How start-ups and small and medium enterprises are driving economic future in developing countries

The global economic landscape is continuously changing and developing countries in Africa are getting more interesting for European companies and investors. One of the typical characteristics of economies in Africa is the large number of start-ups and small medium enterprises, which also have a huge potential to support economic growth in developing countries. One of the most promising examples of growth is Ghana, where the population is relatively young and the level of safety and status of demography is among the best ones in Africa. Ghana has become a beacon for entrepreneurial growth in the West African sub-region. This transformation has been propelled by small and medium enterprises (SMEs) and start-ups driving the nation’s economy. Start-ups and SMEs drive job creation, poverty eradication, and general economic improvement. Over 90% of all businesses in the country are SMEs, representing about 60% of Ghana’s gross domestic product (GDP). They are crucial in confronting socio-economic challenges such as unemployment, especially among the youth that comprise most of the population. However, SMEs and start-ups face enormous challenges such as limited access to financing, skill deficits, and weak support systems.

Ghana is a sub-Saharan country in West Africa with a population of 34,4 million and an average age of 21,1 years (Worldometers, 2024). There have been relatively free and fair elections in the past 32 years of democratic governance. Ghana has made tremendous gains towards democracy in a multi-party system (Agyemang-Dua, 2008). Ghana ranks 51 out of 160 in the global peace index, placing 4th in Africa (Institute for Economics and Peace, 2023). Ghana consistently ranks in Africa’s top 3 for freedom of speech and press freedom (Reporters Without Borders, 2023).

This provides a thriving environment for businesses to be established and to grow. Ghana has year-round warm weather and is enriched with many natural resources and raw materials. (Image 1.) Still, the country’s economy remains an agrarian raw resources exporter and a net importer of finished goods.

The funding challenge: an obstacle to expansion

Access to affordable financing remains a major challenge for most start-ups and SMEs in Ghana. The formal financial system mostly favours larger establishments that can satisfy the rigorous and stringent requirements for securing credit facilities. Government initiatives like the Microfinance and Small Loans Centre (MASLOC) and the Ghana Start-Up Capital Fund have been created to bridge this gap, offering essential financial assistance to small enterprises. However, these programs alone are insufficient to meet the increasing demand for credit. (European CEO, 2024.)

According to the Bank of Ghana, lending rates for SMEs have consistently been high, averaging around 30% between 2018 and 2022. This makes conventional loans unattainable to most small business owners. Many entrepreneurs therefore resort to personal savings, informal loan networks, or loans and handouts from family and friends. Although these options may offer temporary relief, they hardly contribute to sustained growth. (Treece, 2022.)

Prospects in digital transformation and e-commerce

Amid the financial challenges, digital transformation has brought a glimpse of hope for SMEs and start-ups in Ghana. E-commerce and digital solutions allow enterprises to leapfrog over these challenges and quickly catch up with their counterparts in more advanced economies. Increase in internet penetration and online payment systems have allowed numerous enterprises to utilize digital tools to optimize their operations and access new markets. E-commerce has experienced steady growth, boosted by the emergence of mobile payment systems and a transition to online retailing. Despite being in its nascent phase, Ghana’s e-commerce sector possesses significant potential for future growth. (Sengretsi, 2020.)

Digital solutions allow enterprises to increase efficiency, minimize expenses, and deliver better services to their clients. The adaptation of digital solutions could be the factor that determines whether an enterprise thrives or struggles in the competitive market it finds itself. Nevertheless, the adaptation of digital solutions is not widespread nationwide. Superior infrastructure and better digital literacy in urban areas make it easy for enterprises in those areas to incorporate digital tools faster than their counterparts in rural areas. (Wang, 2024.)

Female entrepreneurs: overcoming obstacles and shaping futures

The entrepreneurial landscape of Ghana is not exclusively male-dominated. Women play a significant role, owning more than 50% of micro, small, and medium enterprises in the country. Women-led enterprises enhance household welfare, boost food security, and create employment opportunities for many, especially in rural areas (image 2). Despite their enormous contributions, women-led enterprises encounter challenges such as limited access to financial resources and business support. (Junior et al., 2020.)

Recent trends show a favourable shift. An increasing number of financial institutions are providing loans and special financial packages to female entrepreneurs. From 2022 to 2023, loans awarded to women-led enterprises surged by 116%, indicating a positive trend towards inclusivity in Ghana’s entrepreneurial landscape. Further efforts are required to guarantee that women possess equitable access to the resources and support essential for success. (Bank of Ghana, 2023.)

