September 8, 2007 11:56 WSPC WS-JDE SPI-J076 00069

September 8, 2007 11:56 WSPC
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Journal of Developmental Entrepreneurship

Vol. 12, No. 3 (2007) 295322
World Scientific Publishing Company
GHANAIAN AND KENYAN ENTREPRENEURS: A COMPARATIVE

ANALYSIS OF THEIR MOTIVATIONS, SUCCESS
CHARACTERISTICS AND PROBLEMS
HUNG MANH CHU

Department of Management
West Chester University, West Chester, PA 19383
CYNTHIA BENZING
Department of Economics and Finance
cbenzing@wcupa.edu
cdbenzing@aol.com
CHARLES MCGEE
Department of Management
Received June 2006
Revised December 2006
Three hundred and fifty-six entrepreneurs from Kenya and Ghana were surveyed to determine their
motivation for business ownership, variables contributing to their business success, and the problems
they encountered. Kenyan and Ghanaian entrepreneurs indicated that increasing their income and
creating jobs for themselves were leading factors motivating them to become business owners. Hard
work and good customer service were cited by both Kenyan and Ghanaian business owners as critical
for their success. But, compared to the Kenyan entrepreneurs, Ghanaians weighed support from family
and friends and external relationship building as more important. A weak economy is the most important
problem preventing entrepreneurs of both countries from achieving their goals. Ghanaian entrepreneurs
were more concerned about the inability to obtain capital, while Kenyan entrepreneurs were more
concerned about government regulations and problems related to business location.
Keywords: African entrepreneurs; motivation; business success; African business problems.
1. Introduction
The growth of jobs and GDP in developing countries is heavily dependent on the growth
and health of a countrys small business sector. As described by international agencies and
economists (IFC, 2000; Spring and McDade, 1998; Steer and Taussig, 2003), micro- and
small-sized enterprises (MSEs) are an important contributor to economic growth, household income and social stability. Both Ghana and Kenya recognize the importance of small
businesses and have taken actions to promote their growth. As one public utility official,
295
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296 H. M. Chu, C. Benzing & C. McGee
Kwame Pianim, recently said, What we need is the vision and purposeful leadership to
unleash the abundant entrepreneurial talents of Ghanaians so the private sector can become
strengthened to assume the role of the engine of growth for the economy (Korantemaa,
2006). As described by Kenyan officials as early as 1992, the MSE sector in Kenya contributes to GDP, creates jobs, develops a pool of skilled labor for future needs, provides
managerial learning opportunities, increases the savings and investments of local Kenyans
and reduces poverty (Republic of Kenya, 1992).
During the 1960s and 1970s, Kenya enjoyed strong economic growth. But in the two
decades that followed, Kenyas economic performance deteriorated significantly. The average annual GDP growth rate declined from 6.5 percent during the 1960s and 1970s to about
1.3 percent between the years of 1996 and 2000, which was below the average population
growth rate of 2.2 percent (World Bank, 2006a). Kenyas economy turned a corner in 2002.
Since then, its real GDP has made impressive gains. According to the Kenyan government,
real GDP grew at 4.9 percent in 2004 and 5.8 percent in 2005, which exceeds the average
growth rate on the continent (Republic of Kenya, 2006).
As the first African colony to become independent from Great Britain, Ghana chose a
highly centralized, non-market technique to develop its economy. State owned enterprises
(SOEs) were integral to its national economic policy. Although these policies helped industrialize the country, they ultimately became a drag on the economy. Since the early 1980s,
Ghana has worked closely with the International Monetary Fund (IMF) to liberalize trade
and investment, privatize SOEs and promote free markets. As a result, throughout the 1980s
and 1990s annual GDP growth averaged almost 4.5 percent and the poverty rate declined
from 50 percent to approximately 35 percent. During the 1990s, Ghanas economic growth
was slowed by higher oil prices and depressed cocoa and gold prices. Since 2000, Ghanas
economic picture has brightened with stronger GDP growth and a decline in its rate of
inflation. Ghana achieved 5.8 percent real GDP growth in 2004 (and 5.8 percent estimated
2005) which, like Kenyas rate, is higher than the average for the continent (International
Monetary Fund, 2005; World Bank, 2006b).
The strong economic growth of both countries has been tempered by double-digit inflation due, in part, to rising fuel costs and fiscal imbalances. In 2004, Kenya faced 11.6 percent
inflation, while Ghana experienced a 14.8 percent increase in prices in 2005 (Bank of Ghana,
2006; Republic of Kenya, 2005). Such inflation is destabilizing to the business sector and
especially small firms. Most small businesses face intense competition and consequently,
do not have the power to increase their prices to offset cost increases for raw materials or
supplies.
The MSE sector contributes to Kenyas and Ghanas economies by creating jobs and
reducing unemployment. In 1994, the MSE sector employed one-third of all working persons
in Kenya and was responsible for 13 percent of GDP (Republic of Kenya, 1995; Daniels
et al., 1995). According to a 1999 survey of MSEs, the Kenyan government found that
about 26 percent of households were engaged in some form of MSE activity (CBS, K-Rep,
and ICEG, 1999). In addition, the survey determined that the MSE sector contribution to
GDP had grown to approximately 30 percent (CBS, K-Rep, and ICEG, 1999). In Ghana,
70 percent of the business firms are microenterprises employing less than five persons and
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Ghanaian and Kenyan Entrepreneurs: A Comparative Analysis 297
approximately 70 percent of the Ghanaian workforce is employed in micro, small, and

medium-sized enterprises (Government of Ghana, 2003; World Bank, 2006c). The vast
majority of households in Ghana are participating in some type of private sector activity
(Government of Ghana, 2003).
Most MSEs operate in the informal sector. (In Kenya, the small informal business
sector is known as the jua-kali.) Although these businesses avoid government scrutiny
and the expenses related to formal business registration, there are disadvantages to being
unregistered. An unregistered business does not have access to land titles or other property
rights for use as collateral and cannot have a bank account. Despite the drawbacks, MSEs
continue to remain largely in the informal sector of developing countries such as Kenya
and Ghana, providing significant jobs and income. Of the 459,000 jobs created in Kenya in
2005, 90 percent (414,000) were created in the informal sector (Republic of Kenya, 2006).
