Financing small-scale manufacturing firms in Ghana

Abstract

The potentials of small-scale manufacturing enterprises in the economic development in Ghana have been recognized. Nonetheless, there are numerous challenges confronting the growth and development of this sector. Among these challenges are, competition with large firms and foreign imports due to over liberalization of the economy, lack of advisory services and research findings among others. Problems associated with external financing have been singled out for discussion in this paper due to conflicting findings by some researchers. The study was carried out using panel data of the Regional Program On Enterprise Development on manufacturing firms in Ghana between the periods of 1991 to 1993, organized by the World Bank. It covers representative firms in Accra, Kumasi, Cape Coast and Takoradi. The major findings of the research among other things are that, small-scale manufacturing firms in Ghana are apt to finance their investment with internal sources of capital namely personal savings and retained earnings than external capital. High profitable SSEs (small scale enterprises) are apt to use formal credit. This means that the more efficient and profitable SSEs are, the more external capital they are apt to use. In a bid to solve the problems identified, it is recommended that the government should try to focus more on policies that can make SSEs efficient and profitable. These policies too should include relevant technical and entrepreneurship development assistant programs. This in effect calls for protective and developmental policies. Though financial constraints may seem a problem, the solution does not lie in the establishment of subsidized credit lines. The solution lies in making the firms more competitive by the suggested policy tools.