Access To Markets By SMEs By IKE ABUGU, Ph. D. President & Chairman of Council Nigerian Association of Small& Medium Enterprise (NASME). Chief Executive, The Skyward Group An invited presentation at a Stakeholders’ Consultative Forum on Small & Medium Enterprises (SMEs) organized by The Nigerian Economic Summit Group on 14th September, 2006 at Golden Gate Restaurant, Ikoyi, Lagos.
On behalf of the Governing Council of the Nigerian Association of Small and Medium Enterprises (NASME), I wish to salute the wisdom of the NESG
in convening this Stakeholders Consultative Forum on Small & Medium Enterprises (SMEs)
NASME deeply appreciates the opportunity to be an active participant in this forum
The spectrum of issues slated for discussion, including Regulatory, Infrastructure, Capacity Building and Access to Markets and Finance are topical and demand urgent action, not talkshops
My members and millions of SMEs in Nigeria really hope that something tangible and positive will come out of today’s Forum, since many of them are now literally living on the precipice, while a good number are long dead
THE REAL PROBLEM
Although I was asked to speak on access to markets by SMEs, I crave your indulgence by re-stating what I think is the real problem.
The fundamental thesis of my paper is that Nigeria SMEs do not have the capacity to compete in global markets because they cannot produce world-class goods and services.
Therefore, the problem is not lack of access to global markets, but lack of productive capacity on the part of SMEs, which in turn is caused mainly by the harsh operating environment in Nigeria.
In other words, the problem is internal and self-inflicted; its no use blaming others for our own failings, both at the level of enterprise, and as a nation unable to unleash the productive capacity of its entrepreneurs.
Industrialization and trade, especially export trade, are therefore closely interlinked; the relationship is that competitive industrialization precedes strong presence in world markets, not the other way around.
This is not to say, however, that barriers to market access by African SMEs do not exist in European, American and Asian markets. They do.
For example, new European Union Legislation makes producers/exporters responsible for the prevention, reuse, recycling and recovery of electrical product waste under a new environmental barrier, according to a recent publication by the United National Conference on Trade and Development (UNCTAD, April, 2006). Generally, the advanced countries often create and impose standards with little regard to exporting countries. This means any firm that is serious about competing globally has to have the capacity to respond to these ever-changing standards and laws. Majority of Nigerian SMEs are clearly not in position to face this kind of challenge.
Let us now look at concrete cases to illustrate the points made above.
2.1 NIGERIA’S NON-OIL EXPORT PERFORMANCE
It is a well-known fact that Nigeria’s non-oil exports account for less than 5% of our total export earnings
The following table gives an insight into Nigeria’s recent export performance, especially as it concerns exporting firms, value addition, destination and value of exports
* the table, together with our review of Nigeria’s performance under the African Growth and Opportunity Act (AGOA) will give us a good idea of how things stand in terms of our global competitiveness.
5 Advanced Business Processed Furnished Croatia, ($3.33m)
6 Agro Forest Sawmill Semi-processed –Iroko Egypt
7 Agro Impact Ltd Processed Gmelina France
8 Alpha Wilonat Wood Charcoal Germany
9 Amore G. Ltd Lumpwood Charcoal India, Indonesia
10 Apicman Ltd Processed Guelina Italy
Product Export Firms Value Destination Value (Q1, 2006)
11. APN Ltd Wood Charcoal Netherlands
Contracting Lumpwood Charcoal Pakistan, Portugal
13. BJ Export & Wood
Chemical Charcoal Singapore
14. Bammithomas Ltd Processed wood
strips United Arab
15 Banmark Int’l Charcoal
16. Barmba Furniture
17. Baron & Winnic Processed wood(apa)
18. Bas Industries Semi Processed Spain
Product Export Firms Value Destination Value (Q1, 2006) Addition (Total)
19 Caprisage Export-
Wood & Furniture Ltd Processed apa
20 Celina Industries Briquettes/Charcoal
21 Chamagro Ltd Semi-process wood
( ebony billets)
22 Concord Overseas Ltd Semi-process
23 Eplasi Ltd Processed APA
24 Felkar Int’l hardwood charcoal25
25 Gamidoc Ltd “
76 Zabad Investment Charcoal
THE AFRICAN GROWTH AND OPPORTUNITY ACT (AGOA)
This is a trade instrument that came into effect in May 2000 which provides for duty-free and quota-free exports into the United States by Sub-Saharan African (SSA) firms.
The range of non-oil products that can be exported to the US are broadly classified into textile/apparels and non-textile/apparels.