As of 2004, 77 percent of the workforce was employed in Kenyas informal sector (Republic
of Kenya, 2005). In Ghana, approximately 40 percent of the gross national income is the
result of informal sector activity (Government of Ghana, 2003).
Given the importance of MSEs, this study is designed to examine the motivations for
business ownership, the factors contributing to success and some of the problems encountered by entrepreneurs in Ghana and Kenya. The results can hopefully provide a better
understanding of entrepreneurial behavior in both countries and will yield some helpful
information for policy decision-makers.
2. Literature Review
2.1. Motivation
A number of surveys of entrepreneurs provide insight into the motivational aspects of the
entrepreneurial experience. Kuratko et al. (1997) and Robichaud et al. (2001) surveyed
North American entrepreneurs to determine how motivation relates to business success.
According to their studies, motivation falls into four categories: (1) extrinsic rewards; (2)
independence/autonomy;(3) intrinsic rewards; and (4) family security. Extrinsic rewards are
the economic reasons that motivate entrepreneurs to work, while intrinsic rewards are related
to self-fulfillment and growth. Because Kuratko et al. and Robichaud et al. concentrated
on the relationship between motivation and business success they did not indicate which
motivations were the strongest among entrepreneurs.
With respect to entrepreneurial motivation in developing countries, Swierczek and Ha
(2003) examined the motives of Vietnamese entrepreneurs. Swierczek and Has survey
concluded that challenge and achievement were significantly more important motivators
than were necessity and security. A study of motivation by Benzing, Chu and Callanan
(2005) discovered some regional differences in Vietnam, such that entrepreneurs in Ho Chi
Minh City were more motivated to start a business for personal satisfaction and growth,
while entrepreneurs in Hanoi were motivated by the need to create a job for themselves and
provide jobs for family members. Compared to Ho Chi Minh City, Hanoi suffers from a
weaker economy and higher jobless rate, which may lead to greater security needs there.
In Romania, income needs were significantly stronger motivators than self-satisfaction and
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personal needs. The two strongest motivations were to increase income and to obtain job
security (Benzing, Chu and Szabo, 2005). In contrast, entrepreneurs in India were most
strongly motivated by the desire for independence/autonomy, i.e. to be their own boss. The
second strongest motivator was to increase their income (Benzing and Chu, 2005).
In Africa, Ugandas entrepreneurs indicated that making a living or making money is
the most important motivator for their business ownership (Bewayo, 1995). Results derived
from the survey also showed that a majority of entrepreneurs (61%) preferred business
ownership over working for a corporation because of autonomy, freedom and independence
(Bewayo, 1995).
Regarding the motivation for Kenyan entrepreneurs, Robertson (1998) suggested that
the diminishing amount of land available to women in Kenya is the single most important
factor motivating their involvement in trade. Another factor furthering womens business
ownership is their inability to access a Western type of education, which has become a
critical resource for Kenyans (Robertson, 1998).
According to a study by Chamlee-Wright (1997), Ghanaian entrepreneurs often invest
in a business because they have few other options. The majority of Ghanaians cannot entrust
their savings to a financial institution. In fact, in Ghana few financial institutions provide
interest-bearing investments for individual savings. With no stock market and interest rates
that fall behind the rate of inflation, Ghanaians often have no choice but to put money in
their own businesses and hope for a reasonable return on their investment.
Because of weak employment and savings opportunities in Kenya and Ghana, one may
speculate that business owners might be more motivated by extrinsic rewards such as increasing income and creating a job for themselves than by intrinsic rewards and autonomy. But,
unlike the Communist and former Communist countries such as Vietnam and Romania,
Kenya and Ghana have had a continuous entrepreneurial tradition. Thus, entrepreneurs in
Kenya and Ghana might better understand and be motivated by the intrinsic rewards and
satisfaction that emanate for business ownership. Learning more about business owners
motives could help policy-makers design incentives to foster entrepreneurial behavior, which
would strengthen the private sector, improve household income and encourage economic
development.
2.2. Perceived success characteristics

The factors that entrepreneurs believe contribute to their success are not unanimously agreed
upon by researchers. Most entrepreneurial research has concentrated on a few sets of factors: (1) the psychological and behavioral traits of entrepreneurs, (2) the managerial skills
and training of entrepreneurs and (3) the external environment. With regard to psychological traits, findings have been inconclusive. Dunkelberg and Cooper (1982); Markman and
Baron (1998); Shaver and Scott (1991); Solomon and Winslow (1998); and Stewart et al.
(1998) have not fully agreed on the traits that lead to business success. As pointed out by
numerous researchers (Covin and Covin, 1990; Dess et al., 1997; Frese et al., 2002; Rauch
and Frese, 1998), the effect of entrepreneurial orientation is often moderated by factors
such as environmental conditions. This study concentrates on the managerial skills, training
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and external environmental conditions that promote business success because these are the
factors that are most easily altered by policymakers.
Studies of entrepreneurs in developing countries (Busch, 1989; Huck and McEwen,
1991; Gosh et al., 1993; Yusuf, 1995) have been undertaken to determine the management
skills critical for their success. In Huck and McEwens (1991) study of Jamaican small
business owners, three skills were identified as the most important competency areas: management, planning and budgeting, and marketing/selling. Specific competencies within those
areas were maintaining financial records, possessing human relations skills and establishing
goals and objectives. In a study done by Yusuf (1995), South Pacific islanders considered
good management skills, access to financing, personal qualities and satisfactory government
support the most critical success factors.
In a study conducted among 25 Kenyan entrepreneurs, Neshamba (2000) found that the
owner-managers previous work experience and skills acquired on the job are important factors contributing to business success and growth. Other factors are: knowing the market and
understanding the needs of customers, access to capital, assistance from family members and
networking with friends from former schools and colleges. Finally, hard work, as evidenced
by long working hours, contribute to the success of an entrepreneur (Neshamba, 2000).
Based on a survey provided by the Kenya Management Assistance Program (K-MAP),
the availability of capital, possession of business skills, previous experience and support of
family members are essential for business success in Kenya (Pratt, 2001).
