Lagos State Government & Small Businesses

Overview of Lagos State Government Policies on Small Businesses

• Analysis includes both positive and negative impacts of policies that impact small businesses (SMEs)
• Commendable policies include creating an enabling environment, financial support, and infrastructure enhancement
• SMEs still face challenges with taxation, regulatory issues, and infrastructure
• Understanding these dynamics helps policymakers support SMEs in Lagos State
• Recommendations are suggested to address challenges and leverage opportunities

Positive Impacts of Government Policies

• Lagos State committed to creating a conducive environment for SMEs
• Policies and initiatives cover industrial development, government contracts, financial support, tax relief, and infrastructure

Lagos State Industrial Policy (2025-2030)

• Aims to cultivate a sustainable industrial environment in response to the global economy
• Proactively aligns with international standards in technology, sustainability, and competitiveness
• Intends to create an attractive business environment, promote infrastructure, and stimulate growth
• Anchored to the T.H.E.M.E S+ Development Agenda and Lagos State Development Plan (LSDP 2052)
• Aims to elevate Lagos into a hub of industrial excellence to maximize business, investment, and job creation
• Position Lagos as an industrial leader by anticipating future economic trends
• Focus is to attract domestic and international investment to generate employment

Key Policy Aspects

• Emphasis is on technology, data, R&D, and business linkages as economic growth drivers
• SMEs can enhance operations and competitiveness with technology and digital transformation
• Supports industrial production aligning with the Fourth Industrial Revolution
• SMEs can innovate, access networks, increase efficiency, and expand market reach

Policy Objectives and Principles

• Promote a sustainable industrial environment
• Sustainability is the underlying principle
• Encourage sustainable investment
• Innovation is the underlying principle
• Foster infrastructure development
• Global best practices is the underlying principle
• Stimulate industrial growth
• Technology-driven economic modernization is the underlying principle
• Maximize job creation
• Inclusive growth is the underlying principle
• Elevate Lagos into a hub of industrial excellence
• Resilience is the underlying principle
• Leverage technology and innovation
• Competitiveness is the underlying principle

Facilitating SME Participation in Public Procurement

• SMEs are recognized as pivotal engines for socio-economic transformation
• The government encourages SMEs to provide goods, works, and services
• Government acts as regulator and client, creating a direct market
• The Lagos State Public Procurement Agency (PPA) creates opportunities for SMEs
• Aims to create a level playing field for smaller businesses
• Increased participation in public procurement leads to revenue growth, business expansion, and job creation
• Government contracts provide financial stability and enhance credibility
• Policy ensures transparency regarding experience, turnover, or company size requirements

Specific Guidelines for SMEs in Government Contracts

• Guidelines implemented to address challenges SMEs face in government contracts
• Breaking down large contracts into smaller lots makes them accessible to SMEs
• Qualification criteria for bidding may be relaxed based on estimated contract value
• SMEs are encouraged to participate as joint ventures and subcontractors with legal documentation
• Guidelines allow increased time for bid submissions, especially for complex contracts
• PPA, MDAs will organize training and workshops on bidding procedures and the Lagos State Public Procurement Agency Law (PPL)
• Opportunities are published on the PPA website, with encouragement for MDAs to disseminate info
• Reducing bid preparation costs includes charging minimum for documents and allowing electronic submissions
• Waiving financial instrument requirements for contracts below N10 million is possible
• Alternative forms of security and increased advance payments (up to 40%) may be accepted

Access to Funding and Financial Support

• Establishment and operation of the Lagos State Employment Trust Fund (LSETF) is critical
• The LSETF Loan Programme provides affordable access to funding
• Aims to facilitate growth, expansion, wealth, and job creation
• The standard interest rate for loans is 9% per annum
• LSETF offers various loan programs tailored to businesses and entrepreneurs
• TACT Loan is for residents and businesses in the Lagos East Senatorial District
• Offers nano loans, micro-enterprise start-up loans, micro-enterprise loans, and small and medium enterprise loans
• Offers a 6% per annum interest rate
• LSETF Micro Enterprise Loan and Start Up Loan are included
• LSETF Small and Medium Size Enterprise Loan, is included
• Schemes for areas like Ibeju Lekki and Ojo LGA included, with 0% interest rates
• SMEs are not a homogenous group and require financial support
• Nano loans for small businesses alongside SME loans show a nuanced approach
• The LSETF has disbursed approximately N25 billion in grants and loans to SMEs in Lagos State
• The government supports SME growth and development
• The State assists SMEs with aspects such as sourcing products, markets, and regulatory agencies such as NAFDAC, BOI, CAC, and SON

