SMEs need all the push they can get
Small and Medium-sized Enterprises (SMEs) are identified as the engine of economic growth and job creation in any economy. The sector is recognised as a means to accelerate the rapid industrialisation desired by developing countries.
Advertisement
In Ghana, about 90 per cent of registered businesses fall under the SME category, accounting for about 80 per cent of employment in the country.
The SME sector also contributes over 60 per cent of the country’s GDP. Despite the enormous contribution towards the development of economy, SMEs still face a number of challenges, key among them being access to finance.
The sector has over the years been starved of the much needed resources to enable it to function effectively.
While successive governments have in the past introduced numerous policies and programmes aimed at curbing this challenge, SMEs are still faced with limited access to finance.
The World Bank’s Business Pulse Surveys highlighted that the COVID-19 pandemic has further complicated these challenges, leading to firm closures, and widespread jobs losses.
The current economic challenges in the country and the DDEP which hit very hard at the liquidity of financial institutions has also further exacerbated the situation, with SMEs now struggling to raise affordable capital to grow their businesses.
Even in cases where these SMEs get access to finance, the cost at which it comes to them is so high that it practically makes it impossible for them to repay them.
What the SME sector currently needs is long-term patient capital that would enable them to grow their businesses and be sustainable and it is line with this that the Graphic Business joins calls on the need to fund some of these SMEs who are well run and have good corporate governance with pension funds.
All over the world, the pension funds industry, due to its nature, plays a crucial role in this regard by allocating a significant percentage of the funds to the private sector to drive economic growth.
The situation is, however, different in Ghana as a huge percentage of the country’s pension funds are invested in government bonds, denying the SME sector of the much needed capital to grow and expand.
Almost 90 per cent of pension funds in Ghana are invested in government bonds compared to the developed countries where less than 40 per cent of those resources are invested in government securities.
The Graphic Business believes that if the SME sector would grow and generate more employment for the teeming unemployed youth of the country, then pension fund managers need to stop funding the government and channel their resources into the SME sector.
An economy is as strong as its businesses and the country must, therefore, critically examine the role of pension funds in efficiently allocating capital.
The practice of mobilising capital for the government at the expense of the private sector is inimical to national development and must be stopped.
The Graphic Business also calls on banks and other financial institutions to use the Domestic Debt Exchange Programme (DDEP) as a wake-up call and now begin to channel their resources into supporting the growth of SMEs.
Over the years, government securities have always been seen as risk free and banks, financial institutions were rather seen lending their money to the government at the expense of SMEs.
The DDEP has however, defeated the long-held notion that government securities are risk free, and the Graphic Business believes this should present financing opportunities for SMEs.
