Presentation given by Michael Faniran, Senior Manager, Accenture Nigeria at the Business Outlook for 2016 session at FATE Foundation on the 14th of January, 2016

1. Survival Strategies for Small &
Medium Enterprises
January 2016

2. Copyright © 2016 Accenture All rights reserved. 2
Donald Rumsfeld Risk Classification
2
Known Unknowns 3
Unknown Unknowns 4
Known Known
1
5Key Responses
Outline

3. In February 2002, Donald Rumsfeld, the then US Secretary of State for Defence,
summarized the state of security using three “strong” terms….
These are things we
know that we know
Threats we know will
mostly likely occur and
can easily estimate their
impact
Known Knowns
These are things that we
now know we don't know
Threats we know exists but
can’t easily estimate how
they will play out or the
extent of their impact
Known Unknowns
There are things we do not know we don't know.
Threats we never anticipated or ever considered
Unknown Unknowns
3
1
2
Unknown
Unknowns
Known
Knowns
Known
UnknownsThreats /
Assumptions
…This categorisation can likely be applied to illustrate the types of threats
confronting SME development in Nigeria
3

4. Known Knowns
01

5. Copyright © 2016 Accenture All rights reserved. 5
The Known Known Threats constitute Regulatory and Market driven
threats
- Regulatory Reforms
• Removal of fuel subsidy will be positive to the economy in the long run
• However, short term impacts are limiting:
- Sharp rise in inflation
- Higher operating costs particularly in energy and transportation
 Removal of Fuel
Subsidy
Threats Scenario & Implications
 Increase in Tax
Rates
 Exclusionary
Foreign Exchange
Policies
 Re-organisation
of Government
Agencies
• Possible increase in VAT from 5% to 10% and tightening of tax collection
loopholes which may include imposition of higher fines for defaulting SMEs
• Higher operating costs
• Exclusion of purchase of forex from official windows to fund importation of
common goods and household items eg. Textiles, poultry
• Import dependent SMEs would have to seek out alternative local options
• Change in leadership of federal parastatals as seen in FIRS, NPA and Customs
• Stricter implementation of internal revenue generation polices e.g. higher
custom duties and demurrage, elimination of import waivers

6. Copyright © 2016 Accenture All rights reserved. 6
The Known Known Threats constitute Regulatory and Market driven
threats
- Market Trends
• Limited access to finance will be driven by:
- Complex application procedures
- Unfavorable interest rates (much higher than those charged to large firms)
- High collateral requirements
• Hinder individual business sustainability and overall economic growth
 Limited Access
to Capital/
Finance
Threats Scenario & Implications
 Rise in Retail
Culture
 Declining Oil
Prices
 Wide Talent Gap
• More retail malls will be opened in 2016- over 10 new outlets scheduled for
launch
• This will serve as shopping destinations for the middle class, which may
reduce patronage of SMEs.
• Declining oil prices and the unwillingness of the CBN to devalue the Naira
amidst constrained reserves continue to worsen the forex liquidity position of
Nigerian banks
• Higher interest rate for SMEs
• Unavailability of a essential and required expertise in production,
procurement, finances etc
• 90% of SME failures result from lack of experience and competence

7. 02Known Unknowns

8. Copyright © 2016 Accenture All rights reserved. 8
The Known Unknown Threats
 Insurgencies/
Agitation
Threats Scenario & Implications
 Ongoing
Corruption War
 SME
Intervention
funds by CBN
 Digital
Commerce
• Conscious and aggressive effort to recover misappropriated funds is creating
tension in the polity
• Possibility of some Nigerian Banks to be indicted leading to general decline in
liquidity
• Poor utilization rate (less than 30%) of the N220bn MSME Development Fund due
to misalignment with government priorities and growing risk profile of the sector
• This further limits SME access to finance
• Explosion of e-commerce and online retailing with the emergence of fast rising
online outlets like Jumia & Konga
• Driven by high smart phone data penetration (over 97 million users in 2016)
• SMEs without web presence might witness significant revenue losses
• Security challenges in the Northern part of the country
• Ongoing secessionist agitation for a breakaway Biafra republic from Nigeria
• This has brought about series of protests in the eastern part of Nigeria
• Increased business disruption as protest are likely to extend to other parts of
Nigeria.
• Decline in investment inflows

