By Richard DENANYOH
Small businesses are the lifeblood of Ghana’s economy, contributing significantly to employment creation, innovation, and local economic development.
According to the Ghana Statistical Service (GSS), small and medium enterprises (SMEs) account for about 92% of businesses in Ghana and contribute approximately 70% of the country’s GDP.
However, the entrepreneurial journey in Ghana is fraught with challenges that hinder many aspiring business owners from achieving success. This article explores these challenges and provides actionable strategies to foster a conducive environment for small business growth in Ghana.
Challenges of Starting a Small Business in Ghana
Limited Access to Finance
One of the most significant barriers faced by entrepreneurs in Ghana is the difficulty in securing funding. According to the Bank of Ghana (2022), interest rates for business loans typically range between 20% and 35%, making borrowing costly for many small businesses.
Furthermore, only 22% of SMEs have access to formal credit, with the remainder relying on personal savings or informal lending sources. Microfinance institutions, though widespread, often charge interest rates as high as 60%, exacerbating the financial burden on small businesses.
Regulatory and Bureaucratic Hurdles
Ghana’s regulatory environment can be daunting for small business owners. For example, the World Bank’s Ease of Doing Business report (2020) ranked Ghana 118th out of 190 countries, highlighting challenges in registering businesses, obtaining permits, and paying taxes.
Business registration alone can take several weeks, with fees that are prohibitively high for informal entrepreneurs. The lack of transparency in some regulatory processes adds another layer of complexity, often leading to delays and increased costs.
Inadequate Infrastructure
Unreliable electricity, poor road networks, and limited access to essential utilities significantly increase operational costs for small businesses. According to the World Bank, Ghana experiences an average of 84 hours of power outages per month, costing businesses up to $2.1 billion annually. In rural areas, poor road networks make it difficult for businesses to access markets, resulting in higher transportation costs and limited customer reach.
Market Access and Competition
Small businesses in Ghana often struggle to compete with larger firms and imported goods. For example, Ghana’s domestic poultry industry, which is dominated by small-scale farmers, faces stiff competition from cheaper imported poultry products, which account for nearly 70% of poultry consumption in the country (Ghana Poultry Project, 2021). Limited access to digital marketing tools and platforms further restricts the ability of small businesses to expand their market presence.
Limited Entrepreneurial Skills
Many entrepreneurs in Ghana lack the managerial and technical skills necessary to sustain a successful business. A 2020 survey by the Ghana Enterprises Agency (GEA) revealed that 60% of SME owners identified inadequate skills in financial management, marketing, and business planning as significant challenges. Training programs, while available, are often concentrated in urban areas, leaving rural entrepreneurs underserved.
Lack of Support Systems
Support systems such as mentorship programs, business incubators, and networking opportunities are limited in Ghana. According to the Mastercard Index of Women Entrepreneurs (2022), only 20% of Ghanaian entrepreneurs report access to a mentor or advisor, highlighting a critical gap in support structures. This isolation can leave entrepreneurs without the guidance, connections, and encouragement they need to overcome challenges and grow their businesses.
The Way Forward
Expanding Access to Affordable Financing
Policymakers and financial institutions must collaborate to provide affordable and accessible financing options for small businesses. This can include:
- Government-backed credit guarantee schemes: These schemes can reduce the risk for lenders, encouraging them to extend credit to SMEs. For instance, the Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) has shown promise in supporting agribusinesses.
- Microfinance reform: Regulating microfinance institutions to ensure fair interest rates can reduce the financial burden on small businesses.
- Promotion of savings and loan cooperatives: These cooperatives, particularly in rural areas, can provide low-interest loans to entrepreneurs.
Streamlining Regulatory Processes
Simplifying business registration and licensing procedures can encourage more entrepreneurs to formalize their businesses. For example, the Registrar General’s Department could introduce more digital platforms to facilitate online registration and payments. Transparency measures, such as clear timelines and fee structures, can reduce delays and corruption in regulatory processes.
Investing in Infrastructure Development
The government must prioritize investments in reliable electricity, improved road networks, and access to essential utilities. Public-private partnerships can play a crucial role in addressing these infrastructure deficits, especially in underserved areas. Projects like the One District, One Factory initiative can also help improve industrial infrastructure in rural regions.
Building Entrepreneurial Capacity
Training programs tailored to small business owners should focus on financial literacy, marketing, and business management. Partnerships between government agencies, private institutions, and NGOs can help deliver these programs cost-effectively. For instance, the Young Africa Works initiative by the Mastercard Foundation aims to equip Ghanaian youth with entrepreneurial skills, with a goal of creating 3 million jobs by 2030.
Enhancing Market Access
Initiatives to support small businesses in accessing local and international markets are essential. These can include:
- Trade Fairs and Online Marketplaces: Programs like the Ghana Trade Fair Company’s annual exhibitions and platforms such as Tonaton and Jumia provide opportunities for small businesses to showcase their products.
- Export Development: The Ghana Export Promotion Authority (GEPA) can enhance training and funding for SMEs looking to enter export markets, particularly for non-traditional exports like shea butter and cocoa derivatives.
Strengthening Support Networks
Establishing mentorship programs, business incubators, and entrepreneur networks will help small business owners access guidance and resources. Successful entrepreneurs can serve as mentors, sharing their experiences and providing valuable advice to emerging business owners. Government agencies like the National Entrepreneurship and Innovation Programme (NEIP) can expand these support structures to reach more entrepreneurs nationwide.
Conclusion
Starting a small business in Ghana presents a host of challenges, but with targeted interventions and collaborative efforts, these barriers can be overcome. By expanding access to financing, improving infrastructure, streamlining regulations, and fostering a culture of entrepreneurship, Ghana can create an environment where small businesses thrive. The resilience and ingenuity of Ghanaian entrepreneurs are unmatched, and with the right support systems, they can drive sustainable economic growth and development.
About the Writer
Richard is a freelance writer and the Executive Director of Centre for Small Business Affairs, a non-profit organization whose mission is to provide advocacy, research and capacity-building initiatives that support small businesses and entrepreneurs across Africa, enabling them to thrive in dynamic economic conditions. The writer is also a former Senior Lecturer of Marketing & Entrepreneurship at Sunyani Technical University.
Email: [email protected]
