Demographic transition, entrepreneurship and MSME development: A policy perspective

By Hayford Danso 

Ghana is undergoing a pivotal demographic shift as rapid population growth, urbanization, and a burgeoning youth labor force shape the nation’s economic and development landscape. From a modest population size of 6.7 million in 1960, 18.9 million in 2000, and  24.2 million in 2010, Ghana’s population has witnessed rapid growth, and the rate of growth so far has been at a yearly average of 2.4%. The population of Ghana is projected to reach about 50 million by 2050, and above 72 million in 2100 (Ghana Statistical Service, 2013, see Figure 1). Critically, Ghana’s working-age population (25-64 years) is forecast to increase from 10.8 million in 2020 to 16.3 million by 2040 – a 51% rise (Kpessa-Whyte, 2018).  With over 57% of the population under age 25, Ghana stands to reap a significant “demographic dividend” of growth if it can productively absorb these young workers into quality jobs. However, this potential dividend also bears substantial pressure to create sufficient employment opportunities, especially for those unable to find roles in the formal public and private sectors. It could also become a national security issue if policy fails to address the impact.

In this context, entrepreneurship and the development of micro, small, and medium enterprises (MSMEs) have emerged as critical economic policy priorities for Ghana. Vibrant local entrepreneurship enables economic self-determination, income generation, and inclusive development paths beyond the reach of traditional employment structures alone. Supporting Ghanaian entrepreneurs with training, financing, and creating an enabling environment can unleash creative human capital to solve longstanding development challenges in the country.

Yet significant obstacles inhibit entrepreneurship and MSME success in Ghana today. Factors like limited access to capital, inadequate technical skills, regulatory hurdles, and poor infrastructure constrain the growth of Ghana’s entrepreneurs and small businesses. Strategic policy interventions will be required to eliminate these bottlenecks and unlock Ghana’s entrepreneurial potential as a core economic driver during its demographic transition.

This paper examines key demographic and labor market trends underlying the case for MSME promotion in Ghana. It explores the diversity of Ghana’s entrepreneurship ecosystem based on our current global score.  Policy gaps and structural barriers hindering entrepreneurship will be analyzed, drawing from literature as well as evidence-based recommendations, drawn from the Global Entrepreneurship and Development Index(GEDI), which are provided for government, private sector, and development partner initiatives to catalyze self-employment and capitalize on Ghana’s demographic opportunity.

With enabling policies unleashing grassroots entrepreneurship, a well-integrated MSME and Entrepreneurship Ecosystem, a focused Development Authority, and strategic sourcing and flow of Patient capital, Ghana’s youth can progress from job seekers to job creators, fueling resilient communities and inclusive economic transformation. This research aims to inform policy development supporting Ghana’s transition to an entrepreneurial economy driven by empowered micro and small enterprises.

Ghana’s Demographic Transition: Present and Future Trends

In the early stages of the transition, Ghana likely had high birth rates coupled with high death rates, resulting in a youthful population pyramid with a wide base indicating a high proportion of young people. Factors such as improved healthcare, sanitation, and economic development would have contributed to a decrease in the mortality rates, leading to a larger population.

The following depiction illustrates Ghana’s demographic composition in 2023 longside projections by the United Nations for the year 2100.

   

As Ghana progresses through the transition, birth rates tend to decline due to factors such as increased access to education, urbanization, and greater opportunities for women in the workforce. This results in a slowing of population growth and changes the population pyramid to become more balanced, with a narrower base and a more significant proportion of the population in older age groups.

By 2100, Ghana’s demographic transition may have progressed significantly, with birth and death rates likely having stabilized at relatively low levels. The population pyramid may have a more uniform distribution across age groups, indicating an aging population with fewer young dependents. This demographic shift poses both opportunities and challenges, including issues related to healthcare, pensions, and workforce dynamics.

