The contribution of small and medium sized enterprises (SMEs) to the socio-economic development needs no debate. The current unemployment outlook for the entire sub-Saharan African (SSA) region highlights the critical need for game-changing interventions to accelerate the growth SMEs in this region. SMEs in SSA have, however, been plagued by systemic structural deficiencies that resulted in their inability to attract the needed social, human and financial capital required for them to become productive contributors to economic and social growth.
Misalignment between capital demand and supply
The current narrative in the Ghanaian entrepreneurship communities is that banks and other financiers are SME unfriendly. That of the supply side insists that SMEs are high risk and generally not investment ready, hence making them extremely expensive and unproductive to provide either debt or risk capital to. This alignment gap continues to widen the phenomenal referred to as the “missing middle” – in which a huge finance vacuum has been created for companies needing capital between GHS 100K to GHS 2M to grow their businesses.
Why should we be concerned about the current outlook?
The continued starvation of that critical middle will continue to create dire socio-economic problems and political stability issues. The rampant increase in unemployment can only be addressed by a thriving private sector of which small businesses form greater than 90%. Achievement of key development goals including poverty reduction as well as increased access to essential and basic services cannot succeed without a successful SME sector. Regional stability is also greatly threatened with the increase in the number of uneducated youth, the aggressive recruitment into terrorist organizations and the volatility that these conditions create.
Where does the truth lie?
The debate of whether the fault lies with the demand or supply side of SME capital becomes grim when one takes into account the impending debacle of not solving the problem. The real question then should be, “How do we solve this problem?” Carving sustainable solutions require going beyond the usual talk shops and engaging key stakeholders of the entrepreneurial ecosystem as well as policy makers who are committed to driving lasting social change. It requires the commitment to employing commercial interventions that yield both social and financial returns.
The truth, however, is that both sides of the table have their own issues, which are not as simple as the counterparts on the opposite side of the debate make them out to be.
How do we successfully move ahead?
Getting financiers and SMEs to speak the same language may be the most productive start. Getting both sides to clearly understand their modus operandi forms a solid basis for relationships that deliver mutual economic benefit for both SMEs and financiers, and social value for all. There also needs to be a concerted effort by financiers at all stages of enterprise development to collaborate to create healthy pipelines of SMEs who will become sustainable contributors to national development and economic growth.
ServLed Africa and Ghana Angel Investor Network (GAIN) are organizing an Investor Engagement Series in the month of September, 2016 to begin to attack the issue of bridging the missing middle in Ghana and creating a financing continuum that results in productive SME growth. The sessions will bring together Angel Investors, Venture Capital Firms, Banks, Impact Investors and Supporters of Entrepreneurs/SMEs to develop actionable steps that results in increased financing to SMEs in Ghana. A follow up series will be held for entrepreneurs to educate them on how to become investment ready.
For more information on these sessions or to participate, please email genevieve@servled.com
