A number of new initiatives, including educational programmes and a specialised support fund for small and medium-sized enterprises (SMEs), have been established to promote the growth and diversification of small businesses in Ghana.

More than $20m is expected to be made available from the government’s SME fund, which has received financial backing from the Export Development and Agricultural Investment Fund, in addition to loans and grants from development partners.

SMEs play an important role in Ghana’s economy, accounting for around 90% of all businesses, according to PricewaterhouseCoopers’ (PwC) 2013 Ghana Banking Survey. A 2010 study by the University of Ghana reported that SMEs account for 85% of manufacturing employment and 70% of GDP, although the latter figure fell to around 49% by 2012, according to PwC, largely due to the commencement of natural gas and oil production in commercial quantities in the first quarter of 2011.

Fund’s structure to help ensure viability

Minister of Finance Seth Terkper announced in November 2013 that the SME fund would be linked to established institutions such as local credit guarantor Exim Guaranty and the Venture Capital Trust Fund, in addition to rural banks and microfinance firms.

According to Terkper, while previous efforts to improve access to financing for SMEs have not been sustainable, this fund will have a number of features to ensure its viability. For example, it will be overseen by a board of trustees and a professional fund management company – a structure that should help improve the credit appraisal process and recovery rates.

Additionally, the fund will be working in close collaboration with the National Board for Small-Scale Industry to unify SME finance and capacity-building initiatives, Terkper said. Various institutions, such as the Private Enterprise Foundation, as well as banks, already offer training courses to business owners on topics such as bookkeeping.

These types of programmes help improve financial transparency and corporate governance, which in turn can boost access to capital from banks and other lending institutions.

Access to bank lending

SME lending is a hot topic in most emerging markets and Ghana is no exception. While some banks, such as uniBank Ghana and Standard Chartered, offer special loan products for small businesses, commercial banks as a whole are hesitant to lend to the SME sector given the lack of credit history, or are only willing to do so at interest rates even higher than the already-elevated average in Ghana.

A 2013 report from the Association of Ghana Bankers found that the SME sector shows “significant economic and commercial potential” but noted “the high cost burden that the banking industry imposes on this promising economic group”.

According to the report, three main obstacles stand in the way of SME financing: a lack of structure in corporate governance; opacity of financial circumstance; and high default rates. While the new SME support fund will help smaller businesses access capital in the short run, the training and educational programmes may help alleviate some of these concerns in the medium- to long-term.

The fund could also go a long way toward promoting diversification among SMEs, which have traditionally been manufacturing or retail businesses. The government has been seeking to move more small firms into agro-processing and other fields – particularly given the new opportunities that have emerged for subcontracting in the energy sector in recent years since the start of large-scale oil and gas production.

Though SMEs may continue to appear to be risky investments, new initiatives pushed by both the public and private sector are likely to make them seem more attractive. New training and management programmes in viable downstream industries, as well as a more unified national plan for SME promotion and financing, will be crucial in improving the structure, viability and sustainability of the country’s small businesses.