The future of SMEs in Ghana: necessary actions

For Ghana’s economy to prosper, its SMEs and start-ups must succeed. Although these enterprises are capable of generating significant economic growth, they require appropriate and deliberate support to flourish. For instance, the government’s five-year tax exemption for young entrepreneurs is a step in the right direction (Esq, 2022). More such initiatives in a comprehensive policy must be put in place purposely to create a conducive environment for the growth of the start-up and SME sectors.

Steps must be taken to improve affordable financing, digital infrastructure, and focused attention for women entrepreneurs to create a thriving ecosystem for businesses. By concentrating on these, Ghana can realize the complete potential of its SMEs and start-ups, ensuring their prominence in the nation’s economic advancement.

Conclusion: business potential for investors

The fastest economic growth over the recent years can be found in Asia, Africa and South America (IMF, 2025). In the coming decades, Africa will become the most important continent in terms of population growth and economic growth. Moreover, a significant factor of global natural resources are located in Africa. This implies that finding new opportunities for investments and expanding businesses to Africa is inevitably important also for Finnish investors and companies.

The Master’s thesis work by Afrane (2024) emphasizes that because of its young population, democracy and safety, Ghana is a potential region to lead the growth of Western Africa. This growth will be mostly driven by SMEs and start-ups with a strong foundation of entrepreneurial spirit pushing their success. As digital solutions advance and inclusivity gains emphasis, these enterprises are on the path to propel Ghana into a new age of economic prosperity. By enhancing SMEs’ access to finance, technology, and business development initiatives, Ghana can cultivate a more resilient and dynamic economy that benefits all citizens, local companies, and global investors.

Yaw Ohene Afrane
Master of Engineering
Oulu University of Applied Sciences

Ilpo Virtanen
Principal lecturer
ICT and communications
Oulu University of Applied Sciences

The blog post is based on the thesis:

Afrane, Y. O. (2024). Evaluation of the Economic Impact of Start-ups and Small and Medium Enterprises on Ghana's Development: A Comprehensive Analysis [Master’s Thesis, Oulu University of Applied Sciences, Data Analytics and Project Management]. Theseus. https://urn.fi/URN:NBN:fi:amk-2024100426084

References

Agyeman-Duah, I. (2020). Ghana: Governance in the Fourth Republic. DigiBooks Ghana Ltd.

Bank of Ghana. (2023). Collateral registry quarterly brief. Bank of Ghana.

Esq, T. F. (2022). Tax incentive for young entrepreneurs: opportunities and challenges. B&FT Online. https://thebftonline.com/2022/08/08/tax-incentive-for-young-entrepreneurs-opportunities-and-challenges/

European CEO. (2024). MASLOC: microfinance programmes vital to Ghana’s SME growth. https://www.europeanceo.com/world-view/masloc-microfinance-programmes-vital-to-ghanas-sme-growth/

Junior, A. I. A., Senior, A. I. A., & Beatrice, A. (2020). The Challenge Of Women Entrepreneurs In Accessing Funds In Kumasi (Ghana). Social Values & Society (SVS), Zibeline International Publishing, 2(2), 37–41. https://ideas.repec.org/a/zib/zbnsvs/v2y2020i2p37-41.html

Reporters Without Borders. (2023). Webpages. https://rsf.org/en/index

Sengretsi, S. (2020). Ecommerce in Ghana, 2020 – An Insightful Report. WopeDigital. https://wopedigital.com/ecommerce-in-ghana/

Treece, K. (2022). 11 startup funding options to grow your new business. Forbes Advisor. https://www.forbes.com/advisor/business-loans/startup-funding/

Wang, Z. (2024). The Impact of the Digital Economy on the Rural-Urban Income Gap—Moderating Effects Based on the Level of Technology Market Development. Open Journal of Social Sciences, 12(4), 335–352. https://www.scirp.org/journal/paperinformation?paperid=132678

World Bank Group. (2022). Ghana: Supporting Small and Medium Enterprises to Recover from the COVID-19 Pandemic. https://www.worldbank.org/en/results/2022/12/08/ghana-supporting-small-and-medium-enterprises-to-recover-from-the-covid-19-pandemic

Worldometer statistics. (15.11.2024). Ghana Demographics. https://www.worldometers.info/demographics/ghana-demographics/