The Ghana Alternative Market (GAX) And The Development Of SMEs In Ghana

Introduction
Generating funds to either start a business or expand a business operation has mainly been the key challenge faced by today's business entrepreneurs in Ghana and most part of developing countries. Thankfully, the Ghana Alternative Market (GAX) has been launched to ameliorate this problem in Ghana. With Ghana's market size growing and opportunities in the rest of Africa looking preposterous, SME's in the field of manufacturing, food processing, pharmaceutical, IT, agro and service sector can take advantage of the GAX to meet the ever growing demand on the continent.

Overview of GAX and SME's in Ghana
In the first quarter of 2013, the Ghana Alternative Exchange (GAX) was launched as a parallel market operated by the Ghana Stock Exchange (GSE). The aim of the GAX is to focus on Small and Medium scale Enterprises (SME's) with potential for growth. Even though the GSE lists SME's on their second their second and third official lists, the stated Share Capital requirement of GHC50m and GHC20m was too high for most SME's in Ghana, hence GAX registers and lists SME's at less and waived cost relative to listing on the main exchange (GSE).

A company applying for listing on the GAX is expected to meet the following requirements:-

Stated Capital
A company applying to list on the GAX must have a minimum stated capital of GH¢250,000 at the time of listing. The stated capital of GH¢250,000 shall be the capital after the company's initial public offer but prior to listing.

Public Float
The public float of the applicant must constitute a minimum of twenty-five percent (25%) of the total number of issued shares.

The minimum number of public shareholders shall be twenty (20).

Period of Existence
Admission may be granted to a start-up company, provided the applicant submits to the GAX a 3-year business plan, demonstrating clearly the viability of the applicant.

Profitability
The company seeking admission to the GAX need not have recorded profits historically but must have the potential to make profit at least at the end of its third year of listing.

Sponsorship of Applicants for Listing
Licensed Dealing Members, Investment Advisors or Issuing Houses shall sponsor an application for listing on the GAX.

Cost of listing
Listing and application fees have been waived. A GAX listed company only pays an annual fee of ¢ 2,000.00. (Source: GSE).

The European Commission (EC) coined the term Small and Medium Enterprises (SME)'. The SME sector is made up of three components: firms with 0 to 9 employees - micro enterprises, 10 to 99 employees - small enterprises, 100 to 499 employees - medium enterprises. In Ghana, available data from the Registrar General indicates that 90% of companies registered are micro, small and medium enterprises. This target group has been identified as the catalyst for the economic growth of the country as the large informal sector (made up of SME's) employs and provides income for majority of the active labour.

The transitional stages in the developed economies of today have been from, agriculture through industries to services. Nonetheless the case of Ghana has taken a different twist, the country moved from agriculture to services with industries still in its nascent stage.

The situation is no surprise as most of the industries in the economy can be classified under the Small and Medium Scale Enterprises (SME's) which hitherto to GAX has received relatively low attention even though some avenues and channels of financing have been provided. The numerous SME's that are springing up in the capital are good signs to boost the industrial sector. Most SME's in the country are either in the hands of sole proprietorship or a few partnerships undertaking business from self-financed capital.

Challenges that confronts most SME's in Ghana have ranged from lack of; access to credit facilities to expand, technical and administrative capabilities on the part of SME's owners, technology to improve their production. Policies of government have also favoured large-scale companies due to tax revenues generated from them, hence forcing the demands of SME's to be pushed to the periphery and bottom of governments scale of preference.

Benefits of GAX
With the introduction of the GAX, every rational economic agent would predict greater listing from the SME's basically because of the advantages SME's stand to gain.

Fund Raising, listing provides an opportunity to the owners of SME's to raise capital to fund new projects/undertake expansions/diversifications and for acquisitions. It would have been a great success story if the KOKO KING firm could raise fund from the exchange to undertake expansions to other regions.

Collateral Value of Securities, listed securities are acceptable to lenders as collateral for credit facilities, as creditors are aware of their stated share capital with the registrar general department and would hence know the extent of loan to make available to SME's. A listed company can also borrow from financial institutions easily as it is rated favorably by lenders of capital. Good cooperate governance, after listing on an exchange, the Securities and Exchange Commission (SEC) outlines acceptable ways of managing a publicly listed company such as the capital maintenance rule. This helps minimized bad business decisions made by SME's which has potential of reducing the working capital of most SME's. Listing on the market will put the company in the public's eye and as such give their products greater publicity and as well draw on board, individuals with interest in such firms. Through raising of funds from the exchange, SME's can now meet the required capital that most foreign investors deem to be acceptable before opening trading negotiations with firms. The GAX just as all other markets if well-regulated will help mobilise capital, diversify risk and channel resources into productive investments of SME's in the economy.

Why the low Listing by SME's?
In spite of the proven benefits of listing on an exchange, the local SME's are not willing to be listed, why? I find this quite strange; nonetheless the reasons are not far-fetched.

In Ghana, claiming private ownership is mostly preferred to public ownership, in an economy driven on “said” basis of mixed capitalist and socialist ideas, most promoters (owners) of SME's are not willing to bring on board shareholders who would be legally referred to as owners of a company they didn't start, and above all draft an article of association (company's constitution) and make decisions for the company.

From the hierarchy of government administration, transparency in activities and operations of government agencies have been a public outcry since independence. This canker has permeated the private business fabric of our economy. Most SME's are not willing to share in public the true and fair view of their accounts (mostly deficits due to mismanagement). This veil of privacy will be lifted once they go public, and their accounts will be published in the dailies, hence they refuse to be listed. It's therefore no news how start-up SME's that seems to have bright business prospects disappear in short times.

Also, the high standard and large-scale firm perceptions that are associated with listed companies is a challenge that ought to be addressed. In Ghana, the activity of company listing has been a reserve for the large–scale firms (Tullow Oil, Ashanti Gold), it is important that SME's discard this perception and see the GAX as one of their own, established purposely to help develop their production capacities and scale of operation.

The reasons for the luke-warm attitude of SME's to the Ghana Alternative Market would be incomplete without commenting on the influence of politics as well as SME's having 'political romance' with some political parties. It is an obvious truth that most SME's are at some recognizable development stages due to close relationships they had with successive political parties that won power.

The rule of the game has been to support a political party during electioneering campaign and when they win power, contracts are awarded to you (SME's) as well as policies to favour your business. The reward associated with this game has most often exceeded the risk, hence SME's prefer to list on the “political exchange” in lieu of GAX.

Conclusion

The Ghana Alternative Market (GAX) can't be said to be a panacea to all the challenges that is crippling the SME sector, but a step in the right direction if the industrial sector in our economy is to be developed. The dynamic role of small and medium enterprises (SMEs) in developing countries (Ghana) as engines through which the growth objectives of our country can be achieved has long been recognized. The story of an economy with low domestic productivity would have been re-scripted if SME's would take advantage of the GAX to expand and improve their production capabilities.

Bortey Isaac Newton

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