Report Urges Policymakers to Pay Greater Attention to Small Firms

James Emejo in Abuja

A new report has called on policymakers to increase attention on small firms which it noted are key sources of employment, though the “jobs they provide are precarious.”
The study stated that the firms experienced significant volatility in revenue through the course of a year, and were neither on a strong upward nor downward growth trajectory.

The Small Firms’ Diaries (SFD) was unveiled yesterday, by the National Bureau of Statistics (NBS) in collaboration with the Lagos Business School (LBS), Financial Access Initiative (FAI), Center for Inclusive Growth, Low-income Financial Transformation (L-IFT), Argidius and supported by the Bill and Melinda Gates Foundation.

The report stressed that access to formal credit was constrained for small businesses as about half of the firms in the Nigerian sample held loans that were mostly drawn from informal sources—suppliers, friends, and family.

The report further stressed that the financial tools the firms have access to were not sufficient to help them manage the volatility they faced and they constantly struggled with liquidity and access to working capital.
Essentially, the report, among other things, pointed out that most efforts to help small firms focused on providing loans for equipment or other capital investments.

“Data from the Small Firm Diaries shows that working capital and liquidity are more important. Firms closely match revenues and expenses on a month-to-month basis.
“This helps confirm that they lack working capital/liquidity. Firms rarely take any operating risk that could result in negative monthly cash flow.
“Small firm use of supplier finance is another indication of their need for working capital: in Nigeria, they use credit from suppliers at much higher rates than microfinance or commercial bank loans,” the study further revealed.

In addition, the result of the study throws up interesting insights into the nature and operations of small firms in Nigeria.
The results indicated a, “very high level of volatility in the revenues and expenditures of these small firms. The total monthly revenues from the sample of small firms interviewed reportedly ranges between less than N1 million to N45 million, with 75 per cent of the small firms reporting revenues of N440,000 or less monthly”.

It noted that the “spread of the median monthly expense distribution across our sample firms was just as wide as that of their revenues, ranging from N3,200 to N16.6 million, with half of the firms having a median monthly expense of N87,000 or less, and around 75 per cent having a median monthly expense of N256,000 or less.

“These results indicate that this volatile nature of the revenues and expenses of these small firms are neither predicted nor desirable, hence presenting a serious challenge for them in terms of managing it effectively.”
Continuing, the report stated that, “across the study, the firms are not able to provide consistent income to workers. In Nigeria, only one-fifth of workers were paid consistently throughout the year, and more than half were paid for less than half the year.

“At the same time, small firm workers find it difficult tto earn income elsewhere. Nearly half of the workers surveyed reported no other source of income.

“Two-thirds of the workers we talked to in Nigeria said that they lacked the money to meet their basic or food needs at some point during the study. Half reported that a child in their household had not eaten enough in the past week.”