A large number of small and medium-sized businesses remain informal not by choice but because their efforts to transition into the formal sector are frustrated by delays on the part of permits, licences and certificates issuing agencies.
These delays, in turn, to lead to corruption and high cost of formalisation, and because most small businesses, particularly locally owned ones, do not have the financial muscle to pay for the extra cost, they prefer to remain informal.
“For example, because of delays, you have to pay bribes and this adds up to the cost, so it makes the cost of setting up very expensive and we know that not everybody can afford to pay that extra amount to get a permit or licence. Invariably, if businesses cannot find the money to formalise, they will remain in the informal sector and it’s one of the reasons our informal sector is quite huge as compared to the formal sector,” said Clara Kasser-Tee, a legal practitioner.
Mrs. Kasser-Tee who is currently working as a consultant with the Private Enterprises Federation (PEF) on a project which seeks to help public permit, licence and certificate issuing bodies, including the Land Commission Ghana Standard Authority, Food and Drugs Authority, to implement up-to-date and workable service delivery charters, blame the inefficiencies on the absence of service charters – a public document that sets out basic information on the services provided, the standards of service that costumers can expect from an organisation.
“The impact of not having service charters has a trickle effect. It results in delays and the delays will trigger frustration that also triggers corruption,” she said, adding: “It results in lack of information and you know that when people are not informed, you can easily take advantage of them: people working in these agencies can extort money from them.”
Impact of delays on business success and ease of doing business
According to the Business Development Ministry, 75 percent of businesses in Ghana fail within the first three years and those that exceed three years do not go beyond 10 years of operation.
This, Mrs. Kasser-Tee noted, is partly due to the frustration that start-ups and small businesses face in their bid to obtain the requisite licences, permits and certificates when they are setting up or when they want to formalise their operations.
“It is usually Ghanaian businesses that suffer the most because they do not have the extra capital to go around bribing. So at the end of the day, they are not able to formalise, they are out of protection, and then eventually they lose out: it’s one of the reasons more than 70 percent of start-ups fail in this country,” she lamented.
Meanwhile, on the impact of the delays on ease of doing business, she said it has the tendency to erode gains made towards making Ghana the most business-friendly economy in West Africa.
She, however, noted that helping public agencies to implement service charters remains crucial. “It won’t just improve the ease of doing business, it will improve public perception of corruption and will also result in a change of mindset. We have looked at other jurisdictions and its one of the critical ways to be able to revolutionise the provision of service within the public sector.”
To her, implementation of practical service delivery charters that are consistent with 21st-century business development is key, but to do this, she said there must be laws to compel permit, licence and certificate issuing entities to be responsive to the requirements of the private sector.
“To begin with, there is no law compelling them to implement it which then means that, whether they implement it or not, depends on the leadership at the time. The second point is whether they have funding to implement it, so these are the two key things.
The private sector knows the problems but somebody else is delivering the services; they don’t have control over the employees in the public sector. And I won’t be surprised if quite a number of employees in some of the agencies don’t even know what a service delivery charter is,” she explained.v