KNUST School of Business (KSB) Department of Human ......2019/06/01 · In Saudi Arabia, McDonald operates “ladiesonly”restaurants in order to comply with the Quran's ban on direct,

MAS151: BUSINESS IN GHANA

KNUST School of Business (KSB)

Department of Human Resource and

Organizational Development (HROD)

S. A. AZINGA (PhD)

September 23, 2018BSC 1 Business in Ghana1

MAS 151: Business in Ghana (3 Credit Hours)


❑The objective of this course is to offer students the

opportunity of understanding the environment within

which business organizations operate in Ghana, with an

emphasis on the extent to which, political, legal, socio-

cultural, economic, technological forces have shaped

the growth and practice of business and management

in Ghana over the years.

❑The course also seeks to provide students with

knowledge on public, private and relevant

international organizations and institutions, which

promote, facilitate, and regulate businesses in Ghana.

Course ContentIn order to achieve the above objectives, the course

examines:

1. Investment opportunities in the various sectors of the

Ghanaian economy;

2. the nature of Ghanaian business environment and the

different forms of business ownership and management

practices within the public and private sectors;

3. forms of business organizations and the legal environment

in which they operate: legal and technological needs,

regulatory institutions, the political system and business;


Course Content4. the relevant international organizations and

institutions, which promote, facilitate, and

regulate businesses in Ghana;

5. the emerging issues and policies affecting

business operations in Ghana;

6. the internationalization of business and

international business and trade regulations;


ASSESSMENT

ASSIGNMENT = 10%

MIDSEMESTER EXAMINATION = 20%

END OF SEMESTER EXAMINATION = 70%

ACCESS CODE: RQMRX-858ZG

schoology.com


CONDITIONS GUIDING OUR RELATIONSHIP

RESPECT

ATTENDANCE

MOBILE PHONES

ASSIGNMENTS

NOTES

CLASS REP:

CONTACT: see class rep or administration

Plagiarism / cheating

Understanding Institutions and business




https://i0.wp.com/www.business-to-you.com/wp-content/uploads/2016/09/PESTEL.jpg


❑ Institutions provide rules of the game

❑ Douglass North (2005) defines institutions as “the humanly

devised constraints that structure human interaction”

❑ Institutional framework is made up of both the formal and

informal rules/regulations governing individual or firm

behaviour

❑ Scott () identifies 3 pillars that support institutions namely;

❑The regulatory pillar

❑The normative pillar

❑The cognitive pillar


Dimensions of institutions

Degree of

formality

Example Supportive

Pillar

Formal

institutions

Laws,

Regulations,

Rules

Regulatory

(coercive)

Informal

institutions

Norms, culture,

Ethics

Normative/cogni

tive



❑Institutions include laws, regulations and rules. Domestically,

they are imposed by the government of Ghana. In terms of

global business, they may be imposed by home countries or

host countries and or bilateral or multilateral protocols

❑The primary pillar of formal institutions is the regulatory

pillar. That is to say the coercive power or force of the state

(Government) to enforce the rules of the game as far as

business is concerned.

E.G. Ghana does not allow foreigners into retail business

Ban on small-scale mining activitiesSeptember 23, 2018BSC 1 Business in Ghana11

Understanding Institutions and business (cont.)

❑This rule on non-participation of foreigners in retail

business and others are defined by acts of parliament,

codes and other regulatory mechanisms.

❑ In south Africa, firms whether domestic or foreign

must obey the rules of the state that set targeted

quotas and time tables in terms of Black

Ownership, Executive Position, and

Employment (BEE) ratio. Firms that fail to meet

the BEE targets have to pay fines and are disqualified

from Government contracts.



❑ Informal institutions on the other hand include

norms, culture and ethics. They are supported by

the normative and cognitive pillars

❑The normative pillar refers to how the values,

beliefs and actions; collectively known as NORMS

influence the behaviour of firms within the state

of Ghana and for that matter other states.

