We Can’t Make Any Headway In Economic Recovery Without Massively Supporting The Private Sector – HE Peter Obi.

At the 60th Founders’ Day Ceremony held at the University of Nigeria, Nsukka on October 7, 2020, HE Peter Obi was at, perhaps, his impevious best.

While reeling out economic and social realities of a decaying nation and comparing with other nations of the world we should be competing with, most people at the well-distanced sitting hall couldn’t believe one could stand for almost an hour, to lecture such highly enlightened audience from memory.

He seamlessly moved from segment to segment without losing track of the main theme – Nigeria At 60: The Journey So Far And The Ways Forward.

He firmly believes that the strength of any nation revolves around her economy which influences all indices of the Human Development Index, the real barometer of measuring any nation’s overall development.

On this segment, he dwelled on the importance of the private sector to any nation’s economy.

Read him…

“Many studies have shown a strong relationship between support for Micro, Small and Medium Enterprises (MSMEs) and employment creation, growth of GDP per capita, and overall growth of the economy. Again, I will be illustrating with the two economies I had earlier mentioned: China, which is the fastest growing economy within the block of the Brazil, Russia, India, China and South Africa (BRICS) and Indonesia which is the fastest growing economy within the Mexico, Indonesia, Nigeria and Turkey (MINT) nations.

“CHINA:
MSMEs in China which constitute about 95% of Chinese firms, account for 60% of China’s GDP and contribute more than 65% of the import and export business in China. They also contribute about 50% of the overall tax revenue of government. MSMEs constitute about 95% of all enterprises in China. China’s GDP is today about $14 trillion, which means that 60% translates to about $8.4 trillion – about 21 times the GDP of Nigeria.

“MSMEs account for over 60% of industrial output and provide over 60% of the overall employment and 80% of urban employment in China.

“Talking about the growth of the MSMEs, 10 years down the line, 60% of these MSMEs have shown to become large corporate when compared with Nigeria that 96% are still at the Micro stage.

“China has about 840 million people employed (which is 60% of the population), and MSMEs provide 60% of these, which is 500 million people. In urban employment, the contribution of MSMEs is even greater – 80% of urban employment is attributed to MSMEs. Of about 500 million people employed in urban areas, MSMEs employ 400 million.

“China had planned to create 50 million jobs from 2015-2020, which is 10 million annually, and is religiously following the plan year-on-year. In fact, China has consistently surpassed its annual target. China has an unemployment rate of only 3.7%.” He paused here to re-emphasise while the audience evidently took note.

Then he continued.

“Let’s go to INDONESIA: MSMEs in Indonesia are contributing about 65% of the GDP. So, with their GDP currently at about $1.120 Trillion, the contribution of MSMEs is $720 billion (which is about twice Nigeria’s GDP), with MSMEs employing over 90% of the Indonesian workforce.

“Indonesia, with a population of 260 million, has about 150 million of its population as the workforce, and MSMEs employ over 90% of this workforce, which is about 135 million.

“Indonesia has a specific ministry dedicated to cooperatives and MSMEs.

“MSMEs are the backbone of the Indonesian economy. The country has an unemployment rate of 4.5%.

“You can see that while both countries have under-employment/ unemployment rates of below 5%, ours is clearly above 40%.

“I know there is much talk about MSMEs and grant support in our dear country, but I can categorically say that that sector lacks all the required support.

“Let me mention here first that any country where the public debt is higher than the private sector debt, that economy will not do well. That means it is not a productive economy, which is the case with Nigeria. This means that the MSMEs are not supported, in spite of all the noise making.

“Today, the overall banking loan is about N20 trillion of which about 5000 firms control 75% which is about N3 billion each. The total number of MSMEs in Nigeria is about 45 – 48 million MSMEs according to SMEDAN. With total loan of under 5% (about N1 trillion which is just about N22,500 each), this makes it impossible for them to make meaningful contribution to our economy. Compare this to China where the MSMEs currently own 25% of the overall $36 billion debt of China, which is about $9 trillion in contrast to Nigeria where MSMEs are holding only about $2.5 billion (N1 trillion).

“In fact, in the recent China Annual Parliamentary Gathering, Premier Lee Keqiang said that Commercial Banks should increase their lending to MSMEs to 30%.

“In Indonesia, the case is similar; MSMEs hold about 20% of the overall debt of about $1.5 Trillion. The Government has taken significant measures to increase assets to banks; the most important of these is that banks must give loans of at least 20% to these MSMEs and this is strictly complied with.

“One could ask: Where do you get the money to effectively support MSMEs? Before I go on about the sources of the money, let me give an example from a last year conference of Tony Elumelu Foundation which I attended. The CEO of the Foundation, Mrs. Ifeyinwa Ugochukwu, unequivocally stated that every entrepreneur they have supported with $5,000 creates twenty (20) jobs after a year of operation. Many other speakers after her confirmed that position.

“Our current total public debt profile today is about $100 billion. Once again, let me state categorically that there is not much to show for this huge debt, yet we are piling up more. If as a nation we had set aside a quarter of this debt, which is $25 billion, and committed it to grants and credits to support MSMEs and entrepreneurship, we would have been able today to support 5 million MSMEs and entrepreneurs. Let me assume that only about 75% of them, which is 3,750,000, are able to create 50% of the jobs that the CEO of Tony Elumelu Foundation mentioned (which is 10), that would be a total of 37,500,000 new jobs. With this, we would not be talking of the number of people living in extreme poverty and the number of unemployed youths we have today. Similarly, both our GDP and our income per capita would have been on the increase and not on the decline, as they are today.

“Today, all you hear is that our tax revenue to GDP is too low. Everybody knows that when it comes to tax revenue, it is directly linked to employment and economic growth. The better your economy and employment, the more tax revenue you would collect because you cannot tax unemployed people or businesses that are losing money, which is what we are doing today. This is not to overlook the issues bordering on efficiency of our tax administration, enforcing compliance by businesses and households and reciprocity on the part of government to provide public goods and services. For example, in China, MSMEs do not just contribute over 60% of GDP, and over 60% of Industrial output and over 60% of employment, they also contribute about 50% of tax revenues. China’s $4.00 trillion annual expenditure budget is 80% financed through tax (about $3.2 trillion) and MSMEs contribute 50% of this ($1.6 Trillion). So, if you want more tax in Nigeria, all you need is to aggressively support the economy, to be driven by the private sector by supporting entrepreneurship, especially within the MSMEs, to pull the 98 million Nigerians out of poverty.

“Even with the disruption of our economy by the COVID-19 Pandemic which has helped to clearly show that our economic compass is no longer pointing in the right direction, thus making our country economically unviable, we are yet to come up with the required stimulus for turning around the economy.”

The vice presidential candidate of the Peoples Democratic Party, PDP in the last presidential election continued.

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