Ghana’s economic stabilization efforts risk failure unless deliberate measures are taken to formalize the informal sector, which accounts for approximately 70 percent of economic activity, an economist has cautioned.
Dr Worlanyo Mensah told the Ghana News Agency that macroeconomic stability, including fiscal discipline and currency management, could not be sustained when the largest segment of the economy operated in the informal sector, which employs millions of people across trading, agriculture, transport, artisanal work and services.
The economist observed that much of Ghana’s economic activity operates outside formal regulatory, tax and data systems, making it difficult for government policies to accurately reflect how the majority of citizens earn a living and contribute to national development.
According to Mensah, millions of people working in trading, agriculture, transport, artisanal production and services are not adequately captured within existing economic frameworks, limiting their contribution to fiscal revenues and national development planning.
Recent data from the Ghana Statistical Service revealed that Ghana’s informal sector employs nearly 80 percent of the country’s workforce but contributes only 27 percent of Gross Domestic Product (GDP), highlighting a major productivity gap.
The National Report on Productivity, Employment and Growth, released by the Ghana Statistical Service in February 2025, warned that despite providing livelihoods for the majority of workers, the informal sector remains plagued by low productivity, underemployment and stagnant wages, posing a significant challenge to economic growth.
Mensah called for a comprehensive social auditing process, supported by digital systems, to properly profile the local economy, stating this approach would make it possible to identify what each Ghanaian does, where they operated, and how their activities contributed to economic growth.
He stressed the need to extend digitization to micro and small-scale operators by integrating informal workers into digital identification, payment and record-keeping systems. This, he noted, would improve data accuracy, enhance revenue mobilization and strengthen policy design.
The economist also urged the adoption of home-grown economic policies that reflect Ghana’s unique social and economic realities, rather than relying solely on externally driven models.
Mensah emphasized the importance of building the capacity of metropolitan, municipal and district assemblies to improve revenue collection and economic management. He further advocated for greater decentralization, arguing that empowering local authorities with more autonomy and resources would accelerate grassroots economic transformation.
The Ghana Statistical Service 2024 national report revealed that approximately 92.3 percent of all businesses in Ghana are informal, accounting for 27 percent of the country’s GDP, with the informal economy employing approximately 80 percent of the Ghanaian workforce while contributing only a quarter of national GDP.
Ghana’s tax-to-GDP ratio compares unfavorably to averages for regional peers, emerging markets and Sub-Saharan Africa. In 2021, domestic revenue was equivalent to 15.2 percent of GDP, well below the Sub-Saharan Africa average of 25.4 percent, according to World Bank data.
Studies have shown that suppressing informal activities through laws and policy pushes toward formalization are unlikely to be beneficial, underscoring the need to optimize gains from the current structure rather than change it entirely.
Formalisation challenges include high tax burdens, raised operational costs and extensive reporting requirements for those who decide to formalize. The incentive for formalization lies primarily with the government rather than informal actors, who are resource-constrained and often operate at subsistence levels.
The government is implementing several policies to formalize the sector by removing impediments to business registration and access to financial services. These efforts include digitization drives through various initiatives such as a digital property addressing system, a paperless port system and mobile payment integration.
Mensah added that formalizing the informal sector should be viewed not merely as an administrative exercise but as a strategic necessity for sustainable development, warning that economic stabilization efforts risk excluding the majority of citizens whose daily activities keep the economy functioning.
Dr Worlanyo Mensah serves as an economics lecturer at Wisconsin University College of Ghana and is Executive Director of the Centre for Greater Impact Africa. He previously ran as an independent presidential candidate in the 2024 general elections.
A sectoral breakdown shows that commercial agriculture, transportation, utilities and manufacturing are among the industries contributing to both job creation and productivity gains. However, Ghana’s economic transformation remains slow, with many workers transitioning from traditional trades to low-productivity urban services, limiting overall economic benefits.
The Ghana Statistical Service report calls for greater investment in industrialization, expansion of commercial agriculture and policies to integrate informal businesses into the formal economy. It also emphasizes the need for technology adoption, workforce upskilling and targeted fiscal measures to boost productivity.
With Ghana at a crucial economic turning point, analysts warn that without bold policy reforms, the country risks deepening income inequality, slowing productivity growth and failing to create sustainable jobs for its workforce.
