Entrepreneurship has been a major contributor to the gross domestic product (GDP), employment generation and innovation in Ghana. The International Trade Center (ITC) reported in the 2016 SME Competitiveness in Ghana that small businesses represent about 85% of businesses and contribute about 70% of Ghana’s gross domestic product (GDP).
The report further indicated that they account for 50% of all full-time employment in the formal sector, with the percentage likely much higher in the informal sector.
However, the entrepreneurial sector continues to face various challenges. Some of these identified challenges include, high cost of funding, inadequate capacity to access capital, such as inability to meet collateral requirement, inadequate business competences, poor legal and regulatory framework such as high cost of registration and licensing fees, high taxes, and operations levies.
For instance, the World Bank Report on Doing Business for 2020 indicated that the average cost of starting business in Ghana is USD 125.46 whiles it only cost USD 56.51 and USD 32.32 in Togo and Benin respectively. For those in Rwanda, registering a new business is free and small businesses are exempted from all fees for a period of 2 years.
In addition, the Global Impact Investing Network (GIIN) reported, in 2016, that the flow of impact investment into Ghana has been limited because of poor quality deal flow. The report further indicated that, unfortunately, there are few accelerators and incubators available to help such ventures to become investment ready.
Access to market is also a major hurdle for small businesses as they are crowded of the market by influx of foreign goods. Cost of production is high for local businesses which makes it difficult to compete with foreign competitors. Even though, according to Konfidants, Made-in-Ghana continues to improve on product quality, appearance, and pricing. Also, long payment periods continue to be a major disincentive for local businesses.
Big supermarkets, mostly foreign investment, who are willing to provide shelve space for entrepreneurs to reach the consumer, takes several weeks and months to pay. Whiles long payment periods are a common practice for supermarkets, in Ghana, it can be financially stressful for small businesses, especially startups, that supply products to big retailers.
Notwithstanding these challenges, government has been implementing various programmes and initiatives to promote entrepreneurship development and growth. These include the National Entrepreneurship and Innovation Programme (NEIP), established to promote entrepreneurship among the youth to create jobs, increase income and reduce poverty. As of 2020, NEIP had supported 4350 businesses. The Presidential Pitch is another initiative to assist startups to nurture their ideas and improve livelihoods.
According to the 2020 Budget Statement, 10 startups were supported with Gh¢1.0 million in July 2020. The Accra Digital Centre has also been established to support startups to nurture their ideas into product and services. The government through the defunct Ministry of Business Development launched other initiatives such as the Regional Incubation Hubs – to provide training and business advisory services to MSME and entrepreneurs; the School Entrepreneurship Initiatives (SEI) to inculcate entrepreneurial mind-set and encourage interest in entrepreneurship in Senior High Schools.
The COVID-19 pandemic that hit the entire world in the later part of 2019 had a major impact on businesses and households. It distorted economic activities, resulting in loss of income for businesses. To provide relief to mitigate the effect of the COVID-19 pandemic on MSMEs, Government lunched the GHS600 million Coronavirus Alleviation Programme Business Support Scheme (CAP-BuSS) and disbursed about GHS520 million to support 299,490 businesses. Technical support, the form of training in Entrepreneurship and Financial Management was also provided to 15,748 beneficiaries across Ghana.
Through the 2021 budget, various policies and programmes were introduced to provide additional reliefs for businesses. Including tax rebate of 30% on income tax due for second, third and fourth quarters of 2021 for businesses in hospitality, education, arts and entertainment sectors. In addition, the GhanaCARES (OBAATAN PA) Programme was launched to reduce the impact of COVID-19 on businesses. The NBSSI was transformed into Ghana Enterprise Agency (GEA) to develop MSMEs and entrepreneurship.
These initiatives have contributed to the development and growth of entrepreneurship in Ghana. However, the challenges facing the entrepreneurial sector is far from resolution. Rather, these challenges are expected to increase with a lot more youth venturing into entrepreneurship, as a response to the recent advice from the Minister of Finance to graduates to venture into entrepreneurship because there is no space on government payroll to accommodate them.
Government, therefore, is expected to develop additional pragmatic measures, through the 2022 budget, to consolidate past gains and ensure the environment is continuously enabled for entrepreneurial development and growth. Below are recommended strategies for government consideration.
