI) and the Internet of Things (IoT) will have the most impact on the growth of their businesses in the next 3 years.

Commenting on the report, Uyi Akpata, Country Senior Partner, PwC Nigeria noted that “Our MSME Survey 2020 is aimed at gauging experiences of sector players, assessing the underlying issues which MSMEs face and providing insights on this strategically important sector. 

“You will find the survey headlines confirm some persistent problems and shed light on those you never really considered to be issues such as payment policies.

“As part of our efforts in this national discourse, PwC Nigeria has established the SME Desk to support the growth, sustainability and development of the SME sector in Nigeria.

“MSMEs are critical to Nigerian’s economic development. According to the National Bureau of Statistics, SMEs in Nigeria have contributed about 48 per cent – on average – to the national GDP in the last five years. Totalling about 17.4 million enterprises, they account for about 50% of industrial jobs and nearly 90 per cent of activities in the manufacturing sector, in terms of several enterprises.”