Scaling Heights

SME Potential

In Ghana, readily available data on SMEs is scarce, but statistics from the country’s Registrar General Department suggest that 92% of companies registered are micro, small, or medium-sized enterprises. The […]

In Ghana, readily available data on SMEs is scarce, but statistics from the country’s Registrar General Department suggest that 92% of companies registered are micro, small, or medium-sized enterprises. The SME segment faces key challenges of poor access to capital, with high interest rates forcing companies to scale back rather than divulge some of their company to larger players, and insufficient awareness regarding marketing strategies and business model development.

SMEs constitute the bulk of Ghana’s economic activity and account for roughly 85% of employment. Figures vary, but the January 2016 Ministry of Trade and Industry statistics stated that the SME segment’s importance has been significantly growing over the last four years, with its contribution to GDP at 48.4% in 2012, 51.9% in 2014, and 54.1% in 2015.

Poor macroeconomic conditions have negatively affected access to finance, and local media bemoans difficulty in sourcing funding without taking on high interest rates. The current financial climate is so risk averse that the Association of Ghana Industries (AGI) revealed that almost all proposals by its members to secure funding from the Export, Trade Agricultural and Industrial Development Fund (EDAIF) were denied in 2015. Providing loans to SMEs is a struggle for the local banking sector, as Edith Dankwa, CEO of the Business and Financial Times, illustrated. “It is difficult because the banks are highly concentrated on the risk aspect. Banks are helping SMEs but not at the level that we would like to see.“ One effect of this has been the rising number of microfinance companies and the non-bank financial institutions, though this has not solved the issue of high interest rates.

Prince Kofi Amoabeng, UT Holdings Group President, explained the difficulty faced by banks in serving the needs of SMEs. “Typically banks have a problem serving this sector because it is risky, not too defined, and there is little data available.“ When UT Bank was established, it focused on the SME sector and realized that many of these smaller firms needed support beyond simple banking services. In recent years, UT Bank’s poor NPL ratio resulted in extensive restructuring and remodeling of the bank’s loan policy.

In order to better serve the needs of SMEs, Amoabeng found that the answer was to provide more services. “You could not lend to importers safely unless you clear the goods, warehouse them, and do collateral management for them, so we developed branches of our company, such as UT Logistics and UT Property.“

Well-established firms are increasingly seeing the value in serving the needs of SMEs. As Lucy Quist, MD of Airtel, explained to us, “About 70% of GDP in Ghana comes from 92% of its enterprises, and for Airtel that has meant designing specific solutions focused on the communication and connectivity needs of this majority.“

As well as the private sector’s trend of tailoring solutions for the specific needs of the market, the public sector is following suit. The government has pioneered various initiatives and set up institutions to directly target unemployment. By supporting entrepreneurs, offering start-up capital, and funding at concessionary rates, institutions such as YES, MASLOC, YEA, and EDAIF can offer venture capital funds at more attractive rates. One aspect of the SME market is that most of the public support for SMEs tends to be on a small level, encouraging individual artisans and consequently leaving scalable SMEs to fall by the wayside. Investors often look for business models that can be scaled upwards, and access to information about SMEs of that bracket can be difficult without sector-specific insight.

The SME’s call for support is being heard. 2016 will see the launch of the SME Financing Fair in a bid to find lasting solutions and bring more exposure to the available innovative financing mechanisms. The Deputy Minister of Trade and Industry encouraged participation in the fair, saying it was critical that, “we look at alternative ways of improving, so [SMEs] can continue to partner with government and provide jobs for the unemployed youth.“ The fair hopes to highlight the importance of access to information regarding funding opportunities and for SMEs to precisely communicate their needs.

The key is sustainability, emphasized by Edith Dankwa, “There are efforts being put in place to support but it is still not enough.“ The government seems to be listening, as Finance Minister Seth Terkper explained to us when he said; “Part of our transformational agenda is to achieve an export-led economy. Therefore, the Ghana Export and Import Bank Bill has been laid before parliament. The primary purpose is to finance exports, notably light industrial and agricultural products, guarantee loans, provide export insurance, support SMEs and other businesses, and strengthen our access to markets.“

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