Small and Medium scale Enterprises (SMEs) could be impacted negatively by Continental Free Trade due to a poorly regulated business environment and high cost of funding, Dr. Lord Mensah, Senior Lecturer-University of Ghana Business School, has said
“Ghana is not ready to take advantage of the African Continental Free Trade Agreement (AFCFTA), which is expected to create the world’s largest free trade area, because local businesses or SMEs cannot access the funds they need to produce on large scale and reduce the unit cost of products that will enable them to price competitively.
“What will happen with this agreement we have entered is that we are going to have our partner countries bringing in their products into our country, but ours will not be going out because they will be too expensive out there,” he said.
Speaking at the Graphic Business/Stanbic Bank Breakfast Meeting, held at La Beach Hotel under the theme ‘Building a National Equity Fund to Support SMEs’, he added that signing onto the AFCFTA will mean Ghana having to position its SMEs better by creating the conducive and competitive environment that will enable them to take advantage of the trade area and be competitive, since the current business environment is not properly regulated.
Panellists at the breakfast meeting proposed the establishment of a national equity fund that will support SMEs at a relatively cheaper rate and on long-term financing basis.
General Manager, Group Operations-Kina Group, Nuamah Eshun-Fameyah, indicated that currently, the cost of funding is very high and the process of accessing the fund is very cumbersome and stressful, which is not appropriate for SMEs.
“The essence of having an equity fund is to make it accessible to investors at the right time and at a reasonable cost. The fund will be attractive to SMEs if the rate is reasonable in relation to others on the market.
“Any support to SMEs is a direct support to the Gross Domestic Product (GDP) of the country; and so if SMEs get the right support, unit cost of production reduces and they remain competitive,” he said.
Mr. Eshun-Fameyah also advised government to try understanding its economy better before signing onto certain agreements, because if the private sector is not ready then government should not be ready.
According to the panel, an equity fund is a patient fund wherein cost of funds is relatively cheaper than that of the banks; and also comes at long-term durations of up to 20 years and should be preferred for SMEs.
SMEs in Ghana not only need funds but also technical assistance or advisory support, and equity funds also come with technical support, the panellists noted.
“Some of the SMEs in Ghana need technical support while others need managerial support, and equity funds will nominate people to sit on some of the boards of these SMEs in order to provide them with this technical assistance for free – which some of them may not be able to access,” Edward Gomado, Partner/Director-PwC, has said.
Stressing government’s responsibility to ensure private sector/ SMEs are protected ahead of AFCFTA, Mr. Gomado called for a local content policy that will ensure shops, especially the malls, have local products on their shelves
“Instituting a national professional advisory and technical assistance body that will help SMEs or investors to navigate some of the tax grids is key to sustaining SMEs, because most of them collapse due to lack of monitoring,” he said.