The dynamics of entrepreneurship to the

Ghanaian Economy
Interestingly, in the middle of the last century, economists predicted the dominance of
large firms. Size was needed to obtain economies of scale, to exploit foreign markets and
to keep abreast with regulations and new opportunities in technology. Indeed, in the
1960s and 1970s, large companies dominated the economy. Since then, the trend has
started to reverse (Audretsch et al, 2002).Today, there is growing evidence of a
significant causal relationship between entrepreneurship, economic growth and poverty
reduction. Small, micro and medium-sized enterprises (SMMEs) are often the backbone
of the private sector in the developing world, creating jobs and providing a tax base for
local government. SMMEs offer the only employment available to millions of poor
people, yet many developing countries have been unable to create and maintain the
favourable environment needed to foster SMMEs development (Bridges.org, 2002).
Entrepreneurship may be defined as the visualisation and realisation of new ideas by
insightful individuals, who are able to use information and mobilise resources to
implement their visions. This view does not require entrepreneurs to be highly skilled in
generating new ideas, but instead emphasises promotion and implementation of radical
change. Although entrepreneurs who excel in this endeavour often are highly creative,
they just as often base their entrepreneurship on the ideas of others. At the same time,
entrepreneurs with original ideas of their own are usually highly motivated to succeed,
but whether they do so depends on the their ability to market their ideas , as well as their
sensitivity and openness to other people's viewpoints. Although some successful
entrepreneurs are also creative inventors, this need not be and often is not the case. Many
inventors, on the other hand, lack the entrepreneurial skills necessary to evaluate and
promote their ideas. The entrepreneur is a visionary activist who excels in the creation of
opportunities and the active handling of risks and uncertainties. He or she initially
increase business risks by searching for new opportunities and experimenting to see if
they are worthwhile. Simultaneously, and later on, entrepreneurs are strongly engaged in
reducing risks, by actively changing prevailing conditions and also changing the rules of
the game. The timing and balancing of risk creation and risk reduction is the hallmark of
a successful entrepreneur (Nystrom, 1995, pp.67-68).This indicates that entrepreneurship
is multi-dimensional and can occur in different contexts, economic or other, and in all
type of organisation. However, this paper focuses on entrepreneurship within a business
context Why is entrepreneurship important for development? The number of poor people
on the planet is increasing exponentially and digital divide statistics show that technology
is exacerbating the problem of inequity, not helping to alleviate it. There are now 1.2
billion people living in abject poverty out of the six billion on the planet. More people
have lifted themselves out of poverty in the past 50 years than in the previous 500 years;
but because the world population has grown so significantly, there are more poor people
than ever before. Political upheavals and natural disasters wreck havoc, but for those
living close to the edge, so do smaller tragedies such as an extended illness, death, or one
season with too little rain. Having a large percentage of the population thus exposed

exacerbates the cycle of poverty and leaves national economies facing disaster, where a
stable tax base is difficult to achieve and needed infrastructure difficult to build or
maintain. Poverty and insecurity can lead to extremism, which threatens the safety and
stability of everyone in every corner of the globe. Fostering the development of SMMEs
to help people employ themselves and others may offer the best hope for breaking the
poverty cycle in many developing countries and disadvantaged communities. The
importance of entrepreneurship should not be underestimated, and the needs of this
crucial sector must be understood to frame an effective and sustainable approach to
modern development aid.
Various levels of SMME employment and entrepreneurship are increasingly important to
economic development. For example, over the past two decades, employment in the
"informal sector" has risen rapidly in all regions of the world. The informal sector is
defined as those who work in small unregistered enterprises, both employers and
employees, as well as self-employed persons who work in their own or family businesses.
The informal sector is responsible for 93% of new jobs in Africa and 83% in Latin
America and the Caribbean. This sector represents a large and growing segment of the
workforce in developing nations. According to the Global Entrepreneurship Monitor
(GEM), in the 29 countries surveyed in 2001, almost 150 million people are engaged in
some form of entrepreneurial activity. GEM differentiates between "opportunity
entrepreneurship" growing business to take advantage of a unique market opportunity
and "necessity entrepreneurship" the best option available (Bridges.org, 2002).
Sixty-three million people reported that they started their own small businesses because
there were no other choices for work. The Monitor found that the prevalence rate for
necessity entrepreneurship was positively associated with economic growth, and
accordingly that can drive change at a macro-economic level in developing countries.
In the United States, venture capital-backed companies created 4.3 million new jobs in
2000, and $736billion in revenues i.e. 7.4% of the GDP. While most entrepreneurs in
developing countries depend on informal investments from friends and family, the end
result remains the same: entrepreneurial activity makes a significant and systemic
difference in the economies of developing (and developed) nations.
The benefits of encouraging entrepreneurship go beyond pure economics. As people gain
confidence, financial breathing room, and access to information, they gain political will
and are less likely to tolerate corrupt governments and unhealthy living conditions. It also
follows that they will seek higher levels of education for themselves and their children,
along with improvements in their home and community life. Challenges to
entrepreneurship development in Ghana It is apparent that entrepreneurial activity is
beneficial for Ghana both at a micro level in terms of creating stable and sustainable
employment for individuals and at a macro level where it significantly increases a
nation's GDP. Yet Ghana has been unable to create and maintain the favourable
environment needed to foster SMME development. There are a number of barriers which
entrepreneurs in Ghana face. According to Bridges.org (2002), the factors affecting
entrepreneurial activity can generally be divided into four categories and these portray the

