The Small and Medium Enterprises (SME) sector in Africa can breathe a sigh of relief as the African Development Bank (AfDB) has established a fund to absorb the risks of SME funding.

The fund takes up 50 percent of the risk of commercial banks in lending to SMEs.  The fund, known as the African Guarantee Fund, was established two years ago with the help of the governments of Denmark and Spain.

The fund which has a pan-African mandate is headquartered in Nairobi, Kenya, and will help financial institutions that lend to SMEs to scale-up their business, according to the AfDB.

Denmark and Spain provided US$40million and the AfDB provided US$10million to start the Fund, which intends to mobilise US$500million.

The cliché that the private sector, particularly the SME sector, is the engine of growth has been overblown over the years; but, sadly, the high interest rates offered by commercial banks in the country are a disincentive for the beleaguered SME sector to seek borrowing.

This Paper therefore sees the Fund as an intervention that is both necessary  to expand the growth of the economy as well as being a buffer to commercial banks that see SME financing as a risky venture.

Private sector development is one of the Bank’s top-four priorities which include infrastructure, governance and higher education. According to the bank’s President, Dr. Donald Kaberuka who has put priority on private sector development, “the bank acknowledges the role of the private sector in creating growth, particularly inclusive growth and green growth.”   

Under Kaberuka in 2006, the private sector investment has taken-off in terms of size and scale of activities. From 2000 to 2006, the Bank was doing US$200million yearly; now it has posted US$2billion a year in private sector investment.

The Private Sector Department operates across the continent and invests directly and indirectly in over 40 countries in Africa. 

According to the Bank, the department identifies projects that do not have a sovereign guarantee and takes those risks so that the commercial banks will have more room to expand their business.

To date, the department has invested in airports, railways, telecoms, back-bone satellite technology, industries and services, mining and refinery, agri-business and many more. It also finances and manages the energy sector and is engaged in the sub-sectors of energy, gas-fired power plants and the renewable energy sector.

Tackling joblessness amidst growth

On May Day, the Trades Union Congress (TUC) lauded the country’s high growth rate but equally lamented that it has not effectively translated into job-creation, in view of the high unemployment rate currently afflicting the economy.

A senior economist with the Institute of Economic Affairs (IEA), Dr. John Kwakye, noted that in 2011 the country posted the highest rate of GDP growth worldwide with over 14 percent, driven mainly by oil.  Dr. Kwakye believes that it is equally important that the economic growth spreads to non-oil sectors to generate more jobs.

He explained that though the country’s growth potential is huge, there is still high unutilised industrial and human capacity as a result of insufficient jobs. Dr. Kwakye said the oil industry is an “enclave industry” and does not generate much employment.

To this end, Dr. Kwakye advised against complacency by government and rather urged that they invest more in the manufacturing sector to engender further growth of the economy.

  The message was also strongly captured in the delivery of Dr. Mahamudu Bawumia at the fifth Ferdinand Ayim Memorial Lectures in Accra on Wednesday.

He largely attributed the country’s phenomenal growth to oil exports, and stated categorically that the unemployment rate is disproportionate. He states that cost of living is rising even after attaining and maintaining a single-digit inflation figure for months on end, while the national currency experiences a slide compared to other major trading currencies.

Dr. Mahamudu Bawumia noted that in all the markets he visited there was ample evidence that prices of goods and services are rising, and thus wondered about the effect of a single digit-inflation figure.

The statistics do not match the real cost of living, he maintained. This Paper believes that these economic gurus might have a lesson to share with the economic management team that could be incorporated or taken on-board to improve the lot of Ghanaians.

We also believe that a cross-fertilisation of ideas or contesting viewpoints only goes to enrich the debate and ‘tease out’ the right solutions to move the economy from a lower middle-income economy to a fully-fledged middle-income status in line with the country’s medium- to long-term objectives.

For a start, government ought to focus on the country’s manufacturing base to improve upon the country’s balance of payments!

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