Harnessing the potential of SMEs for accelerated development
Today’s article aims at contributing to the forum at the Movenpick Ambassador Hotel to brainstorm on the role of SMEs towards the accelerated economic development of the country.
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Though I am not billed to speak at the forum, I deem it as a matter of importance to share my thoughts on the subject and help in charting the way forward for SMEs in the country.
Another motivation for writing this article is my recent advocacy through my articles in this column to urge the government to embark on specific and deliberate policy prescriptions to grow Ghanaian businesses through the encouragement of strategic alliances through franchising, licencing, international joint ventures etc.
What is an SME
Though I subscribe to the view that there could not be a universal definition of an SME and that what is considered an SME would vary from country to country, I believe an SME in the Ghanaian context could be a company of a relatively small size employing a minimum of 5 people to one employing about 40 people. Furthermore, there could be segmentation of SMEs in particular sectors of the economy so that an SME in one sector of the economy may not necessarily be an SME in another sector of the economy.
The rationale for designating SMEs
It seems to me over the years that successive governments have been fascinated with SMEs in Ghana since the sector is dominated almost exclusively by Ghanaian businesses.
This particularly is attested to by the various legislations which have been passed to protect the turf of the SMEs and thereby insulate them from unbridled competition with multinationals and also single entity foreign owned businesses.
Thus, during the days of the CPP government, particular attention was paid to industries and businesses which were overwhelmingly dominated by locals like construction, agro processing, agriculture etc.
In the military era, legislation was passed to preserve particular sectors of the economy for Ghanaians. This trend also continued into the 4th republic when successive investment codes reserved some particular sectors of the economy for Ghanaians. Mention could also be made of LI 2204, the local content law to enable local businesses take advantage of opportunities in the oil and gas sector.
Although the sectors of the economy reserved for exclusive Ghanaian participation were not dominated by manufacturing enterprises, it is my belief that the rationale in preserving certain sectors of the economy for local participation was to eventually create a corps of local entrepreneurial talent for the economic resurgence of the country. It would also be recalled that in 2001, the NPP government invited Hernan de Soto to the country to share ideas with the government on building up capital for investment by the grassroots. This initiative, I believe was an attempt to scale up the prominent role that SMEs were envisaged to play in an economic resurgence of the country.
Contribution of SMEs to the economy
Although, I have not conducted any scientific research regarding the contribution of SMEs to the economy, I can confidently say without any shred of doubt that the contribution of SMEs to the overall development of the economy is certainly immense. I am fortified in my confidence by making reference to the US. The US, which is traditionally regarded as the citadel of big business is said to have 90 per cent of its businesses in the small business sector. This is made up as follows- services 51.3 per cent, retail 10.3 per cent, construction 12.4 per cent, wholesale 2.8 per cent, manufacturing 2.3 per cent, finance 3.8 per cent and others 16.9 per cent.( Quoted from Essentials of Entrepreneurship and Small Business Management by Norman Scarborough 2013). It is also known that small businesses are responsible for paying about 45 per cent of all remuneration in the private sector in the US. If the US being the citadel of big business has a significant small business sector, then there is every reason to believe that the SME sector in Ghana is obviously domineering.
Harnessing the potential of SMEs
I often recall the situation of a Ghanaian company which was engaged in the export of palm oil to Nigeria as told by then Nigerian High Commissioner to Ghana, His Excellency Musiliu Obanikoro at a forum of the Ghanaian-German Economic Association (GGEA) at the Novotel Hotel. He recalled his personal intervention on behalf of the Ghanaian company whose consignment of palm oil had been detained at the Nigerian border for its release.
Even though the government has been fashioning out policies to propel SMEs, in my view, I think it is about time that the government scales up its policy prescriptions to propel SMEs to their rightful destination.
Rejuvenation of NBSSI
I believe the first policy consideration for the government in harnessing the potential of SMEs for accelerated development is to overhaul the composition and operations of the NBSSI. There is the need to include medium scale industry development into the portfolio of the NBSSI. As a first step, there should be legislative backing for the new envisaged entity with a clear cut policy direction on its mandate. The new body should also be set up as a specialised body fully staffed by professionals with the requisite expertise in the development of small and medium enterprises and must have a functional board of directors to give it the requisite policy direction.
Creation of a specialised bank for SME development
To harness the potential of SMEs to enable them play a lead role in the development of the country, there is a need for a specific financial intervention in an upswing to mobilise critical financial resources for SME development. It is a fact that government often contracts loans from foreign sources for the development of SMEs which are mostly disbursed by the Ministry of Trade and Industry and the Ministry of Finance. Almost invariably, these monies together with grants are handed over as largesse to businesses allied to the governing party of the day. As such, it is seen as free money without the prospect of repayment. Creating a bank or a financial institution like former Home Finance Company, the ADB or EDAIF to mobilise resources for on lending to SMEs would go a long way towards resolving the financial difficulties of SMEs.
Recently, the Italian government granted $30 million dollars for the benefit of SMEs which was disbursed by the Ministry of Trade and Industry of which Phastor Company Ltd and others were beneficiaries.
The better way to manage such funds will be through a financial institution which would be better able to disburse the money and ensure its repayment to create a revolving fund.
Furthermore, the government could also pass legislation to provide for the allocation of about 2% of all national revenues for the development of SMEs. It must be noted that the setting up of specialised institutions like HFC Bank, EDAIF, ADB Bank has contributed in no small measure in deepening financial intermediation in agriculture, real estate and exports.
Small and Medium Business Jobs Act
While the government must be commended for its intervention in the oil and gas sector culminating in the promulgation of LI 2204, the local content law, it will be appropriate for the government to also turn its attention at modifying the procurement processes by ensuring that SMEs are not disadvantaged as a result of the implementation of the Procurement Act. It must be noted that the strict application of the Procurement Act is a disincentive to the growth of some small scale enterprises.
The case is recalled of the chalk factory established by the Ghana Society of the Disabled which tried unsuccessfully to get orders for the supply of chalk to the GES inspite of the good quality of the chalk due to the application of the Procurement Act. Like the US which has promulgated the Small Business Jobs Act of 2010 to particularly favour small businesses, it is suggested that there should also be the passage in Ghana of a Small and Medium Business Jobs Act to cushion SMEs against big businesses in the application of the Procurement Act.
Sourcing of Export Markets
The Ghana Exports Promotion Authourity (GEPA) though must be commended for its efforts in increasing non-traditional exports, it is suggested that GEPA should pay special attention to sourcing markets for SMEs by moving away from its conventional strategies of aiding local companies to seek export markets which favour the local big companies.
Encouraging Strategic Alliances
It must be noted that the US Small Business Administration has been very proactive in encouraging and facilitating the creation of strategic alliances between small businesses and their foreign partners in an attempt to boost the capacity of small businesses and expand their frontiers. The government could take a cue from this initiative of the SBA in the US and design appropriate policies in that direction.
The above mentioned factors though not exhaustive, if implemented well would go a long way in placing SMEs on the pedestal to catapult the accelerated development of the country.
• The writer is a lawyer with specialisation in international business law.
email: guymilo@ yahoo.com
