International
press coverage tends to overemphasize the positives and downplay the
real challenges Ghanaian entrepreneurs face. When I moved back home to
Ghana from New York in 2004, less than 5 per cent of Ghanaians had bank
accounts; banking was a cosy club of 18 actors with little incentive or
appetite for the private sector.
This was unsurprising with a Government Treasury Bill rate as high as
42 per cent. Entrepreneurs lucky to be advanced credit could expect
business-crippling interest rates—as high as 50 per cent at one point.
Add to that an inflation rate of almost 24 per cent and you get a
picture of how difficult it was to operate as a small- or medium-sized
enterprise (SME) or entrepreneur—especially if you required credit.
Under
the circumstances, only certain kinds of entrepreneur could
thrive—service-oriented entrepreneurs or entrepreneurs with access to
private finance.
The Ghanaian business landscape has changed
tremendously since 2004. With a fall in the Treasury Bill rate to 23.02
per cent, the 26 banks have been forced to diversify, growing their
balance sheets by other methods including private sector lending, even
if at an average rate of 27 per cent.
However, the challenges, though diminished, remain —within them
opportunities exist for government, development agencies and private
equity firms to really help transform Ghana into a thriving environment
for small business and entrepreneurship. I see four key areas that need
attention: Access to credit, policy enforcement, infrastructure and the
development of human capital.
Access to credit is still the
toughest barrier to business operations and growth. Without a proper
credit referencing system and adequate information about companies,
industries and opportunities, banks find it difficult to make credit
evaluations.
As a result banks treat entrepreneurs as an amorphous set and demand
the same collateral package regardless of business sector or industry,
instead of evaluating each proposal separately. It is near impossible
for most SMEs to obtain credit from banks in Ghana without collateral.
As
financing from development finance institutions (DFIs), and other
commercial international sources, are a key part of financing for
Ghanaian banks, given particularly low bank deposit levels as a
percentage of GDP, these institutions could perhaps tie credit and debt
investments in Ghanaian banks to a requirement to provide minimum levels
of support to local entrepreneurs.
In addition, both domestic
and international players should support the nascent credit referencing
system and invest in systems to generate and disseminate useful data.
There
is a gap between policies and laws on paper and what happens in
practice. A review of government policies and laws reveal an impressive
set of initiatives aimed at promoting private sector development but it
is rare to see them in practice.
Linked to this is an unfriendly
government machinery. The departments of government which entrepreneurs
rely on to establish and operate their enterprises are perceived to be
‘entrepreneur-unfriendly’ and ‘anti-private sector’.
Officers who populate these institutions appear more concerned with
unnecessary bureaucracy than facilitating the launching of new
businesses. Many officers are also ill-prepared to provide the level of
support that entrepreneurs require.
Despite significant
investment in infrastructure, a lot more remains to be done to provide
better quality roads, water and electricity to support businesses. For
example, there are nascent initiatives in contract manufacturing and
outsourced customer services,that require greater reliability from basic
utility providers.
Given the lack of breadth in private
enterprise, many of the best graduates of our universities and
polytechnics leave the country to seek experience and opportunity. Also,
there is a growing number mid-level of graduates who are not
necessarily ‘fit for purpose’.
After access to capital, entrepreneurs cite human capital as the
biggest barrier to operations and growth. Many entrepreneurs find the
talent pool so poor that they essentially train recruits from scratch.
While all the four areas I have outlined remain challenging for SMEs
and entrepreneurs, they have all shown improvement over the years and –
in my opinion – offer further opportunities for investors. Prospects
exist in skills training, public/private infrastructure such as toll
roads, private equity, and lobby organisations.
Without changes, the breadth of entrepreneurial endeavour in Ghana
will continue to suffer and some of the most dynamic young graduates
will be lost, further slowing development. It is only by tackling these
challenges will Ghana be able to give meaning to its stated objective of
private sector led growth.
Elikem Kuenyehia is a founding partner in
Oxford and
Beaumont solicitors in
Accra and author of
Kuenyehia On Entrepreneurship. At
BEIGE Capital, he plays a strategic role in Legal Affairs and International Relations.
www.businessfightspoverty.org
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