I start this evening from the premise that, generally speaking, governments do not create jobs, the private sector does. And that within the private sector, SMEs are central to that endeavour.
But governments do set and police the rules, including incentives and disincentives, and ensuring a level playing field or otherwise. In other words, governments can be either an enabler or an obstacle. In the UK, our government’s aim – obviously – is to be such an enabler so that SMEs grow and flourish.
Actually, we even prefer the term MSME – Micro, Small and Medium Enterprises, or ones that employ between one person and 250 people. Together they are the real job creators.
We know that enabling governments are actually acting in their own strong self-interest and that of their populace: boosting the private sector, including SMEs, helps generate not only growth in the economy but the taxes that companies pay on their profits when they’re successful. And those taxes allow the government to fund the sort of public infrastructure and other investments that help the economy grow further. So, when governments help SMEs to flourish they create a virtuous circle.
In the UK, we therefore think that supporting small businesses by creating opportunities for businesses to thrive is essential for increasing productivity, creating jobs, and boosting our economy. That means making every effort to support businesses so they can grow.
Small businesses, particularly those in the early stages of setting up, need as much help and support on how best to survive and make a success of their business as possible. That’s why the UK Government is working with businesses across all sectors to ensure they have the support they need to grow now and in the future. As an example, just last month the UK Government announced a new funding boost of £58 million for the UK’s energy and infrastructure, biomedical and quantum technology sectors.
Part of our national success will depend on helping propel innovative UK business even further – not only do our world-leading innovators and research base attract foreign investment, their ideas go on to improve the lives of millions of people. Whether tackling climate change or cancer, this new funding will help get the best ideas onto the market quicker and shows our commitment to make the UK the best place in Europe to innovate, set up and grow a business.
The UK Government also supports a business mentors scheme, with volunteers from the small business community who commit to volunteering at least one hour a month of mentoring for two years. They have been recruited and trained as part of the £2 million government-funded Get Mentoring project, delivered by the Small Firms Enterprise Development Initiative (SFEDI), working in partnership with over 140 business and trade bodies. This represents the biggest ever recruitment of business mentors in the UK and equates to over 180,000 hours of free business support.
And the UK Government is particularly focusing on helping SMEs into the export market. There are over 5 million companies in the UK, the vast majority of them SMEs, employing over 15.5 million people and with a combined annual turnover of £1.8tn or over 2 trillion US dollars.
However, only 1 in 5 of those 5 million plus British SMEs export, compared to Germany where 1 in 4 companies export. Evidence suggest that UK companies who do export grow 20% more than companies who don’t. Our push in that direction has contributed to the fact that, since 2010, UK exports have increased to over half a trillion pounds, that’s over £500 billion, despite the general slowing of world trade following the financial crisis of 2008 and the fact that the developed world is losing market share to emerging economies.
So, effective support for SMEs looking to export is another key role for government which should ensure that those SMEs have access to good and timely market information, advice and assistance, both in the UK and overseas. That doesn’t mean the government has to do all that itself of course however: sometimes the most sensible thing for government to do is to pay to outsource eg SME support hubs to the private sector.
The services we offer our SMEs range from market information and insights on opportunities; access to research on overseas markets; meeting potential new customers and sourcing business partners for them; running events, exhibitions; webinars, on-line ‘live’ presentations delivered by experts from across the globe; providing additional market information and insights on opportunities to a broad audience across many physical locations, and grants for first time exporters. In some markets we have developed UK Chambers of Commerce to assist in this area. Indeed, here in Accra, on 1 September we will launch the UK-Ghana Chamber of Commerce, another platform for UK companies to access support and develop partnerships with Ghanaian companies.
In the UK, we also work with the major UK banks and ‘Big Four’ professional services firms via ‘Global Commercial Partnerships’ programme to leverage the reach and expertise of these private sector organisations to increase UK exports and attract inward investment. This includes commitments from some of the major banks to support a target number of businesses to export.
And responding this digital age, we have developed on-line exporting through a five year “Exporting is GREAT” campaign launched last November. Enhancing online services can substantially reduce costs while dramatically increasing the number of potential exporters supported and will help us to achieve our export targets. EIG is designed to encourage more UK SMEs to export their goods and services overseas, helping them access global export opportunities more easily. It aims directly to challenge the misperception held by many UK SMEs (70%) that their product/ service is not suitable for export. This is a new initiative, and will be a priority campaign for our Government.
Exports play a crucial part in economic growth of a country and we hope that our experiences in how we approach our export strategy is one that other countries will view as best practice in developing their own export offer.
There are many other examples of how the UK Government supports small businesses in the UK and those businesses trading with the world. After Brexit this has become even more important: our thinking is global and we need to support UK companies to trade even more with each other, and to trade overseas, including with Ghana.
But to put things in perspective: around 400,000 new businesses start-up in the UK annually, but one-third of start-ups cease trading within three years. It’s not a lack of customers or products that typically destroys a business – most often it’s a simple lack of cash.
And that’s obviously a major problem here in Ghana, too, where currently commercial interest rates are amongst the world’s highest right now, at often well over 30%. And that’s if you have any access to credit in the first place. At the same time, inflation remains stubbornly high at around 17% at present. And we know there are other obstacles too: unstable, sometimes unpredictable power supply; over-regulation in some areas; and of course corruption.
Corruption is often posited as a moral issue – and it should be. Corruption is a long, sophisticated word for which a much shorter, clearer one adequately substitutes, namely theft. If someone steals from the state budget, or uses their state position to enrich themselves, then it is the wider population that loses out, as money meant to benefit the whole society ends up benefitting just a few.
