SME development as a path to economic transformation


Small Medium Enterprises (SMEs) employ more than 70 percent of Ghana’s labour force, and have a huge potential for the inclusive growth of the economy.  However, a myriad of factors – including limited access to financial credit, lack of business management skills, and poor market linkages – have resulted in high morbidity and inefficiencies of SMEs in Ghana. Stagnant growth of SMEs, with its associated weakened capacity to generate employment, has been a key contributing factor to the high rate of unemployment and the economic recession the country is facing in the post-pabdemic period.

According to Amoah and Amoah (2018), small businesses constitute roughly 92 percent of businesses in Ghana’s private private sector, 70 percent of GDP as well as contribute 71 percent to employment. SMEs play a significant role in the country’s economic transformation by driving light manufacturing and non-traditional exports, helping to ease the rate of unemployment in the country and providing a source of livelihood for a large part of the country’s population. The sector enhances both the physical and mental health of people, improves standards of living, and on top of all, facilitates self-development for small business owners to build a strong nation.

Facilitation of supply of critical needs in rural areas is another important contribution of SMEs to any economy. Large corporations and the chain stores mostly operate in the big cities and peri urban areas. Small businesses operate in both urban and very remote areas of Ghana. The sector, therefore, plays an important role in the distribution of critical needs such as food, water, medical supplies and household appliances in the very remote areas of the country. Despite the numerous benefits of SMEs to Ghana’s economy, the sector faces daunting challenges that inhibit their growth and development.

Key among the challenges is limited access to financial credit. Most SME owners lack the kind of assets required by the banks as collateral for loans; and are therefore denied access to critical financial credit for investments and business expansion. Without access to credit facilities, the sector is bedevilled with stunted growth, except for medium size businesses that can rely on cash flows and profits for growth and expansion. This generally limits the capacity of the SME sector to employ more people to reduce the high and rising unemployment rate in the country.

Inadequate business management skills is another factor inhibiting the growth of SMEs in Ghana and the developing world in general. Although small business owners and managers do have the on-the-ground skills of their business’ operations, they mostly lack the capacity to manage customers, human resources, suppliers, keep standard accounting records to help track performance, adopt innovative strategies (branding and packaging) to increase and sustain sales and to manage their businesses professionally. Critical skills like succession planning, stakeholder relationship management, critical thinking, commercial awareness and strategy that are essential for business development are mostly lacked by key personnel in the SME sector which accounts for the low levels of growth and development associated with most businesses in the sector.

Depletion of profit margins by the high and rising cost of critical inputs and utilities is another challenge that is suffocating most small businesses in Ghana in recent times. According to the Ghana Statistical Services, the Ghana Producer Price Index (PPI), which measures the average change in the cost of production in the economy, grew 46 percent between August 2021 and August 2022. The significant rise in the general producer inflation and the persistent depreciation of the cedi against all major foreign currencies is gradually eroding the profits and even operating capital of many small businesses, particularly those that use imported inputs or deal in imported finished products. With the high and rising price level, most small businesses find their operating cost outstripping their revenues, leaving them bankrupt. With the low profit margins and declining sales as demand falls in the face of escalating prices, most SME owners are in danger of been thrown out of business by the harsh economic conditions, with many already dropping below the poverty line.

The question many are asking is – could there be an end in sight for the current economic storm facing Ghana? And how can small businesses be supported to play a key role in the revival of the Ghanaian economy? Let us go through some suggested solutions.

As mentioned earlier, inflation is gradually eroding the operating capital of most small businesses. It is, therefore, imperative that policy-makers focus on adopting measures to stabilise the macroeconomic environment to allow small businesses to have a breathing space to execute their business budgets with minimal disruptions. The high and rising interest on government debt instruments is also crowding out credit allocation to the private sector, especially small businesses that do not have collateral to secure loans. It is important for government to adopt critical measures to cut unproductive public expenditures to reduce the public sector borrowing requirement so as to drive down the interest on government debt instruments. More so, to bridge the liquidity shortfalls among SMEs, Development Bank Ghana must adopt tailored solutions to identify SMEs with high growth potential to support them with long-term, patient, low interest loans to finance their investments in order to expand, develop import substitutes and to create more employment opportunities.

There is also the need for technical training workshops, mentoring and handholding sessions for small businesses with high growth potential. To build the capacities of SMEs through an integrated and collaborative hands-on learning system on identified gaps, a combination of structured and unstructured training programmes are imperative. The Ghana Enterprise Agency (GEA) and other relevant institutions and NGOs must coordinate their interventions to provide structured workshops on common knowledge gaps such as business management skills, market linkages, and access to finance. Mentoring and handholding sessions for small business owners should be tailored toward the individual training needs of the target groups possibly in collaboration with vocational training institutes across the country. The mentoring and handholding sessions could also be leveraged to identify unique opportunities and suggest measures geared toward improving productivity, efficiency and sustainability of individual small businesses in the country.

Value chain linkage facilitation is another critical need of small businesses in Ghana. Mapping of market actors and all relevant stakeholders in various value chains will help to identify all organisations that can offer support systems to the target group such as tailored financing providers and investors, providers of inputs and intermediate products, large-scale off-takers, digital solution providers, new market outlets, entrepreneurial training institutions, product development consultants, among others. The mapping of available support services in a given value chain could, then, be used to match the SMEs and business cooperatives with the respective identified large corporations, off-takers, private stakeholders, investors, new market outlets and others based on the particular needs of a given small business. For instance, in the agriculture value chain, smallholders could be encouraged to form cooperatives and linked to input suppliers, off-takers, agro-processing companies and microfinance institutions to help enhance access to inputs, markets for produce and financial credit on special arrangements.

From the foregoing, it is apparent that bridging the capacity gaps in access to finance, business management skills, and market linkages will go a long way to enhance the rapid growth and expansion of SMEs, employment creation, poverty reduction, and to speed up Ghana’s progress toward achieving the United Nations’ Sustainable Development Goals by 2030. The biggest challenge for policy-makers and non-governmental stakeholders is designing appropriate interventions to enhance the quality, focus and reach of support to mitigate the observed gaps in the operations of SMEs so as to facilitate their sustained growth and development of productive activities, employment creation and income growth.


The writers , Paul Kofi APPIAH-KONADU (Dr.) is Director & Lead Facilitator, Africa Entrepreneurship School. Email: [email protected]. Rose Carl Larbi is an Accounting and Finance Student at Heritage Christian College, Amasaman. Email: [email protected], Tel: 0548804504.

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