Loan Program Categories

• TACT Loan (Lagos East) maximum loan amount N100,000 - N1,000,000; interest rate of 6% for Businesses/Residents in Lagos East Senatorial District various key requirements
• LSETF Micro Enterprise Loan maximum loan amount N500,000; interest rate of 9% for All operating/resident business owners in Lagos the key requirements are LASSRA ID, Tax ID, Govt ID, BVN, Photos, Bank Statement and 1+ yr in business
• LSETF Micro Enterprise Start Up Loan maximum loan amount N250,000; interest rate of 9% for All micro enterprise start-ups in Lagos and the key requirement is Vocational training certificate
• LSETF SME Loan maximum loan amount N5,000,000; interest rate of 9% for All operating/resident SME owners in Lagos and the key requirements CAC registration and 1+ yr operational
• Ibeju Lekki MSME Loan Scheme maximum loan amount N100,000; interest rate of 0% for Operating/resident MSME owners in Ibeju Lekki and the key requirements are LASSRA ID, Tax ID, Govt ID, BVN, Photos, Bank Statement and 1+ yr in business
• Ojo LGA ME Loan Scheme maximum loan amount N200,000; interest rate of 5% for All operating/resident business owners in Lagos and the key requirements are LASSRA ID, Tax ID, Govt ID, BVN, Photos, Bank Statement and 1+ yr in business
• Onigbongbo LCDA ME Loan Scheme maximum loan amount N200,000; interest rate of 5% for All operating/resident business owners in Lagos and the key requirements are LASSRA ID, Tax ID, Govt ID, BVN, Photos, Bank Statement and 1+ yr in business
• Ibeju Lekki MES Loan Scheme maximum loan amount N100,000; interest rate of 0% for All micro enterprise start-ups in Ibeju Lekki and the key requirement is Vocational training certificate
• Ojo LGA MES Loan Scheme maximum loan amount N100,000; interest rate of 5% for All micro enterprise start-ups in Lagos and the key requirement is Vocational training certificate
• Onigbongbo LCDA MES Loan scheme maximum loan amount N100,000; interest rate of 5% for All micro enterprise start-ups in Lagos and the key requirement is Vocational training certificate

Government Support and Development Programs

• Specific programs provide comprehensive support for SME growth
• The LAG-UP Upskill Program offers SMEs assistance in digital literacy, entrepreneurship training, finance, mentorship, and income generation
• Adopts a multi-faceted approach to nurturing business owners and aspiring entrepreneurs
• Provides a digital platform to enhance sales and achieve business growth
• Aims to establish a digital business data repository for governmental and stakeholder use
• The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) supports SMEs in Lagos State
• Their commitment lies in helping Nigerian SMEs achieve sustainable growth through guidance, resources, opportunities, and workforce support
• SMEDAN offers support at the national level that likely benefits Lagos-based SMEs.
• Includes sector-specific growth programs, initiatives aimed at specific demographics like the Women In Self-employment Programme
• SMEDAN facilitates access to finance, provides entrepreneurship training, and creates market opportunities
• State-level programs (LAG-UP) and federal initiatives through SMEDAN create a supportive ecosystem for SME development
• A multi-layered support system assists SMEs at various growth stages and aspects of operations

