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ЭКОНОМИЧЕСКИЕ НАУКИ / ECONOMICAL SCIENCES
УДК 339.54
THE CHALLENGES OF GLOBALISATION FOR SMALL AND MEDIUM-SIZED
ENTERPRISES IN GHANA
O.A. Boakye1, I.V. Karzanova2
This article is devoted to the analysis of the impact of globalization on the Ghanaian small and medium scale enterprise (SMEs). The study focused on the dynamic of the Ghana market structure, SMEs contribution to GDP, challenges faced by small and medium-sized businesses when entering the global market, such as competitiveness, advance technology, the acquisition of capital. It was found that, despite the negative impact of globalization on part of SMEs, other small businesses have been able to benefit from the positives aspects of globalization by taking advantage of the Government's trade policy which contributes to improving infrastructure and assisting small businesses with soft loans.
Key words: Ghana, globalization, small and medium-scale enterprises, competitiveness,
export.
Introduction
Globalization is the process of development of intensive network of economic, cultural, social and political interconnections that goes beyond national boundaries. The business environment today is extremely dynamic and experiencing rapid changes as a result of technological advancement, increased awareness and demands of the electronic trade.
Ghana is located on the shores the Atlantic Ocean and borders Cote d'Ivoire, Togo and Burkina Faso. It has a population of approximately 28.6 million (2018). In the past two decades, it has taken major bold decisions toward democracy under a multi-party system, with its independent judiciary winning public trust. Ghana consistently ranks in the top three countries in Africa with strong broadcast media, freedom of speech and press freedom, with radio being the medium with the greatest reach. All these factors provide Ghana with solid social capital.
Economic development of Ghana in 2013-2020
From 2013 the Ghana's economy continued to expand with annual growth rates around 5% per year.
1 Boakye Obed Afriyie — Master student of 2 course, People's Friendship University of Russia (RUDN University), Moscow.
2 Karzanova Irina Viktorovna — PhD (Economics), People's Friendship University of Russia (RUDN University), Moscow.
45000 40000 35000 30000 25000 20000 15000 10000 5000
MCE
Fig. 1. GDP, constant Ghanaian Cedi, GHC Million
Source: Ghana Statistical Service, Tradingecononomics.
The Ghana economy kept on expanding in 2019 as the first-quarter gross domestic product (GDP) growth was estimated at 6.7%, compared with 5.4% in the same period of 2018. Non-oil growth was also strong at 6.0%. The relatively high growth was driven by a strong recovery in the services sector. In 2019 the Government pursued the policy of fiscal consolidation because of the higher than targeted budget deficit of 3.3% of GDP. Private sector credit grew stronger, supported largely by the well-capitalized banking sector. Inflation in 2019 was around 9% [11].
Ghana's economy is an open economy, where foreign trade (export plus import) accounts for 60-80% of GDP (see the Fig. 2).
Fig. 2. Foreign trade as % of GDP, 1960-2018
Source: www.macrotrends.net/countries/GHA/ghana/trade-gdp-ratio
In the first half of 2019 Ghana had a trade surplus of 2.8% of GDP supported by favorable trade conditions of Ghana's three main export commodities — gold, cocoa and oil.
The current account surplus, combined with significant inflows to the capital and financial accounts, resulted in an overall balance of payments surplus equivalent to 1.9% of GDP. The exchange rate of national currency, Cedi, is quite volatile [11].
The role of SME's in the Ghanaian economic development
In Ghana, SMEs are firms that vary in their levels of capitalization, sales, and employment. According to the Ghana Statistical Service (GSS) policies, firms with less than 10 employees are Small Scale Enterprises and their counterparts with more than 10 employees are Medium and Large-Scale Enterprises, However, the National Board of Small-Scale Industries (NBSSI) in Ghana applies both the fixed asset and also the number of employee's criteria. It defines a SME'S as one with not more than 9 workers, with plant and machinery (excluding land, buildings, and vehicles) not exceeding 1000 Ghana Cedis. SMEs in Ghana are additionally categorized into urban and rural enterprises, the former is subdivided into 'organized' and 'unorganized' enterprises. The organized businesses tend to have paid employees with a registered office whereas the unorganized businesses category is principally made up of artisans who work privately with temporary locations, or home-based with few employees or in some cases no salaried workers.