According to a survey conducted by McDade (1998), a number of personal and business
factors are related to the success of artisan entrepreneurs in Ghana. The acquired personal
factors are formal education, apprenticeship training, rural to urban migration and foreign
migration. Business characteristics such as receiving business loans, using outside traders
and innovating were also cited as factors contributing to business success among Ghanaian
artisans. Two other factors that were related to business success (higher revenue) were prior
experience in another business and the number of employees.
Entrepreneurs understand which factors would improve their prospects for business
success. Armed with this understanding, policy-makers can better assist entrepreneurs by
providing access to the skills and knowledge that they need.
2.3. Problems facing entrepreneurs

The problems facing entrepreneurs in developing countries are often quite similar. First,
entrepreneurs face an unstable, highly bureaucratic business environment. The laws governing African private enterprises, especially business registration and taxation systems, are
overly complex and difficult to understand. Contract and private property laws are often
poorly designed and/or enforced. As described by Kiggunda (2002) and Pope (2001), the
unfavorable institutional/regulatory environment is often accompanied by the added expense
of corruption and bribery. Research conducted on small businesses in East African countries
(Tanzania, Kenya and Uganda) shows that the private sector is overregulated and that regulations overlap and duplicate each other at central and local levels. Entrepreneurs are often subject to lengthy and costly delays in clearances and the approval process (Macculloch, 2001).
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One of the most serious problems facing African MSEs is limited access to short-term
and longterm financial capital. As suggested by Cook (2001); Gray et al. (1997); Levy
(1993); Little et al. (1987); Peel and Wilson (1996); and Spring and McDade (1998), most
small firms in developing countries do not obtain credit through formal financial institutions
because they cannot meet the collateral requirements or face exorbitant rates of interest. In
a study of Nigerian firms, Ariyo (2004) concluded that the most critical problem facing
Nigerian entrepreneurs is the lack of funding. Most new Nigerian small businesses are
not attractive candidates for bank lending because they are perceived as risky ventures.
Horns (1998) study of Zimbabwe concluded that small business growth was hampered
because bank policies would not accommodate small business loans. Morewagae et al.
(1995) reached a similar conclusion concerning Botswanas small business sector.
A survey of Kenyan entrepreneurs found that a lack of capital was the greatest problem
facing respondents (Gray et al., 1997). Although many Kenyan business owners did not
know how to apply for loans, those who did apply were rejected. It has also been reported
that the small business environment in Kenya is marked by repressive laws and restrictive
administrative behavior. Government officials are suspicious and sometimes hostile to profit
making. Kenyan entrepreneurs complain of long delays in obtaining trade licenses and
business registration, complicated tax forms, heavy control by government, and outright
misinterpretation of laws (Gray et al., 1997; Kenya Management Assistance Programme
Report, 1999; Pratt, 2001).
According to the World Bank and IMF experts, the number one problem faced by
Ghanaian entrepreneurs is insufficient access to credit (Chamlee-Wright, 1997). An earlier
study by Steel and Webster (1991) had reached the same conclusion. According to a 2002
government survey, other critical problems faced by Ghanaian entrepreneurs are: poor utility
connections; high tax rates; burdensome administration; corruption; and the unpredictability
of laws and regulations.
The corruption of government officials is a problem for both Ghanaian and Kenyan
entrepreneurs. In Chamlee-Wrights survey (1997), about 1,500 Accra traders per month
reported having their goods confiscated. In addition, they had to pay at least 5,000 cedis
(US$6.75) to the city each month. Six dollars and seventy-five cents can be the difference
between being able to feed the family and declaring bankruptcy. This fine, in many cases,
is a major source of income for the city councilmen and policemen.
The major problems reportedly facing entrepreneurs in Kenya and Ghana relate to government bureaucracy, lack of financing and corruption. This study will update previous
survey information to determine if these are still the major problems facing entrepreneurs.
To what extent have recent reforms in Kenya and Ghana removed these barriers to MSE
development? The current survey can assist policymakers by providing a means to evaluate
the reforms already instituted and a guide to future business sector reforms.
3. Survey and Methodology
The samples were chosen from the Chamber of Commerce membership directories for
Nairobi and Accra, the capital cities of Kenya and Ghana respectively. Every second entry
in the business directories was chosen for contact. Non-profit organizations, government
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owned enterprises (SOEs) and internationally owned enterprises were disregarded. If the
second entry did not fulfill the requirements or the business owner refused participation,
the next entry from the alphabetical list of institutions was contacted. The surveys were
conducted with the help of a Kenyan graduate assistant and a local Ghanaian high school
teacher. The method of filling out the questionnaire was a face-to-face meeting with the
owner. In all, 200 Kenyan business owners elected to participate in the survey, while 156
Ghanaian entrepreneurs agreed to be interviewed.
Since English is the official language used in Kenya and Ghana, the survey was written
and conducted in English. The questionnaire survey used in this study was similar to that
used with entrepreneurs in Vietnam, Romania and India (Benzing, Chu and Callanan, 2005;
Benzing, Chu and Szabo, 2005; Benzing and Chu, 2005). The motivation factors are similar
to those suggested in the work of Robichaud et al. (2001) and Kuratko et al. (1997). Many
problems listed in the survey are common to entrepreneurs in both transition and developing
countries.
Survey respondents were not asked about corruption and bribery due to the sensitive
nature of the problem. Entrepreneurs might be suspicious of a question about corruption
and might be inclined to end the interview.
The strengths of perceived success variables, motivation variables, and problems were
measured using a five-point Likert scale. A mean score for each item was calculated with
a higher mean score indicating greater importance. A two-sample, non-parametric test was
used to determine if Kenyan and Ghanaian entrepreneurs mean scores were significantly
different for a given item. A two sample t-test would not be appropriate because the data
are ordinal and non-normally distributed. The non-parametric test used in this study was
the Wilcoxon rank sum test (also called the Mann-Whitney test).