Tax Reliefs and Incentives for SMEs

• The Nigerian tax system offers reliefs and incentives that positively impact SMEs in Lagos State
• Companies with a gross turnover of NGN 25 million or less benefit from a 0% Corporate Income Tax (CIT) rate
• Allows micro and small enterprises to retain profits for reinvestment and growth
• Companies with a turnover greater than NGN 25 million but less than NGN 100 million apply for a reduced CIT rate of 20%
• Tiered tax structure supports smaller businesses' sustainability and expansion
• Anticipated tax reforms for 2025 suggest easing the tax burden on SMEs
• Small businesses with an annual turnover of N50 million or less are projected to be exempt from several taxes, including Value Added Tax (VAT), withholding tax, and corporate income tax
• VAT compliance threshold exempts companies with an annual turnover of N25 million or less from VAT registration and filing
• SMEs can benefit from federal tax incentives designed to encourage specific economic activities, which contributes to a favorable tax environment

Turnover Threshold and Tax Rates

• NGN 25 million or less: 0% Corporate Income Tax (CIT) rate, Exempted from VAT Compliance Requirement, and VAT, Withholding Tax and Corporate Income is exempt (2025 Projection)
• NGN 25 million - NGN 100 million: 20% Corporate Income Tax (CIT) rate, Required if above NGN 25m VAT Compliance Requirement, and - is exempt (2025 Projection)
• Above NGN 100 million: 30% Corporate Income Tax (CIT) rate, Required VAT Compliance Requirement, and - is exempt (2025 Projection)

Infrastructure Development Initiatives

• Lagos State government is helping grow SMEs by recognizing the critical roles of infrastructure
• Projects span transportation, energy, and digital connectivity sectors
• Positive effects on the operational efficiency and costs of SMEs
• Developing the Quality Bus Corridor (QBC) project is in the transportation sector
• Expanding the Lagos Rail Mass Transit (Blue and Red Lines), constructing the 4th Mainland Bridge and the Opebi-Mende Link Bridge is in the transportation sector
• Undertaking major road rehabilitation projects aims to enhance mobility, reduce traffic, and improve transportation
• The Lagos State Industrial Policy (2025-2030) targets energy security
• The government decentralizes electricity generation through Independent Power Projects (IPPs) for power solutions
• Aims to reduce reliance on generators, lowering operational expenses and improving productivity
• The Smart City initiative and broadband expansion digitally include digital literacy, and e-government services
• Improved internet access and digital infrastructure help SMEs participate in the digital economy and adopt new technologies
• Development initiatives should lead to reduced operational costs, improved efficiency, and better market access

Negative Impacts and Challenges for Small Businesses

• SMEs in Lagos State face negative impacts and challenges from government policies and systemic issues
• Burdens related to taxation and levies arise
• Business registration and licensing complexities arise
• Stringent regulatory compliance requirements arise
• Inconsistent economic policies arise
• Inadequate infrastructure arises
• Environmental and trade regulations arise
• Persistent issues of corruption and bureaucracy arise

Taxation and Levies

• High costs of doing business is a major concern
• A concern is significantly exacerbated by energy expenses and multiple taxes and levies
• Energy costs alone can account for 40% of production costs for some SMEs
• Businesses face a complex web of taxes and levies at local, state, and federal levels
• Business owners feel overtaxed and there is a disconnect between taxes and the quality of public services
• SMEs often need to provide essential infrastructure like electricity and water
• Numerous levies from different government agencies increase financial strain and cost of operations

Business Registration and Licensing

• The process is often perceived as bureaucratic and tedious
• SMEs find registration and licensing a deterrent to entrepreneurship, leading to delays
• Registering a business name with the Corporate Affairs Commission (CAC) is relatively affordable costing around N10,000
• Cost increases when registering a private limited liability company is required
• Businesses need sector-specific licenses and permits to operate legally
• Requirements vary depending on the industry, such as banking, telecommunications, real estate, and transportation
• It can be challenging for small business owners to navigate the system of registration and licensing with limited resources
• This potentially hinders the ability of SMEs to start and operate efficiently

