By Isaac FRIMPONG (Ph.D.)
Micro, small, and medium-sized enterprises (MSMEs) are often regarded as the engines of economic growth worldwide. According to the United Nations report for 2023, MSMEs constitute more than 90 percent of all businesses and provide over two-thirds of the workforce. In Ghana, their visibility and influence are evident everywhere, from bustling big cities to small towns and villages.
While policymakers have emphasised their importance and the need to support them, it is time for concrete action. For Ghana’s long-term economic prosperity, MSMEs can and must play a pivotal role. By increasing their productivity, improving access to finance, and fostering a supportive ecosystem, MSMEs can enhance the resilience of the Ghanaian economy in a world of uncertainties. This article explores how MSMEs and large companies can collaborate, drawing inspiration from the structure and operating procedures of traditional kinship networks, mutual aid associations, and corporate groups in Asia.
MSMEs Are The Lifeblood Of Ghana’s Economy
MSMEs in Ghana are extremely diverse. They include self-employed individuals without employees, such as truck pushers or taxi drivers. A micro-enterprise has one to five employees, like an eatery; a small enterprise has up to 30 employees, like a sachet water manufacturing company; and a medium-sized enterprise has up to 100 employees, such as a soft drinks manufacturing company. This categorisation is found in the Ghana MSME policy document.
These businesses add enormous value to the Ghanaian economy, contributing to gross domestic product (GDP) and value-added sectors like food, trade, and construction, as well as bridging the gap between production sources and consumers. MSMEs also serve as crucial job creators, directly impacting consumers by providing essential services such as waste management through rubbish pickers and care for the weak and the elderly. They are significant employers, accounting for about 70 percent of all employment in Ghana.
These enterprises also infuse liveliness and oomph into the economy by promoting innovation and competition, encouraging businesses to continually enhance their “processes, products, and services,” and creating avenues that large companies may find difficult to penetrate. In Ghana, MSMEs that are vital in supporting the lives of millions of people are closely aligned with self-employed individuals and microenterprises. This is where seven out of every ten employed people make a living. In contrast, according to McKinsey’s report, employment in richer economies tends to be skewed towards small and medium-sized enterprises.
MSMEs Can Boost National Productivity
To maximise the value MSMEs create, not necessarily closing the productivity and technology gap between them and large companies, this article proposes an adaptation of the principles of some of the successful corporate groups, such as Chaebol in South Korea (Daewoo, Hyundai, Samsung, and LG), Keiretsu groups in Japan, Quanxi Qiye of Taiwan, and our local mutual aid association and kinship networks. I want to focus on Keiretsu groups in Japan, which propelled Japan to economic prosperity post-World War II.
Keiretsu simply means “clusters of independently managed firms maintaining close and stable economic ties, cemented by governance mechanisms such as presidents’ clubs (heads of various firms), partial cross-ownership, and interlocking directorates.” Within this definition lie two unique models – vertical and horizontal relationships.
Vertical Relationship
This model envisions a business network made of one large company and multilayered systems of MSMEs within the same value chain, supported by banks, insurance companies, and pension funds working together for mutual success. Typically led by a large firm acting as a holding company, it defines the group through its products and influence. This group operates with each firm potentially owning a small number of shares to strengthen the union. Banks and pension funds act as financiers, while insurance firms manage the risks.
Horizontal Relationship Model
In this model, firms from diverse sectors come together to achieve a common goal. They are linked by intra-group financing, cross-shareholding, and high-level management. Unlike the vertical model, this model has no holding company. A bank and an insurance firm are the pivots of the group, offering an identity, while a large company exerts influence in the decision-making and direction of the group. The primary bank acts as the financier and guarantor for loans extended by other banks to the small firms within the network.
Benefits and Challenges
These models promote long-term business relationships, share best practices and information, improve risk management, and ensure a stable and reliable supply chain. While there are concerns that such networks tend to create closed markets and slow-to-market changes, these issues can be mitigated through outward-looking strategies and just-in-time management systems.
The kinship network and mutual aid associations in Ghana operate on similar principles to those of these corporate groupings. Instead of calling for a complete change in approach, I propose that we as Ghanaians reevaluate what we already have, take lessons from other places that have worked, and tailor them to our unique circumstances — centred around the “economy of affection,” as Hyden put it.
To create a sustainable value chain that benefits all parties involved, the cocoa sector in Ghana can serve as an excellent illustration. Farmers, buyers of cocoa beans, suppliers, manufacturers, bulk and retail retailers of finished goods, and service providers in the sector can collaborate to form a robust and inclusive network. This collaboration can be supported by venture capital or private equity funds, banks, and insurance companies.
Conclusion
MSMEs are important to Ghana’s economy, and their potential can be further unlocked through innovative collaborative models, starting with sectors like construction, trade, and food. By leveraging on the traditional kinship and mutual aid principles, and fostering supportive ecosystems – where everyone in the value chain is involved – MSMEs can significantly contribute to economic resilience and growth.
It is, therefore, time for policymakers and stakeholders to transition from persuasive speaking and/or writing to action, ensuring that MSMEs receive the support they need to thrive. The key to this game is execution, execution, execution.
The writer is a Researcher and Consultant [email protected]
