opinionBy Akwasi Fredua
Accra — According to a World Bank Press release (Washington DC) on January 6 2006, Ghana's informal sector controls a bulk of it's economic activities with an employment generating capacity of close to 70% of the Ghanaian labour force.
Most of the job are created by SME's, thereby making SME's having the capacity to inject the more capital into the country and by that, improving on key economic fundamentals such as inflation, exchange rates, interests rates etc.
However the activities of SME's are always ignored, with the government and its agencies concentrating on the bigger businesses, forgetting that small scale jobs are the beginning of bigger enterprises.
When we hear of big global businesses we have to note that they were started by entrepreneurs who were at one time selling newspapers, ice cream, pure water or even owning just a stall just as the ones we see by the roadside and at the Makola and Kejetia markets. Fortunately for us in Ghana, we have many Ghanaian industrialists like Appiah Menkah of Apino Soap, Ernest Bediako of Ernest Chemist, Asuman Banda of Antrak Group, just to mention a few who can provide a source of inspiration for the youth.
Marks and Spencer is a well known and revered high street retailer in clothes and household goods in the U.K. It was started by Michael Marks, a Jewish immigrant with just a tall, which lead to a store then multiplied to stores on many streets of Britain. Today, Marks and Spencer is now a house-hold name in every country.
According to Disney.go.com Walt Elias Disney, founder of Disney entertainment, one of the greatest geniuses of the 20th century started as a simple cartoonist in his small studio in the U.S.A. Recently, Disney became the largest entertainment company in the world when it paid 12 billion U.S dollars to acquire ABC Television of America.
McDonalds which deals in fast foods built by the visionary was also started as a small restaurant by Ray Kroc in San Bernardino, California. Now it has ousted Coca Cola as the world's best known brand with over 20,000 restaurants worldwide with 60% in America, according to www.mcdonalds.com .
Wal-Mart stores which provide huge ranges and choices of household goods was established by Sam Walton who started earning money from selling newspapers when he was young. Wal- Mart started as a shirts store in Arkansas. Today it has 3,600 stores in the U.S.A alone with turn over exceeding McDonald's and Coca cola combined with annual sales of 90 billion U.S dollars.
It is now the largest retailer in the world. Form the above one can safely conclude that the buoyant U.S economy was created by the millions of small scale enterprises metamorphosing into bigger global business empires, commonly called multinational corporations. Globalisation actually thrives on the wings of these corporations.
For this reason, the work of the woman selling pop corn, kenkey or shirts in a store is as important as the man in tie sitting in his air conditioned office.
The difference between the developed world, the emerging markets (India and China) and our part of the world is that they pay greater attention to the development of SME's.
According to the China's People's Daily online, the number of SME's in China is over 12 million, accounting for 99% of the countries total enterprise. More than 100 cities have established credit guarantee institutions which arc expected to help guarantee some 6 billion of bank loans for SME's. China has also set up some 80 technological innovation service centres, 600 productivity promotion centres and 30 university scientific parks which are jointly offering support to the SME's. This explains why China sees it's SME's as the core of its industrialization process. This teaches us how China's fast growing economy takes SME's serious and are taking steps to make it more vibrant. They believe that the SMEs are the bedrock of their booming economy, which is expected to overtake the U.S. in the next two decades.
SME's are the lifeblood of developing countries including Ghana, creating jobs and raising income in environments where economic opportunities are otherwise scarce, yet it's potential is being underutilized in our country.
But of all their importance, SME's face a daunting obstacle; far too few have access to regulated banks, savings and loans associations, investing funds and other formed financial institutions. These institutions see SME's as high risk, low return and not worth their time.
This is not all their fault. There should be a better identification system to develop trust and make borrowing easier. We need names, addresses, signatures, fingerprints and in order to identify people. There is no way to identify yourself in a national, local or global economy unless one has got the standard instruments that allow you to establish a national and global identity. Identification provides information and collateral. There should be a document that identifies a person, his company and a physical address that provides one with credibility. This reduces risk of lending.
SME's in Ghana generally lack management and accounting skills required to provide transparent financial statements and most lack enough credit. This makes them too costly to be considered for loans. The common perception is that SME's have poor organizational structures, inadequate or non existent business planning with enterprises barely surviving the demise of the founding entrepreneur. To cap it all they are mostly run by family members.
Apart from having a difficulty accessing funds, most small sized entrepreneurs are their own enemies. Most of them lack the requisite business acumen to make it in the highly volatile environment. The lack of focus in one area of operation makes failure soon after starting. They want to dip their hands in every business once they hear that, that business is profitable, hence diverting from their core business, which makes management and financial control very difficult.
Besides, most SME's lack the kind of technological innovation to respond to changes in this globalize and ever changing world making them stagnant in their operations Technological developments bring about new and better machinery and equipment, new types and sources of raw materials, and finally new and better methods of production. This results in higher productivity, better quality products, and waste reduction, reduction in production costs and enhanced competitiveness and profitability.
Since the sector holds good prospects, more emphasis should be placed on the competencies and managerial capacities of these entrepreneurs which some banks have started. Activities of capacity building institutions such as EMPRETEC, USAID, SPEED Ghana, etc. should be strengthened to increase the number of beneficiaries to their training programmes. Training programmes should also be extended to cover personnel involved in providing credit to SME's. Most credit officers assess the burrowing requirements of SME's through the lenses of corporate finance and thereby reject potentially viable business.
There should be enactment and implementation of a vibrant credit reference bureau to facilitate information sharing among banks particularly on had debtor customer so that it would go a long way in flushing out (through blacklisting) customers with bad credit history. This will make financial institutions make more funds to make SME's.
Banks should also be encouraged to nurture small businesses by offering training programmes to well established SME's with the view to encouraging them to develop through their medium. This will help revolutionalise the Ghanaian business.
For Ghana to achieve her dream of middle income status, the SME's have an arduous task to play. We all know governments these days find it difficult creating jobs; therefore it is these enterprises which will make more jobs available. Foreign investors will always want to invest in countries where SME's are already making headway. This gives an indicator the country is ready to do business. Our SME's should be the vehicle to achieving a prosperous economy. We all must help to make this a reality. "Growth and employment in Ghana are directly linked to the development of SME's", says the World Bank's Country Director Matts Karlsson