Regulatory Compliance Requirements

• Operating a business in Lagos State requires adherence to compliance requirements
• Mandatory registration with the Corporate Affairs Commission (CAC) required
• Compliance with tax obligations which includes Company Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), Personal Income Tax (PIT), Industrial Training Fund (ITF) contributions, Nigeria Social Insurance Trust Fund (NSITF) contributions, and pension scheme requirements, required
• Complying with labor laws and data protection regulations is required
• The complexity of requirements is challenging for SMEs with tight margins
• Ensuring compliance demands time, effort, and financial investment

Inconsistent Economic Policies

• Small businesses are negatively affected by inconsistent economic policies
• Frequent changes in regulations, tax laws, create uncertainty
• Uncertainty undermines business confidence and leads to financial losses for SMEs
• Unexpected changes disrupt supply chains, increase costs, and negatively impact profitability
• A lack of a stable policy environment is detrimental to small businesses, deterring investors

Inadequate Infrastructure

• Inadequate public infrastructure impedes growth and operational efficiency
• Lack of stable power is a challenge, especially for manufacturing SMEs
• Many businesses rely on expensive generators
• Poor transportation increases logistics costs
• Limited access to reliable internet restricts digital technology adoption
• Infrastructure deficits force many SMEs to spend on basic amenities

Environmental Regulations

• Implementation and enforcement can present challenges
• Lagos State Environmental Protection Agency (LASEPA) concerns pollution control, waste management, and noise levels
• Federal agencies like the National Environmental Standards and Regulations Enforcement Agency (NESREA) also play a role
• Enforcing environmental regulations in Nigeria sees underfunding and understaffing
• Inconsistent application of penalties exists
• Lack of specific guidelines tailored to SME needs and capacities contributes to higher operating costs
• Lack of specific guidance on environmental regulations can make compliance difficult.

Trade Regulations

• Trade regulations pose challenges, especially for import or export activities
• The country employs tariffs and quotas, based on the ECOWAS Common External Tariff (CET)
• Aims include generating revenue and protecting local industries
• Measures increase costs of imported raw materials, equipment, and other inputs
• Government's import substitution policies and trade barriers limit choices, driving up costs
• Port practices raise obstacles, such as inconsistent customs, cumbersome procedures and instances of corruption
• Inefficiencies can lead to cost increases for SMEs in international trade

Corruption and Bureaucracy

• Corruption and red tape remain challenges
• Occurs within the public sector
• May requires businesses to pay unofficial fees, increasing operating costs
• Government procedures related to business registration, licenses, permits are sometimes cited as impediments
• Complex processes create delays, frustration, and administrative burdens
• Reducing corruption and streamlining procedures are essential for transparency

Recommendations

• Streamline and simplify the tax system: Reduce the tax burden on SMEs by decreasing the number of taxes and levies
• Improve Infrastructure: Prioritize investments in stable electricity, road networks, public transportation systems, and affordable internet
• Enhance Access to Finance: Support funding initiatives like LSETF and explore innovative financing
• Reduce Bureaucracy in Registration and Licensing: Streamline processes for business registration to reduce approvals
• Ensure Policy Consistency: Economic policies need stability with stakeholder consultation
• Tailor Environmental Regulations and Provide Support: Develop sector-specific environmental guidelines and support for SMEs
• Address Port Inefficiencies and Trade Barriers: Collaborate to address inefficiencies at Lagos ports by streamlining process
• Combat Corruption: Strengthen anti-corruption measures, transparency, accountability, and digital platforms
• Strengthen Enforcement of Regulations Fairly: Ensure fair enforcement to create a level playing field
• Improve Communication and Awareness: Enhance channels to inform SMEs about support programs, provide regular workshops.
• Regularly Engage with SME Stakeholders: Establish regular dialogue and feedback between the Lagos State government and SME owners

Conclusion

• Small businesses are the backbone of the Lagos State economy
• SMEs contribute significantly to job creation, innovation, and overall economic growth
• The Lagos State government has implemented commendable policies
• SMEs face challenges from taxation, regulatory requirements, infrastructure, bureaucracy, and corruption
• Policymakers need to address the hindrances
• Recommendations made can empower SMEs to grow and innovate
• The success and sustainability of SMEs can be insured by the state through creating supportive policies