Ghana possesses development policies concerning health, education, and gender. However, the current mid to long-term development strategies overlook population dynamics when formulating agendas for entrepreneurship and MSME ecosystem development. Many government models focus primarily on appeasing the burgeoning youth population, often without sufficient resources or intentional efforts to nurture the entrepreneurship ecosystem. To ensure that resource allocation aligns with the evolving inter-generational needs of the population, we must work towards a  more coordinated and interactive MSMEs and entrepreneurial ecosystem.

Ghana’s Entrepreneurial Landscape

Ghana’s attainment of a middle-income economy marks a significant milestone in its development journey, propelled by factors such as natural resource endowments, infrastructural investments, and policy reforms. As Ghana transitions from a factor-driven to an efficiency-driven economy, characterized by increased industrialization and a shift towards manufacturing and export-oriented industries, the development and intentional support for its Micro, Small, and Medium Enterprises (MSME) sector and entrepreneurship in general becomes paramount.

This shift in focus is crucial to maintaining economic expansion, nurturing creativity, and tackling unemployment issues linked to our demographic structure. MSMEs play a pivotal role in job creation, wealth generation, and poverty reduction, serving as catalysts for economic diversification and resilience. By nurturing entrepreneurship and empowering MSMEs through targeted and tailored policies, Ghana can unlock the full potential of its demographic dividend, drive inclusive growth, and achieve sustainable development goals.

The Global Entrepreneurship and Development Index (GEDI) provides a benchmarking tool to evaluate the strength of conditions that enable entrepreneurship to thrive across nations. The GEDI assesses the entrepreneurship ecosystems of countries based on various indicators such as entrepreneurial attitudes, abilities, aspirations, and support systems. So far, Ghana has shown some progress but still faces challenges in its entrepreneurial ecosystem, as reflected in its performance on the Global Entrepreneurship Development Index (GEDI,2022). It must be recognized that various government’s efforts to create institutions to drive entrepreneurship, like the Ghana Entreprises Agency(GEA), National Entrepreneurship and Innovation Plan (NEIP), National Youth Authority (NYA), etc. have contributed to some of these gains.

The spider chart in Figure 2 shows the country’s performance relative to the other three benchmark countries Ivory Coast, Nigeria, and Kenya. The figure answers the question “Where should we put our resources to improve our GEI score in Entrepreneurship Ecosystem development?”

A comparative analysis of Ghana’s performance on the global entrepreneurial score relative to cohort countries like Nigeria, Ivory Coast, and Kenya, shows that our highest scores are in areas of cultural support and opportunity perception. This suggests that the country has a conducive cultural environment that fosters entrepreneurship and a population with a strong inclination toward recognizing and pursuing entrepreneurial opportunities. The combination bodes well for the country’s entrepreneurial ecosystem, driving higher levels of entrepreneurial activity, innovation, and economic growth. Alternatively, it is reflective of the country’s political nature in driving youth-focused programs in its development policies.

As a middle-income country, key indicators that could propel us to achieving the expected growth that will address the inter-generational demographic needs are competition, human capital development, risk capital, internationalization, technology absorption, high growth, product development and innovation, networking, risk acceptance, and startup skills.  We are lagging on these key drivers of entrepreneurship and MSME development. We therefore need rethinking and realignment in our ecosystem drive to address the ticking problem of demography.

Comparing our performance to developed economies like the United Kingdom, the United States, and our independent cohort, Malaysia (Figure 3 ) it could be realized that we are way behind on many scores.  Apart from cultural support and opportunity perception of which Ghana had a higher score than Malaysia, we are limited in our efforts and resources on the right areas of entrepreneurial development. This is a clear policy misalignment and requires a more focused, coordinated, and decentralized policy directive to be able to meet the demands of our demographic structure going forward.

Whereas developed economies seem to be focusing on the core areas and resourcing the ecosystem accordingly, Ghana’s score has been below 0.25 indicative of a weak support structure that could propel our ecosystem development.