❑E.G. ban on noise making during the homowo festival



❑The cognitive pillar is the second supportive pillar for informal

institutions. It refers to the internalized or taken-granted values and

beliefs that guide firm behaviour.

❑E.G. concerned community members may report the destruction of

livelihood resources in their communities by illegal miners.

❑Employees or individuals may not feel comfortable with

organizational wrongdoing. In the case of the illegal mining

example, some community members may not want to incur the

displeasure of their traditional authorities who could be complicit in

such activities. The members who report the illegal activities of the

miners choose to follow their internalized personal beliefs of what is

right by overcoming the social norm that encourages silence (e.g.

talking against a chief means disrespect for authority)


Understanding Institutions and

business (cont.)

In the illegal mining example, the

normative pillar suggests to be quiet,

whereas the bold community members’

actions are driven by their strong

cognitive pillar regarding what is right and

wrong.


What do institutions do?

❑To reduce uncertainty

❑ Specifically, institutions influence

firm behaviour by signaling what

conduct is legitimate and what is

not.


Why is it important to reduce uncertainty?

Because uncertainty can be potentially devastating.

E.G. Political uncertainty such as the tendency for

coup can render long-range business planning

impossible. Economic uncertainty such as failure to

carry out transactions as spelled out in contracts

between contracting parties may result in economic

losses. The examples of numerous abrogation of

contracts with change in government in Ghana are cases

in point which can increase uncertainty for the business

community. Uncertainty during election year because

of the likelihood of violence affects business decision

making.September 23, 2018BSC 1 Business in Ghana17

Uncertainty surrounding economic transactions

can lead to transaction cost which are the

costs associated with economic transactions

or, more broadly, the cost of doing business.

An important source of transaction cost is

opportunism, defined as the act of seeking

self-interest with guile (cunning and deceitfulness).

Examples include misleading, cheating, and

confusing other parties in transactions that will

increase transaction costs


What institutions do to reduce uncertainty

Institutional frameworks increase certainty by spelling out the rules

of the game on business so that violations (such as failure to

honour one’s part in a contract) can be mitigated with relative ease

(such as through formal arbitrations and the judicial system)

In the absence of credible institutional frameworks that protect

investors, domestic investors may choose to invest their money abroad.

An example is often cited of Russian entrepreneurs who chose to buy

assets in London or Cyprus instead of investing in Russia. In Ghana, a

tendency has been reported where investors pull breaks on their

investment during election year or choose to invest in other

jurisdictions.

Institutions are not static, they are dynamic. Rules of the game on

business change over time and space and it is imperative for businesses

to keep their eyes on institutional reforms and adjust appropriately.September 23, 2018BSC 1 Business in Ghana19

Political systems (PS) and business

❑ PS refers to the rules of the game on how a country is

governed politically.

❑ Broadly. There are two forms of PS

DEMOCRACY

TOTALITARIANISM

❑Democracy is a system in which citizens elect

representatives to govern the country on their behalf.

❑Totalitarianism (or dictatorship) is a political system in

which one person or party exercises absolute political

control over the rest of the people or citizens


DEMOCRACY: less political risk

Freedom of association and Free market, driven by well

articulated and communicated institutions which define the rules

of the game in business.September 23, 2018

BSC 1 Business in Ghana21

TOTALITARIANISM: unpredictable political environmentCommon risks to business are wars, riots, chaos and breakdown of

order. In extreme cases, it may lead to nationalization of domestic

and foreign assets. Hence, opportunities depend on building personal

network with the people in power and keeping them happy.September 23, 2018

BSC 1 Business in Ghana22

Legal systems and business

❑ A legal system refers to the rules of the

game on how a country’s laws are

enacted and enforced.

❑ By specifying the do’s and don’ts, legal

systems influence business by reducing

transaction costs through minimizing

uncertainty and opportunism.


