Industrial Cluster Development A viable Strategy for MSME Development A Presentation by Engr. Adeniyi Ogunsanya MNSE National Vice President, NACCIMA Chairman, NACCIMA MSME Trade Group At the NACCIMA MSME Breakfast Meeting Thursday, 25th October 2018 NACCIMA House, 8A Oba Akinjobi Way, GRA Ikeja, Lagos

A RECAP ON THE NIGERIAN ECONOMY: Recession After more than a decade of economic growth, the sharp and continuous decline in crude oil prices since mid-2014, along with a failure to diversify the sources of revenue and foreign exchange in the economy, led to a recession in the second quarter of 2016.

A RECAP ON THE NIGERIAN ECONOMY: Recovery In response, the Federal Government’s launch of the Economic Recovery and Growth Plan (ERGP), a Medium Term Expenditure Plan covering the period 2017 – 2020. This plan signaled the government’s intention to collaborate closely with the private sector and deepen their investment in agriculture, power, manufacturing, solid minerals and services sectors.

ERGP 2017-2020 targets for MSMEs • To provide dedicated infrastructure and common facilities to MSME clusters • To provide incentives to support industrial hubs • Review local fiscal and regulatory incentives to support the development of industrial cities, parks and clusters, especially around existing ports and transport corridors • Extend infrastructure tax relief to collectives to attract clusters of corporate entities • Establish Special Economic Zones (SEZs) to provide dedicated infrastructure to support hub productivity

Comparative Statistics on Nigerian MSMEs Country Employment (%) Export Earnings (%) GDP Level (%) UK 53 27 52 USA 30 50 India 79 38 40 Honk-Kong 78 37 51 Japan 70 68 Nigeria 84 7 48 Statistics from the International Centre for Entrepreneurship and Career Development (ICECD) and the Nigeria Bureau of Statistics (NBS)

Internal and External Challenges faced by Nigerian MSMEs Aversion to joint ownership Family ties, i.e. bringing family into business. Financial mismanagement Lack of basic business capacity (knowledge, skills & attitude) Non-recruitment of qualified personnel Lack of perseverance and staying power when the business is going through tough times. Poor record keeping especially accounting books Lack of standardization of products Low capacity to invest in R&D, ICT & E-commerce Inadequate linkage to local & international supply chains Limited access to markets. Lack of exit/succession plan. Declining business etiquette & disregard for contract sanctities. Poor state of infrastructure Weak access to production inputs (such as finance, workspace) & product markets etc. Multiplicity of Taxes and levies plus red tape Low access to information

The NACCIMA MSME Trade Group The MSME Trade Group is a sectoral group in NACCIMA tasked with: Assisting the Federal Government through NACCIMA in articulating industrial and SME policy guidelines on an on-going basis Sensitizing and raising the level of awareness in MSMEs on government policies and initiatives Promoting cooperation between members and regulatory institutions

The Industrial Cluster Development Programme The NACCIMA MSME Trade Group is embarking an Industrial Clusters development programme to support government initiatives and resolve the challenges faced by MSMEs by promoting Industrial Clusters based on Public-Private-Partnerships.

The Industrial Cluster Development Programme Industrial Clusters are agglomerations of interconnected companies and associated institutions. Firms in a cluster produce similar or related goods or services and are supported by a range of dedicated institutions located in spatial proximity, such as business associations or training and technical assistance providers.

The Industrial Cluster Development Programme The cluster approach of development can be a good strategy to acquire competitiveness. Clusters reflect the systemic character of modern innovation and interactive innovation processes. Interactions between actors in clusters are based on trade linkages, innovation linkages, knowledge flows in various forms or the sharing of a common knowledge base or factor conditions.

The Industrial Cluster Development Programme SMEs operating in such clusters derive a clear competitive advantage from: the proximity to sources of raw inputs, the availability of suitably customized business development services, the abundance of clients attracted by the cluster tradition in that industry, and the presence of a skilled labour force.

The Industrial Cluster Development Programme Clustering brings a variety of benefits to firms and the local economy as follows: Clusters increase levels of local expertise. This provides sourcing companies with a greater depth to their supply chain and allows for the potential of inter-firm learning and co-operation. Clusters give firms the ability to draw together complementary skills in order to bid for large contracts that as individual units they would be unable to successfully compete. Clusters allow for potential economies of scale to be realized by further specializing production within each firm, by joint purchasing of common raw materials to attract bulk discounts or by joint marketing.

The Industrial Cluster Development Programme Clusters strengthen social and other informal links, leading to the creation of new ideas and new businesses. Clusters improve information flows within industries. For example, clusters may enable finance providers to judge who the good entrepreneurs are and business people to find who provides good support services. Clusters allow for the development of an infrastructure of professional, legal, financial and other specialist services.

The Industrial Cluster Development Programme In the coming months, the NACCIMA MSME Trade Group will be organizing a workshop (as a follow up to this breakfast meeting) to devise a viable strategy for developing industrial clusters/parks. This is will help NACCIMA develop a stakeholder map and determine the gaps that exist in the promotion of industrial clusters.

A call to Stakeholders in the MSME Sector To establish the roles they are willing to play in the development of Industrial Clusters, and the conditions under which they will play these roles

Thank you