A brief snapshot of entrepreneurship in Ghana

Source: AFDB GHANA

Ghana demonstrates a high level of entrepreneurial activity. Almost half (49.2%) of all people employed in Ghana (15 years and above) own their own businesses.[1]

MSMEs dominate the entrepreneurial space and play an important role in the country’s economic development. MSMEs are recognized as an integral part of the Ghanaian economy: They constitute about 92% of businesses in Ghana, employ more than 80% of the workforce and contribute about 70% of GDP[2]. They further dominate the industrial landscape of the country, with the manufacturing sector being the most prominent sector in which MSMEs are active (MSMEs account for 85% of manufacturing employment). The second key sector for MSME activity in Ghana is the retail sector. While manufacturing is prominent in both rural and urban areas, retailing is more prevalent in urban and peri-urban areas.[3] Furthermore, according to the National MSME Policy, the sector provides employment to vulnerable groups, including women, youth, and low-skilled workers. As such, the government has identified MSMEs as the means through which its industrial transformation agenda and other development goals can be realised. [4]

Most entrepreneurs in Ghana, though, tend to be ‘necessity driven’, operating informally in the form of one-person businesses in the street or at home.^[5] As in many African countries, the economic situation in Ghana leads many people to see entrepreneurship as the only way to generate an income.

Nevertheless, ‘opportunity-driven’ entrepreneurs make positive contributions to employment in the country. Research has shown that 71% of ventures established by ‘opportunity-driven’ entrepreneurs create jobs, employing an average of 8.4 full-time employees.[6]

Start-ups are highly concentrated in two main areas, Accra and Kumasi. Ghana’s most important start-up hub is in the capital city Accra. Based on data collected on 522 registered ventures that are based in Ghana, 70% of them are in the greater Accra region. The second-most important hub is located in the greater Kumasi area.[7] The least entrepreneurial activity is observed in the eastern and western regions of the country.[8]

This may be due to the growing start-up ecosystem, which is also concentrated in Accra and Kumasi. Ghana’s start-up ecosystem includes about 200 organisations, with the majority of them located in Accra and Kumasi.[9] In general, Ghana’s start-up ecosystem is relatively robust and developed in comparison with the rest of Africa. Increased foreign investments and entrepreneurship support have made some of the country’s start-ups highly competitive. Outside of Nigeria, Ghana is the top destination for foreign direct investment in Western Africa (Ghana accounts for 31.5% of total FDI cashflows).[10]Additionally, Ghana’s high adoption of internet bandwidth and significant mobile penetration in the country has prepared the market for online-driven companies.[11]

Most formal start-ups in Ghana can be found in the ICT sector. Services or products related to the ICT sector are offered by 34% of the country’s start-ups, followed by the agribusiness sector and the manufacturing and construction sectors. A far more limited interest for start-ups is observed in Ghana’s healthcare, and water and sanitation sectors.[12]

Ghana is home to an impressively high percentage of women business owners. The Mastercard Index of Women Entrepreneurs (MIWE) from 2018, which compares 57 countries across five geographic regions, found that Ghana had the highest percentage of women business owners, at 46.4%.[13] By sector, women tend to be more often self-employed in non-agricultural sectors than their male counterparts.[14] Studies have also found that female entrepreneurs in Ghana are more often motivated by ‘push’ factors to start a business than men – due, for example, to unemployment and financial challenges. Therefore, women entrepreneurship in Ghana can be characterised as being driven more by necessity than opportunity.[15]^,[16]

Box 4: Transition analysis

The majority of workers in Ghana are employed in the informal economy, primarily due to a lack of jobs in the formal sector. The GLSS 7 report published in June 2019 indicated that 71.3% of the total working population are in the informal sector. One reason for this is that the formal sector (both public and private) does not generate a sufficient number of jobs.[17],^[18] The GLSS 7 report indicates that the likelihood of working in the informal sector is slightly greater among men than women (72.8% vs 68.3%).[19]

Informal businesses in Ghana often lack growth potential, trapping employees in low paying jobs. Key consequences of informal employment include less and irregular income in addition to an overall lack of social security due to limited access to basic social protections, pension schemes, and other services provided by the state.[20] Informal businesses in Ghana are also hampered in their ability to grow due to factors such as a lack of available resources, insufficient business viability and a dearth of proper government regulation.[21]

Challenges of transition from the informal to the formal sectors of the Ghanaian economy

Ghanaians encounter diverse challenges when transitioning from the informal to the formal sector. A key challenge relates to the bureaucratic and time-consuming process of formalising a business. While business registration is broadly uncomplicated in Ghana (eg with relatively low registration costs and low taxes) challenges that do occur tend to be related to access to information and documentation.[22] Furthermore, the time required to start a business in Ghana, at 13 days, is relatively long compared to other countries, such as Togo, Nigeria, and Mali.

Additional challenges when transitioning from the informal to the formal sector are related to high taxes[23], the inability of the formal sector to absorb workers from the informal sector[24], a lack of access to collateral[25], and lack of mentorship by experienced entrepreneurs.[26]

Opportunities and government support for transition

The Ghanaian government acknowledges the formalisation of the informal economy as an important medium-term goal to improve economic performance.

Thus, efforts are underway to ease the process of formalising a business from the informal sector. In the future, for example, business registration certificates will be available electronically, which will help reduce business registration from the current eight steps within 13 days to three steps within four days.[27] The government has also merged all four business registration forms[28], making the process less time-consuming.[29]

Improving financial inclusion is high on Ghana’s priority list and should facilitate the formalisation process. The Ministry of Trade and Industry strategy aims at the rapid and sustainable expansion of financial inclusion through deepening the reach of financial services, developing financial literacy, increasing access to finance (particularly in rural areas), and bolstering the financial protection of consumers.[30] For example, the government has introduced mobile money interoperability to facilitate the informal sector’s access to banking services, with the view to reducing unregulated and informal business operations in the country.[31]

The government has launched some institutions to assist the transfer of informal sector activity to the formal sector. These include the 2010 establishment of the National Committee on the Informal Economy (NCIE), which has been tasked with designing policies and interventions in support of the informal sector. The National Board for Small Scale Industries (NBSSI) was also established to promote micro- and small-enterprises (MSEs), many of which are informal. Moreover, the government has endorsed a large, private apprenticeship programme and a national network of banks and microfinance institutions (MFIs) that serve the needs of both the formal and informal sectors. It has facilitated the establishment of national and local level associations, which advocate for informal enterprises with local and national governments[32].