By UDEME CLEMENT

Mr. Ikpong Umoh, is the Chairman, Toiletries and Cosmetics (T&C) group of the Manufacturers Association of Nigeria (MAN). He spoke on the recent appointment of the new Managing Director, Bank of Industry (BOI), the failure of Small and Medium Enterprises Investment Scheme and numerous challenges facing the Small and Medium Enterprises sub-sector of the economy.

Excerpts

The Federal Government has just appointed Mr. Rasheed Adejare Olaoluwa, as the new Managing Director and Chief Executive Officer of the Bank of Industry (BoI). What do you think is the task before him?

The task before him is to restructure the programmes of BOI to accommodate new SMEs in order to enhance job creation. For Nigeria to achieve tangible economic growth and development like advanced countries, we need many SMEs to spring up across every part of Nigeria. The bank no doubt plays a role in terms of interest rate, because BOI charges lower interest rates ranging from six to eight per cent. It deals with single digit interest rate and the companies getting loans are allowed to use the money over a year before they begin to pay back, but that is not enough.

So far, how has BOI impacted on the SMEs sub-sector?

The bank has not impacted positively on many SMEs, especially in the area of start-ups. For instance, about 130 manufacturing companies, mostly toiletries and cosmetics closed shop in Nigeria in the past few years, yet we have a financial institution like BOI. The bank is only targeted towards existing firms and nothing tangible is done to assist new SMEs that are just coming up in the sector. Also, the bank gives loan only for equipment as well as expansion but nothing for raw materials, forgetting that machinery alone does not make a firm.

Some years back the Small and Medium Enterprises Investment Scheme was established to nurture the growth of SMEs. How useful has this scheme been over the years?

The Scheme was set up through the initiative of the Bankers’ Committee, to reinvigorate SMEs in the country. Under this scheme, all commercial banks were to set aside their 10 per cent profit before tax, for investment in the industry, based on equity participation. Meaning that, if an SME operator approaches a bank, such bank ought to assess the total network and organisational structure of the company to determine the amount of investment in that firm in order to invest more in it.   Assuming the total investment capacity of the company is N100million, the bank is expected to bring in another N100million and its director to be on the Board, to monitor the activities of the company for a specific period. After a while, the firm would repay the bank the money brought in on equity basis for a period of five years.

Once that is done, the bank would remove its director for the firm to stand on its own.

The scheme was a total failure because banks did not understand the workings of SMEs. They wanted a quantum leap in business but SMEs do not work like that. The banks assumed everything was high in terms of big pay for the bank director, official car and renovation on ground, not knowing that SMEs require slow and steady process not quantum leap in the market. So, when money came in, they used it to pay high salaries while the business suffered.   The banks’ scope of planning did not fit into the business structure of SMEs.

Are you saying that payment of salaries was wrong?

No, payment of salaries was not the problem. The issue was about the salary structure. For instance, a small scale business must have operated with a salary structure of N500.000, but the bank director came in and fixed a salary structure of N1.5million. That greatly affected the marginal increase realised by the company. At the end, the firm could not optimise reasonable outputs to stay afloat in business.

The Central Bank of Nigeria (CBN), under Sanusi Lamido Sanusi, granted a bail-out of N200billion to the real sector. How has SMEs benefited from this fund?

I have not seen the money. I do not know of any SME operator in T and C group of MAN, who has benefited from it. Government should publish the names of the companies that collected the money for everyone to know. This is the only way we could ensure transparency in the system.

What measures should government put in place to turn around the SMEs sub-sector?

Government should jettison toxic economic polices capable of destroying our economy. Such policies include global listing, policy on Foreign Direct Investments (FDIs) and the move by government to ban tokunbo vehicles. These polices are working against our economy in various ways. For instance, the policy on global listing has paved the way for us to have over 90 per cent foreign made cosmetics products in Nigeria, whereas these products could be produced locally to create more jobs.  Foreign investors do not come to Nigeria and build factories, rather they are foreign importers, who obtain licenses under global listing chain and import foreign products from their parent companies abroad to Nigeria. You could see how they are working against us.

Now, the foreign investors that are asking government to ban tokunbo cars are trying to do the same thing. They want to monopolise the economy while local firms go under. Some foreign investors would come to Nigeria without money. They come here only for banks to team up and syndicate loans to them to kill our economy. Today, we use foreign cosmetics that are not developed according to our skin and climate and nobody is saying anything. Our government must wake up to its responsibility for our economy to move forward. Government should assist local manufacturers to thrive and create jobs for our people and stop looking for foreign investors who are only interested in their own economic interest.

Cosmetics and toiletries business is one of the fastest growing in the world, why is Nigeria lagging behind?

Nigeria is lagging behind because of toxic economic policies and lack of transparency in the system. Government lacks the political will to take decisive actions on certain issues. Who would salvage this situation and bring a plain level playing field, so that local cosmetic manufacturers can thrive and rank among the top 20 cosmetics in the world?  In the last 20 years, Global Beauty Market has grown on the average by 4.5 per cent a year. In some countries like the US, Germany, China, Japan and Britain, the annual growth rate ranges from around 3 per cent to 5.5 per cent.

In Africa, countries like South Africa and Nigeria experienced strong growth in the last 10 years and should achieve stable and continuous growth in the years to come. It is estimated that by the year 2017, the Global personal care market would have grown to about $630billion in value. In Nigeria, the major beneficiaries of this growth are the foreign- made cosmetics firms. Foreign products occupy almost all the major shelves in the open markets and supermarkets.

Our policy on global listing for super and hyper markets has become the “new iron curtain”, which ensures that the indigenous cosmetic manufacturers are screened out of the current and future boom.

Looking at the activities of SMEs in 2014, do you think government is doing enough to rejuvenate the sub-sector?

Well, efforts are being made by government to grow the SMEs but the policies and programmes mapped out only operate on paper and nothing on ground to stimulate industrial growth. Even agencies established to nurture the growth of SMEs operate only in Abuja, without offices and field officers in strategic locations within the country. For example, Nigeria Industrial Revolution programmes was launched recently by government, to kick-start industrial revolution in the country. The current Minister of Industry, Trade and Investment, Olusegun Olutoyin Aganga, went to Brazil and signed a Memoranda of Understanding (MoU) with the Brazilian government to partner with Nigeria in reviving SMEs. A lot have been done on paper but nothing practical to fast track development of the sub-sector.

The situation we are experiencing in this country is terrible. Up till now we do not have electricity for businesses to thrive despite the privatisation of Power Holding Company of Nigeria (PHCN).