Why 90% of Ghanaian Businesses Remain Informal — And What It Means for the Economy

Accra, Ghana — Despite decades of policy reforms, financial inclusion campaigns, and entrepreneurship drives, nearly 90% of Ghana’s businesses still operate in the informal economy, according to recent data from the Ghana Statistical Service (GSS) and the International Labour Organization (ILO).

From bustling markets in Accra and Kumasi to the sprawling artisanal hubs in Suame and Agbogbloshie, Ghana’s informal sector remains the dominant engine of economic activity — but one that operates largely outside the formal tax net, regulatory systems, and institutional support structures.

While this sector contributes an estimated 25–30% of Ghana’s GDP and employs about 80% of the labour force, experts from Accra Street Journal warn that its persistent informality poses long-term risks to sustainable growth, fiscal stability, and productivity.

A Legacy of Structural Informality

Ghana’s informal economy didn’t emerge overnight. Economists trace its roots to post-independence economic restructuring, where limited industrialisation, weak job creation, and urban migration created a parallel system of survivalist entrepreneurship.

Over the years, successive governments have introduced formalisation initiatives — from the Registrar-General’s digitisation of business registration to the Ghana Revenue Authority’s (GRA) Tax Identification Number (TIN) policy — but these have only chipped at the edges of a deeply entrenched problem.

“Informality in Ghana is not simply a legal issue; it’s a structural one,” says Dr. Patrick Asuming, economist at the University of Ghana Business School. “People go informal because the formal system is too costly, too slow, and too uncertain.”

For many micro and small enterprises (MSEs), registering a business, paying taxes, or complying with labour regulations means navigating bureaucracy, unpredictable costs, and limited returns.

The Cost of Staying Invisible

Operating informally might appear cost-effective, but it also comes with constraints. Informal businesses have limited access to credit, cannot bid for government contracts, and often lack insurance or legal protection.

Financial institutions require audited accounts, collateral, and formal documentation — barriers that most small traders and artisans cannot meet. The result is a cycle where lack of formality locks businesses out of formal finance, and lack of finance keeps them informal.

Moreover, informal workers — from seamstresses and carpenters to mobile money agents — operate without pensions or social protection, leaving them vulnerable to economic shocks.

The COVID-19 pandemic exposed these vulnerabilities sharply: over 70% of informal workers lost income during the lockdowns, according to a World Bank report.

Policy Intentions, Practical Failures

Ghana’s government has long recognised the drag of informality on fiscal and industrial performance. Initiatives such as:

• The National Employment Policy,

• The Microfinance and Small Loans Centre (MASLOC),

• The Ghana Enterprise Agency (GEA), and

• The One District One Factory (1D1F) programme

were all designed to bridge the gap between informal and formal enterprise.

Yet, experts say implementation challenges — inconsistent funding, weak monitoring, and political interference — have blunted their impact.

“Formalisation has often been treated as a documentation exercise, not an empowerment process,” notes Cynthia Adjei, a development economist with the Centre for Policy Scrutiny. “The state needs to make formality pay — through access, security, and incentives — not just through compliance demands.”

Regulatory Friction and the Trust Deficit

For many entrepreneurs, registering a business is less a gateway to opportunity and more an entry into red tape. Delays at public offices, multiple levies at local assemblies, and corruption risks discourage formality.

“People fear that once they register, everyone — from the tax officer to the assembly inspector — will come knocking,” said one food vendor at Makola Market.

The issue isn’t just bureaucracy but a lack of trust. Surveys by Afrobarometer show that a majority of Ghanaians perceive taxation as unfair, and few believe that public funds are used transparently. Without visible benefits, compliance becomes a low priority.

Technology and the New Path to Formalisation

There are signs of progress. The Ghana.gov digital services portal, the e-Tax system, and mobile-based business registration platforms are gradually reducing friction.

In 2025, the Ministry of Trade and Industry and the Ghana Enterprise Agency (GEA) began piloting an Integrated MSME Registration System, allowing small businesses to register, obtain tax numbers, and access credit digitally — a potential game-changer if fully scaled.

Fintech and digital payment ecosystems, such as Mobile Money interoperability, have also nudged informal operators into traceable transactions, creating data that can link them to formal financial services.

Still, digital inclusion remains uneven. Many informal businesses operate offline, and literacy barriers prevent adoption of formal digital systems.

The Fiscal and Economic Implications

The scale of informality has direct implications for public revenue. According to the Ghana Revenue Authority (GRA), only about 15% of eligible taxpayers are captured in the tax net.

This weakens Ghana’s domestic resource mobilisation — a critical factor for fiscal independence, especially under ongoing IMF programmes.

Moreover, the dominance of low-productivity, small-scale operations constrains innovation and industrial competitiveness. Without formalisation, Ghana risks a “low-growth trap” — where employment expands, but productivity stagnates.

Making Formalisation Work: A Three-Part Fix

Economists and policy experts argue that Ghana’s formalisation agenda must shift from enforcement to empowerment and value creation.

1. Simplify the Process:
   Streamline registration and tax compliance using mobile and digital systems. Reduce bureaucratic touchpoints to make the process seamless for micro enterprises.

2. Create Incentives for Formality:
   Offer access to small-business grants, low-interest loans, and social insurance schemes only to registered businesses. Visibility must come with tangible benefits.

3. Rebuild Trust in the System:
   Demonstrate value by improving public service delivery, accountability, and transparency in tax spending. When businesses see results, compliance improves.

A Socioeconomic Challenge, Not Just an Economic One

Informality is as much a social as an economic reality. For millions of Ghanaians, it is the only path to survival amid limited formal employment.

The challenge for policymakers, therefore, is not to penalise informality but to bridge it into formality — gradually, inclusively, and sustainably.

As Ghana pursues its 24-Hour Economy agenda and the push for industrial transformation, success will depend on whether it can turn its vast informal sector from a hidden workforce into a visible engine of national development.

FAQs

1. Why are most Ghanaian businesses informal?
Because of high registration costs, bureaucracy, weak access to credit, and limited trust in public institutions, many entrepreneurs choose to remain unregistered.

2. How does the informal sector impact Ghana’s economy?
It contributes significantly to GDP and employment but limits tax revenue, productivity, and industrial competitiveness.

3. What are the government’s efforts to formalise the sector?
Initiatives like the Ghana.gov portal, e-Tax system, and the Ghana Enterprise Agency’s MSME programme aim to simplify registration and improve financial access.

4. What is the main barrier to formalisation?
A combination of regulatory complexity, low trust in government, and lack of visible incentives for businesses to register.

5. How can Ghana fix this problem?
By simplifying systems, linking formality to real benefits such as loans and social protection, and building public trust through transparent governance.

Source: Accra Business News