exact situation in Ghana:

Infrastructure: Quite often the barriers to starting and maintaining a business come
down to simple, yet often insurmountable factors, such as lack of roads, facilities,
electricity or phones.
Legal and regulatory framework: Governments need to have a positive perception of
entrepreneurial activity, reduce the administrative burden on entrepreneurs, and
coordinate among their agencies to ensure that the necessary resources are directed where
they are needed.
Financial support: A major stumbling block for many potential entrepreneurs at the
lowest end of the economic spectrum is lack of access to the credit or seed funding
necessary to start a business. Entrepreneurs who are starting up larger businesses face
difficulty raising investment capital and a lack of sound market-based policies.
Social: The concept of entrepreneurship is not native to every culture or society. The
fear of failure can be a barrier. Creativity and innovation are not always valued traits.
Ghana has social systems that create dependence and hopelessness. Women and
minorities especially need role models to demonstrate the positive outcomes to
innovation and risk-taking. An additional barrier is the overarching mindset that
entrepreneurship cannot be taught, that it is a creative and innovative way of thinking that
comes inherently to some people and not to others. While it is true that some individuals
are gifted with creativity to develop new ways of doing things, creativity alone is not
sufficient. Ideas must be matched with basic skills and an understanding of business
practices and these are things that can be taught to help burgeoning entrepreneurs create
successful businesses. The way forward A comprehensive approach to promoting
entrepreneurship must work on three levels-individuals, firm and society.
To motivate individuals to become entrepreneurs, they should be made aware of the
concept of entrepreneurship and this should be made sufficiently attractive option. They
should be equipped with the right skills to turn ambitions into successful ventures.
For entrepreneurial ventures to develop into healthy firms, supportive framework
conditions are essential. These should allow firms to develop and grow, and not to unduly
hinder contraction and exit.
Entrepreneurial activity depends on a positive appreciation of entrepreneurs in society.
Entrepreneur's success should be valued and the stigma of failure reduced. What does it
takes to produce more entrepreneurs in Ghana? Despite recent improvements, Ghanaians
still consider administrative barriers as a major hurdle to starting a business. According to
the European Commission's report on Benchmarking the Administration of Start-ups
(2002), the average time taken to set up an individual enterprise in Europe is 12 working
days and 24 for private limited liability company. However, these figures continue to fall
each day. For us to succeed as a country, there should be a one- stop-shop for creating a
business. These one-stop-shops could be called Business Formalities Centres like what