Policy Gaps and the Way Forward

While the challenges facing MSMEs and entrepreneurs in Ghana have been extensively discussed, it is imperative to delve deeper into why we have yet to make significant strides in establishing a robust and interconnected ecosystem that supports their growth and addresses the demographic challenges that stir our country going forward.  Critical areas like limited access to finance, market issues, skill shortages, and limited technology adoption have been mentioned by many in the literature. However, these challenges are a product of institutional and political disregard for deliberate entrepreneurial and MSME ecosystem development.

Below are several critical policy gaps identified and some suggested recommendations that when addressed could enhance the development of Ghana’s entrepreneurial ecosystem for long-term benefits across generations:

1. Duplication of Roles: Duplication of roles among various government agencies and non-governmental organizations leads to inefficiencies and overlaps in the implementation of entrepreneurship and ecosystem development initiatives. In Ghana, more government creations are all focused virtually on doing the same thing. Institutions such as GEA, NEIP, NYA, YEA, MASLOC, etc. are all autonomous creatures by the government but are mostly focused on entrepreneurship and MSME development from different perspectives. Lack of coordination, duplication of efforts,  and lack of clarity in responsibilities can result in, wasted resources, and confusion among stakeholders. Addressing this policy gap requires streamlining roles and responsibilities among ecosystem players, enhancing coordination mechanisms, and promoting collaboration to ensure efficient use of resources to maximize their impact. A definitive approach involves consolidating these entities under the Ghana Enterprise Agency (GEA) to spearhead a unified national agenda aimed at fostering MSME growth and entrepreneurship.
2. High Default rates: High default rates on loans and credit facilities provided to entrepreneurs and MSMEs indicate a retrogressing ecosystem and weaknesses in credit risk assessment, monitoring, and enforcement mechanisms. Financial institutions may face challenges in assessing the creditworthiness of borrowers, leading to excessive lending risks and unsustainable debt burdens. However, there are less punitive policies at the national level to protect lenders and investors in the ecosystem. If this is not addressed, a poor financial system that perceives entrepreneurs and MSMEs as high risk, as it is now, will thrive. This will not inure to the benefits of the future structure of our demography. Deliberate Policy interventions are needed to strengthen credit risk management practices, improve financial literacy among entrepreneurs, and moderate behavior towards an efficient ecosystem for MSMEs and entrepreneurs.

• Uncoordinated ecosystem players: Fragmentation and lack of coordination among ecosystem players, including government agencies, development partners, private sector organizations, academic institutions, and civil society, hinder the effectiveness of ecosystem development initiatives. Uncoordinated efforts may result in duplicative programs, conflicting priorities, and missed opportunities for synergy and collaboration. Enhancing coordination mechanisms, establishing platforms for information sharing and collaboration, and promoting partnerships among ecosystem players are essential to address this policy gap and maximize the impact of ecosystem development efforts. This can be achieved when the country has one entity managing and coordinating policies, financial flow, and operational support the ecosystem efforts by all partners.

