For sustainable SMEs, your business should outlast you!

CHIEDU OKONTA

Chiedu Okonta, FCA, MBA (LBS), BSc accounting, a professional banker and an experienced Corporate Governance expert, is the chief executive officer of Rivergate Onyx Investment Limited, and the author of two books, Keys to Sustainable SMEs and Stamp Out Fraud From Your System. He can be reached  on +234 (0) 907 9103 248; and chieduokonta1@gmail.com (texts/chats/email only)

Considering the very high rate at which SMEs (Small & Medium Scale Enterprises) rise to great heights and disappear after the demise of the pioneer in Nigeria, it has become very necessary to inculcate the “keys to sustainable SMEs” in every SME in Nigeria. This piece seeks to highlight the importance of SMEs in national economic development; and the need for its sustainable growth.

The greatest challenge facing SMEs  today in Nigeria is not lack of active SMEs, or lack of resilience among SME operators, or lack of manpower, or lack of good ideas, or lack of resources, neither is it even due to the much talked about corrupt political leadership; but the real challenge has been absence of the mandatory strong corporate governance framework needed for sustainable SMEs.

A study into the economies of nations revealed that SMEs are the largest provider of world-wide employment and remained the dominant greatest contributor to each nation’s gross domestic product (GDP).

According to a World Bank Report, SMEs contribute 90 percent of the world’s businesses and provide over 50 percent of employment world -wide.

In Nigeria, SMEs contribute 96 percent of businesses and 84 percent of employment in the country. SMEs also account for 48 percent of national GDP (National Bureau of Statistics & PWC Survey).

According to the Nigeria Bureau of Statistics, Small and Medium scale Enterprises (SMEs) in Nigeria have contributed about 48 percent of the national GDP in the last five years. With a total number of about 17.4 million enterprises, they account for about 50 percent of industrial jobs and nearly 90 percent of the manufacturing sector, in terms of number of enterprises.

According to the UK Economic Indicators, SMEs contributed an average of £473 million to the United Kingdom economy between 2001 and 2013.

According to the ME Financial Health, a total of 4.9 million UK businesses currently employ a total of 24.3 million workforce producing £3.3 trillion turnovers in 2019. Out of this, 4.85million SMEs businesses provide 19.83 million (81.6%) of the UK workforce.

WASHINGTON, D.C. – Small businesses are the lifeblood of the U.S. economy: they create two-thirds or 67 percent of net new jobs and drive U.S. innovation and competitiveness. The report shows that SMEs account for 44 percent of the U.S. GDP, according to Office for Advocacy.

CHINA: The development of SMEs has increasingly contributed to China’s economic growth, which make up over 99 percent of all businesses in China today. The output value of SMEs accounts for at least 60 percent of CHINA’s GDP, generating more than 82 percent of employment opportunities in China (OECD Library).

JAPAN SMEs accounted for 70 percent of national employment, compared to 60 percent for the OECD area. SMEs generate more than 50 percent of GDP.

FRANCE SMEs make a significant contribution to the French ‘non-financial business economy’. They account for 58 percent of GDP, with 61.6 percent share of employment.

In South Africa, SMEs account for 91 percent of businesses, 60 percent of the South African work force, and contribute 52 percent of total South Africa’s GDP.

GHANA SMEs are a critical economic driver in the country’s economic growth. These SMEs account for more than 85 percent of enterprises in Ghana. “SMEs are believed to contribute about 70 percent to Ghana’s gross domestic product (GDP).

While the SMEs in developed nations have largely adopted the principles of sustainable SMEs, resulting in larger creation of wealth that lasts from generation to generation, African nations and, of course, our beloved nation, Nigeria, in most cases, are yet to inculcate the necessary values of strong corporate governance into our SMEs. The result has been massive waste of resources, to the SMEs in particular, and to the nation at large; as previously successful SMEs soon disappear out of existence, while new ones come on board and the cycle continues after each 10 to 15 years.

SMEs that failed to stand the test of time

According to the Small Business Administration (SBA) Office of Advocacy 2018, 80 percent of small businesses survive the first year.

However, from there the number falls sharply. Only about half of small businesses -45 percent to 51 percent survive beyond the five-year mark, depending on the year the business was started. Beyond that, only about one in three small businesses survive up to the 10-year mark and live to tell the story.

Data from the Bureau of Labour Statistics shows that approximately 20 percent of new businesses fail during the first two years of being opened, 45 percent during the first five years, and 65 percent during the first 10 years. Only 25 percent of new businesses make it to 15 years or more. (Feb 28, 2020).

These statistics have been fairly consistent since the 1990s.

In spite of the high level of SMEs in every nation’s economy and their dominant impact on every country’s national income (GDP), empirical study has shown that only 25 percent of SMEs survived up to 15 years and beyond. This implies that on the average, 75 percent of all the SMEs founders that commenced businesses do not have sustainable business beyond their lifetime! This is easily validated by taking a rough calculation of SMEs that have transformed to big corporate entities, or survived beyond 15 years from one place to another.

Current global attention on African SMEs

The Africapitalism philosophy drive of HEIRS Holding founder and chairman, Tony Elumelu; and advocacies from all other global entities and personalities for more SMEs by Africans, are no doubt, speedily improving the current SME growth in Africa. Much more than ever therefore, there is an urgent need to understand the basic requirements for sustainable SMEs, in order to maximise the huge investments and sacrifices in establishing these SMEs.

Key requirements for sustainable SMEs

There are several factors that directly and discreetly influence the sustainable growth of SMEs; among which are the choice of the product or service offering, understanding and upholding the legal framework of businesses, proper accounting and accountability in place; strong corporate governance framework; strategic plans and succession plan policy; proper handling of the working capital, etc. These and many more shall be handled in detail in the next publication. 

                                                                                                                                       To be continued

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