Private Equity Funding is needed to push Ghana further!
The entrepreneur and his ad hoc enterprise is truly the answer to Ghana’s many problems. After all 90% of all businesses in Ghana are SMEs that were formed through the indigenous entrepreneurial spirit. What these businesses need to support and sustain their growth – which will directly affect the nations growth as a whole; increasing that fancy macroeconomic term politicos love so much, GDP – is access to mezzanine capital (growth funding) and managerial and technical support especially for the smallest businesses that exist at the grassroots level.
We have a flourishing banking system except that it is plagued by dearth of risk tolerance. Commercial banks are too risk averse to help the majority of businesses in Ghana because they are adamant in demanding that debt financing (loans) provides a wide margin of safety in the form of usurious interest rates because the commensurate risk is seemingly high. This argument makes sense from a certain perspective but I believe that the criteria for loan disbursement for most banks is too stringent, westernized and inappropriate for a Ghana looking to leap high into the second decade of this century. It causes banks to miss out on so many burgeoning opportunities provided by SMEs that seem risky but with proper supervision and support can become profitable enterprises indeed. In reality most banks operating in Ghana are passive financiers, content to rack up savings, and reluctantly disbursing loans only to already big and established businesses whiles avoiding SMEs like the atavistic fear of the black plague. That is why I believe that Private Equity financing (especially Venture Capital) can become a critical success factor in Ghana’s leap towards middle-income status. Venture capitalists have a three-tiered approach of providing private equity finance to small, fledgling or start-up companies or SMEs; providing active managerial and technical expertise to help the firms that have received funding to maximize the investment and lastly to leverage the investment made for a profit once the company has reached a predetermined growth stage. This is not to say that there are not other viable sources of financing rapid socio-economic growth and development but that Private Equity has to be given a more expansive role in Ghana and West Africa at large.
Venture capital funding has to be provided its own enabling environment to grow and flourish as the banking industry has been helped through deregulation and other incentives. Private equity funding based on the venture capital model can be a stopgap source of funding for SMEs that are either too small or new to grow to a stage where that can also enjoy debt financing from banks. This can be visualized as a sort of pre-processing plant for raw materials before they are turned into the final product. The Venture Capital Trust Fund (Act 680) is definitely a step in the right direction but so much more needs to be done. It is encouraging that at least the government is trying to do its part but I would like to encourage those so-called ‘high net worth’ individuals and successful corporations to pool together their private resources and supply the badly needed credit deficit that SMEs need to grow through venture capital initiatives. It is necessary for the involvement of wealthy entrepreneurs to step into the picture and provide what is lacking, and in the process create a mutually profitable scenario for themselves and those businesses that access this funding. If Ghanaians ourselves do not provide in this badly needed resource, foreign concerns will certainly step up to the plate because this gap is quite real and begging for attention.
Ghana has sauntered for over 50 years and we are finally jogging and hoping at any moment to break into a sprint. In order to do so I believe that access to credit on a system wide basis has to be greatly increased with appropriate measures taken to mitigate and manage associated risks. However our public equity capital market (Ghana Stock Exchange) is a playground for 37 exclusive giants (many foreign controlled), and our banking industry is risk averse. By encouraging wealthy entrepreneurs to provide private equity financing to up and coming entrepreneurial firms through venture capital, Ghana will not just leap, but leap high indeed.
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