Over the years, MSMEs have played and continue to play a critical role in Ghana’s socio-economic development by producing critical goods and services, creating jobs, and helping to reduce poverty and promote economic growth. It is estimated that MSMEs represent about 85 percent of Ghana’s private sector and contribute about 70 percent of annual GDP. In terms of employment, MSMEs account for an estimated 85 percent of manufacturing jobs in the country. The MSME sector has also provided women and the youth opportunities to harness their economic potential, and it is estimated by the World Bank that about a third of all MSMEs in Africa are owned by women. These contributions notwithstanding, MSMEs have always faced severe constraints that stifle their growth. For example, it is estimated that the MSME financing gap in Ghana is approximately 13 percent of GDP, according to a World Bank 2019 Report on improving access to MSME financing in Ghana.
There is recognition around the world that the economic impact of COVID-19 has been disproportionately felt by the MSME sector, owing to a number of factors. First, on the supply side, MSMEs have faced many challenges including (i) disruptions in their production cycles due to employees and suppliers infected by the virus; (ii) a shortage in raw materials and other inputs due to global supply chain disruptions; and (iii) increased costs of production due to a shortage of inputs, and spending on new health and safety protocols. On the demand side, MSMEs have experienced revenue losses and severe liquidity stress arising from weak consumer demand due to closure of businesses in the hospitality, tourism, aviation, education and food industries, among other things. With little or no savings, MSMEs have had difficulty paying their workers and suppliers, paying rent and utility bills, and servicing their loans with financial institutions.
The Government of Ghana has provided some GH¢600 million through the NBSSI to cushion MSMEs against the devastating effects of the pandemic. Through partnerships with banks and other financial institutions, this amount could potentially increase to GH¢1 billion to provide even more support to this sector.
The Bank of Ghana has also taken a number of measures to help alleviate the economic pain from the pandemic. By reducing its monetary policy rate from 16 percent to 14.5 percent in March 2020 and providing regulatory reliefs to release capital and liquidity to banks and specialised deposit-taking institutions (SDIs), the Bank of Ghana has provided a major boost to these financial institutions to provide economic relief to their customers, particularly those in the MSME sector.
The successful completion of major reforms in the banking, savings and loans and microfinance sectors by the Bank of Ghana prior to the onset of the pandemic, has played a significant role in cushioning the impact of the pandemic on our economy. Banks and other financial institutions are now better able to support their customers at this critical time. Smaller financial institutions, however, are themselves at high risk given that many of their clients are MSMEs who are significantly impacted by the pandemic and as a result have had difficulty in servicing their loans. Regulatory reliefs recently provided by the Bank of Ghana to the savings and loans, microfinance, and rural and community bank sectors, were therefore designed to help ease the burden on them and by extension their clients.
It is encouraging to see that banks and SDIs have responded to policy and regulatory measures recently announced by the Bank of Ghana. For example, bank and SDI lending rates have declined on average by about 2 percentage points (200 basis points) since the end of March 2020, and banks have recently advanced new loans in the region of GH¢3 billion to support manufacturers of pharmaceutical products and PPEs, to help in the fight against the pandemic. What is more, banks and SDIs have agreed to defer some customer loan repayments by granting moratoria from about 3 months to 12 months. Fees on a number of electronic payments and related transactions have also been waived or reduced.
Notably, in spite of the enormous challenges the MSME sector faced before and during the pandemic, the resilience of this sector has also been evident. Even during the lockdown, small food processing businesses, eateries, and others worked hard under very difficult and risky conditions to produce food and other products and services for households and other clients. Micro and small fashion businesses very quickly stepped in to help produce face masks for use by the public. Production of hand sanitizers and other health and safety products suddenly became possible in Ghana. With the continued easing of COVID-related restrictions, the MSME sector is slowly, but surely, bouncing back.
In planning for the post-COVID economic recovery, we need to address a few critical issues. How can the MSME sector be supported and positioned to help turn the disruptions in global supply chains into a national advantage, and thereby build a more self-reliant and resilient economy? How can we ensure that the post-COVID Ghanaian economy leaves no one behind?
To do this, we need critical public-private sector investments in key infrastructure over the medium-term to increase the manufacturing capacity of our economy. We need to re-tool and re-equip the MSME sector to leverage technology for more innovation. We need to increase access to finance for MSMEs. We need a renewed focus on equitable and inclusive growth to ensure that the MSME sector, and in particular, women and youth entrepreneurs are not left behind.
In addition to bringing down inflation and interest rates over the last three years, the Bank of Ghana has cleaned up the banking and SDI sectors, promoted emerging technologies to support digital financial services that make retail payments more convenient and that expand access to critical financial services such as savings, loans, insurance, and pensions even for the informal sector. We have also successfully launched the Ghana Deposit Protection Scheme, which helps to protect hard-earned savings of entrepreneurs like yourselves, so that you are not left vulnerable in the event that your financial institution collapses.
The financial sector is well-positioned to continue to support the MSME sector, while efforts continue to be made to expand access to innovative financial services and products for all.
In turn, MSMEs must strive to reposition themselves to lead in the post-COVID economic recovery. It is time to rethink your business models, to be more innovative, to embrace technology to help improve quality, efficiency, and management practices, and diversify the range of products and services for the local market, even daring to branch into the ECOWAS sub-region and beyond. It is also important for MSMEs to prioritise compliance with laws, standards, and ethical business principles, to help build strong foundations for robust growth and lasting impact. The current pandemic provides a lot of opportunities for MSMEs to reengineer themselves and to participate more fully in the national, regional, and global economy.