AGOA pursues two objectives:
a To assist SSA economic development by promoting trade and investment.
b To encourage regional economic integration in SSA through increased trade among SSA countries (intra AGOA business).
* The latest version of the legislation extends AGOA from 2008 to 2015 and extends “third
country fabric” clause from 2004 to 2007.
* For a country to participate in apparel trade, it must obtain the AGOA textile visa which Nigeria obtained in July 2004.
Intra-AGOA trade with AGOA-eligible SSA countries can be established, particularly in the supply of yarn and fabric manufactured in Nigeria to apparel producers in eligible countries
already exporting apparels to the US.
To export non-textiles/apparels products from Nigeria under AGOA, such
products must be manufactured in Nigeria with at least 35% of value addition!
Herein lies the problem
-In addition, a manufacturer/exporter requires:
* Quality finishing and acceptable packaging of products
* Competitiveness in price
* Ability to deliver large orders on time
* Record keeping of detailed production information
* Compliance with the rules of origin.
Nigeria is a beneficiary under the Generalized System of Preferences (GSP) programme of the US which provides preferential duty-free entry for more than 4650 products from about 140 LDCs. Under AGOA, over 1800 products are added to the GSP list entitled to duty-free and quota-free (in most cases) treatment when exported to the US.
The broad range of products exportable under AGOA include agricultural and forestry products, footwear, fats and oils, fruit juices and preparations, leather articles, solid minerals and tobacco.
SUMMARY OF NIGERIA’S AGOA PERFORMANCE
According to the latest AGOA Competitiveness Report, Nigeria’s exports to the US consisted almost entirely of petroleum and energy products (95%). Other exports, though negligible, include cocoa and cocoa preparations, tanned hides and skins, and crustaceans!
According to “The Guardian” of September 1st, 2006, most African countries (except South Africa) will lose out in textile trade with US despite AGOA because of their inability to produce synthetic yarn.
To make matters worse, the Multi-Fibre Agreement (MFA), which had provided for a ready textile market for firms from Africa and other LDCs, was phased out in 2005. In effect, a sector that had been protected for 30 years was opened up to market forces (under WTO)!
Other African countries seem to have benefited more from AGOA than Nigeria. For instance, because of AGOA, US imports from Kenya, Lesotho, Madagascar, Mauritius and South Africa increased by 66% between 1999 and 2001. in 2003, Africa exported $1.2 billion worth of clothes and textiles in the US, a 50% increase from the previous year.
But according to a study by the US Trade Commission, Africa’s overall share of US apparels will fall notwithstanding the AGOA preferences. Already, Q1 2005 results show that textiles/apparels exports from Africa to the US fell to $279 million from $370 million during the same period the year before even when the MFA quotas were still in effect!
Most of our exports (over 90% in the case of cashew nuts, for example) are unprocessed. They are mainly raw materials for use by industrial firms abroad. Out of 19 firms that export cashew nuts, only two process their products. Similarly, an overwhelming majority of wood/furniture exporters do not do much value addition. They just export planks, billets, “processed” wood etc
Because there is little or no value addition, prices are low, giving rise to low export value overall. For example, 19 Cashew exporters could only make a total of slightly over a million dollars in Q1, 2006. The situation is almost similar for wood exporters, where over seventy firms could only generate a little over three million dollars during Q1, 2006 (average of $43,000 per firm).
Although adequate data are lacking, it is safe to assume that most of the indigenous exporters are SMEs, going by the volumes of their exports. In terms of value of export proceeds, multinationals and other foreign firms account for over fifty per cent.
It is clear that, so far, Nigeria has not risen to the challenge posed by AGOA, especially as regards value addition and Sanitary and Phytosanitary Standards (SPS) of the US Department of Agriculture. Generally, our non-oil trade with the US is relatively insignificant.
The destinations of our exports show where the major processing and manufacturing centres are currently located in the world. Thus, raw cotton goes mainly to Asian countries, leather to Europe and USA and wood to Asia and Europe.
We have seen that there is a fundamental problem with SMEs in Nigeria as regards access to world markets: we do not have the capacity to manufacture goods for export. The problem is not lack of access to markets; it is lack of competitive products. Although advanced countries sometimes introduce difficult standards, those standards can be met once our SMEs are empowered.
The problem exists at two levels; firm level and government level. Enterprises must, as a matter of survival, acquire technological, manufacturing, research, marketing and management capabilities to enable them compete globally. Governments at all levels must provide the enabling business environment.
The export table was compiled from data supplied by the Nigerian Export Promotion Council. We are grateful to them, especially the Research Department.