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Boosting SMEs via capital market financing

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The development of small and medium scale enterprises (SMEs) industries is germane to job creation and boosting the economy. Chris Ugwu writes on the need to bridge the financial gap of the sector through the capital market.

According to reports, SMEs account for over 80 per cent of enterprises in the world and are responsible for 50 to 60 per cent of employment. Developing countries such as Nigeria have a lot to gain by helping the SME culture to thrive.

This is because the country can only develop better and survive economically under a thriving SME culture. Despite the widely acknowledged role of small and medium scale enterprises in fostering economic growth and development, the SMEs in Nigeria have continued to face a variety of constraints.

Challenges

Some of the challenges they face are inadequate infrastructural facilities, shortage of skilled manpower, high rate of enterprise mortality, low level of entrepreneurial skills, lack of a conducive operating environment, restricted market access and cumbersome regulatory requirements.

However, a key problem for SMEs is the issue of access to finance. SMEs, especially in developing countries, suffer from lack of access to appropriate funds from both the money and capital markets. This is due in part to the perception of high risks resulting in high mortality rate of the business, poorly prepared project proposals, inadequate collateral, absence of verifiable history of past credits and lack of adequate historical records of the company’s transactions.

SMEs need adequate financing to meet needs at each stage of their life cycle, from creation through operation, development, restructuring, recovery and beyond. But presently, the interest rates from the nation’s commercial banks are either unaffordable or inaccessible to average Nigerian living in both rural and urban areas. This has indeed help to increase the level of unemployment.

Market watchers believe that if Nigerians have access to credit at below one per cent as it is in Japan and some developed countries currently, they would have closed the infrastructure gap in power, transportation, financial inclusion, among others.

However, since we have a situation in Nigeria quite different from that of the developed countries, it has become imperative that bank financing is not enough reliable source of financing SMEs, especially now that the economy is in periods of systemic recession, which has led some owners of SMEs to embark on suicide mission for inability to fulfill obligations.

Moreover, the regulatory measures taken after the financial crisis, such as strengthened rules on minimum capital requirements, created additional challenges on the financing of SMEs through bank loans. Consequently, the need for diversified funding sources for SMEs is growing.

Capital market financing

Currently, the share of SMEs financing through capital markets is rather below average in Nigeria, although capital markets offer an alternative long term financing  source. Governments and regulators have made efforts to promote the financing of SMEs through the equity markets.

In different parts of the world, SME markets have been established under the main exchange or as separate exchanges, where listing criteria and disclosure requirements are eased. Some of these models failed, whereas some successful models were introduced, in developed nations and emerging market countries.

The development of capital markets that SMEs can tap into is one of the policy challenges under the pillar of diversified financing modalities, which requires more sophisticated and innovative institutional arrangements in order to respond effectively to their real needs.

Regrettably, Nigeria’s dwindling economy is not helping most of the SME operators to optimise their potentials. Whereas, SMEs grow at almost twice the rate of Gross Domestic Product (GDP) in most markets across Asia, Africa and Middle East, Nigeria’s case is very different.

This is because a cursory look at trading activities at the (ASeM) equity market showed that it has either remained flat or recorded marginal upswing or downswing both on market capitalisation or index. According to 2016 market review, the NSE ASeM Index recorded marginal loss of 1.57 per cent from 1,208.65 Index points in 2015 to 1,189.69 in 2016.

Regulatory efforts

Since SMEs are vital for economic growth and job creation, they need adequate financing to meet needs at each stage of their life cycle, from creation through operation, development, restructuring, recovery and beyond.

That is why the NSE, as part of efforts to revive SMEs investment market, launched the (ASeM) -a specialised board to accommodate small and mid-sized companies with high growth potential seeking to access the capital market.

ASeM provides the opportunity for these companies to raise long term capital at relatively low cost from the capital market, while creating opportunities for growth and institutionalisation of companies listed on the board.

The board, which was specifically designed for emerging businesses, was expected to serve as a veritable platform for them to access the capital market for long term funding.

Also, the board seeks to address major challenges of emerging businesses in Nigeria, such as difficulty in accessing long term capital due to high cost of funds as a result of perceived high risk, informal nature of operations and inadequate accounting standards, controls and management of resources.

Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema said ASeM seeks to address major challenges of emerging businesses in Nigeria, such as difficulty in accessing long term capital due to high cost of fund as a result of perceived high risk, informal nature of operations and inadequate accounting standards, controls and management of resources.