SMEs produce about 70% to Ghana's GDP, account for about 92% of total number of businesses in Ghana and play an important role in the development of the economy [1]. SMEs in Ghana like in most developing economies play a major role in job creation. The informal sector constitutes 70% to Ghana economy and majority of SMEs operate in this informal sector. SMEs in Ghana are noted for about 87% of producing employment [5]. The industrial practices of SMEs consist of leather making, textile, agro-processing, food processing, detergent making, tailoring, blacksmithing, mechanics, electronic assembling, bakery, furniture making, brick making, brewing of beverages, ceramics and timber felling to small scale mining
Notwithstanding the recognition of the important roles SMEs play in the country, their development is significantly constrained by a number of obstacles, e.g. unavailability of appropriate technology; the existence of laws and regulations that impede the event of the sector; weak institutional capacity and market structure, lack of management skills, training, and, most significantly, finance.
The data from The integrated business survey phase II (IBES II 2016 report) performed by GSS [5] shows importance of MSMEs in jobs creation across different regions of the country: Micro sized (1-5 workers) firms - 37% of employment, Small sized firms - 34% and Medium sized enterprises - 11% of employment. The most noted regions where Micro firms are providing crucial employment to the teeming population include Northern, Upper West, and Volta regions.
The Association of Ghana Industries (AGI) speaks for more than 1,250 businesses in Ghana. As the voice of the private sector, AGI has instigated reforms and led policy initiatives in the interest SMEs. Currently, SMEs constitute about 85% of all businesses in Ghana, yet they are saddled with a myriad of challenges that stifle their growth. This joint ITC-AGI report will help Ghana gain a better understanding of the hurdles that restrain the growth and competitiveness of SMEs in Ghana.
The SME Competitiveness Survey gathered data from 250 randomly selected firms: 135 firms with less than 19 employees; 95 firms with 20-99 employees; and 20 firms with more than 100 employees (see Table 2).
Table 2
Selected sample features by firm size, year
Firm size Definition of employees (# of employees) Manufacturing/ Exporters Agriculture/ Exporters Total Exporters Total Manufacturing and Agricultural
Small 1-19 65/5 70/7 12 135
Medium 20-99 50/22 45/40 62 95
Large 100 and more 15/10 5/4 14 20
Total 130/37 120/51 88 250
Source: Authors' calculations based on Integrated Business Establishment, Survey Phase II Summary Report
In the randomly selected sample of 250 firms small and medium enterprises prevailed. Approximately one third of surveyed firms were exporters (88 firms out 250 randomly selected). Only 8.9% of small manufacturing and agricultural enterprises were exporters. In the medium-sized group 65.3% of firms were exporters. 70% of the large firms were engaged in export. This demonstrates the fact that medium sized and large firms tend to be the more engaged in exporting to the international markets.
Challenge of globalization for SME's in Ghana
One cannot overlook the importance of technology in the fast pace of globalization in the world and in Ghana as well. Information about product and services has been made easily available and readily accessible thanks to technology. Due to this, the force with which technology wields drives the world to a central point where distance is no longer a barrier.
The fast-growing pace of information technology has numerous advantages, however, it comes with negative effects to SMEs in developing countries like Ghana, since they are not privy to the knowledge of the fast-growing pace of technology like the larger companies in more advanced and developed countries. In Ghana, the limited coverage of the internet across the country has caused a lot of these SMEs who find themselves in rural areas to be lacking behind. The lack of a constant supply of power also hinders these SMEs hence reducing their yields of output.
There has been a drastic change in the business landscape facing SMEs because of globalization. The question of how to increase a sustained level of profitability among enterprises in a complex global business environment continues to be at the heart of economic discourse. The fundamentals of doing business including the very nature of exports are changing due to emerging globalization. Currently, the world marketplace appears to be more liberalized, with more diversified market demands and a more complex and competitive environment both locally and internationally. The highly competitive market environment presents new problems to SMEs requiring them to adapt to new and improved ways
of conducting their businesses and obeying ecological norms in production, packaging and recycling.
From the 250 randomly selected enterprises (see table 2), 88 firms (35%) agreed that globalization has positively their companies positively and 162 respondents (65%) said that globalization does not affect their companies positively.
Those respondents which reported a positive impact of globalization on their enterprises gave the following explanations:
1. Efficient and fast production method was adopted.
2. Availability of quality raw materials
3. It helped improve their product in order to meet global standard
4. Advent of technology, has increased yield and penetration.
Responses on how globalization affected their companies negatively.
