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Jumpstarting Economy From Informal To Formal Sector

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With over 41million Micro, Small and Medium enterprises (MSMEs) in the country, there’s the need for proper integration of principal players in the MSMEs subsector to formalise their businesses and operating format.

The move is expected to aid unregistered SMEs to access finance, facilitate market integration, insurance policy, technology, Innovation among others.

The migration of SMEs to the formal sector is expected to promote capacity building and post-intervention supports for micro entrepreneurs and medium-sized businesses to access bigger markets and benefit from loans and intervention programmes.

The move, however, was geared to facilitate commerce and industrialisation process, develop rural economy, reduce youth restiveness, unemployment as well as create the platform for sustainable economic growth and development in the country.

The MSMEs have been established to be the key drivers of employment, industry, innovation and export diversification in both developing and developed economies while contributing 8 per cent to overall exports.

Findings revealed that SMEs contributes 97 per cent to domestic and Industrial jobs while it also accounts 50 per cent to Gross Domestic product (GDP) globally and to this end, government needs to draw up strategies to support the sector else there will be massive job loss and unemployment crisis in the country after the pandemic.

Businesses in the SMEs sector operates informally such that they cannot access loans from credit institutions and this denies them access to intervention support from banks and the numerous disbursement programmes by government to revamp ailing businesses in the country.

Perhaps, one of the constraints of the intervention funds allotted to the SMEs sector was discovered that many businesses in the informal sector had no operating business format, no records of tax payment, unaudited financial statement from banks, improper audits of daily transactions, poor research methodology, illiteracy among others were factored out as the limiting constraints for SMEs to access grants, loans and intervention funds.

The combined effect of lack of funds and not formalising SMEs businesses is very colossal looking at the employment value-chain it creates in the economy while stressing that, government needs to go beyond the ordinary to support SMEs businesses.

Now that the price of crude oil has gone down, one critical sector that can revamp our economy and revive our ailing businesses is the SME sector.

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SMEs stakeholders have described the need to jumpstart businesses from informal economy to the formal sector, adding that, this would enable businesses to leverage more benefits and economic sustainability to operate formally.

Addressing the issue, economist and director of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said Nigeria has 41 million MSMEs who are major drivers of the economy, and have been adversely affected by the Covid-19 pandemic.

Yusuf called on MDAs to collaborate with MSMEs in order to improve productivity and generate larger investment inflows into the economy.

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He said key areas of improvement for SMEs businesses include; formalisation of SMEs businesses to formal sector with corporate governance, effective supervision, adoption of risk management framework, capacity development for micro enterprises, among others.

While stating that, the new Company and Allied Matters Act (CAMA) 2020 is a welcome development for business which would create value and give fillip to the whole idea of the ease of doing business, especially, for small businesses, he added that, the new requirements in the CAMA Acts are good for SMEs particularly regarding the provisions for digital records, meetings and activities and non payment of tax for small businesses.

On the various interventions from the Central Bank of Nigeria (CBN) so far, he agreed that, it was a step in the right direction considering the huge financial gap in the economy. He stressed that the real sector was vital to the economy and stimulus plans should be within the range of N5trn and N10trn.

According to him, most MSMEs complain about their inability to access funds. They also refer to lending discrimination with loans going to businesses and individuals who may not be in the best position to utilize them properly, he said.

He espoused that there has to be a proper framework for the adoption of a risk management approach to ensuring that the lending process is driven by transparency and accountability.

He agreed that MSMEs require capacity building and increased level of financial literacy to achieve sustainability in their operations. He also commended the Bank of Industry (BOI) for their support and engagement with small scale enterprises in the country.

In the area of financing, he alluded to the fact that, there was need for micro finance institutions to reposition their operation and prioritise funding for micro-enterprises who constitute over 80 per cent of the MSMEs in the country.

Commenting on the issue, national president, Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola said, government is the principal player of the economy;  government needs to incite the economy to move from informal to formal sector while, stating that, beyond that, government needs to ensure that a lot of trainings are being done to adequately educate and uplift the people in the informal sector.

He opined that government needs to educate the informal operators on the need to learn entrepreneurial studies, develop their business plan as that will move them from informal to formal sector.

He said this trainings will educate the informal sector, but unfortunately, the economy is not helping matters for research and learning to enable business owners to learn the nitty gritty of doing business so as to cope with the associated risk and vulnerabilities.

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He decried that the working capital of SMEs and small business owners is being depleted such that they have little or noting to do with the banks anymore whether Microfinance, commercial and online banks because the funds are not there to be utilised.

ASBON boss further averred that government needs to incite the economy to be more favourable for business while, adding that, the economy is so hard, operating environment and overhead cost of maintenance and daily running of the business is not favourable for businesses.

He stated that the informal sector needs to build more capacity in doing business while, he noted that, individuals that will join the business membership  organisation should get the needed training to move their businesses to the next level and by so doing, move them from informal to formal.

On Business formalisation for CAC registration and business approval, he said government relaxed all the conditions to enable businesses to get free registration during the windows of the CAC registration while he said more favourable policy would ensure in moving businesses from informal to formal sector.

Also speaking, former chairman, National Association of Small Scale Industrialists, (NASSI) Mr. S.T Kuti George said, Formalisation of a Business includes registration of business with Corporate Affairs Commission(CAC) with sufficient Business Name.

He also stated the need to keep records of all financial dealings and business transactions by separating personal transactions from those of the business adding that this would ensure transparency.

He advised business owners to audit accounts, pay taxes, dues, hold board meetings and join membership organisation while limiting personal expenditures by being payed fixed salary.

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Egbesola posited that government needs to orientate these people and structure them along the formal sector, adding that, if they become formal, they will learn the nitty gritty of doing business and they will begin to learn ways to apply for grants, loans and Intervention funds to boost the livelihoods of their businesses.

On his part, chief executive officer, TBWA Concept, Mr. Kelechi Nwosu further explained that government needs to incentivise the MSMEs subsector by bringing them into the formal sector to learn the nitty gritty of doing business in a formalized system while he added that SMES needs to be schooled about the benefits of doing business in a formalised way.

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