The item-by-item analysis was followed by a factor analysis to determine whether the
motivations, success variables and problems group together on significant factors. Correlation analysis, principal components analysis and a screen plot were used to establish the
factors. Then, a maximum likelihood, varimax rotation, factor analysis was used to determine
the factor loadings and communalities. The items that load on each factor were examined as
well as how the factors differ between Ghanaian and Kenyan entrepreneurs. To compare the
factors of Ghanaian and Kenyan entrepreneurs, the mean scores of summated scales were
computed and compared for Ghana and Kenya. The Mann-Whitney test was used again
because the summated scales were not normally distributed. (The same conclusions about
the country differences between factors were obtained when an F-test was used to determine
significant differences of summated scales.) While the factor analysis gives a broader view
of the differences by categorical factor, it obscures the individual differences. In addition,
some of the most important items did not load on any factor. As a consequence, both an
item-by-item analysis and a factor analysis are presented to enable the reader to appreciate
grouped and item differences among the motivations, success variables and problems.
Differences in the culture, politics and tribal heritage of entrepreneurs within each sample
and between samples could influence the validity of some results and the conclusions related
to those results. Thus, caution should be used in applying the results from the present study
to other developing countries as they may not be completely generalizable to other countries
in Africa or the world.
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4. Sample Characteristics
The characteristics of the businesses surveyed appear in Table 1. According to the European
Commissions definition (European Commission, 2005), a micro-enterprise employs less
than 10 full-time workers or full-time annual work units, while a small-sized enterprise
employs between 10 and 50. All businesses surveyed for this study employ less than 50
full-time workers and thus, can be classified as either micro- or small-sized enterprises
(MSEs).a Both samples are dominated by micro-enterprises with 85 percent of the Ghana
sample and 92 percent of the Kenya sample employing less than 10 full-time workers. Since
the majority of the businesses in all countries are microenterprises, the sample is consistent
with the larger world market. The sample is also consistent with the level of microenterprises
found in Africa. According to Spring and McDade (1998) and Manu (1999), 98 percent of
businesses in Africa have less than 10 employees.
Both samples are predominated by service businesses: 44 percent of the Kenyan sample
and 42 percent of the Ghanaian sample are categorized as providing a service. The Ghanaian
sample has more small manufacturers while the Kenyan group has a higher percentage of
retail businesses. In both the Kenyan and Ghanaian samples, most businesses were established by the owner. The average number of full-time workers is 4.9 in Ghana and 3.8 in
Kenya.
As shown in Tables 1 and 2, the average age of the business, the age of the respondents and
the gender mix are similar for the two surveys. The average age of the businesses in Ghana
and Kenya is 4.4 years and 4.8 years, respectively. The average age of the respondents is 35
and 33 years. Both samples also have a similar percentage of male and female entrepreneurs
with a little over one-third of both groups of respondents being female.
The sample averages differ with respect to sales and profitability. In comparison to the
Ghanaian businesses, the Kenyan businesses had a higher average sales and profitability.
Seventy-nine percent of the Kenyan businesses and 98 percent of the Ghanaian businesses
reported sales figure of US$60,000 or less. In addition, Ghanaian business owners were
less likely to disclose sales and profitability information; only 46 percent of Ghanaian
entrepreneurs disclosed sales figures while 78 percent of Kenyan entrepreneurs disclosed
this information. This could be the result of differences in tax structures, fear of government
awareness, and/or the interpersonal skills and trust established by the interviewer. In addition,
some cultures regard profit information as highly private and do not readily share such
information with non-family members. Ghanaians may maintain smaller businesses with
lower levels of sales and profits because their hourly commitment to the enterprise is less
than the Kenyan entrepreneurs.
The Kenyan and Ghanaian entrepreneurs worked fewer hours in their businesses than
entrepreneurs in other countries. Kenyan entrepreneurs reported working 45 hours on average per week, while Ghanaian entrepreneurs reported working 38 hours. In comparison
a The number of reported full-time workers is a proxy for the exact European Commission calculation of full-time
annual work units (AWU). The European Commission counts a part-time employee as a fraction of a full-time
employee. This survey, however, did not ask the number of hours that a part-time employee worked per week. As
a result, the exact full-time annual work units (AWU) cannot be determined.
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Table 1. Characteristics of Ghanaian and Kenyan businesses.
Ghana (N = 156)
Type of Business
Frequency
Percent
Kenya (N = 200)
Frequency
Percent
Type of Business
Retailing
31
20%
77
Wholesaling
9
6%
8
Service
64
42%
87
Manufacturing
32
21%
8
Agricultural products, tools, equip.
10
7%
11
Other
7
5%
7
Type of business ownership (Respondents could select more than one answer)
Established by you
119
111
Bought from another
7
14
Inherited
17
7
Independently owned
126
92
Partnership
11
26
Incorporated
0
10
Franchise
0
3
Average number of employees
Full-time
4.86
3.75
Part-time
1.13
1.95
Average age of business (years)
4.42
4.76
39%
4%
44%
4%
6%
4%
Not all survey respondents answered every question. For some questions more than one answer was
allowable which leads to a total number of answers greater than sample size. All percentages are based on
the number of entrepreneurs who answered the question.
Table 2. Characteristics of Ghanaian and Kenyan entrepreneurs.

Ghana
Kenya
Frequency
Percent
Frequency
Percent
Sex of respondents
Male
Female
98
56
64%
36%
124
67
65%
35%
Marital status
Married
Single
70
78
47%
53%
104
88
54%
46%
Average age of respondents
35.36 years
33.14 years
Average working hours per week
37.91 hours
45.40 hours
Educational level achieved
Frequency
Percent
Total
Percent
4
13
22
11
30
19
32
8
11
3%
9%
15%
7%
20%
13%
21%
5%
7%
1
6
9
12
27
17
59
18
39
1%
3%
5%
6%
14%
9%
31%
10%
21%
No formal education
Some grade school
Completed grade school
Some high school
Completed high school
Some college
Completed college
Some graduate work
Graduate degree
Not all survey respondents answered every question. All percentages are based on the number of
entrepreneurs who answered the question.