But corruption is also a matter of simple economic efficiency: if an SME has to pay government officials more than officially published rates to obtain licenses; to settle a land dispute or another issue in the courts; or to win a public sector tender, then it will have less to invest in its own business expansion and its own personnel. Put another way, SMEs that have to contend with engrained corruption end up employing fewer people, and someone who could have been employed remains unemployed, while someone employed by the State grows rich at their expense. Corruption is a serious issue which merits more open discussion, rather than being placed in the ‘too difficult’ tray of allegedly intractable issues.
Whatever obstacles they face, financial decisions made at an early stage can be the most important, as well as the most difficult, for SMEs in the early stages of their journey. The ability to have the right finances in place and plan financial matters effectively is central to business establishment and expansion, and to adapting to an ever-changing economy in which new industries are coming to the fore.
Industries that aren’t tied to fluctuating commodity prices. Industries that create jobs. Jobs that could transform the lives of the growing number of highly educated people right here in Ghana who currently have access to too few employment opportunities.
So, in that regard, let me apply some of what I’ve just said to how the UK works with Africa, and Ghana specifically.
The UK’s vision is to work in partnership with African countries and institutions to achieve a secure, self-financed and timely exit from poverty. Our and others’ aid programmes play an important role in that.
But we also know that no poor country ever became prosperous through aid. What made previously poor countries rich is a private sector set free to invest, employ people and expand. Look at South Korea, Singapore or where I was previously posted in Chile. The examples are numerous. It is an expanding private sector, backed by sensible public investment, most particularly in education and infrastructure – and based on the rule of law and clean, non-corrupt government – that best promotes economic growth and prosperity for all.
So, our goal is to help African countries develop and for their people, especially young people, to meet their aspirations for security, opportunity, accountability and prosperity. Inclusive economic growth is core to achieving this vision, as no country in history has ever been able to eradicate poverty without sustained economic growth.
This approach sees UK and African domestic businesses as crucial partners in advancing economic development in Africa as they bring vital investment, create jobs and contribute to African countries’ tax bases which can better enable governments to deliver essential public services. It also sees government Departments and new partners in the UK collaborating to find innovative solutions to support Africa’s development, including through drawing on UK expertise and experience.
Here in Ghana, UK firms often tell us that the most important factor in investment decisions is the quality of the enabling environment. And whilst UK firms say that investment incentives are welcome, they are not critical in the investment decision making process. Nor are subsidies critical to investment decisions, as they are more often associated with projects that were unlikely to be economically viable in the first place.
The type of improvements that really count for UK firms include factors such as transparency of investment and tax policies; consistency of legislation, including its fair implementation; business-friendly regulatory reforms; stable fiscal and macro-economic policies; active promotion of the country to potential foreign investors, including helping companies acquire the human capital they need to grow; and an efficient government apparatus implementing fairly and consistently existing rules, in all areas including for example in customs administration or land registration.
In short, it would be great to see Ghana rediscover its reforming zeal to see it moving well above its current position at number 114 in the world on both the World Bank’s Ease of Doing Business Index and 119 on the World Economic Forum’s World Competitiveness Index. It is a highly competitive global economy; other countries including in this region are catching up and even overtaking Ghana’s position on these highly regarded global indices – we are committed as the UK to helping Ghana with any reforms that push it much further up those global league tables. And reforms mean of course not just passing good new laws but implementing them.
Together with an overriding objective to reduce poverty in Ghana, through our Department For International Development, the UK Government supports domestic Ghanaian businesses grow and create more jobs through grants, capacity building and mentoring. Allow me to give a few examples.
DFID is providing support to Ghanaian SMEs through its £4m entrepreneurship programme Enhancing Growth in New Enterprises (or ENGINE). The programme expects to work with 1000 MSMEs to create almost 2000 jobs and help businesses access commercial capital.
DFID’s market system programmes take a systemic approach to increasing competition and the involvement of the poor in the economy. For example, through the £15.4m Market Development in Northern Ghana (MADE) programme DFID connects businesses in five value chains with small-holder suppliers in the north of the country to foster sustainable commercial relationships.
DFID’s Business Enabling Environment Programme (BEEP) provides £10 million over 2015-2018 to help improve the business enabling environment in Ghana and directly complements the Government’s ambitious export strategy. This funding supports targeted institutions within the Government of Ghana to enact reforms, while building an evidence base for reform through independent analysis and research.
And we support a Public-Private Dialogue to enhance the demand for and effectiveness of reform, focusing on supporting reforms to reduce red tape, promote competition, strengthen security of land and other property rights, improve access to commercial justice and strengthen the functioning of institutions charged with regulating markets and maintaining professional standards.
Separately, we recently launched ‘CapitalSME’, a project aimed at supporting capital market development in Ghana. Our aim is to stimulate private sector led growth in Ghana by encouraging more small and medium enterprises to list on the Ghana Alternative Market, also known as the GAX. for the right business owner, banking finance isn’t the only way to raise capital. Capital Markets offer businesses access to long-term capital, along with brand recognition and visibility. This project is designed to bust some of myths that deter small businesses from listing, such as “capital markets are only for the big boys”.
In conclusion, L&G, I hope I have managed to make the case this evening for the importance of SMEs as motors of growth and employment creation in both developed and developing economies alike; and for the role of governments in enabling the sector to succeed through promoting a business-friendly environment both domestically and through the export market. Sometimes, however, the very best thing governments can do forSMEs is simply to get out of their way.
In the UK, as a government, we are supporting our SMEs domestically and internationally, such as through our pro-SME projects here. And, indeed, here in Ghana, SMEs – you gathered here tonight – represent the best hopes for a bright, prosperous, economically stable future for Ghana and all Ghanaians: we wish you well in developing your own companies for the social good of all your compatriots. Thank you.
Distributed by APO on behalf of United Kingdom Foreign and Commonwealth Office.