Increased attention to Ghana’s Small and Medium Enterprises (SMEs) will deal decisively with the country’s unemployment crisis, some economists have impressed upon government.
Professor of Finance and Dean of the University of Ghana Business School (UGBS), Prof Joshua Yindenaba Abor in an interview with Business Finder renewed the call for support in terms funding for SMEs in the country, stressing that they remain critical in Ghana’s growth and development agenda.
“Funding is the major factor inhibiting the growth of SMEs across Africa even though there are other factors such as access to international markets, lack of capacity, regulatory issues all of which impact their operations negatively,” Prof Abor stated.
According to him, any interventions aimed at supporting SMEs should not stop at just providing credit but should be directed at both access to funds and how the funds are utilized by the enterprises.
“There is the need to be involved in what they do; let’s not just provide the funding and leave them to slug it out; we must go beyond that and be interested in providing management and technical advice also,” he added.
SMEs employ between 60 and 80 percent of their populations which constitutes about 90per cent of businesses in Africa “so essentially most job opportunities would come from that sector.”
In Ghana, readily available data on SMEs is scarce but statistics from the Registrar General’s Department suggests that 92 per cent of companies registered are micro, small and medium enterprises.
SMEs in Ghana have also been noted to provide about 85 per cent of manufacturing employment, contribute about 70 per cent to Ghana’s GDP, and therefore have catalytic impacts on economic growth, income and employment.
Explaining what he termed as considerable benefits that SMEs offer, the Dean of the Business School said “one person starts a business and employs him or herself so he or she doesn’t have to go looking for a job.”
“From the start SMEs are able to employ some of their family members and serve as a source of job creation; as they scale up, they bring other people on board so then they expand to employ others based on their expertise and know-how,” he added.
Prof Abor’s call comes on the back of a similar one made last week by former Vice Chancellor of the University of Ghana, Professor Ernest Aryeetey when he called for innovative measures to be taken to meet the funding needs of SMEs in Ghana.
Professor Aryeetey argued that the country could significantly reduce the alarming unemployment rate should SMEs grow and create more jobs for the teeming unemployed youth.
“SMEs, when well-developed, can fill the unemployment vacuum the country is currently saddled with,” Professor Aryeetey asserted.
Rising youth unemployment is one of the deepest economic and social problems facing the country and has raised the anxiety of many including heads of Ghana’s tertiary and research institutions.
These intellectuals have warned that the failure of many graduates to get jobs or create jobs for themselves is alarming. Some security experts having recognised unemployment as the most growing national problem have warned that it poses a major security threat to the country.
According to estimates from the World Bank, 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa.
In emerging markets, most formal jobs are with SMEs, which also create 4 out of 5 new positions. However, access to finance is a key constraint to SME growth; without it, many SMEs languish and stagnate.
SMEs are less likely to be able to secure bank loans than large firms; instead, they rely on internal or “personal” funds to launch and initially run their enterprises. Fifty percent of formal SMEs don’t have access to formal credit. The financing gap is even larger when micro and informal enterprises are taken into account. Overall, approximately 70 percent of all MSMEs in emerging markets lack access to credit. While the gap varies considerably between regions, it’s particularly wide in Africa and Asia. The current credit gap for formal SMEs is estimated to be US$1.2 trillion while the total credit gap for both formal and informal SMEs is as high as US$2.6 trillion.
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