Informal Sector Entrepreneurship Declines Under Poor Policies – Suame Magazine As A Case Study

by Yaw Adu-Gyamfi

Introduction

In recent years, the promotion of entrepreneurship as a revolution to solving numerous economic and social challenges facing developing countries has attracted significant attention by policy makers and the academia. Notwithstanding the attention that has been given, little has been done in trying to empower entrepreneurs in practice other than what is written down. The introduction of innovation and new products and services by entrepreneurs thrives in an environment where governments create the enabling atmosphere. John Schumpeter describes such an enabling environment as the use of institutional and policy objectives to establish the best conditions possible enabling individuals to bet on the future with the goal to creating value.

In the 21^st century, entrepreneurship has been a backbone to growing the economies of countries where peculiar attention is paid to unleashing and enhancing entrepreneurial initiatives. Empowering people to take entrepreneurial initiatives and helping them to build formidable businesses has been one of the most effective ways of reducing poverty and putting  peoples  life into their own hands. Like the proverbial Chinese saying, goes “do not give a man fish rather teach him to fish.”

For the purposes of this analysis, the Suame Magazine will serve as a case study to draw the link between entrepreneurship and poverty reduction as well as how the government of Ghana has treated entrepreneurs of the Suame Magazine cluster with policies and initiatives. Suame Magazine represents the single largest artisan industrial cluster in Ghana, providing apprenticeship opportunities for thousands of school drop-outs, technical students for their industrial attachments and also a research haven for academics who seek to understand the market dynamics and the evolution of the cluster. The focus on Suame Magazine is an attempt to highlight how the informal sector, which forms about 90% of Ghana’s economy, faces challenges that hinder growth. This has meant that businesses stay at the micro level and are not able to create the needed value for socio-economic development.

Suame Magazine Profile

The Suame Magazine is the only surviving industrial estate in Kumasi after the virtual collapse of the timber and wood industry. It is an important landmark in Kumasi’s (second biggest city in Ghana) economy, and the pivot around which the entire artisanal engineering sector revolves in the country. The name ‘Magazine’ is derived, because of the area serving as an armory during the colonial period. It is reputed to be the largest Micro Small and Medium scale Enterprise-MSME village in Ghana. Suame Magazine is considered part of the informal sector; a part of the economy characterized by private, primarily small-scale, labor-intensive, largely unregulated, and unregistered manufacturing and service enterprises. The West-African and sub-Saharan African importance of Suame Magazine cannot be over-emphasized, as it is currently considered one of the largest industrial clusters in sub-Saharan Africa, with an estimated population of over 200,000 people with approximately 12,000 small and medium-sized enterprises specializing in vehicle repair, spare parts sales, and metal works such as casting and welding. These entrepreneurs are renowned for their ingenuity and customers come from throughout Ghana and other countries in West Africa, notably Togo, Burkina Faso, Niger, Mali, Cote d’Ivoire, and Sierra Leone to purchase products and services from.

Economically, the industrial cluster on a lower variant of $5 a day per artisan culminates into over $ 1, 000,000 worth of transactions per day. Such a huge enclave of combined economic wealth is ironically saddled with a poverty level of 25%, being one of the highest in urban poverty in Ghana. A comprehensive initiative to harness the collective wealth through improved skills, streamlining of the legal land tenure systems and contract for workers and apprentices as well as the provision of requisite infrastructure has the potential to transform the cluster into an economic powerhouse contributing immensely to poverty reduction.

Challenges faced by Suame Magazine entrepreneurs

Most of the businesses in Suame Magazine are currently working in the informal economy. Few businesses are registered. Many of the businesses suffer from fluctuating production and have difficulty accessing capital and wider markets, poor infrastructure (roads, water, electricity etc) and a lack of structured land tenure system. All of these challenges are characteristic of the informal sector. Coupled with all of these, are government policies on increased taxes and ill-timed market liberalization, which has meant that some entrepreneurs are constantly v forced out of business or leading to static business growth. For instance, the liberation of the spare parts market in the 1980’s meant that, manufacturers in Ghana who were about developing their capacity were crushed when importation ban was lifted. Unlike in the 1970’s when there was a ban on spare parts importation, the light manufacturing sector at the Suame Magazine boomed leading to innovation and collaboration with academia.