pertains in Portugal. These centres in Portugal help to facilitate the registration of firms.
The centre should bring together all public departments responsible for different
formalities required in registering a new firm. Future entrepreneurs can also obtain advice
from a help desk
Business start-ups have difficulties getting the seed and early-stage finance they need.
Access to finance remains a major barrier for new entrepreneurs. They have difficulty
securing bank loans or finding risk capital. Banks want a positive track record and
collateral-which new firms generally do not have. The attempt by the present government
to make available some funds through Exim-guaranty Company Limited is a step in the
right direction. However, since the acquisition of funds are still attached to the traditional
banks, entrepreneurs still complain of going through the normal and difficult routine in
securing seed money or capital.
In addition to bank lending, start-ups should have a better access to alternative sources of
finance. Besides venture capital, the potential of informal investments e.g. family, friends
or business angels should be further explored. Risks sharing between banks and
investors in the private sector and public financial institutions specialised in SMMEs, or
through mutual guarantee societies, is an efficient way of leveraging scarce public funds
and has proved to be successful in increasing funding for business start-ups.
A failed entrepreneur faces the stigma of failure. Entrepreneurs going bankrupt and
losing personal property is very prevalent. In addition to the social stigma, a personal
bankruptcy implies severe legal consequences. This can results in jail terms. Discharge of
remaining debts may take years; bankrupts may lose their possessions and be subject to
certain restriction. Such consequences are justified in cases of fraud or dishonesty, but
failure is an intrinsic part of economic life and a proportion of entrepreneurs go bankrupt
because they cannot compete in them market. Insolvency laws could be reviewed to
reduce barriers to making a fresh start for honest entrepreneurs. This should not of
course, unduly harm creditors interests, which might increase their reluctance to invest
in small and new ventures. Belgium has adopted its solvency legislation with a view to
allowing entrepreneurs to attempt to rescue businesses when facing temporary problems
and to liquidate non-viable firms as quickly as possible. Courts can declare honest
bankrupt entrepreneurs to be excused allowing them to make a fresh start in business. I
hope Ghana will also quicken up with its Insolvency Bill that has been presented by the
Attorney General's Department to Parliament.
People might be more willing to accept the risk of entrepreneurship if it were
compensated by the prospect of reward in the event of success. A recent trend to reduce
tax levels on the self-employed and small businesses is observed in the European Union
and steps are being taken to reduce the tax burden on potential self-employed people. The
previous and recent Ghanaian budget have attempted to provide some tax incentives to
attract entrepreneurs to the northern regions of Ghana, but this has not reap the desired
results hence something in the form of blanket tax holiday or otherwise to all promising
entrepreneurs no matter the region should be looked at.

It is a fact that knowing about how to start a business increases the likelihood of
becoming an entrepreneur. Respondents in the Eurobarometer survey with self-employed
parents were found to be more self-employed oriented than those with parents who were
employees. The Global Entrepreneurship Monitor's Survey also found that people who
are confident about their skills and experience are between two and seven times more
likely to be involved in starting or running a new business; those that know someone who
recently started a business are three to four times more likely. The British Household
Survey also revealed that those previously exposed to entrepreneurship (through friends,
family or education) were more likely to seriously consider starting a business. Our
education system should be at the forefront in providing both skills and exposure as a
contribution to fostering entrepreneurship. As a benchmark, we can look at the
Sivitanidios Technical School in Athens, Greece. Here, students divide their time
between theoretical courses and running a virtual enterprise. This programme can be
replicated and extended to all our polytechnics and universities due to its positive results.
A course in entrepreneurship could be added to the curricula of tertiary institutions which
can cover entrepreneurship theory and practical guidance on preparing business plans.
Qualified and up to the task liaison officers could also be employed in these institutions
to ensure that students receive advice and support for entrepreneurial career options.
Setting up a business calls for drive, creativity and persistence, whereas developing a
business gradually requires more managerial skills, such efficiency and reliability.
Considering that both personality and management skills are key elements for success,
personal skills relevant to entrepreneurship should be taught from an early stage and be
maintained up to university level, where the focus can concentrate on building
management capacity. Within universities, entrepreneurship training should not only be
for business students, it should also be available for students in other fields.
For, example in technical universities like KNUST and the numerous polytechnics,
entrepreneurship training may contribute to matching entrepreneurial and technological
potential. Entrepreneurship education in combination with public research programmes
brings together the ingredients to match scientific excellence with the commercialisation
of results. Activities in support of students in tertiary institutions through the Students in
Free Enterprise (SIFE) programme and the Captains of Industry Programme need to be
strengthened and widened. Again, the institution of the Growing the Young
Entrepreneur Competition in the tertiary institutions should be given the needed push by
industry and the government. Student organisations like Junior Business Chamber,
International Association of Students Interested in Management and Economics
(AIESEC), IAESTE etc should also be given a second look and their activities duly
supported. Ghana can structure its campus programme in the likes of the Enterprise
Ireland Programme. This programme is aimed at supporting starting entrepreneurs within
the campus environment. It is part of the Irish regional growth strategy and includes a
one-year incubation programme for graduates who wish to start a firm, providing handson and management support.
Also, business incubators are effective in delivering support to new entrepreneurs. Firms
in incubators have better chances of survival than those outside and incubators are cost

