“Specifically, Akufo-Addo has promised a reduction in the Value Added Tax for micro to small enterprises from the current 17.5% to a 3% flat tax.”
The new year begins in Ghana with great excitement and cautious optimism for owners and operators of small to medium enterprises. Pertaining to the new incoming government, sentiment in the business community is bullish, but not overly euphoric, suggesting many entrepreneurs are taking a wait-and-see approach.
While we anticipate the political change to have a significant impact on businesses going forward, we also see many other big themes shaping the business landscape in Ghana for small to midsize enterprises (SMEs) in 2017.
Below, we examine four of the major themes:
Improved Access to Critical Financing
For many SMEs in Ghana, access to financing has always been the biggest challenge to growth. This challenge worsened during the global economic crisis of the past decade as more banks became cautious about assessing risk. The economic uncertainty during this period also forced many SMEs to put off investment plans, impacting demand for new loans.
The new year could bring a change in the demand and supply of financing. On the demand side, a turnaround in the economy – low inflation and a stabilized cedi – should encourage more entrepreneurs to seek loans to further their business interests.
On the supply side, new entities have formed to focus on SMEs. For example, the newly formed Premium Bank, formerly City Investments Company Limited, will focus on lending to the SME sector as its core business. The bank has planned for 2017 an aggressive expansion program to roll-out new branches in Tema, Kumasi, Takoradi and Tarkwa.
Outsourcing to Specialty Service Providers
As business owners focus on growing their core business, it will become even more necessary for SMEs to outsource critical functions, such as human resources, billing, marketing and advertising, packaging, and accounting. There are also significant cost benefits to outsourcing back-office and administrative processes to a competent third party provider.
Fortunately, there are more specialty service providers in Ghana today who can provide these top-level services to SMEs. These include payroll and credit card processing, as well as data call centers to provide round-the-clock customer service.
Sharing Economy Takes Off
Uber formally launched in Ghana in 2016, marking a significant take-off for the sharing economy in Ghana. This year we anticipate the number of drivers and cars using the ride-sharing platform to increase, though issues with traditional taxi drivers and technical glitches still need to be resolved.
Already a significant number of Ghanaian renters and hoteliers advertise on room-sharing platform Airbnb. As homeownership rates increase, we expect this trend to also rise.
Overall, as the sharing economy takes off, we see a new breed of young entrepreneurs entering the SME space, creating jobs for themselves and others, and paving another path to financial independence.
New Government with Big Promises
Ghana’s president-elect Nana Addo Dankwa Akufo-Addo has promised to replicate Germany’s successful model of fostering the development of SMEs to support its large economy. In a speech in August, Akufo-Addo noted the significant role played by 3.6 million small industries that provide more than 60% of all jobs in Germany.
The president-elect said he would work to expand opportunities for small businesses in agro-processing, agribusiness, light manufacturing and industrial activity.
Another major policy the new government has promised to roll out is the one-district-one-factory policy. During the campaign, Akufo-Addo described this policy as an integral part of a rapid industrial development agenda. The president-elect said his team has identified more than 300 projects across the nation’s 216 districts.
These policy initiatives aside, we anticipate the government taking a fresh look at credit infrastructure across the banking system, and how to improve loan delivery to SMEs. The outgoing government of John Mahama touted the establishment of a collateral registry, subsidized lending schemes and investment funds for SMEs, and licensing of Credit Reference Bureaus among the initiatives it pushed to help small businesses. These initiatives are likely to be reviewed and strengthened in a new administration.
Finally, the incoming government’s tax reform policies could stimulate SME growth if implemented. Specifically, Akufo-Addo has promised a reduction in the Value Added Tax for micro to small enterprises from the current 17.5% to a 3% flat tax.
Donald Trump Starts Trade Wars
As the United States also prepares to swear in Donald Trump as its new president, fear of a global trade war between the world’s largest economies is looming large.
Trump has vowed to erect new tariffs on imports that compete with American products, a move that would hurt small businesses around the world. He has also threatened to start trade wars with Mexico and China.
Should there be a trade war between United States and China, there are going to be many casualties, including SMEs operating in smaller countries like Ghana that typically buy more than they produce. In Ghana, for example, finding markets overseas for our natural resources is critical to the nation’s economic growth and the success of SMEs.
Still, it’s too early in the year to know for sure what impact Trump’s protectionist policy would have on global trade. But it may just be – as Trump says – ‘yuuge’.