how the bumblebee flies

As I continue my survey of internet cafes here in Accra, one question keeps recurring. How can these small businesses survive, let along turn a profit? 15 so far in Kokomlemle and 11 in Adabraka, the two areas of Accra I am focusing on, and barely one is making its owner a living. Yet they provide an essential service for all the businesses in the area, since an internet connection costs a minimum of 90 cedis (about US$60) to start up and 53 cedis a month for the lowest bandwidth deal, which is way beyond the resources of most entrepreneurs in Accra. So they check their mail in cafes instead, at 50 pesewas an hour. However, the list of challenges for someone attempting to run an internet café is formidable:

Computers cost approximately double what they do in rich countries due to import duties, plus the inflation rate in Ghana is running at 18% and the cedi has lost about a third of its purchasing power over the last year alone. So imported computers are getting beyond the reach of most small businesses. Internet cafes tend to make do with second hand ones from abroad, bought at Tema port or through dealers in Accra – a four or five-year-old PC will cost you about US$300, which is more affordable than the thousand or so for a decent new model.

Connectivity is expensive for cafes: Vodafone, the owner of the fixed network and thus the main ISP for the country, has a business rate of 243 cedis ($164) a month for cafes. There are lower rates, but the cafes are told they should buy the most bandwidth possible, and they tend to do so because there is no  information available on what they are getting. There is some debate over whether the ISP actually manages bandwidth, and whether those paying the top rate are getting any more connectivity than those paying less – but that’s for another time.

The main issue for these businesses, however, is credit. This is the word I have heard over and over again, as I have interviewed café owners all over Ghana.  There is no access to credit for small-scale businesses. At all.

This seems to be down to a lack of a credit culture, which is not entirely a bad thing. Rich countries’ financial practices haven’t exactly been giving credit a good name lately. Nor have they been setting a good example for their neighbours in terms of how to use credit without destroying everything they were trying to build in the first place. However, there is a case for credit where a new sector needs to expand, and where the equipment that can build the business is in critically short supply.

What I have been discovering is that there is a credit gap where these SMEs are concerned. Ghana’s two credit markets exist at the extreme ends of the scale: if you are a poor rural woman looking for a few dollars to grow your shea butter business, or to buy soap to sell in the market, you are in luck. Some microcredit scheme will lend you $50 and charge you 50% interest on it. Alternately, if you are a Big Man on the local scene, with a long-established business and political connections, you will be able to get a bank loan, which will run you about 40% interest and which you will inevitably have to pay back within a year or 18 months. Loans for longer than a year are almost unheard of in Ghana.

So these small businesses, being a new sector, run by young entrepreneurs who don’t have a lot of collateral yet, are out of luck. I interviewed a café owner this week who had been on a fruitless search for a loan to replace his ancient computers all year. Having tried the larger banks and been refused, he went to his local smaller-scale savings and loan company (not a loan shark but a registered bank) asking for 1,500 cedis (about US$1,000). He was quoted – get this – an interest rate of 48%, and a loan period of just one year. The bank also told him they would only give him access to 1,100 of the amount, and would ‘bank’ the rest for him. Meanwhile, although they were holding onto nearly a third of the amount, they would be charging him interest on the full 1,500. Understandably, he said no. Banks tend to ask for the deeds of people’s houses and the papers for their cars when they take out a loan, and bank managers have good political connections so that if they decide to take your house, there’s probably not much you can do about it.

Credit cards, which might elsewhere act as a stopgap when businesses have to expand, are unavailable to all but the richest Ghanaians. Tim Little has covered the credit card issue in his blog: http://timjlittle.wordpress.com/2009/05/05/a-challenge-to-geeks-and-bankers/. He demonstrates why café owners, who deal almost entirely in hardware and software that is only available overseas, cannot buy anything from outside Ghana. When we need antivirus software or a accounting software, we go online. When Ghanaian businesses need those things, they go open source. It’s an open secret that Microsoft Office 2003 is effectively open source software in Ghana, since enough people have copied it from the few imported CDs that were available that is can now be shared for free. This is not because they are bad people who want to pirate software, it’s because even if they want to buy it, they can’t.

So what are they doing instead? Well, the reason I am a migration researcher surveying internet cafes is that they fill the gap with inputs from overseas. Family and friends abroad send computers directly, or bring them in person. Small items such as USB sticks are ‘imported’ in people’s luggage when they come home for a holiday. I personally helped re-equip a friend’s café when a surge from the electric grid blew up his routers and switches – I brought in 26 kilos of electronics in my luggage after a trip home, because they were so exorbitantly priced and impossible to get hold of here that it was quicker just to buy them in London and fly them in personally. So migration is a mainstay of these small IT businesses.

Of course, the only thing that’s harder for a small-scale entrepreneur to get than credit, is a visa. But that’s a story for another time.

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One comment

  1. Zenobia · · Reply

    Hello Lynette,

    I am about to follow in the trail you have blazed so let me thank you sincerely for this vital informaiton, your journey and your work to Ghana. I hope to get in contact with you and share my journey as well. THere is so much to tell that this comment block will not hold, but in short I am a female Software QA Engineer, with a degree in network communication who is an advocate in promoting technology to females domestically and globally to developing nations. My hope is to do so in Ghana. I am a US citizent residing in Atlanta Georgia. I know I will be relying on the information you have documented in your travels. THank you again and I hope to hear from you.

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