Like many other African countries, Ghana is still paying dearly for the unfortunate events of the 1970s. These events were generally characterized by chaotic military regimes, unsustainable debt accumulations, and a relentless appetite for state-owned corporations, some of which stemmed from the machinations of the Cold War. The earlier socialist development agenda by Dr. Kwame Nkrumah focused on building and maintaining state-owned companies.
The following measures were also aimed at manufacturing based on import substitution, which in many cases failed due to its heavy dependence on imported raw materials. Some of these state institutions had become burdens on the state because they were not operated efficiently and were therefore unprofitable. They needed constant financial support to survive.
Since the implementation of the structural adjustment and economic stimulus programs in the 1980s, it has been shown that the private sector has not reacted significantly to the government policy intended with donor partners, ie the IMF and the World Bank.
While these programs achieved some major macroeconomic successes, such as controlling inflation and opening up our economy to foreign trade, many microeconomic requirements have largely failed.
Successive governments prior to the fourth republic saw no need to actively encourage private sector expansion. Most of them viewed the private sector as a threat to state power. Evidence of this was the closure of some prominent Ghanaian entrepreneurs. These unfortunate incidents diminish confidence in the private sector. A situation in which entrepreneurs were careful not to expand their business beyond certain levels in order not to attract the attention of certain political actors
Traditionally, economic development goes through three phases. Primary agriculture leads the manufacturing sector, followed by the service sector. Manufacturing is essential as it has the potential to significantly increase employment, improve productivity, and vastly expand the country’s export base.
Unfortunately, Ghana’s history was different when we generally jumped from primary agriculture to the service sector. This has denied us the opportunity to take full advantage of manufacturing. Our service sector accounts for more than 50% of GDP while manufacturing is only around 30%. Agriculture employs more than 50% of our total workforce, but its contribution to GDP is steadily falling to around 17%.
Education creates innovation
Innovation is the key to the birth of entrepreneurial development in any economy. This innovation is driven by the search for men and women (mostly young) who either want to improve existing products and services or develop completely new ones. Education and innovation are positively related, as the logics, patterns and theories that support the innovation process are largely acquired through education and qualification. Unfortunately, over the years, our educational system has mainly focused on social science graduates or courses developed by colonial rulers to prepare them for public service rather than analytical problem solving.
financing the risk.
The challenge of funding entrepreneurial projects in Ghana cannot be emphasized enough. History has shown that it has become very convenient for Ghanaian banks to charge larger spreads (risk premium) over the risk-free interest rates. They attribute this to risk. However, it is confusing why a country like Nigeria (131st) with a higher risk of doing business has lower lending rates than Ghana (118th).
Unfortunately, no entrepreneur in Ghana can sustainably build up a business with an interest loan of 25%, while our colleagues in Kenya pay 11.7%. These loans are short term and mostly require collateral for a three year close, etc. The promise of equity financing is gradually becoming a mirage for the average entrepreneur in Ghana. They are either non-existent or insignificant in driving the industrial growth that Ghana really needs through its entrepreneurs.
Taxes and the tax officer
News of revenue shortfalls from the Ghana Revenue Authority (GRA) doesn’t excite entrepreneurs like me. This is because this news only gives us a signal that tax officials will be tough on us in the following year. GRA officials receive targets from policymakers that need to be raised, even if it means that small businesses are overloaded with discretionary tolls and levies. One would have thought that the GRA would rather publish news about the improved profits of small businesses and how this contributed to the taxes they levied.
History has taught us that state-owned companies are unsustainable in the long run and that private entrepreneurs can help this country grow by creating jobs and helping to eradicate poverty. Our education system, which is essential to equipping our entrepreneurs, urgently needs reform to reflect the realities of the 21st century. The financial sector’s appetite for short-term debt needs to be changed through government incentives, and tax approval requires a new approach, especially for SMEs, to encourage sustainable growth.
Fortunately, the African Continental Free Trade Area (AfCFTA) has the potential for a huge market to support our businesses. However, if we don’t make sure our fundamentals are right, the benefits of AfCFTA can elude us.
The author is a serial entrepreneur, consultant, and philanthropist. He is passionate about developing Africa through aggressive entrepreneurial initiatives. He runs a blog and video series called Consider. www.kcamese.com/consider and can be reached by email: [email protected]