W’Bank Approves $750m to Strengthen Business Enabling Environment in States

·      Says 36 states, FCT capable of catalysing private investments

·      FG considers more policy actions to support MSMEs in 2022 finance act

·       Moves to clear major barriers to their entry into export markets

Obinna Chima in Lagos, Ndubuisi Francis, James Emejo and Deborah Adesoba in Abuja

The World Bank yesterday approved $750 million International Development Association (IDA) credit to support the Nigeria State Action on Business Enabling Reforms (SABER) Program-for-Results.

The Washington-based institution which disclosed this in a statement yesterday, explained that the IDA  credit would help Nigeria accelerate the implementation of critical actions that will improve the business enabling environment in states.

The approval of the credit by the multilateral institution came on same day the federal government declared that it was considering further fiscal policy actions in support of Micro, Small and Medium Scale Enterprises (MSMEs), as work progresses in the preparation of the Finance Act 2022 for the 2023 fiscal year.

The Vice President, Prof. Yemi Osinbajo, who was represented by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, at the 3rd Annual Lecture Series of the Development Bank of Nigeria (DBN), with the theme, “Thriving in the Face of Domestic and Global Disruptions,” disclosed this in Abuja.

According to the World Bank, Nigeria has made progress in advancing reforms to eliminate constraints in the business environment, especially through actions driven by the Presidential Enabling Business Environment Council (PEBEC).

However, it noted that Nigeria’s ability to attract domestic and foreign investment remains low compared to its peers.

“Nigeria’s 36 states and the Federal Capital Territory (FCT) are capable to catalyse private investment but vary significantly in their efforts and ability to do so. Given the importance of state-level reforms, the government developed a new program—SABER—to accelerate the implementation of critical actions that improve the business enabling environment in Nigeria’s states.

“The government’s SABER program builds on the successes of PEBEC. It aims to strengthen the existing PEBEC-National Economic Council subnational interventions by adding incentives, namely results-based financing to the states, and the delivery of wholesale technical assistance–available to all states–to support gaps in reform implementation,” it stated.

The bank explained that the Program-for-Results supports the most critical state-level business enabling reforms of the government’s SABER program.

The program is open to all states in Nigeria and FCT, given their ability to take concrete steps towards addressing major business-enabling environment challenges around land administration, regulatory framework for private investment in fiber optic infrastructure, public-private partnerships (PPP) and investment promotion frameworks and services, and business enabling regulatory environment, the World Bank added.

Commenting on the development, World Bank Country Director for Nigeria, Shubham Chaudhuri said: “Following the significant progress made by states on fiscal reforms through the State Fiscal Transparency, Accountability and Sustainability (SFTAS) program, the SABER program endeavors to offer similar support to the states to undertake critical business-enabling policy and institutional actions that will incentivize private sector development.

“Private sector investments remain the major vehicle to create more jobs, increase revenues to the states and improve social and economic outcomes for citizens.”

It noted that the program was in line with Nigeria’s National Development Plan (NDP) that sets an ambitious strategy to pursue sustained private sector-led economic growth that is aimed at generating 21 million full-time jobs and lifting 35 million people out of poverty by 2025.

SABER would support states to improve the efficiency of land administration, the regulatory framework for private investment in fiber optic infrastructure, the services provided by investment promotion agencies and PPP units, and the efficiency and transparency of government-to-business services.

The Task Team Leader for SABER, Bertine Kamphuis said: “Overall, the SABER program looks to consolidate and deepen business enabling environment reforms across more states.

“The use of the Program-for-Results model, which ensures disbursement of funds after achieving results, helps the government in strengthening its own program by incentivising institutional performance at the state level through results-based financing. States will be responsible for achieving the program results and thus will be leading the implementation of the program.”

FG Considers More Policy Actions to Support MSMEs in 2022 Finance Act

Meanwhile, the federal government has said it was considering further fiscal policy actions in support of MSMEs as work progresses in the preparation of the Finance Act 2022 for the 2023 fiscal year.

Also, taking into cognisance the need to ensure that MSMEs were positioned to take advantage of the African Continental Free Trade Agreement (AfCFTA) and the opportunities it presents, the government disclosed that the Ministry of Finance,  Budget and National Planning was collaborating with the Federal Ministry of Trade and Investment, Nigerian Export Promotion Council (NEPC) and other relevant Ministries, Departments and Agencies (MDAs) to remove critical binding constraints to the entry of players in the sub-sector into export markets. 

Also, Osinbajo, expressed concerns over the relatively low contribution of MSMEs to export trade considering their significant contribution to nominal Gross Domestic Product (GDP).

Speaking further, the vice president noted that in view of the catalytic role of the sub-sector in local production activities and value-added export, government had prioritised policy support for the robust growth of MSMEs in the National Development Plan 2021-2025, across the key sectors of the economy. 

While underscoring the pivotal role of MSMEs, the minister cited the International Finance Corporation (IFC), which declared that between 70 and 95 per cent of new employment opportunities in emerging economies are created by MSMEs.

To ensure their effective contribution to the economy, Osinbajo stressed that it was imperative to ensure they are supported in the acquisition of skills and tools to run their businesses efficiently, manage risks and gain access to finance at competitive and affordable rates. 