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to other studies of entrepreneurs in developing countries such as Vietnam, Romania and

India, the average hours worked are relatively low (Benzing, Chu and Callanan, 2005;
Benzing, Chu and Szabo, 2005; Benzing and Chu, 2005). Nineteen percent of the Ghanaian
entrepreneurs and 35 percent of the Kenyans worked 20 hours or less per week in their
businesses. These entrepreneurs may be working second jobs or running other businesses.
In contrast to small business owners in other regions of the world, African business owners
often own and operate several businesses simultaneously, which increases their diversification and reduces the risk of putting all their eggs in the same basket (Spring and
McDade, 1998). Although many entrepreneurs worked part-time in their business, those
who reported a full-time commitment worked extremely long hours. Fourteen percent of
the Kenyan entrepreneurs worked 84 hours or more per week.
Kenyan entrepreneurs in the sample had attained a higher level of education than their
Ghanaian counterparts. As shown in Table 2, 21 percent of the Kenyan entrepreneurs have
a graduate degree compared to seven percent of the Ghanaian entrepreneurs. According to
the U.S. State Department, Kenya has six state universities that enroll approximately 45,000
students, as well as six private universities. The World Bank (2006a) reports that the adult
male literacy rate in Kenya is 78 percent, while in Ghana it is 58 percent. During the last five
years, Ghana has made strides in educating its populace. Today, Ghana has a tuition-free
compulsory education program through primary and junior secondary school.
5. Results
5.1. Start-up advice, financing and marketing
Table 3 shows the results of questions related to start-up advice, capital and marketing.
When starting a business, both Kenyan and Ghanaian entrepreneurs draw heavily on the
advice of other business owners. In comparison to Ghanaians, Kenyan entrepreneurs rely
more heavily on friends and family members as a source of advice. Kenyan entrepreneurs
are also more likely to use multiple sources of advice. Thirty-five percent of Ghanaians and
30 percent of Kenyans used a legal advisor or financial advisor/lending institution.
The amount of start-up capital in Ghana averaged approximately US$4,000 with a
maximum of US$100,000 for the start-up of a flour mill. The Kenyan sample had an average
start-up cost of US$10,719 with a maximum of US$180,000 for an entrepreneur in the
transportation business. The Kenyan sample had a few large manufacturers, a processor
of cereals and a private primary school. These businesses had a high start-up cost, which
skewed the Kenyan average upward.
The major sources of financial capital are family and savings: 77 percent of Kenyans and
95 percent of the Ghanaians used personal savings and family to fulfill on-going financing
needs. Less than 20 percent of the entrepreneurs had ever used private banks, international
lending agencies or lending agencies sponsored by their government to obtain credit.
With respect to advertising, entrepreneurs in both countries rely on word-of-mouth and
free publicity to market their businesses. Only 21 percent of Ghanaian and 25 percent of
Kenyan entrepreneurs used paid advertising to market their businesses. This is similar to
entrepreneurs in other developing countries. Small entrepreneurs are less able to afford
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Table 3. Start-up advice and capital and business promotion for Ghanaian and Kenyan entrepreneurs.
Ghana (N = 156)
Freq.
Kenya (N = 200)
Percent
Freq.
percent
Before starting your business, from whom did you seek advice? (You may select more than one answer.)
Legal advisor
Finl advisor or lending institution
Friends
Family members
Other business owners
Other
Sought advice from no one
13
42
22
23
75
1
30
8
27
14
15
48
1
19
25
33
82
66
111
7
20
13
17
41
33
56
4
10
How much capital did you have to start your business?

Average (US$)
Standard deviation (US$)
Maximum capital (US$)
3,928
11,963
100,000
10,719
25,360
180,000
(N = 152)
(N = 198)
How do you promote your business? (You may select more than one answer.)
Paid advertisement
Word of mouth
Telephone directory
Free publicity
Good customer service
Posters/leaflets/billboards
Special offers; discounts; gifts
Other (website ,business cards, direct mail)
32
102
5
69
0
12
0
0
21
67
3
45
0
8
0
0
49
115
29
68
6
5
4
3
25
58
15
34
3
3
2
2
Questions that allow for more than one answer have a frequency that totals more than the sample size and,
therefore, percentages total to more than 100 percent.
advertising even though such advertising might help distinguish their product or service
from competitors.
5.2. Motivations
Respondents were asked to rate 12 reasons for deciding to own a business on a five-point
Likert scale with five (5) being extremely important and one (1) being unimportant.
As shown in Table 4, entrepreneurs in both Kenya and Ghana indicated that the top two
motivations for starting their own businesses were to increase my income and to create
a job for myself. These motivations correspond to Robichaud et al.s extrinsic rewards.
Given the high rates of unemployment in both countries (20 percent in Ghana and 40 percent
in Kenya), it is understandable that entrepreneurs would start a business to create a job.
There were no significant differences between the mean scores of Kenyan and Ghanaian
entrepreneurs on these two motivations.
The weak job market in Kenya and Ghana has driven many individuals to create jobs
for themselves by starting their own businesses. The same conditions have led to a weak job
market in both countries. First, there has been a slow down in the growth of the agriculture
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Table 4. Mean score for motivations of Ghanaian and Kenyan entrepreneurs (5 = extremely important, 4 = very
important, 3 = mildly important, 2 = not very important, 1 = unimportant).
Motivational Factors
1. To be my own boss
2. To be able to use my own past experience and training
3. To prove I can do it
4. To increase my income
5. To gain public recognition
6. To create job for myself
7. To provide jobs for family members
8. For my own satisfaction and growth
9. So I will always have job security
10. To build a business to pass on
11. Cannot find job appropriate to my background
12. To be closer to my family
Ghana
Kenya
Sig.
3.60
3.47
3.88
4.37
3.24
4.27
3.50
4.25
4.21
3.92
2.84
2.41
3.84
3.37
3.27
4.28
2.20
4.02
2.62
3.92
3.74
2.73
2.02
2.33
0.025*
0.705
0.000*
0.570
0.000*
0.198
0.000*
0.006*
0.001*
0.000*
0.000*
0.081
Significance level (two-tailed) obtained from a two-sample Wilcoxon Rank Sum Test. Mean scores that
are significantly different at the 95 percent level are designated with an asterisk. The level of significance is
adjusted for ties.
sector, which for decades has been the principal employer in both countries. Second, many
businesses have restructured and downsized their work force in an effort to become more
competitive and increase their profitability. Third, the governments have been forced to
drastically reduce their number of civil servants and privatize their SOEs as a condition
for receiving aid by the donor community. Finally, an increasing number of students who
graduate from high schools and universities have been unable to find employment. Many of
them have no choice but to become business owners.