Origins of laws

❑Laws originate from three legal

families namely;

❑CIVIL LAW

❑COMMON LAW

❑THEOCRATIC LAW


Common law

❑Common law, which is English in origin, is shaped by

precedents and traditions from previous judicial

rulings/decisions.

❑Common law has spread to all English-speaking

countries, most of which were at one time colonies of

the British empire.

❑ Relative to civil law, common law has more flexibility

because judges have to resolve specific disputes based

on their interpretation of the law, and such

interpretation may give new meaning to the law, which

will in turn define future cases.September 23, 2018BSC 1 Business in Ghana25

Common law❑ Application of common law is more

confrontational because plaintiffs and

defendants, through their lawyers, must argue

and help judges to favorably interpret the law

largely based on precedents.

❑ In addition, contracts in common law countries

tend to be long and detailed to cover all possible

contingencies because common law tends to

be relatively under-defined.


Civil law

❑ Civil law has less flexibility because judges have the

power only to apply the law. Thus civil law is less

confrontational because comprehensive statutes and

codes serve to guide judges.

❑ statutes are permanent established rules or laws,

especially ones involved in the running of a company or

other organizations.

❑ Codes are accepted laws and regulations that govern

procedure or behaviour in particular circumstances or

within a particular profession


Civil law

❑ contracts in civil law countries

are usually shorter and less specific

because many issues typically

articulated in common law

contracts are already covered in

comprehensive civil law codes.


Theocratic law❑The third legal family is theocratic law, a legal

system based on religious teachings. Examples

include Jewish and Islamic laws. Although

Jewish law is followed by some elements of the

Israeli population, it is not formally embraced

by the Israeli government. Hence, Islamic law is

the only surviving example of a theocratic legal

system that is formally practiced by some

governments, including those in Iran and Saudi

Arabia. See sharia law (http://www.billionbibles.org/sharia/sharia-law.html)



Theocratic law and business❑ Despite the popular characterization of Islam as anti-business,

it is important to note that Mohammed was a merchant trader

and the tenets of Islam are pro-business in general. However,

the holy book of Islam, the Koran, does advise against certain

business practices.

❑ In Saudi Arabia, McDonald operates “ladies only” restaurants in

order to comply with the Quran's ban on direct, face-to-face

contact between unrelated men and women (e.g. why women

wear veils) in public. Moreover, banks in Saudi Arabia have to

maintain two retail branches: one for male customers staffed by

men and another for female customers staffed by women.


Theocratic law and business (cont.)

This requirement obviously

increases property, overhead, and

personnel costs. To reduce costs,

some foreign banks staff their back

office operations with both male

and female employees who work

side by side.September 23, 2018BSC 1 Business in Ghana32

SummaryOverall, legal systems are a crucial component

of the institutional framework because they

form part of the first regulatory pillar that

supports institutions. They directly impose do’s

and don’ts on businesses around the globe. A

legal system is complex, and there are numerous

components under its broad umbrella. Two of

these are physical property and intellectual

property rights which are discussed in the next

slidesSeptember 23, 2018BSC 1 Business in Ghana33

Property Rights

❑One fundamental economic function that a legal

system serves is to protect property rights, which are

the legal rights to use an economic property

(resource) and to derive income and benefits from it.

A legal system fulfills this economic role whether it is

civil, common, or theocratic. Examples of property

include homes, offices, and factories. Ideas are also

property, but these will be discussed separately in the

next section on intellectual property

September 23, 2018BSC 1 Business in Ghana

Source: PENG (2010)34

What difference do property rights supported by a

functioning legal system make in terms of business?

❑A lot, because why did developed economies become

developed? (Remember, for example, the United States

was a “developing” or “emerging” economy about 100

years ago.)

❑In developed economies, every parcel of land, every

building, and every trademark is presented in a

property document that entitles the owner to derive

income and benefits from it. That property document is

also important when violators are prosecuted through

legal means.


Why property rights are important in business

❑ When a legal system is stable and predictable, tangible property

also makes other less tangible economic activities possible.

