Implementing 24-hour policy: Informal sector economic actors transitioned

IBES 2024 defines Informal Establishments as establishments that have not been registered with the Registrar General’s Department and or do not keep formal accounts or records of the establishment’s operation.

This implies Cooperatives registered under the Department of Cooperatives are also informal per IBES.

There has been no change in the level of informality of establishments in the last 10 years in Ghana. In 2024, the informal sector constituted 92 per cent of the 1.8 million privately owned establishments.

In 2014, they constituted 91 per cent of the 638,325 establishments recorded. 

The informal sector is prevalent across the country.

The proportion of informal establishments ranges from a low of 87 per cent in the Greater Accra Region to a high of 98 per cent in the North East Region.

The proportion of informality is high across all economic sectors.

It is 96 per cent for agriculture, 89 per cent for services, and 96 per cent for industry. 

A low proportion of establishments transition from informal to formal with age.

About 71 per cent of establishments that commenced business before 1975 (more than 50 years ago) remained informal in 2024.

And 93 per cent of establishments that commenced business between 2015 and 2024 (the last 10 years) were informal. 

Informality does not pertain to Ghanaian-owned establishments only.

The percentage of informality by nationality of ownership was 93 per cent for Ghanaians, 78 per cent for non-Ghanaians; and 50 per cent for establishments jointly owned by Ghanaians and Non-Ghanaians.

In terms of employment, the number of vulnerable workers (largely associated with the informal sector) was 8.2 million persons in 2023 Quarter 3.

This is 69 per cent of the 12.0 million persons employed for the same period. 

In 2023, the informal sector employment average was 58 per cent globally; 84 per cent in lower-middle-income countries, and eight per cent in high-income countries.

In Ghana, the informal economy is estimated to account for about 27 per cent of GDP, with an average growth of 3.4 per cent annually.

Yet, 69 per cent of employed persons work in the informal sector as vulnerable workers with inadequate earnings, low productivity, difficult conditions of work, and no social security or health benefits.

They are not unionised, have little voice and are marginalised in the formulation and implementation of overall economic policy and labour market initiatives.

IBES 2024 reveals that the majority of establishments in Ghana are micro-sized, informal, and relatively young, with 71 per cent operating for less than a decade.

This composition suggests a dynamic but fragile business environment where many establishments face challenges related to access to markets, finance, supplies and business support services, which affects their sustainability.    

According to the World Bank, countries with large informal sectors have lower per-capita incomes, greater poverty, greater income inequality, less developed financial markets, and weaker investment.

NDC 2024 Manifesto

Section 3.2.3 of the NDC 2024 manifesto outlines five proposals for a structured informal sector for economic growth.

They (i) facilitate the formation of small business and trade associations to create structured platforms for engagement and advocacy, and promote the welfare of members and business growth; (ii) promote digital payment systems to facilitate easy and secure transactions and promote financial inclusion; (iii) facilitate access to vital business support services to empower small-scale entrepreneurs; (iv) promote the development and uptake of innovative insurance packages for the informal sector as part of the All-Covered Initiative; and (v) provide financial and technical support for enterprise development through cooperatives.

In addition, the sector-specific proposals for agriculture, mining and youth development also include the formation and strengthening of local and community cooperatives as economic units. 

Formalising informal sector

The following complementary proposals are recommended to transition informal sector establishments to the formal sector.

First, formulate a working definition of the informal sector.

There are varied definitions of the informal sector based on the principal considerations of legal registration, household ownership, state of record keeping, kind of economic activity, and number of persons employed.

The IBES 2024 definition limited it to establishments that are not registered with the Registrar of Companies (formerly Registrar General’s Department) as sole proprietorships, partnerships or companies; and or establishments that do not keep formal accounts.

It excluded Cooperatives, which is also a legal form of business registration under the Co-operative Societies Decree, 1968 (NLCD 252) and the Co-operative Societies Regulations (L.I. 604).

