By Kalu Ndukwe
Small businesses play a huge role in socio-economic development of a country. They create employment opportunities for lots of citizens. In this regard, beside entrepreneurs whose inherent passion is simply to be self employed, many other individuals who would have been rather unemployed due to shortage of job opportunities for the teeming population, become productively engaged.
It is the inherent high potential of small businesses to facilitating reduction of unemployment, crime and the potential of growth, which will further create more jobs that makes governments to initiate various empowerment schemes that are aimed at providing leverage for the starting and running of small businesses.
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Classical Empowerment solutions
Some of the well known means through which empowerment programs have been implemented include:
- Training of individuals on relevant technical skills
- Start up capital grant
- Provision of motor vehicle, Tricycles and motorcycles, through loan scheme
- Provision of sewing machine, wheelbarrows, grinding machines.
The Real Challenge
Why it doesn’t really make economic sense to purport to have solved a problem today only for the problem to comeback tomorrow, it is very important to reexamine the real reasons for the implementation of empowerment of citizens to start their own businesses, so that efforts to achieve the objective(s), will assume a wholistic approach.
Empowerment programs assume rightly that the most serious challenges facing small business operators and unemployed youths are skill and funding related, hence the intervention in the area of training on relevant business skills, provision of start up funds and or equipment(s). It’s reasonable to suggest that the intention is for the business to thrive and grow. Otherwise, the whole exercise would have become a fruitless spending of taxpayers money.
But the obvious reality is that skill and funding (regardless of the nature of the funding), alone, in view of present realities, are rightly also, no longer sufficient catalyst for growth of small firms, due to the peculiar reason that the leveraging power of the above empowerment schemes, would have sufficiently been choked by growing level of infrastructural decay in power and road subsectors, with the attendant problems of exponentially increasing operation cost which can lead to suffocating of growth and even drowning of as many small businesses as possible.
A Specific Example for Clarification
A friend who started a fashion business, narrated, during a discussion, his battle to grow his business. The technical aspects of the challenge narrated is basically operation cost. To provide a clear picture: the most significant factors that have the lion share in growing his operation cost are traveling and power generation. With respect to travel expenses, the nature of the business involves traveling three times a week. Initially traveling cost of the business was averaging at 80,640 NGN per year for locations that it takes 30 minutes to one hour to reach. It currently averages at 216,000 NGN per year, for traveling thrice a week to those same locations which now consume upward of one hour thirty minutes to two hours. That’s about 168% rise in traveling cost excluding cost of additional time spent.
Why inflation has played a role in increasing the traveling expenses, two factors have contributed more to the rise. First is bad road and next is the inevitable option that to reach some of those places, one must take a bike to cross areas of roads that are presently impassable for motor vehicles, and then enter another vehicle after crossing those areas.
The next is powering of the business office which cost presently 420,480 NGN from the previous amount of 250,560 NGN per year excluding NEPA bill. (Well, it’s not forgotten that, at least, that name has changed). That’s actually 68% rise resulting from increase in cost of fuel. This sort of cost rise is not very helpful for a small firm whose average sales revenue growth for the period being considered, is just 33.333% to be at 2,880,000 NGN, that is, two million eight hundred and eighty thousand naira, per year. Especially, when it is viewed that cost of the products sold, rent and other important cost items have not been considered.
The Way Forward
Private initiative has a lot of role to play in driving creative reforms that reduces operation cost for small businesses. For instance, there’s this initiative in which the owners of businesses in a certain cluster decided to jointly acquire a heavy duty power generating set. The set operates 12 business hours a day. And each user pays 300NGN for each day the light is used. The obvious limitation in this sort of arrangement, is that, it is only appropriate for cluster of individuals whose operation does not involve use of heavy equipments. Otherwise, fashion designers, shop owners etc that may be favored by such arrangement, has no reason for not exploring that initiative.
The average cost of using personal small generator for 12 hours a day is not less than the amount stated previously above. Whereas, the reason the above scheme is favored among the pioneers of the initiative is because each user now spends just 86,400 NGN a year for using uninterrupted power for 12 hours a day, six days in a week, throughout the year. That’s equivalent to a cost savings of 334,080 NGN per year. Something of this nature is a sure-win short term solution, besides the drastic reduction in noise and air pollution that often follow the clustering of small power generator sets in small business areas.
Finally, it is emphasized that It doesn’t really make economic sense to purport to have solved a problem today only for the problem to comeback tomorrow. Free technical training and funding alone will not largely yield the expected results without business friendly environment. Good roads and electricity are very important enablers of small business survival and growth. Small businesses do not have the strong mechanism for coping with huge shock resulting from poor infrastructures. It’s in the best interest of the country, for the sake of the above reasons and many others, for more seriousness to be shown in improving power generation and changing the faces of our roads.
Well, the problem is larger than fixing roads and providing electricity. Of course for government to provide these, it still needs to spend money, plenty of it. And as it stands, the money isn’t just available.
Again, reducing cost of setting up and running small businesses is just one side of the issue, for businesses to grow and be sustainable, they must be selling. So therefore, when the buyers are few, the businesses will still struggle. This is because if you have ten businesses in an environment where only two hundred people are capable of buying few things, those businesses will struggle, the market isn’t big enough.
So everything will still fall back to growing the economy, which also implies increasing the pool of working class with disposable incomes. Without that, the small businesses can only buy and sell to themselves, but they still need to sell to people who have money to buy things, else everything remains flat.
So we need the corporations, as many as possible; they solve two problems: providing plenty of high paying jobs, and also being customers to those small and medium businesses; by way of supply chains. And at the end, more taxes to the government.
Just bake a massive cake, the rest will fall in line.