Global corporate insolvency increased exponentially – BoG

Elsie Addo Awadzi, Second Deputy Governor of the Bank of Ghana, has noted that corporate insolvencies around the world have increased exponentially due to the coronavirus pandemic.

She explained that major businesses, and multinationals in some cases, have all been hardly hit.

Speaking at a forum themed “MSME Manufacturing Capabilities, Responding to COVID-19 and Opportunities Beyond,” she said : “ Over the years, micro, small and medium-sized enterprises (MSMEs) have played and continue to play a critical role in Ghana’s socio-economic development by producing critical goods and services, creating jobs, and helping to reduce poverty and promote economic growth. It is estimated that MSMEs represent about 85 percent of Ghana’s private sector and contribute about 70 percent of annual GDP.

“ In terms of employment, MSMEs account for an estimated 85 percent of manufacturing jobs in the country.

“The MSME sector has also provided women and the youth opportunities to harness their economic potential, and it is estimated by the World Bank that about a third of all MSMEs in Africa are owned by women. These contributions notwithstanding, MSMEs have always faced severe constraints that stifle their growth. For example, it is estimated that the MSME financing gap in Ghana is approximately 13 percent of GDP, according to a World Bank 2019 Report on improving access to MSME financing in Ghana.

“Today’s forum under the theme, “MSME Manufacturing Capabilities, Responding to COVID-19 and Opportunities Beyond” is timely and appropriate. We are all witnesses to the unfolding impact of the COVID-19 pandemic on human lives around the world, and the significant disruptions in the global economy. These are certainly unusual times, and for many of us, unprecedented times.

“There is recognition around the world that the economic impact of COVID-19 has been disproportionately felt by the MSME sector, owing to a number of factors. First, on the supply side, MSMEs have faced many challenges including (i) disruptions in their production cycles due to employees and suppliers infected by the virus; (ii) a shortage in raw materials and other inputs due to global supply chain disruptions; and (iii) increased costs of production due to a shortage of inputs, and spending on new health and safety protocols. On the demand side, MSMEs have experienced revenue losses and severe liquidity stress arising from weak consumer demand due to closure of businesses in the hospitality, tourism, aviation, education and food industries, among other things. With little or no savings, MSMEs have had difficulty paying their workers and suppliers, paying rent and utility bills, and servicing their loans with financial institutions. This is, in many ways, an existential threat for the sector.

“MSMEs are not the only ones impacted. Major businesses, and multinationals in some cases, have all been hardly hit. Corporate insolvencies around the world have increased exponentially due to the pandemic, and national economies are reeling from the loss of tax revenues and increased Government expenditures on health and safety and other measures to help contain the effects of the pandemic. In Ghana, the impact of the pandemic on businesses, Government revenues and expenditures, and on inflation, have compounded the problems of the MSME sector.”