How to Create the Ideal Ecosystem for Micro, Small and Medium size Enterprises (MSMEs) In Ghana

The decision to start a new business can be one of the most important steps that any person(s) can ever take, and this goes beyond just the business aspects.

Micro, small and medium scale enterprises (MSMEs) are cornerstones to the success of every economy, particularly an emerging one as Ghana’s. According to Storey (1994), SMEs have no universally accepted definition. Aryeetey et al (1994), defines MSMEs by categorising them into- Microenterprises (1–9 workers), small enterprises (10–29 workers) and medium enterprises (30–140 workers). In Ghana, most of the private sector businesses fall within the MSME bracket where they operate in markets with low barriers to entry, and with no real product differentiation. They do more than filling the black hole created by unemployment, driving macroeconomic growth, and also provide an avalanche of other opportunities. For these small businesses to thrive there needs to be the existence for an enabling ecosystem, because they are not just producers of goods and services, but they also serve as consumers. However, in Ghana it is a common practice to find central banks preferring to lend to governments, which offer less risks and higher returns, crowding out these same MSMEs (private consumers) from the financial systems. Having recently volunteered as a Business Support Associate with Challenges Worldwide (a UK Government Funded development charity that trains and manages expert volunteers to carry out short assignments for social enterprises, and prepare them towards investment readiness), I would propose certain ways in which this conducive ecosystem can be created;

1. Presence of enabling legal and regulatory environment

For these small businesses to thrive there needs to be an independent and efficient legal system to make sure contracts signed are not only enforced, but binding on all parties involved. Good policies provide a basis for an enabling environment. Some of the legal and regulatory bottlenecks that exists include;

· Inadequate regulations, insufficiency hinders the growth of these small businesses and makes it difficult for them to seek redress in the law courts, that is, the poor enforcement of contracts.

· Poor administration of regulations and lack of clarity, some of the existing regulations are complex and bureaucratic. They need to be clearly defined and certain processes (government agencies) taken out of the processes for effective delivery and to eliminate the duplication of processes among them.

· Lack of awareness, the laws and regulations need to be properly communicated and promoted to these small business owners, to give them a better understanding and appreciation of them.

2. Good microeconomic and macroeconomic policies

Sound economic policies go a long way in creating the needed desired ecosystem for MSMEs to excel on the backdrop of predictability. Economic policies need to give small businesses the room to be able to explore and exploit every economic opportunity by achieving; low budget deficits, low deficits, competitive exchange rates, etc. For instance, unlike larger enterprises who can hedge against high inflation and other unfavorable economic indicators by hedging to minimize their risk profile, small enterprises cannot afford that luxury and room to operate. It is important to say that, certain policies adopted will be political, but they should be implemented with sound analyses for the benefit of every economic agent.

3. Partnerships

Forming cooperatives and working to create community links can be beneficial both in terms of cost cutting and heightening morale for MSMEs. This is a very important way small businesses can overcome the major hurdles that confront them in areas such as; accessing affordable finance, and other economies of scale. Working collectively, and organizing workshops to learn from participants’ experience to help them gain insights into how to go about certain situation. Some of these clinics can help support members, with the support of technical assistance agencies, including voluntary non-governmental organizations such as what Challenges Worldwide does by recruiting qualified young people and training them to offer technical expertise as Business Support Associates of which I am a proud beneficiary. These partnerships through cooperatives can help them secure affordable credit at lower borrowing cost by lowering their individual risk profiles as a group due to certain formalization of their industry-related operations. It would afford them the opportunity to secure finance without having to struggle with certain stringent requirements such as collateral, enjoy economies of scale by buying at discounts, engaging in its own research and engage in sophisticated marketing.

4. Setting realistic and achievable targets

The alchemy of turning ideas into sellable, and appealing solutions to everyday problems is a mark of successful entrepreneurs. Setting realistic goals and timelines in achieving those set goals to create empires. MSMEs owners must also do well to have a succession plan to steer affairs even when they are no more. Their successors must be trained and equipped with the needed technical and entrepreneurial skills through mentorships, apprenticeships and other techniques. This preserves the original vision of the business without aberrations from their core business and internal wrangling of power. This is a major setback most small businesses in Ghana face and mostly fold-up when the brainchild is no more. This repels investors from putting their monies into such so-called “one man” business, and having a clear succession plan would appeal to investors.

5. Business Development Services (BDS)

These services includes; consultancy and advisory services, marketing assistance, technology assistance and other supporting services. MSMEs can outsource some of these technical and strategic services to experts for use on a fee-for-service basis. These would help to streamline operations leading to efficiency and increased profitability. Some of the reasons why these small enterprises are reluctant to use outside expertise are listed below;

· The use of experts/consultants may be viewed by the entrepreneur as admission of lack of competence

· The belief that only large enterprises can afford the consulting fees charged

· The fear of business interference, especially when requests are made to examine business documents such as accounts and taxes.

The use of BDS provides enormous benefits such as;

· An independent professional viewpoint and expert evaluation

· Training and development of strategic approaches

· Online marketing techniques- social media presence with targeted outcomes and may more…

6. Alternative sources of finance

Financial institutions are often reluctant to deal with MSMEs in Ghana due to high risk of default than the corporates. Also, bookkeeping skills is an issue because some do not keep any financial records (usually scant) and are mostly less transparent. There is the issue of not separating business account from personal accounts, and this indicates the poor quality of management. This hurdle can be overcome when business owners prioritize their needs and spend efficiently, and ploughing back profits into the business. Also, other alternative sources of financing that are longer-term in nature. For instance, small businesses with no product differentiation can come to a mutual understanding and merge to pool resources together. This could also afford them the opportunity to list on the Ghana Stock Exchange Alternative Market (GAX) which has more relaxed requirements as compared to the main stock exchange, to go public to secure longer term finance. However, this will still be on a high side for many MSMEs present but one thing is clear, the need for collaboration to pool resources in the form of long-term equity financing rather than short-term debt financing is the way forward.

In a nutshell, with an enabling ecosystem from the various state supporting institutions, the right collaboration amongst major stakeholders, determination from the entrepreneurs, Ghanaian businesses are going to soar higher. We should take a cue from the Asian Tigers who have used technology and their creativity to infuse themselves into the global value chain to compete with their counterparts from the West.


[1] Aryeetey, E.A, Baah-Nuakoh, A., Duggleby, T., Hettige H., and Steel, W.F., (1994), Supply And Demand for Finance of Small Enterprises in Ghana, Discussion Paper № 251, Technical Department, Africa Region. Washington, D.C., World Bank.

[2] Kubr, M., (2002)…Management Consulting.4th.Geneva, Switzerland, International Labour Organisation.

[3] Storey, D., (1994), “Understanding the Small Business Sector”., Routledge, London. pg. 33–55.

Written by Bright Bosu

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