“Conformity is the jailer of freedom and the enemy of growth – John F. Kennedy”
In 2019, the Nigerian Bureau of Statistics (NBS) released the third edition of its Nationwide survey of MSMEs in Nigeria. The report revealed that there are about 41.5 million enterprises in Nigeria, a 12% increase from the figure reported in the previous survey in 2013. The survey however revealed that the number of medium-sized enterprises (businesses that employ between 50 – 199 people and have assets over ₦1 billion) reduced in the years between the 2nd and 3rd editions of the survey.
The number of medium-sized enterprises declined by 62% to 1,793 enterprises in relation to the figures reported in the previous MSME survey. According to the report, not only did most formal small enterprises fail to scale up in the last 4 years, but also many medium-sized enterprises contracted in size. Interestingly, recent research shows that micro and small enterprises are no more being considered primary drivers of employment. Medium-sized enterprises are increasingly considered the primary creators of better-paying jobs and increased productivity in a growing society. Given these current realities, this article seeks to discuss the existence of a “missing middle of medium-sized enterprises in Nigeria”, and proffers possible solutions to this developing issue.
What is the missing middle and why is it important to discuss it?
The concept of the missing middle has existed for a while. In Nigeria, it means the absence/reduction of vibrant medium-sized companies that can bring dynamic and competitive pressure to expand the number of productive and well-paying jobs in the country. Given the necessity of their products and services, having a large population of medium-sized enterprises is crucial to building an economy’s self-sufficiency and reducing the dependence on costly imports. Medium-sized enterprises also create a significant demand for products produced by small enterprises, utilising them as inputs into their production activities. Additionally, they also stimulate the development of a middle-class population who drive consumer purchases and local demand
Why is there a missing middle of enterprises in Nigeria?
There are various reasons why the missing middle currently exists in Nigeria. One reason, which will resonate with many policymakers, has to do with the negative impact that the recent economic recession had on the Nigerian economy. The slowdown in economic activity and unemployment rates that accompanied the recession made it difficult for many medium-sized enterprises to thrive. Another identified reason relates to the constraints on doing business in Nigeria. Challenges such as the difficulty in accessing finance, an unfavourable business and regulatory environment, and infrastructural issues are typical reasons why some medium and small-sized enterprises may experience decline or lack of growth respectively.
A third reason may simply be linked to the type of entrepreneurs that are present in Nigeria. Evidence from available research shows that entrepreneurs in developing countries (such as Nigeria) usually produce and sell products or services similar to their peers with no distinct value proposition to differentiate them. This stifles competition and makes growth difficult. In developed countries, entrepreneurs place a premium on their businesses by having a unique value proposition as a way to grow the business.
How then do we address the challenge of the missing middle in Nigeria?
Realistic efforts to address this challenge in Nigeria must recognise the long-standing issues (e.g. infrastructure, and access to finance) that plague the Nigerian business environment. In an increasingly competitive environment, entrepreneurs must begin to place a premium on selling differentiated products and services and focus on value addition. This is important as enterprises with a unique value proposition (e.g. quality, efficiency, speed, and customer service) are better equipped to compete both locally and internationally. These types of enterprises are also less susceptible to the effect of external shocks and thus, thrive better.
Secondly, entrepreneurs must start to develop innovative solutions not limited by traditional business models. One solution worth considering is the adoption of business model innovation (BMI) by enterprises. Introducing new business models that limit the influence of constraints faced by entrepreneurs, whilst also accentuating their ability to achieve their goals, has been argued as a practical way for enterprises to thrive in difficult environments.
Within this context, small enterprises may look to target previously underserved segments of the market. These segments can provide an opportunity for small enterprises to acquire the scale and cost advantages needed to scale up. It can also provide medium enterprises with the advantages needed to thrive.
To address these difficulties, stakeholders (both public and private institutions) have begun to introduce initiatives that address some of the challenges faced by small and medium-sized businesses.
From the provision of physical interventions such as industrial parks to ease some of the infrastructural challenges; to incubation centres and tech hubs where start-ups can access subject-matter expertise on technology trends, knowledge transfer, strategic innovation management, and industry-specific insights.
Lastly, several institutions now sponsor SME business and technical skills workshops, SME trade fairs, etc. which also enable these businesses to network and market their goods and services as well as exchange ideas. It is hoped that these initiatives will ease some of these challenges and grow the missing middle-sized enterprises in the country.