❑E.G. property can be used as collateral for credit. The single

most important source of funds for new start-up businesses

in Ghana.

❑In USA the main source of funds for new start-ups is the

mortgage of entrepreneurs’ houses.

❑But this cannot be done without documented right to the

property.

❑ If you live in a house but cannot produce a title document

specifying that you are the legal owner of the house (which is a

very common situation in Ghana) no bank in the world will allow

you to use your house as collateral for credit.


❑To start up a new firm in Ghana, you

end up borrowing funds from family

members, friends, and other

acquaintances through informal means.

❑But funds through informal means are

almost certainly more limited than

funds that could have been provided

formally by sources such as the banks.


Intellectual Property Rights

❑While the term “property” traditionally refers

to tangible pieces of property such as land,

intellectual property specifically refers to

Intangible property that is the result of

intellectual activity (such as the content of

books, videos, and websites).

❑Intellectual property rights (IPR) are rights

associated with the ownership of intellectual

property.

E.G. patents, copyrights, and trademarksSeptember 23, 2018BSC 1 Business in Ghana38

Patents, trademarks and copyrights

Patents Legal rights awarded by government/state

authorities to inventors of new products or

processes. The inventors are given exclusive

(monopoly) rights to derive income from such

inventions through activities such as

manufacturing, licensing, or selling

Copyrights Exclusive legal rights of authors and publishers to

publish and disseminate their work. For example,

books are protected by copyrights

Trademarks The exclusive legal rights of firms to use specific

names, brands, and designs to differentiate their

products from others. September 23, 2018BSC 1 Business in Ghana

Peng, (2010)

39

Enforcement of intellectual property rights

❑ IPR need to be asserted and enforced through a

formal system that is designed to provide an

incentive for people and firms to innovate.

❑To be effective, the system must also punish

violators. But the intangible nature of IP makes its

right enforcement difficult. Piracy, or unauthorized

use of IP, is widespread around the world.

❑Acts of piracy range from unauthorized

distribution of music files to deliberate

counterfeiting of branded products.September 23, 2018BSC 1 Business in Ghana40

The Laws of Ghana

❑Chapter Four, article 11 of the 1992 Constitution of the

Republic of Ghana sets out the current position as

follows:

❑The laws of Ghana shall comprise –

➢The Constitution;

➢Enactments made by or under the authority of the

Parliament established by this Constitution;

➢Any Orders, Rules and Regulations made by any

person or authority under a power conferred by the

Constitution;

➢The existing law,

➢The common lawSeptember 23, 2018BSC 1 Business in Ghana41

Investment-specific laws

❑ The Ghana Investment Promotion Centre

(GIPC) Act, 1994 (Act 478)

❑The Free Zone Act, 1995 (Act 504)


Principal tax Laws in Ghana

❑The Internal Revenue Act, 2000 (Act 592) as amended

❑Excise and Preventive Service (Management) Law, 1993

(PNDCL 330) as amended

❑Value AddedTax Act, 1998 (Act 546) as amended

❑Revenue Agencies (Governing Board) Act, 1998 (Act 558)

❑Ghana Revenue Authority (GRA) Act, 2009 (Act 791)


Laws governing operations of Companies,

partnerships and other legal entities

➢Companies Code, 1963 (Act 179) as

amended

➢Incorporated Private Partnerships Act (IPPA)

of 1962, Act 152 as amended.

➢Business Names Act, 1962(Act 151).September 23, 2018BSC 1 Business in Ghana44

❑Environmental Protection Agency Act,

1994 (Act 490)

❑ Environmental Assessment Regulations,

1999 (LI 1652).


Laws on Environment

Business Entities in Ghana

❑Business entities in Ghana can be classified in

various ways. The most common classifications

are:

▪Formal versus informal

▪Public versus Private

▪Micro, small, medium and large enterprises


Formal versus informal

❑Formal business sectors are ones that are captured by the

various institutions of state as officially registered. Ministries

and agencies under which they are regulated, usually have

oversight responsibility over them.