The Department of Cooperatives under the Ministry of Labour, Jobs and Employment derives its mandate from this legislation.

Some define the informal economy as the part of any economy that is neither taxed nor monitored by any form of government institution.

Yet, for more than a decade, the Ghana Revenue Authority has used various mechanisms to collect taxes from the informal sector, including withholding tax, vehicle income tax and tax stamps.

MMDAs also maintain some records of informal sector operators in their respective districts, particularly in the markets they manage.

They collect levies from them.

Second, strengthen or form private sector business and vocational associations that cover informal sector operators.

These associations should be organised as democratic, independent, membership-based organisations of wage workers, own-account workers, self-employed persons or employers in the informal economy.

The initiative should be a collaborative effort amongst MDAs, MMDAs, Civil Society Organisations, and the Trades Union Congress for specific industry sectors and vocational groups as applicable.

These associations should be organised as Cooperatives or Companies Limited by Guarantee.

The latter is the dominant form of registration of professional bodies in Ghana, including engineers, accountants, lawyers, bankers and health workers such as doctors, nurses and laboratory scientists.

In the agriculture sector, for instance, farmer-based organisations (FBOs) have long existed throughout the country.

But they remain weak and few have transitioned to become cooperatives or companies limited by guarantees. 

Various vocational groups, including tailors, dressmakers, caterers, artisans, traders and Momo Agents, also have various associations some of which need to be formally registered.

Third, use the associations as a conduit to deliver public services to informal sector operators.

All MDAs and MMDAs should enhance their public service delivery, simplify regulations and enhance access to public services by informal sector operators through the provision of information, sensitisation, and the use of technology.

I explain this in Part 8 of this 24-hour economy series of articles https://www.linkedin.com/pulse/implementing-mahamas-24-hour-economy-policy-part-8-issaka-gbana-ppbbf/
MDAs and MMDAs should make it mandatory that every informal sector operator should register and be in good standing with a registered association to access entrepreneurship and business support services for them.

This could extend to similar services sponsored by development partners and corporate organisations.

The services will include access to local and export markets; access to concessionary finance; access to technical and business skills, financial and digital literacy capacity building; and enhanced access to government regulatory services, particularly business registration, permits, tax filing and payment.

The Tree Crops Development Authority Regulations LI 2471, 2023, for instance, requires proof of membership of a relevant value-chain association as part of its mandatory licensing of all market actors in the oil palm, coconut, shea, mango, cashew and rubber value chains.

This requirement should be adopted and applied by other regulators. 

Fourth, reserve some public procurement for Associations.

MDAs and MMDAs should reserve some public procurements for associations of informal sector operators.

This will provide an incentive for all self-account workers to register and remain active in these associations. 

For instance, MDAs and MMDAs can procure some basic construction and building maintenance works for schools and health facilities from an association of artisans rather than from a single business entity.

A procurement could also require that bidders tender with an association.

The practice of awarding school feeding contracts in districts to local caterers should be emulated across other sectors.

Such preferential procurement should be awarded competitively with value for money.

It should not be the case that it becomes an avenue for MDAs and MMDAs to inflate contract amounts and fleece the taxpayer as has been the case with some past failed initiatives.

Admittedly, reserving some public procurement for associations may impose an additional procurement management and supervision burden for MDAs and MMDAs.

Nevertheless, it promotes local economic development and inclusive growth. 

Fifth, ensure the representation of associations representing informal sector workers in the National Tripartite Committee to make inputs on labour and employment policy.

Part 10 is the final piece in this article series. It will present an implementation strategy for 24HE Outcome 6, that is, employable skills developed.

It will draw on specific pledges in the NDC 2024 Manifesto and contemporary data.

The writer is a member, NDC & 2024 Manifesto Committee on Jobs, Employment Creation/led the 24-Hour Economy Task Team.

Served on the 2024 Transition Team Social Sector Committee/executive member, Eagles Forum, a social democratic organisation.

E-mail: nissakagbana@gmail.com