There were significant differences among some other motivations. While the Kenyan
entrepreneurs were more motivated by the desire to be their own boss, Ghanaian
entrepreneurs were more motivated to prove they could do it, to gain public recognition
and to provide jobs to family members. The survey asked respondents to indicate how many
of their employees were family members and, in comparison to Kenyan entrepreneurs,
Ghanaian entrepreneurs appear to employ family members more intensively. Forty-six
percent of Ghanaian entrepreneurs employed at least one family member full-time, while
30 percent of Kenyan entrepreneurs indicated that they employed at least one family member
full-time.
Ghanaian entrepreneurs were also more motivated by the prospect of job security and
to build a business that could be passed on to other family members. This supports the
results obtained by Chamlee-Wright (1997). If Ghanaians have no other outlet for savings
due to poor financial sector development, then they will invest savings in a business with the
hopes of obtaining a reasonable return. The savings can then be passed along to progeny in
the form of an active and hopefully, successful business. To Ghanaian entrepreneurs, their
business may also serve as their primary legacy.
A factor analysis of the motivations of the total sample indicates that eight of the twelve
motivations load on three factors. The results of a maximum likelihood, varimax rotation,
factor analysis are shown in Table 5. The factors appear to be more closely aligned with career
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Table 5. Varimax rotated factor loadings (sorted) and communalities for motivation variables total data set.
Motivation
Factor 1
Factor 2
Factor 3
Communality
3. To prove I can do it
4. To increase my income
5. To gain public recognition
9. So I will have job security
8. For own satisfaction and growth
6. To create job for myself
7. To provide jobs for family
10. To build business to pass on
0.874
0.857
0.456
0.176
0.096
0.078
0.164
0.238
0.221
0.173
0.047
0.705
0.607
0.560
0.124
0.325
0.191
0.150
0.403
0.202
0.007
0.163
0.885
0.474
0.849
0.787
0.372
0.568
0.377
0.346
0.825
0.387
Variance
% Variance
1.836
0.230
1.380
0.172
1.295
0.162
4.511
0.564
success literature than entrepreneurial motivation literature. Consistent with the literature,
career success of business professionals can be measured by external or objective criteria as
well as internal or subjective criteria. (Friedman and Greenhaus, 2000; Greenhaus, 2002)
As shown, Motivations 3, 4 and 5 load on Factor 1. This factor best represents Objective
Career Success in that the entrepreneur is looking for tangible, external validation of his/her
accomplishments. Motivations 6, 8 and 9 load on a second factor that could be called Subjective Career Success in that the person who rates this factor highly is satisfying his/her
own internal wants and desires. Motivations 7 and 10 load on a third factor that could be
called a Legacy Effect whereby the person sees the business as a lasting legacy for his/her
family to be continued after the entrepreneur is no longer involved in the business. The
legacy factor is unique to entrepreneurs and does not appear in surveys of business professionals (Friedman and Greenhaus, 2000). Motivations 1, 2, 11 and 12 did not load on any
factors. A comparison of the summated scores on each factor show that there are significant differences between Ghanaian and Kenyan entrepreneurs, with Ghanaian entrepreneurs
Table 6. Mean scores and differences between Ghanaian and Kenyan entrepreneurs by factor related to motivation.
Mean scores
Summated scales
Scale 1 Factor 1:
Objective career success
Scale 2 Factor 2:
Subjective career success
Scale 3 Factor 3:
Legacy effect
Wilcoxon Rank Sum Test*
Ghanaian Entrepreneurs
Kenyan Entrepreneurs
Significance
3.8301
3.2663
0.000*
4.2489
3.9171
0.000*
3.7130
2.6560
0.000*
Summated scales were calculated as average score across items contained in that factor. Scale 1 is the average
of the scores on Motivations 3, 4 and 5; Scale 2 is the average of the scores on Motivations 6, 8, 9; and Scale 3 is
the average of the scores on Motivations 7 and 10.
Significance level (two-tailed) obtained from a two-sample Wilcoxon Rank Sum Test. Mean scores that are
significantly different at the 95% level are designated with an asterisk. The level of significance is adjusted for
ties.
WS-JDE SPI-J076
00069
rating all three factors as more important than Kenyan entrepreneurs. While Ghanaians rate
the Legacy Effect (Factor 3) as more important than the Kenyan entrepreneurs, the mean
score for the family factor indicates that it is the least important factor in motivating both
groups of entrepreneurs. Both Ghanaians and Kenyans are most motivated by Factor 2.
5.3. Perceived success characteristics

On a five-point Likert scale with five (5) equal to extremely important and one (1) being
unimportant, data shown in Table 7 indicate that both Kenyan and Ghanaian entrepreneurs
ranked hard work as the most important factor contributing to business success with customer
service as the second most important variable. Other important characteristics to both groups
of entrepreneurs were good management skills, friendliness, access to capital, previous
business experience and the ability to maintain accurate records.
There were significant differences between the Kenyan and Ghanaian entrepreneurs.
Ghanaian entrepreneurs view previous business experience and the ability to maintain accurate records as more important than Kenyan entrepreneurs. In general, Ghanaians rate all
the management skills more highly than their Kenyan counterparts. Ghanaians may be
more conscious of these skills because they have feelings of inadequacy surrounding them.
Based on previous answers, the Ghanaian entrepreneurs are less educated than the Kenyan
entrepreneurs. This lack of educational background may translate into an inability to maintain accounting records, etc.
Table 7. Mean score for variables contributing to business success (5 = extremely important,
4 = very important, 3 = mildly important, 2 = not very important, 1 = unimportant).
