Failed local government system hurts SME development


SMEs are predominantly grassroots organizations, whether they locate in the city or in the village. The informal sector is their domain in every economy. It is in that sector that they live, operate and have their being. It follows therefore that any public policy to improve their welfare must take account and be routed through the structures that are concerned with the informal sector. The informal sector is however very complex in nature and faces many challenges.

By its very nature, informality subsumes extensive disabilities that prick operators. Some of the challenges are natural or pathological to it and may not completely go away, despite effective policy action. For instance, it is the nature of its members not to be organized both as individuals and as a group. They lack both financial and technical capacity even for their core object or the things that brought them into being. Bankable assets are lacking among them, to mention but a few.

Public policy is meant to take the bite off some of these challenges if not completely remove them. But public policy is not administered in vacuum. It operates through institutions and other media. If the operators in the informal sector are the ultimate targets of policy, then it must be administered through the institutions closest to the informal sector. In this regard, the local governments are the nearest tier of government to SMEs. They ought to be central to public policy to remedy the ills plaguing the sector. Sadly they are not so now.

We have been trying to solve informal sector problems from federal and state government houses rather than local government headquarters. This has not brought much improvement in the affairs of SMEs for obvious reasons. As the saying goes, one cannot continue to do the same thing and expect different results. That is a scientific impossibility. This is why the wish to develop the informal sector in Nigeria through the promotion of SMEs has remained exactly what it is: a wish. It couldn’t have been any different, given what we have gone on doing over the years – excluding the local governments from core SME strategies

There is no doubt that a number of laudable projects and programmes have been delivered in regard to SME development, including the establishment of the Industrial Development Centres and the provision of special place for SMEs in the then National Development Plans of the pre- and post-war years. Even in the more recent years, some serious efforts have also been made to advance the course of the sector including, especially, the creation of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) with core responsibility to drive the programmes of government in regard to SME development. The birth of SMEDAN has contributed much to the drive to bring some order to the sector and increase its productivity. However, even though SMEDAN is doing a lot it is still not a grassroots institution.The local governments are.

Another important public policy achievement is the formulation of concrete policies to guide the sector, which has been realized through the instrumentality of a formal policy framework midwifed by SMEDAN. Indeed, SMEDAN was able to successfully drive this process by securing the cooperation of both local and foreign institutions, including the United Nations Development Programme, African Institute of Applied Economics, among others, to develop the National Policy on Small Micro, Small and Medium Enterprises launched in 2007. These achievements are worthy of note but they are short of the requirement for a vibrant SME sector.

Perhaps we need to restate for the avoidance of doubt that the domain of SMEs is primarily the rural informal sector. Even if they are located in the urban areas, the SMEs are closer to the local government administration than they are to the state or federal government administration. This is where the role of local governments in the development of the sector becomes paramount. The constitution of Nigeria provides in its Section 7 for the establishment of local government administration freely elected by the people. There are a number of functions envisaged for them by the constitution that created the local government system. First, local governments are meant to bring government closer to the people. They were created to serve as a conduit through which public policy is brought to the people. Second, local governments are meant to help in the mobilization of resources as well as the distribution of amenities to the people. Nigeria is a geographically large country with over 360 ethnic groups. There is need to disaggregate services and responsibilities if the people are to feel the impact of government on their lives. The local government system was also intended to advance the cultural affinity of citizens. By keeping people close to their kit and kin in a local government, we would be promoting cultural cohesion.

Unfortunately, the local government system has failed woefully. Very few local government councils today have elected officials. Most states have local government councils run by care-taker committees made up mostly of cronies, political thugs and other low quality malleables appointed by the governors, and holding office at their pleasure. The result is that the governors have taken control of the finances of the local governments whose appointed care-taker chairmen are too grateful for their appointment to have the guts to demand control of the finances of their local government councils. They become extensions of government houses and just do what the governors tell them. As a result local governments no longer operate effectively. They no longer embark on projects because the state governors have taken over their functions and finances. As young boys we saw that all the rural roads were graded regularly and trees were planted on the road side by local government officials. Today very few of us know who chairs our local government and the headquarters are overrun by weeds. Today our local governments are still conduits but not for bringing development to the people but one for taking development away from them.

This failure of the local government system has contributed more than anything else to the ineffectiveness or low returns to public policy interventions in the SME sector. We cannot effectively design and implement policies for the local areas from Lagos and Abuja. Granted that SMEDAN and the likes of it may have offices in all the states, this does not mean they understand what the locals are saying. Things happen when resources, especially those capable of being hijacked, travel long distances. Recall the sure-p money meant for the masses. There has to be some close link between the SMEs policy making and implementation and the SMEs themselves. The point is that there is nobody in the local government planning for the SMEs. At best we have people implementing policies they barely understand and even if they do, they won’t speak the language of the informals.

The result is a variety of misfit policies designed and implemented by state governments for local governments. As long as we continue to run these failed local government system, there will continue to be gaps not only in policy design but also in implementation in the SME sector.


Emeka Osuji

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Source: Business Day Online