Innocent Prince Afli’s thoughts ….How stimulating is govt’s COVID-19 stimulus to MSMEs– Mitigating the associated risks


 Almost six months into the outbreak of the novel Coronavirus (COVID-19) pandemic, the world is still struggling to deal with the economic cracks and imbalances created by the emergence of COVID-19.


The virus has exposed the non-resilience or otherwise of economies across the globe. Indeed, the world’s most powerful economies like the USA, China, Japan, Germany and the like are uncertain about the future of their economies due to the effect of COVID-19 on productivity. However, impacts of the economic effect will vary with each economy.


For instance, the economic impact on Ghana’s economy is likely to be more severe than it would be on the USA economy and the like. Hence, each economy must adopt its own home-made economic recovery strategies to bring back its businesses for restoration of the economy. Consequently, the economic stimulus package being presented by economies around the world can never be equal in any way. Nonetheless, whatever economic stimulus package being given must of necessity improve the economic life of beneficiary businesses, which will translate into boosting domestic production.


According to a post by Jim Chappelow on, economic stimulus is attributed to the theories of Keynesian economics, and is referred to as government’s targetted expansionary monetary and/or fiscal policy designed to specifically boost economic activities of the private sector during recession.

The expansionary fiscal policy comprises government overspending and tax reduction among others, while monetary policy includes but is not limited to interest rate reduction, lowering of reserved requirement and money supply. Whereas the fiscal policy is the central government’s policy, monetary policy is outlined by the central bank on behalf of government. The private sector is targetted because it is the engine of growth in any economy, as it contributes over 70% of nations’ GDP and employs a majority of the working class.


It is in this regard that the government of Ghana rolled out the GH¢600million Coronavirus Alleviation Programme (CAP) Business Support Scheme for MSMEs; provides tax incentives to businesses; and engaged the private sector (e.g. the pharmaceutical industry) for production of some essential goods to increase government spending in order to put money into the pockets of the private sector. Similarly, the Bank of Ghana also reduced its Monetary Policy rate; lowered the primary reserve ratio for financial institutions; provided liquidity support to special deposit-taking institutions (SDIs); and extended the deadline for new capital requirement among others to make funds available for SMEs through these financial institutions.

However, as to whether these stimulus packages are appropriate enough to restore the economic fortunes of Ghana is another matter that must be critically assessed by all stakeholders. In addition to this fundamental concern, there are a couple of uncertainties or risks inherent in any stimulus package. This article therefore discusses some of those risks and suggests some ways to mitigate them to ensure the desired aim is achieved.


Objectives of Government’s CAP Business Support Scheme

As mentioned earlier, the paramount aim of any economic stimulus is to provide financial incentives for the private sector to enable them undertake their economic activities. Accordingly, the government of Ghana’s CAP Business Support Scheme enumerated three main purposes of the GH¢600million stimulus for the MSMEs (NBSSI, 2020) as:


  1. Procurement of raw materials for immediate use
  2. General operational and administrative expenses – rent, salaries, utilities etc.
  3. Any other need of the MSMEs that positively impacts the business and retains human resource


Also, the Bank of Ghana’s aim of taking such monetary decisions is to make money available for the banks and non-banking financial institutions to support small businesses and household needs.


The above objectives clearly indicate that government is concerned about ameliorating the effects of COVID-19 on the continuity of those businesses and the human capital (Ghanaians). It is therefore laudable that government is determined to ensure Ghanaian workers and their families are not negatively affected by the emergence of COVID-19. Nevertheless, it is needful to ascertain the possible risks associated with the package, and their effects on the objectives in order to provide alternative suggestions for mitigating them.


Possible Risks Associated with the CAP Business Support Scheme

Risk in simple terms is the possibility or chance of an outcome being different from the original intent. Hence, the risk inherent in the economic stimulus is the probability that results of the stimulus package will differ from the expected objectives. Thus, stimulus decisions like any other policy has associated uncertainties. The common risks identified with the government’s stimulus are discussed below. And the overall possible effect of these risks is inability to achieve the expected objectives, resulting in MSMEs defaulting in paying back the loans after expiration of the one-year moratorium.


  • Inadequacy of the Fund

One of the inherent risks that is likely to defeat the objective of the CAP Business Support Scheme is inadequacy of the fund. According to government’s statement, a total of GH¢600million is voted for the Business Support Scheme. This amount was boosted by some financial institutions with an additional GH¢400 million to GH¢1billion. In my article on ‘Economic Effect of COVID-19 on the Sustainability of MSMEs’, I mentioned that the IMF report on financing gap shows that Ghana’s MSMEs financing gap as at 2017 was about US$2.3billion. This gap I believe has not been closed yet; hence, one would expect that in providing financial incentives to these businesses, government would have released a lot more money than what has been given out.  According to GSS (2015) there are a total of 635,695 MSMEs: categorised as Micro – 509,033; Small – 117,329; and Medium – 9,333 across all sectors of the economy.


