When I moved back home to Ghana from New York in 2004, less than 5% 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%. Entrepreneurs lucky to be advanced credit could expect business-crippling interest rates – as high as 50% at one point. Add to that an inflation rate of almost 24% 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 entrepreneurs 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%, 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%.
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 that Ghana will be able to give meaning to its stated objective of private sector led growth.
Elikem Kuenyehia is a founding partner at Oxford and Beaumont solicitors in Accra and author of ‘Kuenyehia on Entrepreneurship’. This article was first published in ‘New Africa: From Growth to Jobs’, a publication by Business Action for Africa.