IMPLEMENTING THE NEW PARTNERSHIP FOR AFRICAN DEVELOPMENT (NEPAD) BY PROMOTING THE DEVELOPMENT OF THE SME SECTOR IN THE CONTEXT OF CAPITAL MARKETS IN AFRICA

by Chief Dennis O. ODIFE
(Article Reference: Document No.18, November 2002)

Solving the Infrastructure Problems of SME/SSI
During the earlier aforementioned presentation, I explained that one of the problems of our SMEs is the high cost of infrastructure, which they have to bear alone. I remarked that:

"… I cannot end this address without looking at the problem of infrastructure which increases the cost of investment for all in Nigeria and especially the SME/SSI who are least equipped to bear the burden. In this category are power, water, transportation, communication and security. One thing such infrastructure have in common is that they are crucial and it is easier to own them jointly than for each of us to try to provide his own. The second feature is that they are large in scale and expensive to construct. It takes a very long time to recover the investment in them. Usually, they are funded with debt rather than with equity, long-term debt of the sort that we in Africa do not have the markets, with the possible exception of South Africa. Because of these features they are best provided by utilities, or by a central authority. …"

Such infrastructure includes the cost of land, fencing, security, factory building, power and water. On average, the 80:20 rule in which 80% of the costs of the SMEs abroad are spent on equipment and 20% on infrastructure is reversed in Nigeria such that 80% is spent on infrastructure and 20% on operating equipment. For the success of the scheme to be guaranteed, there is need to assist the SMEs to reduce the cost of infrastructure. One way to do this is to assist them to operate in clusters or in Industrial Estates, of the type in Wales where basic infrastructure is put in place. The Nigerian Vision 2010 report fully anticipated this solution in 1997 when it proposed the establishment of 'industrial clusters' in various parts of the country. The eventual coalescence of these industrial clusters would make Nigeria one giant industrial conurbation in Africa.

The approach, which I would suggest, is for banks, working alone or in collaboration with themselves or with state governments and other high net worth individuals, to jointly establish industrial estates. These estates will bear the cost of infrastructure and pass them on gently to SME/SSI, which take up abode in such estates. Aside from Wales, I suspect that this is something we can learn from South East Asia, and that it will be an additional contribution by us to our economy as we try to take advantage of the Nigerian Banks SME Funding Programme.

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