Success Variables
1. Good management skills
2. Charisma: Friendliness
3. Satisfactory govt. support
4. Appropriate training
5. Access to capital
6. Previous business experience
7. Support of family & friends
8. Marketing/Sales promotion
9. Good product at competitive price
10. Good customer service
11. Hard work
12. Good location
13. Maintenance of accurate records
14. Ability to manage personnel
15.Community involvement
16. Political involvement
17. Reputation for honesty
Ghana
Kenya
Sig.
4.54
4.57
3.74
3.45
4.41
3.58
3.78
3.19
4.52
4.68
4.74
4.37
4.40
3.88
3.61
2.49
4.55
4.27
4.26
2.51
3.50
4.31
2.97
3.16
3.36
4.05
4.42
4.50
3.95
3.96
3.59
2.60
1.67
4.11
0.003*
0.002*
0.000*
0.537
0.373
0.000*
0.000*
0.064
0.000*
0.000*
0.005*
0.000*
0.001*
0.050*
0.000*
0.000*
0.002*
Significance level (two-tailed) obtained from a two-sample Wilcoxon Rank Sum Test. Mean
scores that are significantly different at the 95 percent level are designated with an asterisk.
The level of significance is adjusted for ties.
WS-JDE SPI-J076
00069
Ghanaians also rate support from family and friends as more important than Kenyan
entrepreneurs. Ghanaian business owners appear to rely more heavily on this support as
well. When asked in a separate question to rate the level of support from family and friends,
82 percent of Ghanaian entrepreneurs reported substantial or very substantial support. In
contrast, 51 percent of Kenyan entrepreneurs reported such support.
Community involvement and political involvement are more important to entrepreneurs
in Ghana, but, surprisingly, political involvement is the least important success variable
for entrepreneurs from both countries. According to surveys by the World Bank (2003),
Kenyan entrepreneurs expect to pay 2.91 percent of sales in unofficial payments to get
things done. This compares to 1.72 percent for firms in sub-Sahara Africa. Thirty-seven
percent of the Kenyan firms surveyed by the World Bank expect to give gifts in meetings
with tax inspectors compared to 16 percent in sub-Sahara Africa. Although a World Bank
survey has not been done of Ghanaian entrepreneurs, Kenyan entrepreneurs face higher
levels of corruption and expected payoffs than entrepreneurs in the sub-Saharan region as a
whole. Despite the existence of payoffs and corruption, this did not translate into a higher
mean score for political involvement.
Because the Ghanaian government has historically maintained a heavy presence in the
economic and business environment, it is understandable that Ghanaians would attribute
more importance to government support than Kenyans would. Ghanaians also believe a
reputation for honesty is more important than Kenyans, but both groups of entrepreneurs
rated this as a very important characteristic for success.
A factor analysis of the significant factors indicates that 12 of the 17 success variables
can be grouped into three factors. (Items 4, 5, 7, 8 and 12 did not load on any significant
factors.) As shown in Table 8, Factor 1 includes Items 2, 9, 10, 11 and 17. This factor contains
items with an internal locus of control and therefore, can be called Internal Factors. As
shown by the summated scales in Table 9, entrepreneurs in both Ghana and Kenya rate
Factor 1 as the most important factor in their business success. This shows optimism and a
Table 8. Varimax rotated factor loadings (sorted) and communalities for success variables (total data set).
Success variables
Factor 1
Factor 2
Factor 3
Communality
10. Good customer service

2. Charisma: Friendliness
9. Good product/competitive price
11. Hard work
17. Reputation for honesty
3. Satisfactory govt. support
16. Political involvement
15. Community involvement
6. Previous business experience
14. Ability to manage personnel
13. Maintenance of accurate records
1. Good management skills
0.892
0.602
0.564
0.491
0.450
0.105
0.001
0.186
0.064
0.080
0.284
0.446
0.003
0.070
0.202
0.010
0.095
0.840
0.672
0.644
0.523
0.304
0.291
0.092
0.081
0.099
0.117
0.306
0.371
0.088
0.077
0.294
0.177
0.668
0.546
0.509
0.803
0.377
0.373
0.334
0.350
0.724
0.458
0.536
0.309
0.546
0.463
0.466
2.256
0.188
2.086
0.174
1.397
0.116
5.739
0.478
Variance
% Variance
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Table 9. Mean scores and differences between Ghanaian and Kenyan entrepreneurs by factor related to success
variables.
Mean Scores
Summated scales
Scale 1 Factor 1:
Internal factors
Scale 2 Factor 2:
External relationships
Scale 3 Factor 3:
Management skills
Wilcoxon Rank Sum Test*
Ghanaian entrepreneurs
Kenyan entrepreneurs
Significance
4.621
4.273
0.000*
3.356
2.398
0.000*
4.274
3.943
0.002*
of the scores on success variables 2, 9, 10, 11, and 17; Scale 2 is the average of the scores on success variables
3, 6, 15, 16; and Scale 3 is the average of the scores on success variables 1, 13, and 14.
significantly different at the 95% level are designated with an asterisk. The level of significance is adjusted
for ties.
belief that their own behavior (hard work, friendliness, honesty and customer service) and
having a good product hold the key to developing and maintaining a successful business.
Factor 2 includes Items 3, 6, 15 and 16. This factor places political involvement, community
involvement and government support in the same factor and, thus, might be called External
Relationships. The low mean score on this factor (Table 9) indicates that both Ghanaian
and Kenyan entrepreneurs rate such external relationships as relatively unimportant in their
business success. Factor 3 can be referred to as Management Skills because it includes
Items 1, 13 and 14. These three skills are relatively important to both groups, but as shown by
the item analysis in Table 7, management skills are viewed as more important to Ghanaian
entrepreneurs than Kenyan entrepreneurs.
5.4. Problems
When asked to identify the problems faced by entrepreneurs in opening and running their
businesses, several concerns were rated as serious problems. Respondents answered the
questions by indicating their opinion on a five-point Likert scale in which five (5) is a very
serious problem and one (1) is not a problem. As Table 10 shows, the most critical
problem faced by both Ghanaian and Kenyan entrepreneurs is a weak economy. Other
serious problems in both countries are too much competition and the inability to obtain
short-term and long-term financial capital.