However, the efforts of the regulators to revive the sector have yielded little or no fruits as a few companies listed on the sector have remained in abyss. The NSE-ASeM index, the barometer that measures the activities of the sector, has remained flat at 1,193.52 basis points since February, 2017 to date due to lack of patronage by investors, reflecting the depressive nature of the primary market, which serves as the SME’S window to the global investing community.

Foreign investors blamed

The slow growth of SMEs has given room to a situation where foreign investors still held sway in the nation’s local bourse. Market watchers are worried that if the domestic investors are not expanded the local bourse might face similar situation it witnessed during the global financial meltdown of 2007 and 2008.

Worried by the dominance of foreign investors in Africa’s capital markets, market operators have stressed the need for expansion of local institutional investment capacity to attract more retail participation and spur activities in the primary market segment. They noted that it is important for stock exchanges in the continent to encourage SMEs, which forms the bulk of local investors to help boost liquidity in the system.

They linked the current state of depression in the equity market to sell down by foreign investors who account for over 58 per cent of market transactions. The Chief Executive Officer, Compass Securities Limited, Mr. Emeka Maduibike, said that the population of Africans that invest in the continent are very low compared to developed countries.

Also, the Chief Executive Officer of United Capital, Mrs. Toyin Sanni, urged the African stock exchanges to support Collective Investment Scheme to thrive in the market.

“I don’t know why it has not been getting support. We need sponsors to succeed,” she added. The Chartered Institute of Stockbrokers had said that the Nigerian capital market was in need of entrepreneurs to boost activities and reposition the market for global competitiveness.

The institute noted that no capital market could thrive without the participation of entrepreneurs who have the capacity to bring their companies for listing on the stock exchanges.

Speaking on the roles of entrepreneurs, the Managing Director, Fortress Capital, Mr. Yomi Adeyemi explained that Africa has many entrepreneurs that could compete globally. According to him, there is so much that Africans could do on their own.

“We need to promote our entrepreneurs. As the present administration tries to tackle social problems including unemployment, the roles of entrepreneurs become more glaring. We must encourage our entrepreneurs to come and create more businesses and employ people,” he said.

Conclusion

SMEs need adequate financing to meet needs at each stage of their life cycle, from creation through operation, development, restructured during recovery and beyond.

However, efforts should be step up by NSE, banks and other market regulators to create enabling environments that would reduce to minimum level the challenges faced by this segment of the economy.

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Declining Interest in STEM Education in Nigeria: The Need for Urgent Intervention

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By 2030, more than half of the jobs in the world will be STEM – Science, Technology, Engineering and Mathematics – based. According to research from Brookings – a Washington based research institution – more STEM-oriented metropolitan economies perform strongly on a wide range of economic indicators, from innovation to employment.

But how prepared is Nigeria for this reality? Are students in Nigerian schools equipped to take advantage of this opportunity?

Technology companies are springing up, the number of jobs requiring STEM based skills is on the increase, but it is sad that Nigerian students are poorly equipped to fill this huge gap. The challenges range from poverty, poor school funding and waning interest from students, to poorly trained teachers, inadequate learning aids, incessant strikes, among others.

Consequently, traditional education in Nigeria is failing, with STEM education being the worst hit. Students are largely uninspired to pursue their passion in STEM related fields, thereby leaving them unprepared for the opportunities and challenges of the 21st century world.

In a quest to change this negative trend, integrated digital payment and commerce company, Interswitch is launching an initiative conceived and developed to promote STEM education in Nigeria by providing the right support and reward for students and other stakeholders.

The initiative, called Interswitch SPAK, is poised to support young Nigerians who are interested in acquiring the problem-solving skills that come with a solid STEM education, in order to fix the challenges facing Nigeria in various sectors of the economy. This initiative would ultimately position young Nigerian professionals to compete favourably with their colleagues globally.

To kickstart the initiative, a national science competition is set to begin in April 2018. The competition will feature students from all states of the federation competing in core STEM subjects like Physics, Chemistry, Biology and Mathematics.

The top two students in the competition will be awarded a five-year scholarship, a Mac laptop and gold trophy; and a 3-year scholarship, a laptop and a silver trophy respectively. While the third position will receive a-two-year scholarship, a laptop, and a bronze trophy.

This is indeed a laudable initiative which should increase student interest and enrolment in STEM subjects, among other benefits.

Owing to existing incompetence levels, a large number of jobs in Nigeria’s employment ecosystem have been outsourced to expatriates. Initiatives like SPAK will on the long run increase competitiveness and improve employment levels for Nigerians. And as a matter of cause-and-effect, improved STEM skills at the grass roots will equal greater employment, lower rate of job losses, higher exports and a direct positive impact on Nigeria’s GDP.