❑The informal sector describes economic activity that takes

place outside the formal regulatory system (or regulations)

governing economic transactions, but may not necessarily be

illegal. Generally, the term applies to small or micro-

businesses that are established by individuals and families

usually as means of self employment.


Informal Businesses

In other words, the Informal business sector

embodies economic activities that are conducted by

unregistered firms or by registered firms but hidden

from taxation (LaPorta and Schleifer,2008).

It includes not only enterprises that are not legally

regulated but also employment relationships that are

not legally regulated or protected.


Size of the informal sector

❑ It is estimated that 80 percent of the Ghanaian workforce is

employed in the informal sector.

❑The sector is characterized by underemployment,

unconducive working conditions, uncertain work

relationships and low wages.

❑Majority of people working in the informal sector are living

with high income insecurity.

❑The trade unions are facing major challenges in attempt to

organize workers in the informal sector to ensure that

employees are working in an environment with high job

security and devoid of harm.


Public and Private sectors


❑Basically there are two major sectors in every economy;

public and private.

❑Public sector institutions and businesses are established

and controlled by government or the state

❑Private or Business sector is made up of entities outside

the public sector and includes foreign investment.

❑Public/private partnership (PPP) where ownership is

shared between the state and the private

individuals/companies

Micro, Small, medium and large enterprises

❑Micro enterprises: 1-5 employees and value of fixed

assets up to $5000.

❑Small Enterprises: 6-19 employees and fixed assets up

to $10,000

❑Medium Enterprises: 20-99 employees and fixed assets

worth up to $100,000

❑Large firms: 100 or more employees with fixed assets

more than $100,000

❑Fixed assets exclude immovable property.


Micro, Small, medium and large enterprises ( also

called SMEs)

❑Small to Medium Enterprises (EMEs) are popularly

referred to as SMEs.

❑SMEs make up over 90% of business units in theworld and account for between 50% - 60% of totalemployment

❑Innovations that have transformed Ghana were notborn in the posh offices of the club 100 companiesbut those small businesses in the backyard of housesand the busy markets and streets of Ghana as in otherAfrican countries.

September 23, 2018BSC 1 Business in Ghana

52

Definition of SMEs

❑There is no universally agreed definition of Small

& Medium Enterprises .

❑Definitions range from those based on the number

of employees to those based on business turnover

and assets.

❑Definitions vary from country to country

depending on the size of the economy.

Definition of SMEs▪ World Bank’s Definition since 1976

SMEs are firms with fixed assets (excluding land) less than US$ 250,000 in value

▪ UNIDO’s Definition for Developing Countries

Large :firms with 100+ workers

Medium :firms with 20 - 99 workers

Small :firms with 5 - 19 workers

Micro :firms with < 6 workers

▪ UNIDO’s Definition for Industrialized Countries:

Large :firms with 500+ workers

Medium :firms with 100 – 499 workers

Small :firms with ≤ 99 workers

Micro Environment of businesshttp://smallbusiness.chron.com/six-microenvironmental-factors-affect-businesses-78023.html


➢Informal nature of businesses

➢Lack of managerial skills, training and organizational

development

➢Access to credit (high interest rates)

➢Low productivity due to slow technology adoption

➢lack of economies of scale (high per unit cost of prod.)

➢Lack or high cost of raw materials

➢Lack of or inadequate and relevant government support

➢Lack of or inadequate market information

Macro Environment of business


Public administration; bureaucracy, corruption, populism and political vendetta.

Taxes, interest rates, inflation, levies, fees, high exchange rates

Licenses, restrictions, controls, etc.

Land tenure system; land acquisition

Infrastructure: power, transport, water, telephone, internet etc.

Labour laws, high wages, salaries and end-of-service benefits

SMEs and Poor Business Environment


❑A poor business environment often hits smaller

and informal firms the hardest. E.G.

▪ A small firm has more difficulty than large firms in

affording the per unit cost of power.