The Technology Consultancy Center-TCC of the Kwame Nkrumah University of Science and Technology-KNUST through government support installed lathe and other sophisticated machinery at Suame Magazine from where a number of skills training programs were undertaken. As a result, artisans were able to acquire the needed capacity to embark on an entrepreneurial drive usually spurred on by the TCC through business development services for artisans who were into manufacturing. With a favourable climate in terms of an available market and technology, the artisans manufactured spare parts for vehicles, agricultural implements, as well as looms for weaving Kente (popular traditional cloth in Ghana). The fact is that, not only did the entrepreneurs at Suame Magazine increase their incomes by expanding the frontiers of trade outside Ghana, they also begun to innovate and support other industries in Kumasi and Ghana at large. This gives credence to the fact that when the right environment is created, innovations abound, and businesses thrive, increasing economic growth and income.

Another challenge faced by artisans is that fact that, many work without written contracts and no employment benefits or legal protection. Businesses often have poor record keeping and informal planning processes. Internationally, low-skilled, manual employment in the informal sector is associated with low wages and poverty. The current informal practices employed by Suame Magazine entrepreneurs have created major barriers to the development of more successful businesses, one of them being limited access to capital and appropriate financial services, while the other revolves around difficulty in obtaining customers. Government agencies such as the National Vocational Training Institute-NVTI and the National Board for Small Scale Industries-NBSSI mandated to provide business and technical skills training to the entrepreneurs and business owners in Ghana including those at the Suame Magazine are poorly resourced. This makes it difficult for such institutions to deliver on their mandate of creating a platform for enhanced skills in business, vocational and technical fields.

Hence, with the inability of NVTI and NBSSI to contribute meaningfully, entrepreneurs and their businesses are lack the needed skills acquisition with which to transform their ideas into fruition. Low level of technology penetration at the Suame Magazine has also meant that entrepreneurs especially mechanics are increasingly losing business due to their inability to stay abreast with the fast paced technology in the automobile industry. The inability of government to initiate a policy to stimulate triple helix collaboration among government and its agencies, academia and the private sector has left many in the auto repair and metal fabrication sector at risk of job losses and an increase in the percentage levels of poverty. Without the needed improved skills, products from Suame Magazine stay non-competitive with less income generated accordingly. The policy by government to encourage investment has also threatened the spare parts sales business. This is because; inadequate monitoring has meant that these foreign business owners have infiltrated the retail business traditionally reserved for Ghanaians. The economics of comparative advantage works against these small-scale business owners due to the myriad of business challenges faced.

Way forward

Policy makers in Ghana have tended to concentrate on creating an enabling environment for the creation of new businesses that does not foster entrepreneurship activity. A shift in policy towards creating the enabling environment to liberate the creative power of the human mind by providing the needed infrastructure and funding for skills training is needed. To this end, the governments’ neglect of informal sector entrepreneurs especially those that the Suame Magazine has led stagnation of businesses, stifling of ideas and a threat to sustainable employment.

To drive innovation and growth, affirmative action needs to be taken by investing in key infrastructure, streamline legal land tenure system and adequately resource skills training institutions to ease the cost of doing business for entrepreneurs. With such initiative in place, access to finance will be enhanced since risk as a barrier will be reduced. The informal sector can be trimmed down to enable businesses of entrepreneurs to drive economic growth and ultimately lead to a reduction in poverty.

The need to focus on empowering entrepreneurs to create wealth for themselves as well as propel economic development has become more apparent. Harnessing the full energies and exuberance of entrepreneurs especially of those in the informal sector is key to transforming the structure of Ghana’s economy. Further, there is also the need to create the entrepreneurship culture and provide facilities and the necessary infrastructure to accommodate their visions and aspirations. Empowering Suame Magazine entrepreneurs bode well to propel continued innovation and practical learning.

This article was first submitted to  IMANI, a Ghanaian think tank named by the Foreign Policy Magazine as the fifth most influential in Africa and AfricanLiberty.org, an Atlas Economic Research Foundation and IMANI’s African-focused program. AfricanLiberty.org has a mission to be the continent’s main platform for sharing practical ideas generated by Africans and those who believe in Africa’s positive future.