The World Bank's Global Competitiveness 2008 report touts Ghana as the best reforming-economy south of the Sahara, and one of the world's top ten reformers. Ghana has been seriously reforming its economy for the past three years.

The expected outcome of this development is an emergent vibrant private business sector, especially at the small and micro-levels, as well as 'big money' direct foreign investments (FDIs).

The good news is that the Ghana Investment Promotion Centre (GIPC), for the past couple of years, has recorded rising trends in both the number and value of FDI projects. In 2007, the Centre registered 305 new projects with an estimated value of US$5.67 billion, compared to 238 projects valued at US$2.36 billion in 2006 and 212 and projects with a total estimated value of US$201 million in 2005.

The bad news, however, is that we are not seeing a corresponding increase in the number of local start-ups, much less an improvement in the survival rate of the few local small and micro enterprises that register to operate formally. And, dishearteningly, there is no serious official attempt at tracking the performance and survival rate of local business start-ups, in the country.

The danger here is not easily obvious.

In any case, don't be fooled by any official rhetoric about a vibrant indigenous private sector. Even the well-resourced GIPC is not effectively monitoring and evaluating the performance of the FDIs to establish their impact on the real economy with regards to their actual employment generation, for example, as against what is estimated in their official records.

Obviously, something other than the issues used in assessing the cost of doing business in Ghana by the World Bank may account for the dismal performance of the country's formal sector business start-ups.

Dominating informal sector

As high a proportion as 80 percent of Ghana's total labour force is estimated to operate in the country's informal sector, giving an indication of the overwhelming size of the sector.

The advantages of operating in the sector are obviously tremendous. Start-up capital is comparatively low, in that there is minimal investment in any permanent structure from which to operate; no costs incurred in terms of business registration; no costs from adherence to quality and standard requirements; lower utilities costs; lower costs arising from a greater ability to escape the tax net and official harassment; as well as low marketing costs.

Such low costs make it easier for the informal sector to compete effectively on price against the formal sector - thereby undermining the latter's market share and profitability.

To make the point clearer, take for example an entrepreneur establishing a 20-seater restaurant that serves both local dishes and fast food in a good location like the Abbosey-Okai business enclave.

Rental of an operating base can range between GH¢2,000 and GH¢3,000 per annum. Cost of equipment such as stoves, refrigerators, cooking and eating utensils, furniture and other items, plus the cost of setting up the place and all other sunken costs could swell the initial capital outlay to a cool conservative figure of GH¢10,000. Adding operational costs (wages, cost of supplies, utilities, taxes, official harassment costs, etc.), the entrepreneur must necessarily make a minimum sale of about GH¢300 daily, for a six-day working week, to achieve a financial break-even in a year.

That translates into 120 patrons daily, for a GH¢2.50 meal. A tall order, as most local restaurateurs will tell you - and you may be encouraged to charge VAT, which invariably inflates the price of a meal.

Why is it a tall order?

Within a 500-metre radius of your restaurant, there could be as many as 10 to 15 informal sector operators selling each item on your menu - that is 10-15 banku sellers, an equal number for fufu, not counting the numerous check-check fried rice vendors all offering their plates some 40 percent less than yours.

This scenario is true for all traders, be they retailers of manufactured items like canned foods, or electric and electronic consumables. Informal sector street-hawkers peddle anything and everything. Auto mechanics, boutique operators, and barber-shop operators are all not free from this unhealthy competition.

Little wonder that the informal sector is so overwhelmingly dominating our economy.

Official corruption

You would think that at least, institutions and agencies of state empowered to regulate business operations in the country (the metropolitan and municipal authorities, the revenue agencies, the quality and standard agencies etc) would work to ensure that, increasingly, an even playing field is established that would encourage many more informal sector operators to migrate to the formal sector.

Contrarily, however, it can be authoritatively established that some of their activities compound the problem.

While their operatives in the field treat informal sector operators with kid-gloves, they are hard on the formal sector operators; probably because, as some formal sector operators allege, it is easier and safer for the public officials to run a 'protection racket' for the informal sector than the formal.

Otherwise, what could be the rationale for allowing the roadside food vendor who flouts all the rules on business location, hygiene, tax etc. to operate, while the restaurateur's operations are disrupted when his premises are padlocked by Internal Revenue Officials (IRS) officials for not meeting his tax obligations for the past six months.

It may not be obvious yet, but as we by our conduct condemn Ghanaian entrepreneurs to operate more in the informal sector - since we do not institute and enforce measures that would make it more beneficial for our people to formalise their businesses - and as a greedy few benefit from harassing our people who want to do business in an open and transparent manner, we will wake up to find that the high-value end of our economy is controlled by foreigners while we peddle their manufactures in the streets.

We will only have ourselves to blame.



Credit: Emmanuel Kwablah [emmanuel@bftghanaonline.com
Source: B&FT