effective instrument for promotion of public policy objectives. This success explains why
their numbers are growing rapidly; there are now over 850 in the European Union
(European Commission, 2002). How can these enterprises be geared towards growth?
Entrepreneurs are faced with many obstacles. Complying with administrative regulations
and their related costs remains a significant burden. Public authorities must be
encouraged to think small first, keeping regulation as simple and appropriate as
possible. Also provision of information and support can help entrepreneurs in dealing
with red tape. The introduction of virtual help facilities like www.ghananewventures.com
will go a long way to help in this regard.
The structure of the tax system, including income and corporate tax, labour tax and VAT
influences the ability of firms to expand. The complexity of tax systems is in itself an
administrative burden for entrepreneurs. As marginal income tax rates increase,
entrepreneurs tend to expand their business more slowly, to invest less and to hire fewer
staff. The level of labour tax may also influence firms decisions to hire staff. Tax
reforms made available by the present government may contribute towards a clear trend
in reducing the tax burden.
As unemployment still constitutes a major challenge in Ghana, our educational
institutions should ensure that skills of the labour force correspond to economic and
technological evolution. For instance, the UK government provides incentives to help
small higher-risk companies to recruit and retain the employees they need to help them
achieve their growth potential.
Access to finance is indispensable for growth but many SMMEs have difficulties, as the
risk capital market in Ghana is underdeveloped and banks increasingly avoid risky
lending. Banks increasingly use mechanism to rate SMMEs which means that loan costs
are adapted to the level of risk associated with an individual SMME. Furthermore, the
high overhead costs of small loans make these unattractive for banks. To act as catalyst
for private investors and to increase the supply of SMMEs guarantees, public institutions
have to develop programmes in support of SMMEs covering a range of instruments from
Micro-credits to venture capital. Eximguaranty Company Limited and the recently
approved Venture Capital Fund by Parliament should be fully operationalised in this
regard. Entrepreneurs should also be helped to overcome their reluctance to accept
credible outside investors. Investors need quality information about firms, which the
entrepreneur must be able to provide.
More so, to reap the benefits of the internal markets and to meet the challenge of fiercer
competition, entrepreneurs should be encouraged to innovate and to internationalise. For
this, they should have access to knowledge, relevant contacts; training and top-class
business support services. This is where the Ghana Export Promotion Council, Office of
the Private Sector Development, National Board for Small Scale Industries, Business
Advisory Centres, Ministry of Trade and Industry and other relevant bodies come into
play. The conditions for SMMEs to internationalise should be improved. Also promoting
regional networks or clusters could not only help entrepreneurs to share experience about
expansion, but also to gain access to knowledge, partners and advice.

Building an entrepreneurship society involves everyone. Attitudes towards

entrepreneurial initiative and failure must be made more positive. Crucial to achieving
this are those on whom today's and future entrepreneurs depend. One way of encouraging
such positive attitudes is by providing role models through the showcasing of success
stories. Luxembourg has introduced prizes to reward successful business projects. The
ministry in charge of gender equality awards a prize for successful businesses run by
women. A high profile prize for innovative business ventures should therefore attract
considerable attention amongst the target audience of industry representative and young
researchers. The University of Strathclyde in the U.K also offers a programme to promote
a positive attitude towards entrepreneurship amongst teachers. The content of the
programme is flexible and geared to learning by doing. Tasks include helping students in
writing business plans and taking management decisions.
Coupled with the above, while ICT may not seem like a central concern when supporting
entrepreneurs that need a good business plan and seed funding more than they need a
computer, the reality is that a long term view in today's information society requires that
most SMMEs should have some level of ICT use integrated into their business. An
entrepreneur who uses ICT appropriately and effectively can run a more efficient
business and reach markets that were previously unimaginable.
In conclusion, entrepreneurship requires a co-ordinated approach because of its
horizontal nature. Policy should embrace all the influential elements within the relevant
policy areas, to allow these to act in a mutually reinforcing way. Within public
authorities, co-ordinating services can forge links between different departments, and
regional and local authorities, to identify priorities and to ensure a coherent approach.
Further benchmarking exercises could be envisaged in areas identified as vital to
promoting entrepreneurship. Additionally, there is promise that entrepreneurs in
developing countries can learn from the experiences of the developed world and adapt
best practices to their own situations; that would help them avoid a resource intensive
development stage and base new businesses on sound environmental footing. However, it
must be borne in mind that different national or regional contexts will affect the
effectiveness of policy measures and, while identifying priorities or implementing policy,
Ghana should take its specific context into account. Robert Ankomah Opoku Research
School of e-Commerce, Division of Industrial Marketing & e-Commerce Lule