Small and Medium Enterprises (SMEs) are a cornerstone of Ghana’s economic framework. They significantly contribute to employment and the nation’s gross domestic product (GDP). Research shows that about 92% of registered businesses in Ghana are SMEs.
These enterprises provide around 85% of manufacturing jobs and contribute approximately 70% to the national GDP. Their role in driving economic growth and reducing unemployment cannot be overstated.
The development of SMEs in Ghana has a rich history. In pre-colonial times, a growing middle class began taking over businesses from European merchants. However, the rise of SMEs faced obstacles, particularly during periods when the political climate viewed the private sector as a threat. This led to policies that hindered SME growth.
However, the economic challenges of the 1980s, marked by a decline in large-scale manufacturing, forced many people to seek income through small businesses, leading to the rise of numerous SMEs.
To address these challenges, the Ghanaian government established the National Board for Small-Scale Industries (NBSSI) in 1981, which later became the Ghana Enterprises Agency (GEA). The GEA was created to support and promote small-scale industries and has since expanded to enhance its effectiveness.
Characteristics of SMEs in Ghana
Ghana’s SME sector is labor-intensive, often involving lower capital costs for job creation. Most SMEs are sole proprietorships, frequently involving family members as unpaid workers alongside hired staff. The sector predominantly engages in retail trading or manufacturing, with significant variations between urban and rural areas.
According to the Ghana Statistical Service, micro enterprises dominate the sector, making up about 80% of all businesses and employing 1-2 people on average. Small enterprises constitute 15% of SMEs, while medium enterprises make up the remaining 5%.
Initiatives to Support SMEs
Building on the foundation laid by the GEA, the Ghanaian government has introduced several key initiatives to further support SMEs:
The Persons With Disabilities (PWD) Enterprise Support Programme: Launched in 2023 with World Bank support, this program aims to assist businesses owned by people with disabilities. It offers about GH¢12 million in grants and technical support to around 150 businesses.
Business in a Box (BizBox) Project: In partnership with the Mastercard Foundation, this initiative provides young entrepreneurs with the skills and resources needed to start businesses, addressing high youth unemployment.
YouStart Ghana Jobs and Skills Project: This project aims to train 50,000 young people to start their own businesses, further promoting entrepreneurship and reducing youth unemployment.
Additionally, the One District One Factory (1D1F) initiative is a program that has the potential to promote local manufacturing and stimulate job creation across Ghana. While this initiative in Ghana has made strides in promoting local manufacturing and job creation, its full potential lies untapped and it faces several challenges.
Insufficient funding has been a major obstacle, causing delays and sometimes leading to the abandonment of projects. Many factories struggle with a shortage of raw materials, as seen with the Fiase Oil Palm Processing Factory, which had to import materials due to local shortages, increasing costs.
Inadequate infrastructure, such as unreliable electricity and poor road networks, also hampers factory operations. The shortage of skilled labor and technical expertise further impacts productivity and efficiency. Additionally, bureaucratic hurdles, including difficulties in accessing promised benefits and navigating complex processes, have made the initiative less attractive to potential investors.
Contribution to Economic Growth
Indeed SMEs are crucial for Ghana’s economic growth. They represent over 90% of all business enterprises and provide around 80% of total employment, contributing about 60% to the country’s GDP. A recent report by the Ghana Investment Promotion Centre highlights that SMEs also play a significant role in non-traditional exports, which grew by 34.5% in 2021.
Despite their importance, Small and Medium Enterprises (SMEs) in Ghana face significant challenges, including limited access to financing, inadequate infrastructure, and complex regulations. These hurdles hinder their growth and ability to contribute fully to the economy. However, there are opportunities for the sector to thrive, driven by government support, technological advancements, and increasing consumer demand for locally produced goods.
The gap in access to financing is particularly pronounced, as many SMEs struggle to secure the capital necessary for expansion and operation. Traditional lending practices often favor larger, established businesses, leaving SMEs without sufficient financial support.
Investors can capitalize on this gap by offering innovative financial products tailored to the specific needs of SMEs, such as flexible financing options with longer repayment terms and lower interest rates.
Furthermore, investing in capacity-building programs can provide significant relief. These programs can offer SMEs valuable training and resources, leading to improvements in their operational efficiency and management practices. Through the development of human capital, investors can help SMEs navigate challenges more effectively and improve their competitiveness.
