New measures announced by the Bank of Ghana are aimed at empowering non-bank financial intermediaries, such as savings and loans companies, microfinance institutions and rural banks to step up their lending to their customers. This is a step deliberately aimed, in part, at encouraging the provision of credit to micro-sized enterprises, most of them in the informal sector, such as artisans, mechanics, hairdressers and the likes.
This newspaper regards these measures as crucial as they are the first steps taken by public authorities to provide an economic stimulus to the micro-sized informal segment of the economy. Previous interventions in their favour have focused on consumption, rather than production, such as free food hand-outs during the recent lock down as well as free water and heavily subsidized electricity.
The problem appears to be that just like the commercial banks, government is classifying micro-enterprises along with households, and they are consequently regarded as retail customers rather than producers of goods and services.
Indeed, they are being totally excluded from the GHc600 million soft loan disbursement which is the main economic stimulus initiative from government to private enterprise. It would be easy to explain that their exclusion is their own fault because few of such enterprises have secured tax identification numbers, thus evidencing their tendency to evade income tax, which in turn justifies their exclusion from a stimulus initiative funded primarily from tax revenues. However, they do pay consumption taxes just like everyone else, so their exclusion should not be total, on that consideration.
But more importantly, they were never in the running to benefit from government’s soft loan package, even before tax compliance became a primary consideration. The decision to use the National Board for Small Scale Industries, in close collaboration with the Association of Ghana Industries and the Ghana National Chamber for Commerce and Industry made sure of that right from the start; micro, household enterprises are not members of those formal sector business groupings, whether they are fully tax compliant or fully tax evasive.
Admittedly, such household enterprises make the smallest unit contributions to Gross Domestic Product, and so where there are not enough soft loan resources to go round, it is easy to disqualify them on those grounds.
However it should be remembered that their owners and employees, collectively account for the majority of Ghana’s working populace, and they comprise the most vunerable to the economic ravages of the coronavirus outbreak as well.
Consequently it would be both economically and socially unfair to leave them out of government’s economic stimulus efforts altogether. Besides, they possess arguably the best growth prospects – in percentage terms, not absolute terms.
Actually, the current circumstances presents a unique opportunity to gather them into the formal sector and simultaneously into the income tax net and considering that many of them have hitherto not been paying income taxes, this would enable government recoup much more than just the money it is lending – it would provide a continuous stream of tax revenues going forward, extending long after the COVID 19 pandemic subsides.
All enterprises in Ghana are feeling the adverse effects of coronavirus, formal sector and informal sector alike. Let the latter not be left out of government’s alleviation efforts. Rather let this be an opportunity to bring them into the formal economy.