He said, “The World Bank Group estimates the finance gap among formal MSMEs in developing economies to be 18 per cent of GDP with potential demand for financing among informal MSMEs as high as 11 per cent of GDP. 

“This underscores the important role played by the DBN in facilitating access to finance and with a total loan disbursement of N482 billion to 208,000 MSMEs in 2021, of which 27 per cent are youth-owned while 66 percent are owned by women, the DBN continues to be a major driver of MSMEs growth in Nigeria.”

Citing a recent report jointly released by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS), the vice president said MSMEs accounted for 96.7 per cent of businesses and contributed 46.3 per cent to Nigeria’s Gross Domestic Product (GDP).

However, he said, they only account for 6.2 per cent of gross exports, explaining that the relatively low contribution of MSMEs to exports was concerning given their significant contribution to nominal GDP.

For this reason, he said urgent steps were being taken to alleviate the binding constraints limiting MSMEs’ participation in cross-border trade.

Speaking further, Osinbajo catalogued a number of fiscal policy actions adopted by the government to support MSMES in the country, adding that the main policy tools utilised by her ministry in supporting the growth of the MSMEs sector were the annual Finance Acts. 

He said, “We have successfully facilitated the approval and implementation of three Finance Acts and have reached an advanced stage in the preparation of the 2022 Finance Act.  

“The Finance Acts are an omnibus bill to amend relevant tax, excise and duty statues and we have used them to introduce measures that reduce the tax burden on MSMEs and create opportunities for participation in export markets.

“Further policy actions in support of MSMEs are being considered as work progresses on the preparation of the Finance Act 2022 for the 2023 fiscal year.

“The administration of President Muhammadu Buhari is deeply committed to providing support to MSMEs as evidenced in the emphasis placed on ensuring their continued operations during the early months of the COVID-19 pandemic which led to the temporary closing down of 53.2 per cent of SMEs and 37.3 per cent of MEs.   

“In the development of the Economic Sustainability Plan (ESP), some of the provisions to support MSMEs include: N250 billion grant containing a N50 billion MSME de-risking facility component; a payroll support scheme providing up to N50,000 in monthly salaries for up to 10 staff of qualifying businesses for a duration of three months – 1.3 million jobs have been retained through the MSME and payroll support.”

He also alluded to a one-off grant of N30,000 for 333,000 self-employed persons working as transporters and artisans under the Artisan and Transport Scheme; a N50,000 grant for 100,000 MSMEs, and provision of financial backing of up to N191 billion in loans to 34,144 MSMEs, among others.

However, Ahmed said her ministry would also continue to support other MDAs through programmes such as the FGN Special Intervention Fund for MSMEs under the National Enterprise Development Programme, the Government Enterprise and Empowerment Program (GEEP) and various funds and products managed by the Bank of Industry (BOI).

With the disruptive effects of the Russia-Ukraine war on the economy and its consequent impact on the cost of doing business, she observed that difficulties facing MSMEs had increased significantly.

“It is important that the DBN steps up to the plate and expand its funding windows to provide affordable financing to a wider cross-section of MSMEs. 

“The Federal Ministry of Finance, Budget and National Planning and all its agencies stand ready to utilise the fiscal policy tools at our disposal to support the DBN and other public and private sector actors working towards the common goal of ensuring MSMEs can become key drivers of economic growth and create sustainable and livelihood-enhancing jobs for segments of the working population prone to vulnerability,” the minister assured.

ank to champion the conversation on how MSMEs can prosper despite the odds, by exposing ways through which they can adapt in these times, hence the DBN Lecture Series.

Also, in his address, the DBN Chairman, Dr. Shehu Yahaya assured that the bank would continue to work towards building the capacity of MSMEs to ensure that the elimination of the financing constraints faced by the critical sub-sector of the economy, and transform them into instruments for positive and sustained change

However, Managing Director/Chief Executive, DBN, Dr. Tony Okpanachi, said disruptions on a global scale were now a reality in an increasingly interconnected global economy.

He said there was still a compelling need for businesses to continue to innovate especially as the world gradually recovers from the disruptions caused by COVID-19 pandemic which had affected every part of the value chain, from raw material sourcing to the end customer; to the suffering induced by the humanitarian crisis caused by Russia’s invasion of Ukraine, resulting in slower economic growth and rising inflation across nations.

According to him, Nigeria is currently plagued with rising inflation of 20.52 per cent as of August 2022, adding that, “We are as well afflicted with rising food and commodity prices, coupled with the rising and unstable exchange rates among others.”

The DBN boss said the effects of the global disruption on international trade often come as a shock to businesses, stressing that these series of events have led to uncertainty and radical changes to companies’ well-established strategies across the globe and MSMEs are not exempted.

Citing a 2022 survey conducted by the Small and Medium Enterprises Development Agency (SMEDAN) in collaboration with the National Bureau of Statistics (NBS), Okpanachi noted that MSMEs contributed 48 per cent to GDP.

But he said amidst increasingly turbulent world, MSMEs find themselves frequently affected by unpredictable external factors such as natural disasters, climate change issues, disease outbreaks, technological and cyber changes, trade disputes, policies among others, which have had an immense impact on local businesses.

He said, “It is, therefore, imperative for us as a bank to champion the conversation on how MSMEs can prosper despite the odds, by exposing ways through which MSMEs can adapt in these times.”