Responses given by firms are:
1. There is a time lapse in adapting to new technology.
2. Technology is cost expensive.
3. Rising cost in training personnel
4. Chinese importers invaded their market with similar but cheaper goods.
Financing and accessing credit facilities has long been an obstacle in development of SMEs in Ghana. Jibir A. [6] investigated the impact of finance in the development of SMEs and noticed that smooth financing has a strong connection with the performance of SMEs. In Ghana SMEs undoubtedly face the problem of having lesser opportunities of getting access to capital markets than large companies. The inability of SMEs to attract local and international investment is due to the high risks associated with financing local SMEs, weak management practices of SMEs, and information barriers. The lack of securable assets required by finance providers, the lack of knowledge by finance providers about the nature of the respondent's business, firms not meeting the eligibility criteria for accessing the finance, lack of knowledge about lending criteria used by providers, difficulty finding information about available finance and lack of financial performance track record were the reasons why SME'S found it difficult to secure funds to expand their businesses and increase its competitiveness [10].
SMEs' are mostly responsible for the export of goods like beads and textiles, fruits and vegetables, wood carvings, etc. Although the sector has been growing steadily over the years, imports, specifically from China to Ghana have increased drastically due to the demand for imported inputs to the growing industrial sector coupled with the increasing taste of most Ghanaians for foreign products.
Unfortunately, Ghanaian SMEs face significant barriers in gaining access to foreign market for their products [1]. This is confirmed by Ghana Port and Harbour Authority's claims that approximately 76% of all cargo traffic at the Tema port are imported goods. Unless government supports the SMEs to overcome export barriers and boost their exports, the country will always have a huge deficit in the balance of payment with accompanying currency depreciation and exchange rate volatility.
Ghana Government's trade initiatives and possible solutions
The SMEs in Ghana acknowledged the negative impacts of globalization on their businesses as well as the difficulties they encounter on the road to become competitive in the
global market. Lack of finance, unavailability of modern technology and poor infrastructure were the top three major challenges affecting SMEs in Ghana. The vast majority of the businesses agreed that the biggest challenge amongst all the challenges was somehow related to availability of funds to expand their business to reach the level to compete with international firms.
This problem was addressed by the Government of Ghana's SMEs' trade policy which aimed at restructuring the existing state-sponsored microfinance schemes to provide credit to SMEs, as well as strengthen oversight responsibilities over privately-financed micro-finance institutions, improve technology, invest in infrastructure and expand the scope of market knowledge. Out the 250 randomly selected above mentioned firms, total of 190 firms (115 small scale and 75 medium scale) confessed that they have benefited from the low interest rates on credits from either banks or microfinances as a results of Ghanaian government policy to support SMEs. The remaining 60 firms, however, had not taken any loans from any bank yet but are fully aware of all the agencies to turn to in case they urgently need financial assistance.
Overall, both small and medium firms agreed that, they have benefited from the newly built market complexes in Accra, Kumasi and Cape coast. 175 firms now have their own personal websites and have attached online marketing which previously was not part of their trading regime. 55 out of the 88 exporting firms have taken advantage of the reduced export duty and in respect to that production and export have increased by approximately 25%.
Conclusion
Although most of the businesses received support from the Government's trade policy, many were still struggling to enlarge their businesses to the level to compete on the global market due to the lack of necessary skills and knowledge to run those business on a larger scale .To be at par with the rest of the firms from across the world, these SMEs need effective competitive strategies to compete with these international firms with plentiful resources.
Competitiveness is crucial for the survival of SMEs in Ghana, yet the import nature of Ghanaian firms always leaves a huge deficit on the Ghana's trade balance. Should the government trade policy for SMEs focuses also on appropriate strategies, like developing networking relationships with firms from different countries, and increasing the proportion of the SME's in the export sector, in this way, challenges from increasing competitive intensity can be minimized and Ghana's SMEs can benefit immensely from the positives links with the global world market.
Reference
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ПРОБЛЕМЫ ГЛОБАЛИЗАЦИИ МАЛЫХ И СРЕДНИХ ПРЕДПРИЯТИЙ
В ГАНЕ
Магистрант Боакийе Обед Африйе, к.э.н., доцент Карзанова Ирина Викторовна, Российский университет дружбы народов, Москва
Cтатья посвящена анализу последствий глобализации для малых и средних предприятий Ганы (МСП). Основное внимание в исследовании уделялось динамике структуры рынка Ганы, вкладу МСП в ВВП, проблемам, с которыми сталкиваются малые и средние предприятия при выходе на мировой рынок, таким как конкурентоспособность, передовые технологии, приобретение капитала. Было установлено, что, несмотря на негативное воздействие глобализации на часть МСП, другие малые предприятия смогли воспользоваться положительными аспектами глобализации, воспользовавшись торговой политикой правительства, которая способствует улучшению инфраструктуры и оказанию помощи малым предприятиям в получении льготных кредитов.
Ключевые слова: Гана, глобализация, малые и средние предприятия, конкурентоспособность, экспорт.
