THE ROLE OF SMALL AND MEDIUM ENTERPRISES IN THE ECONOMIC DEVELOPMENT
ABSTRACT
This study examines the role of small and medium businesses in the economic development of Ghana. The research assesses the mechanisms established by government and its agencies to assist in sustaining and promoting small and medium enterprises (SMEs) in Ghana. The study further fo-cuses on the source of finance for SMEs, problems encountered and the role of other stakeholders. The purpose of this study is to determine the effect SMEs have on the Ghanaian economy in terms of economic growth and the need for promoting and sustaining such businesses. The research was conducted in the Greater Accra region. Information was gathered by interviewing entrepreneurs whose businesses are classified as SMEs together with other stakeholders. These interviews repre-sent the primary sources of data collected. The secondary sources of data were obtained from articles, journals, and other printed and electronic publications. Tertiary data were collected from the Ghana Statistical service, Wikipedia and dictionaries. The data collected were as ana-lyzed in qualitative and quantitative terms using predictive analysis software statistics tool. The empirical section of the study examined and reviewed theories on the concept and character-istics of SMEs with common constraints associated with all SMEs The result obtained from the study indicated that SMEs in Ghana are a major contributor to the total GDP and employ a large number of the active populace but they are faced with numerous challenges and the government is doing little to address these problems. A detailed conclusion is presented in the study with recommendations on how to sustain, promote, finance, and attract aspiring entrepreneurs.
Introduction
Small and medium sized enterprises (SMEs) are essential for the economic development of many countries including Ghana and the African continent as a whole. Before the Europeans arrived in Ghana, people were already engaged in basic forms of trading through the barter where they ex-changed goods or services for another. The indigenes were also engaged in subsistence production of pots using clay, gold mining, salt mining, fishing and peasant farming which they sell the excess of their produce to their neighbors after meeting the demands of their families. The Portuguese were the first Europeans to arrive in Ghana and in 1842 they set up a trading settlement on the coast of Ghana to trade in gold. Although the trade in gold was their first priority, slave trading gradually gained ground and became the most lucrative business at the time.
The economy of Ghana today can be grouped into three categories of economic activity which are agriculture, service and industry sectors. The Ghanaian economy which used to be predominantly agricultural is now becoming an industrial and service based economy according to recent figures released by the Ghana Statistical service in the first quarter of the year 2011. The industrial sec-tor recorded the highest growth of 21.4% of the gross domestic product (GDP); this increase was achieved mainly through the production of oil which started in late 2010 and increase in mining and quarry businesses. The service sector rose by 5.3% while the agricultural sector declined by 35.7%.All in all, the real gross domestic product estimates showed a rate of decline of 5.1 percent in the first quarter of 2011 as compared to the previous quarter of 2010. SMEs are found in all three categories of economic activities within the Ghanaian economy. (News Letter, QGDP, Ghana Statistical Service, June 2011)
The definition of SMEs differs from region to region. According to the European Economic Commis-sion journal on SMEs published in20th May 2003, defines SME as enterprises which employ fewer than 250 employees; have an annual turnover of not more than €50million and balance sheet as-sets of less than €43m; and have at least 25% of their capital owned by a larger firm or public body. The use of this SMEs definition by member states of the European Economic Commission is voluntary. Conversely, the Ghana Statistical Service (GSS) considers firms with less than 10 em-ployees as Small Scale Enterprises and others with more than 10 employees as Medium and Large-Sized Enterprises (Kayanula and Quartey 2000, 8). These enterprises are a very heterogeneous group of businesses usually operating in the primary, secondary and tertiary sectors. They include a wide variety of firms such as agricultural inputs manufacturers, local handicraft and artefact makers, textiles and garments makers, and chemicals and pharmaceuticals producers and other service delivery companies. On the whole, SMEs represent over 90% of a country’s Gross Domestic Product (GDP) and 80% of employment in most countries, worldwide (Frederick 2005, 1).
Accord-ing to research conducted by Abor and Quartey in 2010 on SME Development in Ghana and South Africa, SMEs in Ghana provide about 85% of manufacturing employment and a total contribution of 70% to Ghana’s GDP. Globally, the SME sector is one of the sectors that governments pay much attention to. In Ghana, prudent macroeconomic policies and substantial structural reforms have been enacted by the government to promote Small and Medium Scale Enterprises (SMEs). There are government-sponsored business support services such as the Ghana Regional Appropriate Technology and Industrial Service (GRATIS), an organization that provides skill training and basic working capital requirements for start-ups, and National Board for Small Scale Industries (NBSSI), which operates in the 10 regional capitals under the Ministry of Trade and Industries (Mensah S, A Review of SME Financing Schemes in Ghana 2014).
Within the context of change and globalization, SMEs have been recognized as the backbone be-hind economic growth and development through fostering of new ideas, employment creation, investments and exports. As already mentioned, the key objective of this research assesses the benefits that Accra, the capital city of Ghana has derived from SMEs development and promotion, bringing into the spotlight current entrepreneurial issues pervading within the economy of Ghana.
Ghana is a country located in West Africa and share borders with Ivory Cost on the west, Togo to the east, Burkina Faso on the north and the Gulf of Guinea to the south. The country has a total area of 238,533 square kilometers which is about the size of the United Kingdom or slightly small-er than the state of Oregon in America. The terrains consist mostly of low plains in the south-central area while half of the country lies less than 152meters (499ft) above sea level. Tropical rain forest hills and many streams and rivers extend northwards from the shore near the Ivory Coast frontier. The country is demarcated in to 10 geographical regions namely Ashanti, Greater Accra, Brong Ahafo, Central, Eastern, Northern, Upper East, Upper West, Volta and Western re-gions respectively.
The Greater Accra region located on the south coastline covers an area of 3,245 square kilome-ters. It has a population of 2,905,726 with a growth rate of 4.4% annually. The region has re-mained the most densely populated region in the country since 1960. The population density in-creased from 167 persons in 1960 to 441 persons in 1984 to 895.5 persons per square kilometer in the year 2000. (Ghana in Figures, Ghana Statistical service 2014)