Does family taxation inhibit entrepreneurship in Ghana?

BY: Dr Hod Anyigba
Does family taxation inhibit entrepreneurship in Ghana?
Does family taxation inhibit entrepreneurship in Ghana?

For decades, entrepreneurs in Ghana have relied on family support to grow their businesses.

The costs of the choice will become clearer once the entrepreneur becomes established and well-grounded financially.

Those disillusioned for reform may be disappointed as this entrepreneurship strategy is well entrenched in the Ghanaian culture.

An attempt by reform to address this deep societal oddity would mean travelling back into time to appease our ancestors.

Generations of our forebears were well-known to rely on their collective strength while hailing the most accomplished in the society.

Today, inequality, democracy, education etcetera, have shifted the goal post.

Survival, especially in urban areas, have become the sole business of individuals. Entrepreneurs, therefore, are not left out of this equation.

Do entrepreneurs in Ghana or Africa, for that matter, face the same kind of social pressure their counterparts in advanced economies face when managing their firms? How can an entrepreneur in this socio-economic environment thrive in the face of growing global competition?

Demographic dividend

Some African families can be very large.

In Africa, women have 4.5 children on average, while in Asia the figure is 2.1 children, in Latin America 2.0, in North America 1.9 and in Europe 1.6.

On the average across the world women had 2.5 children in 2017.

It is clear African women have more children than other women on other continents.

Critics have blamed this pattern on the educational levels of women – the more educated women are, the fewer children they opt to have.

When fertility rates drop sharply, the proportion of children decrease rapidly.
As a consequence, the share of working-age adults increases to some extent.

This gives the country the chance to catch-up with economic development, but only temporarily.

To take advantage of this new “demographic dividend”, the country would have to create enough jobs to mop-up excess labour supply from the economy.

It is estimated that China’s demographic dividend accounts for between 10 per cent and 30 per cent of their economic growth.

Interestingly, birth control policy was not necessarily targeted at demographic dividend but rather to stall population growth from surpassing economic growth and development.

Ghana does not satisfy the conditions to enjoy demographic dividend.

Fertility is not declining fast enough and if it did, job creation is modest and cannot absorb the available labour.

This poses a big challenge to successful entrepreneurs. With large family sizes, the race to grow and expand their businesses become a daunting task.

Social pressure

The underlying assumptions, which today are common currency and account for much that is thought and said about social pressure takes the form of a ‘convenient’ safety net for labour.

In the absence of a public safety net, wealthy Ghanaians have the social obligation to share their wealth with needy relatives and their immediate network in the form of school fees support, monthly upkeep, hiring, awarding contracts and many more.

The culture of “forced mutual help” as a result of poverty and low social protection is commonplace in the Ghanaian context. Since becoming an entrepreneur marks economic success, start-up firms are not able to cope with the pressure hence do not survive the dreaded third year business collapse syndrome.

Social redistribution contrast affects entrepreneurs negatively as compared to their peers in developed economies, who clutter around their nuclear family and have better social protection policies and baskets.

The negative impact of solidarity norms on economic development cannot be underestimated.

In some communities, private wealth accumulation is perceived as an anti-social behaviour.

The mindset that people who have more than they manifestly need are put under relentless pressure to share.

In some cultures, sharing is a moral principle while capital accumulation is an ‘abomination’. Social redistributive pressure is a phenomenon that is here to stay.

Support and remedy

Entrepreneurs of African ethnicity provide financial support to family members even if they are fully aware that such financial help is a burden for the business.

These effects get diluted with geographical distance, presumably because with rising distance, it is easier to hide income and protect it from abusive requests.
This family taxation phenomenon makes entrepreneurship an unattractive occupation.

Family taxation here refers to demands often for financial assistance from relatives to cushion them in times of distress, that is, funeral expenses, school fees, hospital bills, among other things.

‘Family hiring’ amid other family taxation instruments must be well managed, if local entrepreneurs are to be competitive globally. Social pressure indeed inhibits entrepreneurial growth. Every little pesewa counts.

But who is listening? — GB

The author is an Assistant Professor of Economics and Entrepreneurship at Nobel International Business School (NiBS) – Africa’s Premier Doctoral School. Email: This email address is being protected from spambots. You need JavaScript enabled to view it.