Introduction of tax reforms and incentives
The budget should provide fiscal policies to introduce tax reforms and incentives for startups and create environment to attract and protect investors without materially affecting domestic revenue generation. For instance, reduce or subside the cost of business registration fees and exempted from licensing and operating fees for startups for at least two (2) years.
Like the tax rebate for companies that employs fresh graduates, introduce a tax rebate for financial institutions that provide a percentage of their investment portfolios to startups, for example, a 10% portfolio to startups for 5% tax discount on profit. And just as its practiced in the UK, there should be a policy to allow investors to deduct 50% or more of investment into startups from their income tax, pay no capital gains on any appreciation. Where such investment fails, the investor should be allowed to deduct part or all the loss from their tax bill.
Support for accelerators and incubators
Accelerators and incubators are playing significant role to develop and improve startup’s ability to access financing. However, there has been little effort from government to support them. The 2022 budget should seek to support incubators and accelerators to enable them to develop more early stages startups.
The attention of NEIP and GEA should be directed to create incubators in tertiary schools to support entrepreneurial education. In addition, state sponsored financial institution such as MASLOC, GEA and the GEXIM Bank should be directed to provide financial support to these incubators and accelerator for onward investment into viable early-stages startups.
This will enable their development and sustainability and prepared them to be attractive to investors. The GIPC should be directed to partner accelerators to identify investment ready startups and promote them for investment. Such actions will not only ensure the growth of startups but increase FDIs, create employment and increase GDP.
A ‘Fund’ for entrepreneurship financing
There have been calls from stakeholders to establish a “Startup Fund” to provide financing to startups. In response, the government, in the 2021 mid-year policy review, promised an introduction of a YouBanC initiative to provide financial and advisory support to entrepreneurs. In October 2021, Deputy Minister John Kumah, also hinted the GEA and NEIP may be the implementing arm of the YouBanC.
The Government should use the 2022 budget to provide the road map for the implementation of the programme. The government can consider transforming the NEIP into a “Fund”, named StartupFund, YouFund, under the YoubanC programme to focus on early-stage innovation financing and provide equity, debt and quasi-debt to startup or high growth small businesses which may otherwise not be able to access bank financing.
The “Fund”, by a parliamentary instrument, can be funded through levies on high earning enterprises. The likes of GEXIM Bank, Ghana Infrastructure Investment Fund (GIIF) and the Development Bank Ghana (DBG) may be directed to provide the seed capital for the Fund. In addition, the government can also seek support from the World Bank’s Innovation and Inclusive Finance Project.
Inclusion of Startups into National Action Plan for AfCFTA
The of trading under the African Continental Free Trade Area (AfCFTA) has made it a reality, the single continental market for goods and services in Africa. The government, in the 2021 mid-year fiscal review, announced the development of a comprehensive National Action Plan to harness the benefits of AfCFTA. Under which an Enterprise Support Programme has been initiated to assist 100 medium-to-large scale companies to export to the AfCFTA Market. The programme should be extended to integrate additional 100 micro to small businesses to also benefit the youth who are into entrepreneurship.
Establishment of an Entrepreneurship Hub
It is worth to note government aggressive drive to position Ghana as a strategic hub in West Africa. Significant amongst them include; the Aviation and Port, Petroleum, Financial Services, Film and Content, etc. The 2022 fiscal policy should consider the entrepreneurial sector as a significant environment under the Ghana Regional Hub Agenda.
Countries like Rwanda has taken the initiative to partner with Sweden’s Norrsken Foundation – a co-working space and investment fund based in Stockholm – to open what has become Africa’s largest startup called Norrsken East Africa campus in Kigali. The government should commit resources and partner with such global bodies to convert the Accra Digital Center into a similar world class establishment that will integrate local accelerators and incubator to develop unicorn startups such as the Ziplines and ZeePay.
In conclusion, entrepreneurship has been a major contributor in terms of job creation, poverty reduction and GDP growth. The Minister call to the youth and graduates venture into entrepreneurship is a right call. However, the government should show tangible commitment to create an enabling environment for startups to grow and the 2022 budget should be used to push for an exponential development and growth for entrepreneurship.
The writer is a Chartered Accountant (ICAG) and an MBA holder from the University of Warwick Business School in the United Kingdom. A Staff of Ghana Export Import Bank and a freelance entrepreneurship trainer. I have been assisting businesses to develop proposals to raise funding and improve their financial management. My research interest include entrepreneurship and small business development. I can further be reached on the mobile number 050 8887688 or email at firstname.lastname@example.org.