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Proffering solution to SMEs and devaluation of Naira

By Moses Nosike

SMEs returns
SMEs returns

Francis Eniterai Ogbimi is a researcher and Professor of Technology Management (TM).  He has been conducting research and teaching TM for decades at the Obafemi Awolowo University (OAU), Ile-Ife, Osun State.

He is also a staff of the African Institute for Science Policy and Innovation (AISPI), OAU. In this chart with Saturday Vanguard Business,  he revealed how learning is the primary source of developing  SMEs in any economy world over. At the same time, warned that devaluation of Naira during oil fall is killing Nigerian economy.

Providing credit for the SMEs operations when other components like power supply is not there, how does it look like?

“Everything Nigeria has been doing during the past three decades about what the nation describes as SMEs has been wrong.  Successive governments in Nigeria have attempted to enhance the production in the SMEs sector to enable it contribute optimally to economic growth in the nation.

The initiatives included the establishment of the Nigerian Industrial Development Bank; the establishment of the Nigerian Bank for Commerce and Industry; before the deregulation of the financial service sector, banks were required to channel a minimum portion of their credit portfolio to the preferred sectors, including SMEs;

the Rural Banking Scheme ( establishment of the Community banks system);  the World Bank assisted SME I (1985) & II (1989) Loan Projects; the establishment of the Peoples Bank; the Family Economic Advancement Programme (1997) and the establishment of the Nigerian Agricultural Cooperative Bank.

Some other initiatives meant to promote the growth of the SMEs were: The Small and Medium Enterprises Equity Investment Scheme (SIMEEIS) – SIMEEIS was a contribution of the banking industry to the reform of the Federal Government; the National Economic Reconstruction Fund (NERFUND);

Establishment of the Bank of Industries (BoI) and  the African Development Bank’s Export Stimulation Loan Scheme (AfDB-ESL). These credit supply schemes were organized because of the fallacy that capital investment is the primary source of SEGI or the belief that the economy is in the bank.

They all had to fail because capital investment is not the primary source of SEGI and the bank is in the economy. Learning – education and training, is the primary basis of SEGI”. “Also, there is no such thing as supplying electricity first, then build roads and bridges before embarking on industrialization.

It is industrialization that Nigeria should promote, not the supply of electricity, not the growth of the SMEs. We analysed the data collected by Aluko, et al. (1972, 1973) from 27,343 SMEs units (including bakery, blacksmithing, bicycle repairing, brewering, brick making, carving, carpentry, drum-making, dyeing, electrical, furniture-making, grain-milling, gold-smithing, knitting, mat-making, motor repairing, printing, saw-milling, shoe making, spinning/weaving, tailoring, watch repairing, welding, and  miscellaneous).

The broad scope covered by the survey shows that true effort  was aimed at learning and promoting true growth, industrialization and development in the 1970s. Our analysis showed that 35.6 per cent of the people in the SMEs surveyed was illiterates, 55.5 per cent had primary school education,  8.8 per cent had modern/secondary school education while 0.1 per cent had university education.

With that type of educational background among the people in the SMEs sector, the SMEs were not ready for transformation. The educational background of the people in the SMEs must be improved substantially to promote rapid development in the sector”.

“Our analysis also revealed that the great potential of the SMEs in Nigeria is in promoting high-intensity learning. Whereas 37 per cent of the workforce was self-employed, 12.5 per cent worked for wages and 50.5 was apprentices.

The average apprenticeship period was 3.5 years. A relational analysis of the apprenticeship population and period revealed that the wealth creating potential of the SMEs in Nigeria can be doubled in 3.5 years, increased four times in seven years and increased eight times in 10.5 years.

The potential of the SMEs is not so much in providing permanent jobs as in teaching apprentices and generating new units and promoting the growth of knowledge.

The Nigerian experience has been that any time the global price of crude petroleum falls, the Central Bank of Nigeria always adopts the option of devaluation of the Naira. What do you think about this practice?

Margaret Thatcher, the Late Prime Minister of Britain, once said that ‘to destroy a nation, you first destroy the currency.’ The British Prime Minister was speaking from her memory about the experience of Germany.

The Axis led by Germany lost World War I to the Western Allies. The Allies therefore demanded $33 billion from Germany as war reparation. Germany could not pay. Consequently, the Allies forced Germany to sign the Versailles’s treaty which contained the mandatory currency devaluation programme ( Stolper, et al.,1967; and Glahe, 1977).

The German Mark had exchanged 4.2 units to the Dollar in 1918 at the end of the war. The German SAP started in 1919. One year into the German SAP, 1920, the German Mark exchanged for 63 Mark to the Dollar. In 1921, 200 Mark exchanged for one Dollar. In 1922, 2000 Mark exchanged for one Dollar. By 1923, the German Mark collapsed, 4.2 trillion Mark exchanged for one Dollar.

The German economy and the machinery for fighting the war were destroyed. The Germans and Germany were destroyed. Could the Allies have subjected Germany to the German SAP to strengthen Germany economically and in military terms at the end of the war? The mandatory devaluation of the German Mark destroyed Germany, a world power.

Mandatory devaluation has no benefit for agricultural/artisan economies. The mandatory devaluation dismantles the production-activity linkages in the economy. The activity-linkages are destroyed by the sudden increase in prices, by presenting money (foreign currencies) as  commodities rather than means of exchange and by increasing speculation and decreasing all learning (long-term activities) in an economy.

The artisan industry is dead in Nigeria because there are no more apprentices. Young people do not want to learn work as motor mechanics, electricians, blacksmith, furniture and upholstery makers, radio and television repairers, plumbers, panel beaters and spray painters, tailors, etc. Rather, young people are riding motor cycles and selling imported articles and Dollar/Pound and making quick money.

Before the establishment of guilds, skilled workers existed in Saxon and Northern England in the period 5th-12th centuries. Weaving, pottery, glass blowing, construction work, minting and metal works, were the common trades of the day in England. Britain did not establish any educational system till long after the nation achieved the modern Industrial Revolution (IR).

It was through learning on the job that artisans acquired the knowledge, skills and competences that characterized the first modern IR which Britain achieved in the period 1770-1850.

Economists, accountants and bankers in the Central Bank of Nigeria always adopt the devaluation option because they do not know anything else to do since they do not understand the development process. What Nigeria should do is to promote rapid technological growth and industrialization.

Nigeria and many other African nations were forced to adopt SAPs because the West claimed, African nations had become too heavily indebted from consuming too many manufactured goods they do not produce.  How does Nigeria today compare with Nigeria in 1986? It is almost 27 years of disgrace for Nigerians and other Africans.

Africans are probably illiterates with respect to African problems. If Africans were knowledgeable with respect to African problems, African nations would never have adopted SAPs and their contents including the mandatory devaluation machinery – the foreign exchange market, deregulation and privatization.

 


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