estate, and are thus not relevant to early stage entrepreneurs. There are several government programs in place that seek to support SMEs through facilitating or providing financial support. However, the target beneficiaries are often micro-enterprises (or even sole proprietors) rather than small or medium-sized businesses. Although the size of businesses government initiatives target is not explicitly mentioned, government policies that focus on SME development in practice seem to emphasize micro-enterprises. In many cases SMEs cannot access finance because their business is not considered viable or too risky, yet results of the Rural Enterprise Programme also highlight that in some cases it is rather an issue of perception and uncertainty that prevents SMEs from applying for a loan or grant.<sup>79</sup> While GAIN, the single angel investor network in Ghana, actively interacts with the local incubators and accelerators, this network has struggled to find investable deals, though it is unclear if this is inadequacy of the investment targets or risk aversion on the part of GAIN’s investors.

# **MARKET DRIVERS AND IMPEDIMENTS**

As a frontier emerging market, Ghana is generally touted as an attractive investment destination in SubSaharan Africa because of its relatively long history of stable democratic government and comparatively strong business environment. Ghana has had above average economic growth in the past, although growth peaked at 9 percent in 2011, and slowed to just over 4 percent in 2014. The country’s strong business environment is reflected in its ranking of 70th of 189 countries in the 2015 World Bank Doing Business Study, above both Kenya (136) and Nigeria (170). Ghana ranks particularly high in terms of Registering Property (#43), Getting Credit (#36), and Protecting Minority Investors (#56), although Ghana ranks less well for enforcing contracts (#96) and for resolving insolvency (#161). As an English-speaking country<sup>80</sup> with a legal system based on common law, Ghana is also an attractive investment destination for many investors. The Government of Ghana has also been supportive of the venture capital ecosystem, as described above, including with programs, such as the VCTF specifically focused on venture capital.

However, private equity/venture capital investors also face impediments stemming from the overall macroeconomic context in Ghana. Ghana has had a recent poor record of government finances and fiscal management; inflation was as high 17 percent in December 2014; and there has been significant depreciation of the Ghana cedi. Government funding costs have been high, with 91-day and 182-day T bill rates remaining above 25 percent. The country’s economic growth has been jeopardized by acute electricity shortages. These circumstances resulted in an IMF loan of US$918 million in April 2015 to restore macroeconomic stability with better fiscal discipline and slower inflation. The macroeconomic challenges have also dampened the investor environment. Ghana’s electricity crisis has made investors reluctant to invest in sectors such as manufacturing. Volatility in the Ghana cedi have made business fundamentals seem less attractive for investment, and also dampened returns for investments made in local currency. High government rates of borrowing make it harder to justify investment in riskier and more illiquid alternative assets by domestic institutional investors. High interest rates also make it more difficult to use leverage in a PE/VC transaction. Thus, using debt to finance private equity deals is not common in Ghana.<sup>81</sup> While the impediments discussed above are unique to Ghana, many impediments are common to PE/VC in most developing countries. As discussed earlier, the SME terrain, for instance, is difficult, as it is in many developing countries. SMEs lack the financial literacy to recognize the value added of PE/VC; they are usually family owned businesses that are reluctant to cede control or ownership to outsiders; SME financials are often not in order; and the SMEs are also reluctant to reveal financial information, which causes problems for valuation. Domestic institutional investors in Ghana’s market, as in several other developing

> 79 REP Interim Evaluation IFAD, 2011.

> 80 English is the official language in Ghana.

> 81 This is also because Ghanaian law prohibits leveraged acquisition transactions as discussed in the section on legal and regulatory framework.

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