ACCRA, Ghana – There is no universally agreed definition of SME’s even though many attempts have been made. Some define it in terms of the number of employees, annual turnover, capital employed or size of the business. For example the E.U. defines a medium size enterprise as one with a head count of less than 250 and a small firm as one with a head count of less than 50.

In their paper “Defining SME’s: A less Imperfect way of Defining Small and Medium Enterprises in Developing Countries”, Tom Gibson and J.H. Van der Vaartindeed define SME as: “A formal enterprise with annual turnover in U.S. dollar terms, of between 10 and 1000 times of the mean per capita gross national income, at purchasing power parity, of the country in which it operates.”

However, the limitation of this definition is that in our part of the world most businesses are reluctant to disclose turnover records. In the Ghanaian context, the National Board for Small Scale Industries (N.B.S.S.I.) defines SME as an enterprise with turnover greater than $200,000 and not more than $5million equivalent.

Capacity Development Centre Ghana in an article “Empowering SMEs in Ghana for Global Competitiveness” cites statistics from the Registrar General’s Department that 92percent of companies registered are micro, small and medium enterprises. They are noted to contribute not less than 70percent to the GDP of the country and therefore have significant impact on economic growth, income and employment.

The SMEs in Ghana can be categorized into urban and rural enterprises. The major activities within this sector includes making soaps and detergents; weaving fabrics; designing clothing and tailoring; producing textiles and leather; village blacksmithing; firing ceramics; timber felling and mining; making bricks and cement; brewing beverages; food processing and baking; creating wooden furniture; assembling electronic products; agro-processing; producing chemical based products; mechanical activities (Kayanula and Quartey 2000) and more recently ICT.

Despite the immense contribution that SMEs make to the economy, there are numerous challenges faced by SMEs in Ghana and these range from:

Inadequate access to finance.

One major obstacle for SMEs the world over and Ghana not an exception is inadequate funds to expand their operations and also to compete with relatively larger businesses. Certain efforts are being made to help alleviate this problem through avenues such as Venture Capital firms and certain financial institutions in recent times have introduced SME banking which offer services ranging from working capital management (Bank Overdraft, cash credit), import finance facility, term loans, bank guarantees etc.

However, a substantial portion of the SMEs in the country do not have the security required for conventional bank lending nor high enough returns to attract formal venture capitalist and other risk investors and as a result are not able to benefit from these interventions.

The government must therefore take centre stage in ensuring that SMEs have access to adequate finances. The government can provide tax incentives to financial institutions that are willing to offer very flexible and favourable credit to SMEs despite the increased risk. Deliberate policies must be developed to make the sector financially viable.

Efforts by the Ghana Stock Exchange to establish Ghana Alternative Market which will become operational in March 2013 is a laudable idea as this will go a long way to help to help these small and medium enterprises to raise needed capital. Egypt established a stock market for small medium enterprises to raise capital and this really made their SME sector very strong and attractive.

This action not only helped the sector but also the government also because most of the firms in the sector were brought into the main stream economy and thereby enabling the government to collect the needed taxes more easily.

Inadequate market support in an increasingly competitive environment.

In a globalized world, SMEs need to be able to confront an increasing competition from developed and emerging economies and to plug into the new market opportunities these countries will provide. SMEs often do not have the resources to employ a dedicated marketing professional and as a result market changes are not anticipated and business planning and strategy are not effective.

In Africa, economic powerhouses such as Nigeria, South Africa and Kenya, SMEs contribute less than 4percent of their export earnings (Munyanyiwa, 2009) and this is as a result of the non-existence of market support, poor product quality, poor market access and managerial capacity.

In Ghana, the situation is no different. A way out of this challenge is by having a one stop institution to deal with all issues confronting SMEs in terms of market accessibility and product quality and thus having a unified policy to make the SMEs in Ghana more competitive.

Japan’s success in growing one of the world’s most dominant economies have been alluded in many quarters to the creation of an SME agency in 1948 which transformed the economy . Malaysia is also having advanced plans to be a developed economy in 2020 on the back of globally a competitive SME.

The work of NBSSI, GIPC and Ghana Standards Board must be coordinated into a single agency with unified set of objectives to provide market support, improved market accessibility and high quality products.

Poor accounting culture among entrepreneurs.

Accounting and financial planning are often relegated to the background when it comes to management of SMEs in Ghana. This is mostly due to the lack of understanding that SME entrepreneurs have on how important it is to get the figures right. This usually results in business owners not hiring a qualified accounting personnel and resort to doing it themselves.

A lot of business owners most often neglect the finances of the business and concentrate mostly on the marketing/sales aspect of their operations leading to unnecessary and excessive expenditures. SME business owners most often do not keep proper cash records and usually take money out of the business for personal expenditures.

Hiring qualified accounting personnel, exercising financial discipline and taking charge of working capital management can greatly ensure that SMEs outlive their owners and grow to be multinationals.


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