▪ Small firms also have difficulty getting access to

finance because of limited assets for collateral and

shorter credit histories.

▪ Small firms cannot hire the best of managerial skills

▪ Small firms cannot install the best and latest business

enhancing technologies.

▪ Small firms cannot survive the global competitive

business environment because of high AC.

GOVERNMENT OF GHANA

TEN (10) POINT PILLARS OF NDUSTRIAL

TRANSFORMATION. HOW DO THEY SUPPORT BUSINESS OPPORTUNITIES?

1. Industrial revitalization Programme

➢Provision of stimulus package to economically viable but financially

distressed companies

2. One District One Factory [1D1F] (Decentralizing

industrial development)

➢The initiative is designed to decentralize industrial development to

ensure an even and spatial spread of industries. The state will facilitate

and assist medium to large scale businesses to set up. The state will

only have an equity interest.


GOVERNMENT OF GHANA

TEN (10) POINT PILLARS OF NDUSTRIAL TRANSFORMATION. HOW DO THEY SUPPORT BUSINESS OPPORTUNITIES?

3. Development of Strategic Anchor Industries

(towards diversifying the economy)

➢ This is expected to give rise to the emergence of strong and

robust petrochemical and integrated aluminum industries,

vehicle assembling plants, pharmaceuticals, palm oil as well as

industrial salt architecture.

4. Establishment of Industrial Parks in all regions

➢ The Ministry of Trade and Industry will facilitate the

acquisition of land for the springing up of these industrial

parks nationwide. These parks will be Free Zone enclaves with

access to reliable energy supply.September 23, 2018BSC 1 Business in Ghana59

GOVERNMENT OF GHANA


5. Development of small and medium-scale enterprises

(SMEs)

➢ If the Government’s objective of job creation will permeate all facets of

the economy, small and medium scale enterprises would have to be

given the needed boost to survive.

6. Export Development Programme

➢ The Ministry will encourage and facilitate for businesses to take

advantage of AGOA and the EPA. This is particularly necessary because

should the factories under the One District One Factory take on Free

Zones status, they would be required under the law to export about

70% of their production.


GOVERNMENT OF GHANA


7. Enhancing Domestic Retail Infrastructure

➢ This will be done through value addition to locally manufactured products to

make them competitive with other products from elsewhere. Again flagship

interventions such as the One District One Factory and the industrial

revitalisation Programme will lead to large volumes of production and there is

the need to get the needed retail infrastructure in place to cope with it.

8. Improving the Business Environment through regulatory

reforms

➢ This involves putting in place measures to ease the cost of doing business in the

country through removing some of the bureaucracies associated with doing

business in the country. This will help position the country as business friendly

environment and consequently impact on the country’s ratings on the World

Bank’s ease of doing business index.


GOVERNMENT OF GHANA


9. Industrial sub-contracting exchange

➢This is intended to link SMEs to large companies in

the country to ensure that the large companies

subcontract some of their businesses to the SMEs

10. Improving Public-Private sector Dialogue

➢ It is expected that at least there will be one Business

Summit every year to review


INDIVIDUAL ASSIGNMENT Identify an area of business and based on the PESTEL analysis;

a) discuss how specific factors (as in the PESTEL) affect its creation and

management in Ghana.

b) do a SWOT analysis based on the output of the PESTEL analysis

REQUIRED

I. Should not be less than 3 pages and not more than 5 pages

II. Use times new roman, font size 12 and justify the margins

III. Direct copying without synthesizing will attract no marks

IV. Submissions will be tested for originality (so, NO copying)

V. Submission deadline is 30th October, 2018

VI. Mode of submission: [email protected]

VII. ADD YOUR FULL NAME AND STUDENT NUMBER (on cover page)


mailto:[email protected]

Documents

KNUST School of Business (KSB) Department of Human ......2019/06/01 · In Saudi Arabia, McDonald operates “ladiesonly”restaurants in order to comply with the Quran's ban on direct,