W’Bank approves $750m to improve business environment in States

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

The Nigeria State Action on Business Enabling Reforms (SABER) Program-for-Results will be supported by a 750 million International Development Association (IDA) credit, which was authorized by the World Bank yesterday.

The Washington-based organization that made this announcement yesterday went on to say that the IDA credit would aid Nigeria in hastening the adoption of important measures that will enhance the business-friendly climate in states.

The global organization’s acceptance of the credit came on the same day that the federal government announced it was exploring additional fiscal policy initiatives to promote Micro, Small and Medium Scale Enterprises (MSMEs), as work on the Finance Act 2022 for the fiscal year 2023 continues.
This was announced by the Vice President, Prof. Yemi Osinbajo, at the third annual lecture series of the Development Bank of Nigeria (DBN), with the theme, “Thriving in the Face of Domestic and Global Disruptions,” in Abuja. He was represented by the Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed.

Nigeria has advanced changes to remove obstacles in the business environment, according to the World Bank, particularly through initiatives driven by the Presidential Enabling Business Environment Council (PEBEC).

It did point out that, in contrast to its competitors, Nigeria continues to have a limited capacity to draw both local and foreign investment.
“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 help states increase the effectiveness of their land administration, the regulatory environment for private investment in fiber optic infrastructure, the services offered by investment promotion organizations and PPP units, and the effectiveness and transparency of their government-to-business interactions.

“Overall, the SABER program strives to consolidate and deepen business enabling environment reforms across more states,” said Bertine Kamphuis, the task team leader for SABER.

By rewarding institutional performance at the state level through results-based financing, the Program-for-Results model, which ensures flow of funds after attaining results, aids the government in enhancing its own program. States will be in charge of leading the program’s implementation as they will be accountable for the program’s results.
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.
The government also revealed that the Ministry of Finance, Budget and National Planning was working with the Federal Ministry of Trade and Investment, the Nigerian Export Promotion Council (NEPC), and other pertinent Ministries, Departments and Agencies (MDAs) to eliminate crucial binding clauses in order to ensure that MSMEs were prepared to take advantage of the African Continental Free Trade Agreement (AfCFTA) and the opportunities it presents.

Osinbajo also raised concern over the MSMEs’ comparatively low export trade contribution, given that they significantly contribute to nominal GDP (GDP).
The vice president continued by pointing out that the government had prioritized policy support for the strong growth of MSMEs in the National Development Plan 2021–2025, across the key sectors of the economy, in light of the subsector’s catalytic role in local production activities and value-added export.

The International Finance Corporation (IFC), which claimed that between 70 and 95 percent of new employment possibilities in emerging economies are created by MSMEs, was referenced by the minister in order to highlight the crucial significance of MSMEs.

Osinbajo emphasized that it was crucial to make sure that they were assisted in acquiring the skills and instruments to run their enterprises effectively, manage risks, and have access to finance at competitive and affordable rates in order to ensure their successful contribution to the economy.
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 emphasizes the crucial function of the DBN in facilitating access to capital. With a total loan disbursement of N482 billion to 208,000 MSMEs in 2021, of which 27% are owned by young people and 66% by women, the DBN will continue to play a significant role in the expansion of MSMEs in Nigeria.

The vice president cited a recent report jointly produced by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) that claimed MSMEs made up 96.7% of firms and contributed 46.3% to Nigeria’s GDP (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.

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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.
As work on the creation of the Finance Act 2022 for the fiscal year 2023 advances, more policy initiatives in favor of MSMEs are being explored.

“The attention made on guaranteeing MSMEs’ continued operations during the early months of the COVID-19 pandemic, which caused the temporary closure of 53.2% of SMEs and 37.3% of MEs, shows how sincerely devoted President Muhammadu Buhari’s administration is to supporting MSMEs.
“In the creation of the Economic Sustainability Plan (ESP), some of the provisions to support MSMEs include: N250 billion grant with 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 period of three months – 1.3 million jobs have been retained through the MSME and payroll support.”

He also made mention of the Artisan and Transport Scheme’s one-time grants of N30,000 to 333,000 self-employed individuals who operate as transporters and craftsmen, N50,000 to 100,000 MSMEs, and N191 billion in loans to 34,144 MSMEs, among other things.
Ahmed clarified, however, that her department would also keep assisting additional MDAs via initiatives like the FGN Special Intervention Fund for MSMEs under the National Enterprise Development Program, the Government Enterprise and Empowerment Program (GEEP), and various funds and goods run by the Bank of Industry (BOI).
She noted that the challenges faced by MSMEs had greatly worsened as a result of the war between Russia and Ukraine’s disruptive impacts on the economy and its subsequent influence on the cost of doing business.

“It is critical that the DBN step up and broaden its lending windows to offer accessible credit to a larger range 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.
The DBN Lecture Series was created in order to promote the discussion of how MSMEs may thrive despite the odds by highlighting the ways in which they can adapt to the current environment.

Also in his speech, DBN Chairman Dr. Shehu Yahaya gave the assurance that the bank will continue to work to increase MSMEs’ ability in order to ensure the removal of the financing challenges encountered by the crucial sector of the economy and turn them into tools for long-term, positive development.
But according to DBN’s managing director and chief executive, Dr. Tony Okpanachi, global disruptions are now a fact of life in a world economy that is becoming more interconnected.
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.

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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 stressed that these events have caused uncertainty and drastic changes to firms’ well-established plans around the world, and MSMEs are not exempt. He stated that the impacts of the global disruption on international trade frequently come as a shock to businesses.

Okpanachi stated that MSMEs made up 48% of the GDP, citing research done in 2022 by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency (SMEDAN).

However, he noted that in a world that is becoming more unpredictable, MSMEs frequently find themselves impacted by unforeseen external factors like natural disasters, climate change issues, disease outbreaks, technological and cyber changes, trade disputes, and policies, among others. These factors have a significant impact on small local businesses.
In order to promote the discussion on how MSMEs may thrive despite the odds, he stated, “it is vital for us as a bank to expose ways by which MSMEs can adapt in these times.”

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