Informal economic activities in Ghana : a case study of slums in Kumasi and Accra.

Abstract

ABSTRACT Slums are urban households, which lack permanently durable housing, adequate living space, access to clean water, suitable sanitation and land tenure security. Globally, slums house a third of the world’s population. These slums do not only accommodate individuals who cannot afford formal housing, but also, a vibrant informal sector. Slum operators engage in diverse economic activities to earn a living, mostly in cities where there is lack of employment opportunities. Slum activities are an integral part of the informal sector, which globally, is found to contribute significantly to employment and income, especially among low-skill individuals. In Ghana, the informal sector employs 86% of the total labour force. The Harris-Todaro model suggests that people migrate from rural to urban areas because of income differentials and employment opportunities. In the absence of adequate housing and employment facilities in Ghana, migration results in the growth of slums and urban slum informal activities as people look for a place to stay and earn a living in desperation. The informal sector is a flourishing segment of the economy, a springboard from which many dynamic small firms may graduate to the formal sector over time. There may be other motivations too that influence people in Ghana to engage in the informal slum activity. This study examined what factors motivate individuals to engage in that sector on the basis of a survey of 344 slum operators in Kumasi and Accra, two major cities in Ghana. Data collected by means of a questionnaire were analysed using SPSS and STATA. The study found out that, three levels are involved when one engages in slum activities; the entry, operation and exit phases. Factors that motivate operators to engage in slum activities represent the first stage. Using Principal Component Analysis, the study found out that avoidance of government regulation is the main motive for one’s involvement in slum activities. Hence, government initiatives that will take away some of the bureaucratic burdens and rigorous procedures of operating in the formal sector may assist in reducing the growth rate of slum activitiesin Ghana. Other driving forces include the ‘luxury’ of working at one’s own time, making use of one’s talents and relations, and the quest for higher income. An operator’s participation in slum activities represents the second stage. As one engages in these economic activities to generate income, the study found out that, the surveyed operators earn about US $ 8 a day, higher than the World Bank’s poverty line of US $2 a day. To find out what factors determine the average daily income earned, the OLS regression analysis is used. Amongst factors, iii an operator’s social networks, locus of control, type of economic activity, educational level, age of business and labour size, it was found that firm age was the main determinant of average daily income in slum activities in Ghana, with a 20% increase in average daily income for every extra year of operation. Some hypotheses are also tested regarding differences in performance between the two regions and between male and female operators. The mean income of males is found to be significantly higher than that of females while differences in average income are also found between the two regions. The study then investigated the constraints that limit the growth and development of enterprises, using Factor Analysis. Of the constraints, insufficient skills and business knowledge was most inhibiting. Other growth constraints include infrastructural challenges, difficulty in accessing credit, lack of tools and materials, security problems, poor communication and social networking. Exiting informal slum activities represents the third and final stage, which involves a slum operator’s willingness to move into formal activities. Formalizing of the informal sector is crucial to generating sustainable income and employment. Results from logistic regression indicate that of all the constraints, addressing access to finance will prompt slum operators to move into formal sector. Many slum operators are happy to stay in the informal sector. Nevertheless, it is imperative that policy makers come up with suitable financing strategies to assist slum operators in order to help in formalization.