By simple calculation on the assumption that each business will be given the same amount, an enterprise will receive GH¢1,573.08 (i.e. GH¢1b/635,695). Or should all the qualified 75% of the 450,000 applicants, per the statement of the Executive Director of NBSSI (Ghanaian Times, 2020) be given equal amount, each business will receive about GH¢2,962.96 (i.e. GH¢1b/337,500) which is a little higher than the maximum GH¢2,000 given to some of the 1,000 initial qualified applicants (Ghanaian Times, 2020).

The question, then, is how much can be achieved by that amount; or is the amount adequate to buy the needed raw materials for production to keep the business running; or is the value enough to pay salaries (to maintain the human capital), rents and utilities to achieve the expected objectives? Definitely not. Hence, the risk is that since this fund is not adequate to take care of the real needs of the MSMEs, there is a likelihood that it might not yield the right returns and thereby defeat the purpose of the CAP Business Support Scheme.


  • Delay in Disbursement of the Fund

Timing is as essential as anything in a successful implementation of any business strategy. The failure of any organisation to follow through its plan within the stipulated time can be detrimental to operations of the firm. This is because according to the principle of ‘time value of money’, the value of GH¢1 today is worth more than same value tomorrow unless that money can earn interest. This means that whatever an enterprise can purchase or do today with the money it is holding might not be same tomorrow, unless there is an added value to that money.


Juxtaposing this with disbursement of the stimulus package, one can suggest that if the fund is not released to the MSMEs on schedule, there is a probability that value of the money could decline and hence fail in achieving the expected objectives. Factors such as inflation and cedi- depreciation could be the leading causes of devaluing monies given to the MSMEs due to delayed disbursement. It is explicit therefore that if government through the NBSSI does not fast-track disbursement of the GH¢1billion package, though the MSMEs will access the fund eventually, it might not help them at the end. It therefore means that by the time the fund reaches businesses, their financial woes would have deepened – and the fund might increase the financial burdens on MSMEs instead of helping them, since it is not a free gift or grant.


  • Inability to Rightly Allocate the Fund to the Right MSMEs

Although the NBSSI outlined certain criteria in determining which business qualifies for the package and how much can be accessed by the qualified businesses, the question to be asked is: are the criteria exhaustive enough to significantly reduce any gap in the allocation process; or do the criteria assure the critical growth areas that really need the fund to propel economic growth get support? Even though the scheme is meant to support all MSMEs across all sectors, a targetted approach should be used in order to concentrate more on growth areas than the others.


This is the main reason why the volume of funds being disbursed should be of critical concern to all stakeholders. If the ultimate focus of government is to ensure sustainability of the MSMEs, then using the fund on recurrent expenditure as in objective 2 of CAP Business Support should not be encouraged. The state of firms after spending the funds on consumptions might be worse than foreseen. This is why purposive categorisation is required to ensure a significant portion of the fund is not spent on recurrent expenditures only. Government’s inability to purposefully target the right areas of the economy with the right funding could lead to failure of the support scheme.


  • Misapplication of the Fund

One major risk associated with this stimulus package is misapplication of the fund by MSMEs. Mostly, whenever government seems to support institutions with funding, the general assumption is that it is government-money; hence, even if we do not pay back, nothing will be done to us – especially if it becomes partisan to some extent. For instance, MASLOC – which is under the Office of the President of Ghana and mandated to implement government of Ghana microfinance programmes by providing micro and small loans to start-ups and small businesses – has a high default rate with difficulty in retrieving them (Graphic Online, 2017) (Graphic Online, 2018). Inferring from this, it can be suggested that the CAP Business Support Scheme could suffer same fate; especially as the support is coming at the backdrop of a global pandemic that has taken over the international stage.


Hence, without appropriate measures to ensure the fund is not misapplied by beneficiary MSMEs, the scheme’s objectives will only be a mirage or fantasy. To emphasise, one serious consequence of misapplying or diverting the fund would be inability of the businesses to repay when the repayment is due. This could also mean that the right economic growth of the nation will not be achieved, and the economy will continue to recess. Another effect of misapplying the fund will be that businesses which need the fund will be deprived access to the right funding, and this could result in their collapse.




  • Crowding-out Effect

As the MSMEs receive the funding to increase their production, more labour may be required; which will definitely increase the wage bill and subsequently reduce the firm’s profit. This means that the profit which is to be reinvested into the firm for growth will be expended, and thereby negatively affect growth. Also, by releasing the GH¢600m support and other financial stimulus in the future, government’s spending will certainly be higher over revenue – creating a deficit that will be financed by debt. This debt could lead to an increase of interest rates in the long-run, affecting the cost of future borrowing by the MSMEs. Thus, the high interest rate will deny MSMEs the right volume of funds for use in increasing production over the long-term.


