Aerial view of Makola market in Accra
Senior Lecturer and Economist at the Department of Economics, University of Ghana, Legon, Dr. Ebo Turkson, has said that the current business environment in the country is not favourable to entrepreneurs, hence he is calling on government to address it.
He said this at the launch of Enhancing Development of Ghanaian Entrepreneurs (EDGE), a conference that brought together about 400 entrepreneurs from around the country, especially SMEs, to discuss the major problems they go through and offer practical and timely solutions.
According to Dr. Turkson, a World Bank report on doing business in Ghana that surveyed about 1,200 SMEs found that less than 20 percent of SMEs use banks for investments and just about 21 percent use them to finance their working capital -- indicating that the major challenge for SMEs in the country has to do with lack of access to finance.
This, he believes, is as a result of government’s persistent borrowing domestically. Many banks prefer lending to government rather than small businesses because of lower risk associated in lending.
Even though government’s borrowing has led to the crowding out of businesses, the senior economist further advised SMEs to earn the trust of banks by providing a reliable credit history when they borrow from them, saying: “When you have a reliable credit history it reduces the interest that you have to pay on the loan, because the bank believes you will pay back in time”.
Dr. Turkson further bemoaned the delay in settling business cases that are sent to court, as it takes close to two years to settle issues out of court.
“Another disturbing thing is the enforcement of contracts in our law courts. For example, study and observation shows that in 2014 if you present a breach of contract case to the law court, it was going take you 495 days and 36 procedures to enforce that contract. In just a year it has increased to 710 days and 38 procedures. This means you just have to forget about it -- and that is just number of days and procedures, not to talk about the cost involved in all these processes,” he said.
He further stated that the current sporadic power supply, high-interest rates, and the depreciating cedi have all contributed to making the business environment in the country uncomfortable for entrepreneurs.
“For almost three years we have an unreliable power supply. Supposing you are producing to supply to a large market and you have so many orders, how can you get energy to produce and supply the demand?
“In addition to that, even fuel and utility prices have increased. The exchange rate in this country has not been stable for the past three years. Last year our currency depreciated by about 35 percent. This has led to an increase in the cedi cost of imported products.
“When it comes to registering a property, it takes 34-46 days and 5 procedures. So if businesses have to go through all these, then it is clear that the business environment is very unfriendly,” he said.
The SME sector has been touted as an engine that has driven economic growth in most African countries. The Ghana Statistical service data indicate that about 70 percent of Ghana’s GDP is said to be contributed by the SME sector. About 80 percent of jobs is also contributed by the sector.
Dr. Turkson therefore challenged government to create an enabling environment for small and medium-scale businesses to thrive.
Government has to create a very convenient environment for SMEs in the country. It is something that has been said over and over again. Government needs to encourage our financial institutions to develop financial modules that are convenient for SMEs.