While STEM education may have been plagued by various challenges in the past, Interswitch SPAK is one great step towards ameliorating the situation, and it deserves the support and commendation of every stakeholder. One also hopes that other successful Nigerian tech companies will be inspired by this to create similar opportunities for the nation’s education system.

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Sokoto introduces tractor hire scheme

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Sokoto state government said it will start a tractor hire scheme to boost mechanization in farms and assist farmers to enhance their production capacity.

Governor Aminu Waziri Tambuwal stated this in Kware LGA when he inspected agricultural processing machines to be distributed to farmers under the state’s FADAMA III additional funding scheme.

“We are starting with 30 tractors, with each of the three senatorial districts to have 10 tractors each. This initiative will be implemented with the collaboration of the FADAMA III coordinating office, the state ministry of agriculture and the state investment company which will provide the tractors,” the Governor stated.

 

He said a strict vetting process will be implemented for those to benefit from the gesture.

“We want to ensure that both the small and large scale farmers have access to the tractors and other machineries.

“We hope to expand the scheme to ensure we have enough tractors to help our farmers have access to modern farm tools at affordable prices,” he added.

Tambuwal said 127 farmer Processing Groups, made up of 1,385 small-holder farmers, have benefitted from the agricultural processing machines and equipment distributed to farmers across the state by the FADAMA III office in Sokoto.

According to him, in addition to the creation of two agricultural produce aggregation centres in the state, eleven tomato production net houses have been established at various locations in the state.

“This gesture is part of our collective efforts towards modernizing our farming techniques so as to improve yield and income of our farmers,” he stated.

The Governor further revealed that 243 unemployed youths have been trained to embrace agriculture, saying this was done with a view to exploring the agribusiness sector and instilling in the youths and women the technical and practical skills that could enhance their competitiveness in agri-prenueship.

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Business

Accenture: Technology fast changing lifestyles

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Technology is now firmly embedded throughout our everyday lives and is reshaping large parts of society, Accenture’s Nigeria’s Managing Director Technology, Mr. Niyi Tayo, has said.

 

He said this during the presentation of a new report by the company in Lagos. Tayo explained that advancing technology is fueling intelligent enterprises and that this requires fundamental shift in leadership as contained in Accenture Tech Vision 2018.

 

According to him, just as cities developed around ports and then railroads, or people rebuilt their lives around electricity, the world today is reimagining itself around digital innovation — and, by extension, the companies that provide those services. He said this digital trend, thus, requires a new type of relationship, built on trust and the sharing of large amounts of personal information in a secure manner.

 

According to Tayo, Nigerian banks and telecommunication companies are also taking the first steps towards artificial intelligence (AI) to improve customer service by implementing chatbots. Besides, he said that they are beginning to use advanced analytics to provide next best product offers to increase product uptake and fraud analytics to manage risks.

 

The Technology Vision identifies five emerging technology trends that companies must address if they are to build the partnerships needed to succeed in today’s digital economy: The Technology Vision identifies five emerging technology trends that companies must address if they are to build the partnerships needed to succeed in today’s digital economy, which include citizen AI, extended reality, data veracity, frictionless business and Internet of Thinking (IoTh).

 

 

“Through these new partnerships with customers, employees and business collaborators, companies are building greater trust and further integrating themselves into society, becoming more indispensable and fueling their own growth,” Niyi said.

 

In the report, Accenture noted that adopting AI for growth and positive social impact means forming new partnerships with customers and business partners Rapid advances in AI and other technologies are accelerating the creation of intelligent enterprises and enabling companies to integrate themselves into people’s lives, according to the annual technology report that predicts key technology trends likely to disrupt business over the next three years.

 

However, capitalising on growth opportunities while also having a positive impact on society requires a new era of leadership that prioritizes trust and greater responsibility, the report said.

 

The 2018 study highlights how rapid advancements in technologies, including AI, advanced analytics and the cloud, are enabling companies to not just create innovative products and services, but change the way people work and live.

 

 

This, in turn, is changing companies’ relationships with their customers, employees and business partners. As part of the Technology Vision, Accenture surveyed more than 6,300 business and IT executives worldwide.

 

More than four in five respondents (84 per cent) agree that through technology, companies are weaving themselves seamlessly into the fabric of how people live today. For example, they reported that Google, through its many applications and analytics capabilities, has integrated itself into people’s everyday lives thereby influencing their way of life.

 

Google maps are used for journey management, references and suggestions on places, products and services of interest and through this, Google can shape people’s consumption behaviours. Also, Feedback from users can influence uptake of suggestions from Google by other people.

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