Can Ghana’s informal sector spur growth?

Many believed that informal economy in urban Ghana is inferior and inhibits economic development. However difficult economic situations in that country which produces oil, gold, cocoa, among other natural resources are yet to break the back of informal sector operators.

Their contribution to the gross domestic product (GDP) of Ghana is hovering over 42 per cent, and the sector’s potential for poverty reduction is greater, according to economists.

Estimates are that the informal economy in the West African second largest economy is worth over US$10 billion a year, while it worth about US$10 trillion per year globally, Robert Neuwirth, an expect of informal economy says.

In the major cities of Ghana, the bustling, hyper-entrepreneurial environment where almost everybody is doing business without oversight or support is evident of a booming informal sector, Emmanuel Mensah, a development economist adds.

“Over 80 per cent of the workforce is part of the informal economy, and that runs the gamut from people selling vegetables at the side of the road to major corporations like mobile phone companies that do all of their business through informal kiosks that are stands at the side of the road”. “It’s huge”, he states.

The Ghana Statistical Service estimates that 86.1 per cent of all employment is found in the informal economy. 90.9 per cent of women and 81 per cent of men are working in the country’s uncontrolled, regulated or standardised informal sector.

The informal economy in Ghana is about two-thirds the size of its formal economy. It is largely composed of people distributing goods from other countries — rather than producing their own marketable goods.

The electronics market in Accra and Kumasi is now a multimillion-dollar industry. Sellers import their cellphones and other products from China, and have scaled their businesses up as the markets improve.

Furthermore, across the major regional capitals in Ghana, including Accra, Kumasi, Takoradi, Cape Coast, and Tamale, trading and artisanship are common professions.

They are often stigmatised as unskilled or illiterate groups of individuals, who do not keep records of their goods. International business discourse also identifies such individuals as survivalists and non-inventors with little entrepreneurial culture, working in informal urban markets.

*Categories *

Street vendors in the Central Business District of Accra; push-cart vendors at Mallam Atta Market; commercial motorcycle operators known as (“okada” operators) around the Kwame Nkrumah Circle area; commercial drivers in Accra; garbage collectors in Kumasi; and roadside barbers in Tamale are defying the current economic challenges to grow their businesses.

While those who work on the streets or in the open air is the most visible informal workers. Other informal workers are engaged in small shops and workshops that repair bicycles and motorcycles; recycle scrap metal; make furniture and metal parts; tan leather and stitch shoes; weave, dye, and print cloth; polish diamonds and other gems; make and embroider garments; sort and sell cloth, paper, and metal waste; and more. The least visible informal workers, the majority of them women, work from their homes.

They include: garment workers in Tema; block factory workers at Ashaiman; shoemakers and Kente weavers in Kumasi; smock weaving and basketry in Tamale and Bolgatanga respectively.

Other categories of work that tend to be informal in Ghana include: casual workers in restaurants and hotels; subcontracted janitors and security guards; day labourers in construction and agriculture; piece-rate workers in sweatshops; and temporary office helpers or off-site data processors.

*Level of earnings differ *

Conditions of work and the level of earnings differ markedly among those who scavenge on the streets for rags and paper, those who produce garments on a subcontract from their homes, those who sell goods on the streets, and those who work as temporary data processors. Even within Ghana, the informal economy is highly segmented by sector of the economy, place of work, and status of employment and, within these segments, by social group and gender.

But those who work informally have one thing in common: they lack legal and social protection. Nonetheless, business exchanges in these informal urban markets are an integral part of social and economic development in Ghana.

These markets have retained and continue to retain traditional Ghanaian norms and values of community and individual agency, which date back to Ghanaian indigenous market concepts.

*Growth engine for economic transformation*

The informal sector, according to development economists is widely seen as the growth engine for internally driven economic transformation.

Considering that less than 14% of employment is generated in the formal and public sector, it is obvious that most of the jobs that will be needed to satisfy the labor market in the future have to be created inside the informal economy due to internal migration processes, most of them in urban areas.

These migrants come from different parts of the country, they move due to unsatisfactory jobs, extreme poverty, peer influence, misinformation, lack of recreational facilities, unhealthy traditional practices, among others.

The migrants, in the city, resort to menial jobs such as shoe-repairing (shoe-shine), driving, lorry conducting (mate), rubbish collection, scrap and discarded bottle collection, street selling, luggage carrying and many others.

Samira Amira, a boutique owner at Adabraka, a suburb of Accra observes that despite the slow of the national economy, economic activities at the informal sector have started picking up.

“Sales are now getting better because customers are coming into the shop to buy new clothes. The market was not good during this period of the year”.

John Opoku, an economic analyst says: “There is no way to dismiss that as unimportant economic development and important to people’s economic survival. But it is important to come up with systematic approaches to systems like infrastructure, because those are the ones that are going to determine whether there is going to be more sustained production in Ghana as opposed to distribution.”

For Ghana to have its own production system, he adds the country would have to improve its infrastructure and electrical grid. But that does not mean those who rely on the informal economy would be forced out.

He indicates that Ghanaians are now traveling in droves to China in order to produce the products they sell back home.

Guangzhou, a city in southern China, is one of the key trading points in the region. “When you go to the train station in Guangzhou, you feel like you are in Africa because there is so many Africans located there,” he says. “It is become the world’s trading point for manufactured goods, and the Africans have embedded themselves in society there in very direct ways, and there’s a huge back channel of trade in China and Africa. … It’s tremendously vibrant and tremendously exciting.”

Meanwhile the Ghanaian economy faces major difficulties such as growing inflation, the devaluation of the Cedi, falling commodity prices, growing debt and dwindling manufacturing and agric sectors.

In spite of these challenges Ghana and other countries in *Africa still remain one of the preferred frontiers for investment opportunities and doing business, according to a report released by PwC Africa. Growth and foreign direct investment has continued in Africa amid the recent global economic uncertainty.

* This is confirmed by PwC’s *Africa Business Agenda* survey, which shows that Africa and the emerging markets remain a vital growth opportunity for CEOs.

The latest *Africa Business Agenda* compiles results from 153 CEOs and includes insights from business and public sector leaders from across Africa.

Hein Boegman, CEO for PwC Africa, said: “CEOs in Africa are ramping up their efforts to innovate and find new ways to do business on the continent in a move to stimulate growth in a challenging and uncertain global business environment.

“The global financial and economic crisis has revealed Africa’s vulnerability to a number of external economic shocks. These include the decline in commodity prices fuelled by the economic slowdown in China; a marked decline in the demand for commodities; and the collapse in value of the emerging market currencies against the US-dollar in anticipation of an interest rate hike.

“Notwithstanding a multitude of challenges, many of which are cyclical, we remain confident that Africa’s prospects remain positive. Africa’s business leaders have the opportunity to pursue new business opportunities on the continent, more particularly in the light of rapid innovative and technological advances that have the potential to transform and shape industries.”

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