1. Poor continuity by Political leadership: Lack of continuity in policies and programs related to entrepreneurship and ecosystem development due to changes in political leadership can disrupt long-term planning and implementation efforts. Short-term policy cycles and shifting priorities may undermine the effectiveness of ecosystem development initiatives and erode investor confidence. Ensuring continuity and consistency in policies and programs across political transitions requires institutionalizing frameworks, setting clear development objectives, and building consensus among stakeholders to prioritize entrepreneurship and ecosystem development as national priorities.
2. Separating Economic Planning from the Ministry of Finance: Separating economic development management from the Ministry of Finance and consolidating the Economic Management Team (EMT) and the National Development Planning Commission (NDPC) under one umbrella is a strategic move to drive holistic policies and programs geared towards maximizing the demographic dividend in Ghana. Ultimately, this structural adjustment integrates economic planning, policy formulation, and implementation functions, that ensure that development priorities are in harmony with demographic realities and societal needs. Moreover, by engaging communities in the decision-making process and embracing participatory development approaches, could streamline the operations, and enable targeted interventions to address grassroots challenges hindering entrepreneurship and economic growth. Such integration enhances coordination, coherence, and effectiveness in policy implementation, promoting inclusive and sustainable development that harnesses the full potential of Ghana’s youthful population.
3. Development Partners: Development partners, comprising embassies, churches, and multilateral agencies like JICA, KOICA, DFID, USAID, GIZ, Dutch Fund, SNV, and Solidaridad, are integral to Ghana’s MSMEs and Entrepreneurial Ecosystem development agenda. Their collaboration with the government, aligned with the national ecosystem strategy, is crucial for maximizing the demographic dividend. By focusing on key sectors and providing technical assistance, funding, capacity-building support, and derisking of the ecosystem, development partners could enhance the government’s efforts in identifying and developing innovators, entrepreneurs, and MSMEs in critical areas such as education, health, infrastructure, and technology. Policies and programs of Development partners must align, rather than run parallel with government programs. Through strategic partnerships, they ensure coherence and efficiency in development interventions, ultimately contributing to sustainable growth and leveraging Ghana’s youthful population for long-term prosperity.

• Research and Development: R&D plays a critical role in fostering innovation, which is essential for leveraging Ghana’s demographic transition and promoting entrepreneurship and MSME development. Government policies aimed at incentivizing R&D investment, building R&D infrastructure, promoting collaboration, and prioritizing key sectors can have a significant impact on unlocking the potential of Ghana’s youthful population, driving economic growth, and fostering a vibrant entrepreneurial ecosystem. These policy interventions not only contribute to the demographic dividend by creating employment opportunities and enhancing productivity but also stimulate entrepreneurship by providing access to new technologies and market opportunities. Thus, integrating R&D policies into the broader framework of demographic transition, entrepreneurship, and MSME development is essential for Ghana’s sustainable economic development and prosperity.

Conclusion:

In conclusion, Ghana stands at a pivotal crossroads where embracing entrepreneurship as the engine to economically empowering its surging youth population could catalyze an era of inclusive growth and sustainable development. Nurturing the entrepreneurial talents of young Ghanaians and fostering a vibrant ecosystem for MSMEs is not just an economic imperative – it represents an unparalleled and unprecedented opportunity to unlock the nation’s boundless human potential. However, realizing this entrepreneurship-driven vision will require dismantling systemic barriers through cohesive policies that address the problem of finance gaps, skills deficits, regulatory hurdles, and more.

The proposed establishment of an Economic Development Authority(EDA) to separate Economic planning from the Ministry of Finance(MOF), and to consolidate the National Development Planning Commission( NDPC), Economic Management Team(EMT), and other key creations of government under one umbrella could serve as the vital spark that could ignite Ghana’s entrepreneurial transformation. With community economic empowerment as its core mandate, and robust collaboration across public, private, and civic stakeholders, this Authority can effectively design and implement the comprehensive policy roadmap needed to construct an entrepreneurship-conducive environment nationwide. From financing and training initiatives to industrial cluster development and regulatory reform, the Authority would spearhead catalytic interventions positioning entrepreneurship as a national priority.

Envision a future where dynamic MSME hubs and industrial parks catalyze local value creation across Ghana’s regions. A future where innovative youth-led startups commercialize ground-breaking solutions addressing development challenges in sectors like health, agriculture, and the environment. And a future where women entrepreneurs disrupt long-stagnant industries with creative, inclusive business models. By resolutely focusing on enabling this dynamic entrepreneurial ecosystem, Ghana’s Economic Development Authority can turn this powerful vision into reality – harnessing entrepreneurship as the driving force propelling the nation’s socioeconomic resurgence. Just as its energetic youth represent Ghana’s greatest demographic opportunity, its innovative MSMEs epitomize the boundless possibilities of self-determined economic progress when the entrepreneurial spirit is unleashed nationwide.

Hayford  is the Former Head, Public Sector FBNBank Ghana Limited

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