Entrepreneurship Development and New Business Start-Ups: Challenges and Prospects for Ghanaian Entrepreneurs’
Lack of Regulatory framework and social factors
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- Điều hướng trang này:
- Discussion on the Challenges Facing Entrepreneurs and SMEs in the Developing World
| 4. Lack of Regulatory framework and social factors:
“There are lots of corruptions in the buying and selling business. The whole process in clearing the goods at the ports takes so much and we also have to pay so much fees”. Discussion on the Challenges Facing Entrepreneurs and SMEs in the Developing World As noted elsewhere, the advent of globalization and the collapse of trade barriers through liberalization and deregulation have brought with it new opportunities for entrepreneurial development. In most developing counties like Ghana, there are many promising young entrepreneurs, but the challenges besetting entrepreneurs in frontier and emerging countries are varied and complex. Despite the fact that SMEs constitute one of the largest sectors in the national and global economies, and significantly contribute towards the socio-economic development of national economies, they face a number of major challenges in their business start-ups and operations. On the basis of the challenges facing entrepreneurs and SMEs in Ghana, the study identified availability of resources such as capital (funding availability and accessibility), human resources (management skills/skilled labour availability), raw materials, infrastructure and utilities, operational risk, market accessibility, and opportunity for growth and expansion greatly influence SMEs’ operations and their overall success rate, which are discussed in detail below:
Most entrepreneurs go into business without inadequate capital hoping to secure more once the business grows. The availability of financial resources allows entrepreneurs to bring together other factors and use them to produce goods and services to gain competitive advantage. Access to adequate funding is by far the most critical challenge facing entrepreneurs and SMEs’ business start-ups and expansion. Since funding is the lifeline of any business, the predominant the response from participants was funding availability and accessibility. While capital remains indispensable to start a new business, most commercial financial institutions operate their loan schemes on high- collateral and/or on high-interest basis. While SMEs and the private sector are considered the backbone of the economies of most developing countries in terms of job creation and tax revenues, due to the high risk associated with new business start-ups, the commercial banks are often reluctant to lend money to new entrepreneurs. As a result of the rigidities and unfavourable loan system, especially due to the commercial banks’ five ‘C’s qualification criteria namely; collateral, character, capacity, capital, and conditions, many entrepreneurs in Ghana are discouraged from applying for bank loans. Besides availability and accessibility of funding, the government’s prime rate to the commercial banks is excessively high, which has placed interest rates charged by Ghanaian banks in a very high range from 25% upwards depending on a bank’s set rates for loans; and interest rates charged by the micro-credit agencies are even much higher. This finding reinforces the results of a survey on enterprise financing by Aryeetey et al (1994) that only 14%
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of credit advanced by banks went to SMEs. To make matters worse, some owners of SMEs admitted that managers in the commercial banks demand bribes before approving their business loans (interview with entrepreneurs engaged in used car business, 2015). Most of the local entrepreneurs interviewed admitted that as a result of these bottlenecks, they resort to non-bank financial institutions, government agencies and other informal means as well as social networks for loans and financial assistance or rely mainly on family support and personal savings to start or expand their businesses because that requires no collateral and it is readily available to the borrower when needed (focus group interview with used clothing entrepreneurs, 2015; interview with members of the Printing Press Association, 2015). As a result, many entrepreneurs and SMEs turn their attention to government and donor institutions’ loans and grant programmes. Although the government’s NBSSI and MASLOC initiatives have had some positive outcomes, assessing the impacts and benefits of government programmes under these organisations’ services for SMEs generally are woefully inadequate since the process has been bedeviled with several bottlenecks. It is therefore necessary to examine the financial support and strength of the SMEs in terms of the availability of business start-up capital, and the procedures for administering the various loan schemes to potential beneficiaries need to be addressed more appropriately. Over all, five industries were represented in the study with microfinance businesses representing 15%, trading (in the informal economy) representing 50%, small scale manufacturing making 10%, artisans 15% and general services constituting 10%. Three size categories were defined on the basis of employee size. As stated above, classification of firms were as follows; micro businesses (less than 5 employees), small businesses (5 and 29 employees), medium sized firms (30 and 99 employees). Seventy five (50%) of the businesses surveyed were small sole proprietorship firms, 50 (30%) were microenterprises and 25 (20%) were medium-sized companies. Another challenge that has made access to credit difficult is the culture of default on loans by many entrepreneurs, which affects the operations of genuine and responsible entrepreneurs and compels some financial institutions to charge high interests to cover their risk factors. Due to the lack of proper management skills, many business owners extract money from their businesses without control and have no fixed salary since business income is not kept separate from personal expenses, and often not paid back into the business, without considering its implications on the sustainability of the business. Sticking to budget is a challenge to some entrepreneurs, since a lot of them overspend way above their income and profits. Many entrepreneurs operating small businesses on sole proprietorship basis have no cost control mechanisms and working capital could be used to solve other personal or family problems. To justify the rigidities in lending and the high interest rate charges, some staff in the banks and microfinance institutions noted that due to the business culture of mismanagement of funds among some owners of SMEs, many entrepreneurs in Ghana have a problem of loan default, which has contributed to the difficulty in accessing loans from the traditional banks and the high interest rates (Manager, Ecobank, 2015). Coupled with the lack of financing for capital investments and credit lines for working capital are the high taxes charged by the national and local governments such as income tax, the value added tax (VAT), high cost of energy, and the frequent power outages constitute some of the major challenges to the development and sustainability of SMEs. Lack of funds also has a ripple effect on the ability of the entrepreneurs and SMEs to afford the high cost of taxes, energy and other
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utility bills as well as transportation costs, which often results in high production costs leading to the crippling of some businesses operations in the manufacturing and distribution sectors. Other economic factors also influence entrepreneurship in many ways, especially the nature of the economy is a major factor that influence entrepreneurship since a strong economy is likely to provide better opportunities for new and existing entrepreneurs than a weak and sluggish economy. In a strong economy, the general purchasing power of people, which is manifested by income levels and economic prosperity plays a major role in the success of entrepreneurial ventures. Conversely, during times of economic slowdown or recession, the purchasing power declines and people are reluctant to invest, thus adversely affecting entrepreneurship development. Availability of resources is another major factor affecting entrepreneurial development in many developing countries. Since access to capital is crucial for the growth of every business, without a well-developed venture capital or equity market to support entrepreneurs in Ghana, devoid of it will be difficult for domestic entrepreneurs in Ghana to source capital for business start-ups.
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