Minister Speech

The Minister of Finance and Economic Planning  Key Note address to end  VCTF Road Show in Accra at Fiesta Royale Hotel on Tuesday 14th August 2007.

The full text of the The Minister of Finance and Economic Planning, Hon Kwodwo Baah-Wiredu’s speech is published below.

1. CHAIRMAN

COLLEAGUE MINISTERS

COLLEAGUE MPs

BOARD MEMBERS, MANAGEMENT AND STAFF OF VENTURE CAPITAL TRUST FUND

CAPTAINS OF SMEs

CAPTAINS OF BUSINESSES

REPRESENTATIVES OF ASSOCIATION OF GHANA INDUSTRIES

NII MEI KE NAA MEI

INVITED GUESTS

MEMBERS OF THE PRESS

DISTINGUISHED LADIES AND GENTLEMEN

It is my greatest honour to be invited as Minister of Finance and Economic Planning to deliver a speech at the end of the Venture Capital Trust Fund Road Show.

Let me congratulate the Board, Management and Staff of the Venture Capital Trust Fund for this innovative idea which has taken the VCTF to all the ten regions of Ghana.

At the end of the road shows, most Ghanaians have an idea of what the Venture Capital Trust Fund is about because the road show has covered all the ten regions of Ghana.

Mr. Chairman, Ladies and Gentlemen, the Venture Capital Trust Fund (VCTF) was established by Act 680 with the objective to provide investment capital to Small and Medium Enterprises (SMEs).

5. As an economy in which 90% of companies are SMEs, Government in its desire to support this vital sector of the economy established the VCTF. This is because the SMEs sector is an important area that needs easy access to finance. The SMEs create a suitable livelihood for the majority of the population; supporting them is therefore vital for economic growth.

The Venture Capital Trust Fund therefore is to support SMEs to get increased access to credit at a cheaper cost so that they can grow their business.

Mr. Chairman, Ladies and Gentlemen, funds from the VCTF are available to all sectors of the economy. The threshold for SMEs is defined as a company with a capital of US$ 1 million. Priority is given to certain sectors of the economy from time to time in line with the Government’s economic growth policies and objectives.

The priority sectors identified are the Pharmaceutical, Information and Communication Technology, Agro-processing and Tourism Industries. These priority sectors may benefit from about 55% of the total funds available to the VCTF.

Mr. Chairman, Ladies and Gentlemen, the funds provided by the Venture Capital Trust Fund to businesses may come as an equity investment or loan, or a combination of both loan and equity.

If the funds are given as equity the Venture Finance Company becomes a partner or shareholder of the investee company and no debt service is charged, but the Venture Capital Company gets annual dividend from time to time.

Mr. Chairman, Ladies and Gentlemen, if a loan is granted by the VCTF to a company, it is on a long term basis, so that there is no immediate debt service that constrains the business.

In most cases, loans granted by the VCTF carry an interest rate that is actually below the market rate or what the normal banking institutions offer.

The Venture Capital Trust Fund provides an opportunity to businesses that is almost not available elsewhere.

The Venture Capital Trust Fund has established joint venture finance companies with financial institutions to assist SMEs. These finance companies are Bedrock Venture Finance Company, Activity Venture Finance Company and Gold Venture Capital Limited, each with a capital of US$ 10 million, and a US$ 16.65 million Fidelity Capital Partners Limited.

All the four finance companies have a primary aim of assisting SMEs in Ghana with funds to grow their businesses.

Mr. Chairman, Ladies and Gentlemen, at the time of independence, the banking industry consisted of 3 banks. This has grown to 23 banks, 124 Rural banks, 13 Savings and Loans companies, 22 Insurance companies, including Reinsurance organizations as we enter the jubilee year. The VCTF can team up with these institutions to form more joint venture finance companies to help promote the private sector in the major towns and rural areas. The VCTF can encourage workers, including its own staff, to form or have shares in the finance companies.

Mr. Chairman, Ladies and Gentlemen, the Government’s vision of promoting the private sector as the engine of economic growth cannot be fulfilled without the effective functioning of financial intermediaries.

Mr. Chairman, Ladies and Gentlemen, we appreciate why banks have a higher risk perception of SMEs and often shy away from administering credit to them.

It is however hoped that the passage of the Credit Reporting Act (Act 726) will help address the high default rate in loans granted.

The Credit Reporting Act (Act 726) will facilitate the establishment of credit referencing bureau to assist in reducing the risk in lending, thereby enabling Banks to lower the cost of capital to the private sector to facilitate the required growth in the Ghana Economy.

Mr. Chairman, Ladies and Gentlemen, I believe this VCTF road show has introduced the activities of the Venture Capital Trust Fund and its finance companies to the General Public in all parts of the country. It is my hope that the road show has made the slogan of the VCTF – WITH VENTURE FINANCING, YOU HAVE A LONG TERM PARTNER – a household refrain.