How to Mitigate the Stimulus Risks

Notwithstanding those identified, certain measures can be implemented to mitigate the risks. Admittedly, complete elimination of these risks might not be possible – but mitigating them could help significantly achieve objectives of the scheme. The following mitigating factors, though not extensive, are relevant in reducing effects of the identified risks.


  • Increased Funding

Considering the financial difficulties confronting MSMEs due to difficulty in accessing funding from financial institutions, government can use this opportunity to create a Special Business Support Vehicle from this Coronavirus Alleviation Programme (CAP) to consistently support vulnerable enterprises. In the meantime, government should boost the GH¢1billion to enable each enterprise (especially those in the manufacturing and agriculture industries) to access a minimum of GH¢50,000 as working capital support. This will at least enhance the capacity of MSMEs to increase production and meet the demands of their clients and continue to remain in operation.


The US$9m World Bank grant (Citi Business News, 2020) secured by the Ministry of Tourism, Arts & Culture under the Ghana Tourism Development Project to support SMEs in the tourism industry is in the right direction and has come at the right time. This fund, if efficiently managed, will create the needed growth in the industry. Similar financial arrangement could be done for MSMEs in other sectors of the economy to improve their production. This will translate into increased gross domestic product (GDP) and recovery of the economy.  In this regard, the additional NBSSI/Mastercard Foundation GH¢90m (BF&T Online, 2020) secured for MSMEs is commended, though is it still not sufficient.


  • Timely Disbursement of Fund

One way of ensuring that the objectives of rolling out the CAP Business Support Scheme are met is to disburse the fund to qualified institutions timeously. A major setback to fast-tracking disbursement could be the verification process for applicants. This setback also exposes lack of effective coordination of businesses by the respective regulators.  Hence, regulatory bodies of MSMEs like the NBSSI and Private Enterprise Federation (PEF) should constantly update their records with relevant enterprise information in order to shorten the waiting period in future stimulus disbursements. Other steps could also be adopted to reduce the waiting period. Therefore, the decision by NBSSI and its partners to disburse the GH¢1billion in tranches as and when applicants are certified as being qualified is commendable.


  • Allocation of Fund to the right MSMEs

Appropriate data on the MSMEs could help determine the capability and capacity of each firm in contributing to Ghana’s economic growth. This will enable government to provide them with targetted funding for targetted growth and expansion. As mentioned earlier, the tourism industry SMEs grant should be replicated for all industries, targetting the MSMEs in those industries – thus ensuring that the right needs of the MSMEs are identified and the right funding is provided to them.


The economic effect of rightly allocating right amounts to the right MSMEs is sustained growth of MSMEs and the economy at large. Assuming the regulators have updated data on the state of these enterprises prior to the COVID-19 outbreak, businesses which hitherto were facing serious challenges would have been identified, and the scheme would have been designed to meet the right needs of those firms. In effect, NBSSI and partners would not have to go through any bureaucratic procedures in assessing and evaluating the businesses.


  • Right Application of the Fund

Inferring from how monies purported to be given by government to institutions are handled, it is necessary for NBSSI and its partners to demand proper and further documentation from the beneficiary MSMEs to ensure the fund is rightly applied to the purposes for which it is disbursed. Managements of MSMEs are to understand that the scheme’s purpose is to support their economic activities to enhance their growth and expansion, and safeguard their continued operations – and inappropriate application of the fund could lead to collapse of the MSME.  Owners of MSMEs must appreciate the fund’s importance and invest it into the right project for the right growth. Owners of MSMEs must also engage the services of experts to help them manage their businesses and achieve the right objectives for the benefit of all.


  • Monitoring and Evaluation

Monitoring and Evaluation throughout the MSMEs value chain is very critical in ensuring success of the CAP Business Support Scheme. For efficiency and adherence to basic business management principles, NBSSI and other stakeholders must institute special monitoring mechanisms for continued monitoring and evaluation of MSMEs operations. With effective monitoring, any bottleneck in implementation of the scheme can be quickly identified and resolved to prevent any negative effect on the businesses. Without monitoring and evaluation, the scheme’s impact cannot be ascertained. In other words, NBSSI and stakeholders should not wait till the scheme ends to before commencing its evaluation and assessment.


To conclude, in spite of the identified associated risks of the economic stimulus package, it is not too late to implement measures (some of which are mentioned above) that will ensure expected objectives of the CAP Business Support Scheme are achieved to the benefit of Ghana’s economy.

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