Driving Nigerian SMEs Venture Capital Transformational Financing Super-Highway: Focus on the Nigerian Economy

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IntroductionThe failure of several policies of successive governments in Nigeria to achieve desired economic growth and development target disturbingly necessitated the restructuring of the financial system, especially in the glare of an ailing economy. The structural adjustment programme (SAP) in 1986 and privatization programme in 1989 amongst others were in response to failed institutional measures to promote and galvanize small and medium enterprises (SMEs) in the country over a long period of time. The prevailing economic conditions in the first few years of the SAP (1986-1988) such as government expenditure rationalization, import restriction, and financial liberalization saw a spread of SMEs and a positive attitude reorientation towards made-in-Nigeria goods, as there was need for consumers and producers to look inwards and be driven by import substitution orientation. Indeed that era saw the emergence of the Nnewi Auto-Technology, Aba Shoe Complex, and allied SME clusters, particularly in the Eastern geopolitical zone of the Nigerian nation.Unfortunately, the SAP became history even before the gains could be consolidated, and the financing windows so opened to provide relief for SMEs lacked continuity and sustainability. These windows were also incapacitated by public sector bureaucracy, in that they were not proactive, problem-targeted and solution oriented. Thus, there was visible retrogression in the real sector due to inappropriate financing strategy for SMEs, which led to very low profitability. More as the public enterprises were becoming out-placed in the private-sector driven economies, the Nigerian economy suffered from the obvious hollow of large enterprises and the corresponding loss of economies of scale. Incidentally, this phenomenon was partly responsible for the impaired growth of SMEs in the past as they depended on the same large enterprises for outsourcing, reciprocity and other forms of business linkages. For instance, the success of SMEs in the High Performing Asian economies (HPAEs) was mainly the result of the linkages they enjoyed with large enterprises. The Japanese economy, another show-piece, is characterized by a strong vertical relationship (known as Keiretsu) between SMEs and large enterprises1.SMEs as SpringboardsIt thus becomes convincingly expethent and pertinent to promote SMEs as springboards towards building viable large enterprises though enunciation of sustainable equity-based financial strategy. Furthermore, facts that emerged from the appraisal of various past financing schemes and initiatives for SMEs show that finance is by no means the only or most important constraint to SME development. Other constraints include inadequate entrepreneurial /managerial skills, financial indiscipline, lack of enabling environment for investment, and weak monitoring mechanisms2. This scenario led to a change in financing structure from debt to equity. That new strategy in Nigeria was christened Small and Medium Industries Equity Investment Scheme (SMIEIS). At inception this scheme was highly applauded as the solution to the age long financing problem of SMEs in Nigeria because it was considerably different from previous windows, which were debtbased. It was later christened Small and Medium Enterprises Equity Investment Scheme (SMEEIS) to clearly refocus and reassert the strategic visionary intervention for better SME attraction and mobilization.It was hoped that the SMEEIS window would galvanize Nigeria's real sector, provide the pillars for a diversified economy and ensure the emergence of Nigerian Chaebols. Precisely, this scheme involved the use of venture capital (VC) financing just as financial history shows that many large corporations thriving in the world today actually set out with VC financing. FedEx, for instance, started with VC funding of about $70 million in 19733. It is a matter of private equity capital, which brings bright ideas and breakthroughs to reality. …