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Biggest legal challenges SMEs Face in Ghana
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Biggest legal challenges SMEs Face in Ghana

Every year, the number of small and medium-sized enterprises (SMEs) in Ghana continues to rise.

With an entrepreneurial spirit, determination, and innovation, many Ghanaians do not hesitate to start small businesses in different sectors of the economy. The Integrated Business Establishment Survey (IBESS, 2016) states that micro, small, and medium enterprises (MSMEs) make up 92% of businesses in Ghana.

SMEs are, therefore, an integral part of the development and growth of the Ghanaian economy. However, Ghanaian SMEs face some legal challenges that hinder their potential for growth. These challenges mainly revolve around the procurement framework in Ghana.

The Procurement Framework in Ghana

Procurement is the sourcing and purchasing of goods and services for business use from an external source.”

Every business entity involves procurement processes in its management. It is an integral part of running a business; therefore, without favorable procurement laws, many companies struggle to survive.

The Ghana Act (Act 663) section 2(t), the Public Procurement (Amendment) Act, seeks to help local businesses be efficient and competitive in providing services to the public. Yet, these same policies do not provide a level playing ground for local businesses in different categories.

These inadequacies are laid out in the margin of preference provision(section 60(3) ) and the context of qualification criteria (Section 22(1) ).

Contextually, Section 22(1)(a) of the Ghana Act defines the qualification criteria on a set of basis. These bases do not include clear cut distinctions on how the qualification criteria should be applied to different businesses. So regardless of sources, funding, and category, all companies are regulated by the same section in Ghanaian Law.

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Uneven Playing Fields

In simple terms, SMEs and Large businesses are given the same conditions, platforms, and resources to work with. This presents challenges to small businesses that may not have the funds or human capital to overcome the same challenges as larger businesses.

Section 60(3) in Ghana Act 663 also states a margin of preference clause. The margin of preference provided in the clause pushes for the preference of work from domestic contractors. Even though the term seeks choices from local contractors, it puts SMEs in a tug-of-war with large corporations.

Furthermore, in Section 60(3)(a), the act emphasizes the sources of local goods. This means that preferences here are placed on the products instead of the business owners.

Hence, regardless of the nationality of the business owners, once the goods are Ghanaian made, the preference clause applies. This might not favor SMEs in Ghana since most SMEs are Ghanaian owned, while large companies usually have affiliations abroad.

Reformed Procurement Laws positively impacting SMEs

To prove that these are significant setbacks to SMEs, we could take a quick look at the positive effects of reformed procurement laws.

In India, the Public Procurement Bill aimed to procure at least 20% of goods and services from MSMEs. The approach of the European Union (Directive 2014/24/EU) also implores buyers to involve SMEs in various categories.

This led to an increase of 2 million in creating SMEs and only 2000 large enterprises between 2002 and 2007.

For fair participation in public procurement for all bidders, there is a need for a more comprehensive procurement framework in the country.

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