Hands on assistance helping business owners navigate bureaucratic procedures proves far more effective than financial incentives in encouraging formal registration, according to new research examining barriers facing Ghana’s small enterprises.
The study, conducted by the University of Ghana Business School (UGBS) and the International Growth Centre (IGC) in collaboration with the Office of the Registrar of Companies (ORC), assessed nearly 3,000 Micro, Small and Medium Enterprises (MSMEs) in Accra. Researchers tested three interventions: direct logistical support, fee waivers, and education on registration benefits.
Results showed that helping business owners fill forms, queue, submit documents and collect certificates increased registration rates by 7.2 percent. Fee waivers and educational sessions produced no statistically significant effect, challenging assumptions that cost represents the primary obstacle to formalisation.
Patrick Asuming, lead researcher and development economist at UGBS, told media that transaction costs like time, distance and complexity create bigger barriers than financial expenses. Physical presence at the ORC, waiting in queues, and simply knowing which forms to complete present major constraints for many businesses.
Asuming identified fear of taxation as another critical deterrent. Many MSMEs believe that registering automatically triggers strict tax scrutiny, potentially creating financial pressures during vulnerable early business stages. This perception overshadows potential benefits even though formalisation often enables businesses to benefit from tax laws rather than fear them.
To improve formalisation rates, Asuming recommended decentralising and digitalising ORC services through mobile units and fully online processes to reduce travel and waiting times. He cautioned that physical support must remain available for entrepreneurs who struggle with digital platforms.
He urged policymakers to explore separating business registration from tax registration to address persistent fears. This would require collaboration between the ORC, Ghana Revenue Authority (GRA) and Ministry of Finance to redesign procedures in a more user friendly manner.
Henri Telli, Senior Country Economist at IGC Ghana, emphasised the need for inclusive reforms. He said a hybrid approach combining digital registration with human assisted support would ensure no entrepreneur is excluded from the formalisation process.
“If we truly want widespread formalisation, then the process must be inclusive,” Telli said. “Putting everything online will exclude many people who cannot navigate digital systems.”
Telli noted that misconceptions about immediate tax penalties continue preventing many business owners from registering, depriving them of access to government support, financing opportunities and productivity enhancing programmes. Institutions such as the ORC, GRA and Ghana Investment Promotion Centre (GIPC) must intensify public education to dispel fears and provide direct assistance to improve formalisation nationwide.
The research sheds light on Ghana’s persistent informality challenge. Data from the Registrar General’s Department indicates that 92 percent of businesses are registered as MSMEs, yet many more operate entirely outside formal structures. The MSME sector employs more than 80 percent of Ghana’s workforce and generates over 70 percent of gross domestic product, making formalisation critical to economic development.
Informal businesses face multiple disadvantages including limited access to credit facilities, exclusion from government programmes, inability to participate in formal supply chains, and lack of legal protections. Without adequate data on ownership, business turnover and financial footprint, assessing risk profiles of MSMEs becomes difficult. Where credit is available, collateral demands or interest rates often make it inaccessible or unattractive.
The study’s findings suggest that simplifying administrative processes matters more than reducing costs. Many entrepreneurs abandon registration efforts not because fees are prohibitive but because navigating bureaucracy consumes time and energy better spent on business operations. The seven percent increase from logistical support, though modest, demonstrates that reducing friction in the registration process yields measurable results.
Current registration procedures require business owners to reserve a name, gather documents, submit applications, pay fees and collect certificates across multiple visits to ORC offices. For entrepreneurs operating market stalls, small retail shops or service businesses, taking repeated days off to complete paperwork represents significant lost income and opportunity costs.
The research team observed that many business owners lack familiarity with forms, struggle to understand requirements, and face uncertainty about whether their documentation meets standards. Having assistance from someone familiar with procedures eliminates these barriers and provides confidence that applications will process smoothly.
Education campaigns highlighting registration benefits failed to move the needle because entrepreneurs already understand potential advantages. The challenge lies not in awareness but in execution. Business owners know that formalisation can unlock financing, enable participation in government procurement, provide legal protections and enhance credibility with customers. Fear of tax consequences and difficulty navigating procedures outweigh these acknowledged benefits.
The findings carry implications for policymakers designing interventions to expand the formal economy. Resources invested in fee waivers or awareness campaigns may deliver poor returns compared to funding assistance centres or mobile registration units that provide hands on support.
Several countries have experimented with mobile business registration services that bring government officials directly to markets, industrial areas and commercial districts. These initiatives reduce travel time and allow entrepreneurs to register without abandoning business operations for entire days. Ghana could adopt similar models, deploying teams equipped with digital registration tools to serve entrepreneurs where they work.
Digital platforms offer promise for reducing transaction costs but require careful implementation to avoid excluding less digitally literate entrepreneurs. An online portal handling name reservations, document uploads and fee payments could streamline registration for tech savvy business owners. Those struggling with technology would still need physical support options.
Separating business registration from tax registration represents a more fundamental reform that could address fear driven resistance. Currently, formalising a business immediately places it on tax authority radars, creating anxiety about compliance obligations and potential penalties. If registration served purely administrative purposes while tax registration remained optional or triggered only at certain revenue thresholds, more entrepreneurs might formalise without feeling they are inviting immediate government scrutiny.
Such separation would require legislative changes and institutional coordination. The ORC focuses on maintaining company records and ensuring compliance with corporate governance requirements. The GRA handles tax collection and enforcement. Creating clear boundaries between these functions while maintaining necessary information sharing would demand careful policy design.
The study adds to growing evidence that administrative barriers significantly affect business behaviour in developing economies. Earlier research has shown that complexity in procedures, unclear requirements, and multiple touchpoints with government offices discourage formalisation even when entrepreneurs recognise long term benefits.
Ghana’s government has committed to improving the business environment and making registration faster and more accessible. The ORC has introduced online services and worked to reduce processing times. These efforts align with findings suggesting that transaction costs matter more than financial costs, though implementation remains uneven and many entrepreneurs continue facing obstacles.
Researchers emphasised that addressing formalisation challenges requires sustained commitment rather than one time interventions. Building an ecosystem where registering and maintaining formal status is straightforward demands institutional capacity, technological infrastructure, and cultural shifts within government agencies toward service oriented approaches.
The study involved randomised allocation of MSMEs to different intervention groups, allowing researchers to isolate effects of each approach. Baseline surveys established initial registration status and business characteristics. Follow up surveys measured registration rates after interventions, enabling comparison across treatment groups and control groups that received no intervention.
This rigorous methodology provides confidence in results showing that logistical support drives registration while other approaches fail to generate meaningful impact. The findings challenge conventional wisdom and suggest that policymakers should prioritise reducing bureaucratic friction over subsidising registration costs or running awareness campaigns.
Source: newsghana.com.gh