9. Copyright © 2016 Accenture All rights reserved. 9
The Known Unknown Threats
• Possibility of radical policy changes within the US following outcome of
presidential elections.
• Aggressive focus on *STEM policies may exclude Nigeria from foreign aid in
priority sectors like Agriculture and Solid Minerals
 Outcome of
US Elections
Threats Scenario & Implications
 Transition to non-
fixed collateral
system-
 Global Security
Challenges
• 80% of assets of SMEs are moveable (e.g balance sheet) while 20% are
immoveable hence transition to non-fixed collateral system is probable.
• Absence of advanced financial reporting capacity will lead to lower access to
funding
• Global terrorism and migrant challenges may lead to stricter immigration policies
targeted at developing countries
• Import of highly skilled technical workforce through exchange programs will be
restricted or inaccessible
*STEM (Science, Technology, Engineering, Math)

10. 03Unknown Unknowns

11. Copyright © 2016 Accenture All rights reserved. 11
The Unknown Unknown Threats
• Global focus on sustainable development may require businesses to show
evidence of sound sustainable/green practice as a requirement for receiving
domestic or foreign loans
• Green technology has become a viable tool for reviving economic growth
(e.g.China), however Nigeria lacks technical capacity in this space
 Global Focus On
Sustainable
Development
Threats Scenario & Implications
 Climate Change
 Influx of Strong
Foreign
Competitors
• Extreme weather conditions can cause irreversible havoc to SME equipment,
products and overall business stability
• PwC recently ranked Ibadan and Lagos amongst the “Top 10 Next Most
Attractive African Cities for Investment”
• As Africa’s largest economy, Nigeria’s profile as a viable investment hub will
continue to be on the rise
• Local SME players may be phased out

12. 04Key Responses

13. Copyright © 2016 Accenture All rights reserved. 13
Key Responses
Funding
Regulatory Compliance
• Expand your network to include HNIs
• Be open to equity investments from friends and families; patience capital
• Explore alternative channels of investment including crowd funding
• Develop a good and bankable business plan
• Strict cash management system
• Understand buyer values and define unique value propositions
• Improve quality of your products to make them acceptable by large chains
like Shoprite and top e-commerce sites
• Conduct customer satisfaction survey to gauge unique customer needs
Energy / Operating Cost
• Take full advantage of affordable mobile solar systems e.g. MTN’s SIM-enabled
Mobile Electricity Solution to reduce energy costs
• Adopt shared services model - share back-office function professionals instead
of hiring them
• Modify your production technology
• Rent instead of buy or sublet some of your existing space.
Retail Culture
• Improve compliance with set laws and policies- prepare your
books/operations for scrutiny, strengthen corporate governance, pay
relevant tax.
• Leverage SME trade groups in lobbing
• Strengthen competency in corporate governance, financial management,
financial reporting and compliance

14. Copyright © 2016 Accenture All rights reserved. 14
Key Responses
FOREX Restrictions
• Expand supply network to include more local partners
• Play in the export space to earn FX-particularly agric produce,
textile and arts
Value Chain Focus
Technology / Digital
• Maintain an online and off line presence
• Enlist products on reputable marketplaces – Jumia, Konga etc
• Deepen digital/e-commerce reach in risky regions
• Be a niche player and specialize in specific segments of the
value chain
• Be clear about your long term objectives
Management Capability
Competition
• Understand buyer values and define unique value propositions
• Improve quality of services, innovation and sophistication of portfolio to
sustain competitiveness
• Keep abreast of latest trends in your field of expertise
• Build partnerships with foreign partners
• Understand the business model
• Spend more time to find good talent and find ways to keep them – can include
making equity options
• Partner with available skill development hubs offered by Deposit Money Banks;
Bank of Industry; CBN; NGOs
• Engage SME consultants to build capacity and core skills
• Leverage online training sources like Cosera for SME focused courses

15. Copyright © 2016 Accenture. All rights reserved. 15
Questions