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Between FDI and promoting SMEs in Nigeria

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By Abdulrauf Aliyu

In recent times, the global economic landscape has witnessed a flurry of activity as nations strive to attract foreign direct investment (FDI) within their borders. Nigeria, a nation rich in resources and potential, has been no exception to this trend. President Bola Tinubu’s recent trip to India, where he engaged with the country’s business community, generated considerable excitement. Reports suggest that several Indian companies pledged to increase their investments in Nigeria after being lured by a bouquet of incentives. While this is undoubtedly a promising development, it is essential for Nigeria to tread the delicate balance between attracting FDI and promoting the growth of its small and medium-sized enterprises (SMEs).

The allure of FDI is undeniable. It brings with it the promise of capital infusion, technology transfer, and access to global markets. These are powerful catalysts for economic growth and development. However, it’s crucial to remember that the impact of FDI can sometimes be limited when it comes to job creation and the inclusive growth that many nations yearn for. In contrast, SMEs, when nurtured and supported, have the potential to be a robust engine for job creation, poverty alleviation, and equitable development.

To understand the significance of promoting SMEs, we can draw insights from countries like Malaysia, China, and Morocco. These nations have successfully harnessed the potential of SMEs while also strategically engaging with FDI.

Malaysia provides an inspiring example of how to strike a balance between attracting FDI and empowering SMEs. The country’s journey toward economic prosperity has been built on a foundation of comprehensive government policies. Malaysia strategically lured FDI to establish high-tech industries and export-oriented manufacturing while simultaneously nurturing its SME sector. The government’s active support, access to financing, and mentorship programs helped SMEs thrive. Consequently, Malaysia experienced remarkable economic growth and job creation. In 2020, SMEs contributed to over a third of the country’s GDP and employed approximately 66% of the workforce, illustrating the power of SMEs in driving economic inclusivity.

China, another success story, showcases the symbiotic relationship between FDI and SMEs. China’s rapid economic rise can be attributed to its ability to attract FDI for large-scale infrastructure projects and export-oriented manufacturing. However, the country recognized that its long-term prosperity hinged on the development of its domestic SMEs. To this end, China implemented policies that facilitated innovation and entrepreneurship among its small businesses. The result? A thriving SME ecosystem that now contributes significantly to the nation’s economic growth. In 2020, SMEs will account for around 60% of China’s GDP and generate over 80% of urban employment. This exemplifies how FDI and SMEs can complement each other in a nation’s growth trajectory.

Morocco, a nation known for its strategic approach to economic development, offers a unique perspective on leveraging FDI and promoting SMEs. Morocco attracted FDI by creating free trade zones and investing in infrastructure, much like many other nations. However, what sets Morocco apart is its commitment to supporting SMEs through targeted initiatives. The Moroccan government provided incentives such as reduced taxes, access to finance, and business development support to SMEs. As a result, SMEs have flourished in sectors like tourism, agriculture, and handicrafts. These efforts have translated into notable job creation and socioeconomic improvements for the Moroccan population.

Returning to Nigeria, President Bola Tinubu’s successful engagement with Indian businesses represents a step in the right direction. FDI can bring much-needed capital and expertise into the country, supporting infrastructure development and boosting specific sectors. However, Nigeria must be cautious not to fall into the FDI trap, where the emphasis is solely on attracting foreign capital while neglecting the potential of SMEs.

In Nigeria’s context, SMEs are the backbone of the economy. They comprise a significant portion of businesses, employ a substantial portion of the workforce, and have the potential to drive inclusive growth. According to data from the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), SMEs in Nigeria employ over 60 million people, contributing significantly to the country’s GDP. However, they often face numerous challenges, including limited access to finance, inadequate infrastructure, and regulatory bottlenecks.

To harness the full potential of SMEs, Nigeria must take a cue from countries like Malaysia, China, and Morocco. This entails creating an enabling environment for SMEs to thrive. Access to affordable financing, simplified regulatory procedures, and targeted government support are essential elements in nurturing the SME sector. Furthermore, investing in education and skill development to enhance the capabilities of Nigerian entrepreneurs is paramount.

It’s important to recognize that FDI and SMEs are not mutually exclusive. Nigeria can continue to attract FDI while simultaneously promoting its SME sector. In fact, FDI can play a role in fostering the growth of SMEs. For instance, multinational corporations can collaborate with local SMEs through supply chain integration, technology transfer, and mentorship programs. This synergistic approach can create a win-win situation where FDI complements the growth of SMEs, leading to broader economic benefits.

In conclusion, President Bola Tinubu’s successful trip to India and the promises of increased investment in Nigeria are positive indicators of the country’s attractiveness to foreign investors. However, Nigeria must not lose sight of the immense potential residing within its SME sector. Learning from the experiences of Malaysia, China, and Morocco, Nigeria can strike a harmonious balance between FDI and SME promotion.

The key lies in creating an enabling environment for SMEs to flourish through targeted policies, access to finance, and skill development. This approach will not only drive economic growth but also contribute to job creation and inclusive development, ultimately transforming Nigeria into a thriving economic powerhouse.

Abdulrauf Aliyu
An economist and Policy Analyst writes from
45 Ashiru Road, U/Dosa New Extension

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