Key Issues Facing SME Development in Ghana

Jamie MacLeod

Small and medium-sized enterprises (SMEs) are big business in Ghana. Due to the nature of Ghana’s economy it is difficult to quantify just how important they are, but estimates suggest 70% of all GDP contributions come from such enterprises. Despite their importance, there are significant barriers to growth of SMEs, including a lack of affordable finance, restrictive legislation, and a lack of international exposure.

Photo by Andrew Aitchison
Photo by Andrew Aitchison

Conventional funding sources are difficult to access, as the enterprises are perceived to offer higher risk. As a result, high interest rates, collateral requirements and complicated processes impede the access of SMEs to capital. SMEs can be divided into two categories, ‘organised’ and ‘unorganised’. The former describes businesses that have paid employees and a registered office, while the latter includes businesses that operate from temporary structures or at home, employing few or no salaried workers. ‘Unorganised’ SMEs are often microenterprises owned or run by females, who can experience increased impediment to capital.

There is a high start-up cost involved in properly registering a business in Ghana, meaning that few SMEs move from being ‘unorganised’ to ‘organised’. The World Bank Doing Business Report (2016) indicates it takes 14 days to register a business, with a total of 8 processes that must be completed. This is hugely reduced from the same report in 2006, where the figures were 12 processes in 81 days. Despite this, the associated cost of registering a business in 2016 remains relatively high, at 19.4% of income per capita.

Ghana’s SMEs are facing greater external competition, increasing the need to strengthen their market share. Expanding internationally is difficult, as there is limited international marketing experience in Ghana, and little access to international partners. Further issues that affect such expansion are poor quality control and a lack of product standardisation, as well as an overall lack of knowledge of international markets.

Small and medium-sized enterprises in Ghana are clearly important to the economy, but their lack of growth is an undeveloped potential. Going forward, their growth should be encouraged by the removal of the aforementioned barriers. At a governmental level, steps can be taken to make it easier to start a business by taking the process online, removing administrative costs. Access to finance will continue to be an issue, and alternatives must be found if SMEs are to gain access to capital.

Recommended reading:

Abor, J., & Biekpe, N. (2006). Small business financing initiatives in Ghana. Problems and Perspectives in Management, 4(3), 69-77.

Abor, J., & Quartey, P. (2010). Issues in SME development in Ghana and South Africa. International Research Journal of Finance and Economics, 39(6), 215-228.

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