By Isaac FRIMPONG (Ph.D.)
· Why 80% of workers generate just 27% of GDP
· Pathways to inclusive growth
Ghana’s 2025 budget has introduced ambitious revenue targets and policy reforms aimed at stabilising the economy. While these measures are important, their effect on the Ghanaian population will take time to materialise.
However, these reforms risk sidelining the informal economy, a wide network of unregistered traders, artisans, and microentrepreneurs that employs most Ghanaians. A staggering 80 percent of the workforce operates in this economy, yet it contributes just 27 percent to the GDP.
This reveals a stark divide: a small, highly productive formal sector drives most of Ghana’s growth, while the vast informal economy remains largely untapped.
This raises a crucial question: Why does the majority of Ghana’s workforce generate such a small share of economic output? Is this gap due to inefficiency, barriers to formalisation, or deeper structural imbalances? Unlocking this potential is not just an economic opportunity but a necessity for sustainable development.
Consider Adwoa, a market trader in Accra. She wakes up before dawn to buy fresh tomatoes and sells them throughout the day. Yet, despite her tireless efforts, her profits are eroded by informal loans with exorbitant interest rates and the lack of refrigeration to preserve unsold stock.
Meanwhile, a formal sector tomato processing company in Tema, employing far fewer people, generates millions through exports. The difference? Access to finance, technology, and formal markets.
Her story illustrates a nationwide issue: effort alone does not drive economic success; resources, structure, and opportunity matter. This article examines the roots of Ghana’s productivity divide and proposes actionable solutions to transform the informal economy into an engine of inclusive growth.
Diagnosing the Imbalance
Despite employing the vast majority of Ghanaians, the informal economy remains trapped in low-value activities. This imbalance stems from:
● Low-Value Activities Dominate
The dominance of low-value activities, as seen in Adwoa’s daily struggles, shows why hard work alone is not enough to drive prosperity. Most informal workers engage in subsistence-level activities such as street vending, small-scale farming, and artisanal trades. Like Adwoa, who battles debt and spoilage, millions of informal workers lack the capital, technology, and market access to scale their businesses.
These enterprises, often rooted in Ghana’s colonial cash crop economy, struggle to grow due to structural barriers. For instance, a street vendor selling yams in Kumasi earns far less than an agribusiness that processes and exports yam flour. The difference? The latter benefits from financing, machinery, and structured market linkages. Without strategic support, these microbusinesses remain trapped in a cycle of low productivity.
● Barriers to Formalisation
Complex business registration processes, high fees, and complicated tax structures discourage informal workers from transitioning to the formal economy. The existing regulatory framework, designed for large firms, inadvertently excludes smaller businesses. For example, Ghana’s pension system prioritises pay-as-you-earn employees, leaving informal workers unprotected. Many avoid formalisation due to fear of excessive taxes and bureaucracy.
● Sectoral Disparities
The most productive industries, such as mining, telecommunications, and finance, employ just 20 percent of the workforce yet generate 73 percent of the GDP. In contrast, the majority of workers (80 percent) are engaged in low-value activities. This imbalance exists because 74 percent of Ghana’s workforce has limited education: 20 percent with no formal education and 54 percent with only junior high school education, limiting their ability to transition into higher-value industries. These systematic gaps demand reforms in the following key areas.
Action Points
To bridge the productivity gap, Ghana must implement targeted interventions rather than broad, ineffective policies. The 2025 budget rightly acknowledges the need for inclusive economic reforms, but the focus must shift to execution.
1. Streamline Formalisation Processes
- Introduce low-cost business registration and tax holidays for microenterprises transitioning to the formal sector.
- Incorporate traditional business models into formalisation strategies to ease compliance.
- Launch public awareness campaigns to debunk fears surrounding formalisation.
2. Expand Access to Finance and Technology
- Partner with fintech firms to provide microloans and digital payment platforms for informal traders.
- Subsidise technology adoption, such as mobile apps for market pricing and modern farming tools, to boost productivity.
3. Upgrade High-Potential Informal Subsectors
- Identify and invest in scalable informal activities such as agro-processing, handicrafts, and renewable energy, which have lower entry barriers but high potential for growth.
- Provide training for artisanal miners in sustainable techniques to facilitate growth and formalisation.
- Connect small-scale producers to formal markets via partnerships with supermarkets, exporters, and e-commerce platforms.
4. Targeted Skill Development
- Prioritise vocational training for informal workers to equip them with industry-relevant skills to improve employability.
- Offer tax incentives for large companies in productive sectors to integrate informal workers into value chains through apprenticeship programmes and micro-supplier contracts.
Conclusion: A Workforce Waiting to Be Unlocked
Ghana’s informal sector is not a problem to be solved but an opportunity to be harnessed. The 2025 budget outlines some steps toward inclusive growth, but the focus must now turn to execution. Investing in finance, technology, and education can transform the informal economy into a powerhouse of economic productivity.
However, success requires balancing efficiency with inclusivity. Growth must benefit the entire workforce, particularly women-led microenterprises (supported by Ghana’s proposed Women’s Bank), subsistence farmers transitioning to commercial production and small traders gaining access to structured markets. The informal economy is Ghana’s sleeping giant; if awakened through smart, targeted policies, it can drive national prosperity.
The author is a Researcher and Consultant