The perception that both countries have weak economies has real validity to MSE
entrepreneurs. Despite healthy GDP growth rates, high poverty rates and unemployment
rates can seriously affect demand for goods and services. For example, the economy of
Kenya grew at an estimated 5.8 percent rate in 2005, yet it continues to suffer high unemployment (40 percent estimated in 2001) and a high poverty rate (U.S. CIA, 2006). During
the last three years, Kenya has fallen 20 places in the United Nations prosperity rankings
and now ranks 154 out of 177 countries. Kenya has gone from being a middle-income
WS-JDE SPI-J076
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Table 10. Problems faced by small businesses (5 = very serious problem, 4 = serious problem, 3 = problem,
2 = minor problem, 1 = not a problem).
Problems
1. Unreliable and undependable employees
2. Too much competition
3. Unable to obtain short-term financial capital
4. Unable to obtain long-term financial capital
5. Too much government regulation
6. Limited parking
7. Unsafe location
8. Weak economy
9. Lack of management training
10. Lack of marketing training
11. Inability to maintain accurate acct. records
12. Business registration process/tax system
Ghana
Kenya
Sig.
2.72
3.49
3.97
3.99
2.81
1.74
2.08
4.11
2.83
2.80
3.14
2.49
3.46
3.66
3.41
3.39
3.21
2.31
3.18
4.18
3.09
2.96
3.16
3.28
0.000*
0.261
0.000*
0.000*
0.003*
0.000*
0.000*
0.068
0.047*
0.135
0.796
0.000*
significantly different at the 95 percent level are designated with an asterisk. The level of significance is adjusted
for ties.
country to a low-income country that can no longer be expected to meet its Millennium
Development Goals. In addition, the World Bank has placed a $260 million aid package on
hold in response to the 2006 corruption scandal referred to as the Anglo Leasing affair. The
corruption charges that are plaguing the current government have chilled foreign investment
and aid, and reduced potential economic growth rates in Kenya (BBC News, August 9, 2005;
BBC News, March 2, 2006).
Ghana also suffers the problems of a low income country in that its unemployment rate
hovers around 20 percent and the poverty rate in 2005 was 35 percent. In addition, approximately 60 percent of the work force is employed in agriculture (U.S. CIA, 2006; DFID,
2006; Ghanaweb, 2006). However, the future economic picture for Ghana is more optimistic
than that of Kenya. In April 2006, the World Bank announced that Ghana would receive
full debt relief from the World Bank, the IMF and the African Development Fund (World
Bank, 2006d). Overall, the IMF has given a positive assessment of Ghanas macroeconomic
management and its more open trade and investment policies (International Monetary Fund,
2005; Korantemaa, 2006). Ghana has also gained eligibility for Millennium Challenge funds.
Although both countries may benefit from strong economic growth in the coming years,
Ghana has the edge because of its more transparent economy, less corrupt government and
stronger macroeconomic policies.
With respect to competition, it is understandable that MSE entrepreneurs would perceive
competition as a major problem. Much of the MSE activity occurs in the informal sector,
which is characterized by ease of entry, unregulated and competitive markets, reliance on
indigenous resources, family ownership and small-scale operation (Thomas, 1992). These
characteristics make it easy for competitors to start and stay in business. Entrepreneurs in
other studies (Benzing, Chu and Callanan, 2005; Benzing, Chu and Szabo, 2005) also rated
competition as a major problem.
WS-JDE SPI-J076
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Government regulation and bureaucracy were not ranked in the top five problems by
entrepreneurs in either Ghana or Kenya. Although a study done by Amponsah (2000) found
that a majority of entrepreneurs (58.4 percent) thought the bureaucratic authorities in Ghana
were unreasonable, government regulation was not listed here as one of the most pressing
problems. This may result from the informal status of most MSEs.
While entrepreneurs in both countries show no significant differences in their concerns over the weak economy and competition, it is the differences between the mean
scores on individual items and factors that prove the most interesting. For instance, why
do Kenyan entrepreneurs report greater frustration with the business registration process
and tax system than their Ghanaian counterparts? This difference is also observed in
the factor analysis (Table 12) with Kenyan entrepreneurs recording a higher mean score
on the governmental barriers factor. Using World Bank data (2006e), it actually takes
longer and costs more to register a business in Ghana than it does Kenya (81 days versus
54 days), so one might assume that the real problem in Kenya is more closely related to
tax rates. According to the World Bank, a medium sized business in Kenya must make 17
tax payments per year and pay 68 percent of gross profit in taxes, while a similar business in Ghana must make 35 payments and pay 45 percent of gross profit in taxes. While
Ghanas rate is comparable to the OECD rate, Kenyas tax rate is far too high (World Bank,
2006f ).
As shown in the item analysis in Table 10 (and in the factor analysis in Table 12), there
is a significant difference between the mean scores for locational safety (referred to as the
locational attributes factor). Kenyan entrepreneurs in Nairobi have greater fear of safety than
their counterparts in Ghana. With a population of 3.5 million, Nairobi has faced escalating
levels of violent crime as a result of rising income inequality, poverty, unemployment and
population growth (Gimode, 2001). According to one top UN official, Nairobis crime
problem is a bigger barrier to investment and business development than corruption (BBC
News, March 21, 2006). According to a 2002 United Nations (UN-HABITAT) survey of
crime in Nairobi, 37 percent of the respondents had been a victim of robbery during the most
recent year. Crime and safety problems have economic repercussions. Nairobi shop-owners
and service suppliers face increased costs because they must pay for private security, pay for
losses related to robbery and often end their day early to avoid crime. According to a survey
done by the World Bank (2003), Kenyan entrepreneurs report that security costs 1.94 percent
of sales, which is higher than the average for sub-Sahara Africa of 1.19 percent. The city has
developed a Police Service Strategic Plan designed to institute reforms such as increasing
police salaries and the ratio of police officers to the public. The current ratio of officers to
persons in Nairobi is 1:1,150. This is in marked contrast to the UN-recommended ratio of
1:450. As evidence of reforms already taken, Nairobi police were given a 115 percent salary
increase in 2004 and more police have been hired. These actions may be partly responsible
for a decrease in property crimes during 2005. Residents have also instituted community
policing in an attempt to reduce crime (Dahl, 2006; Mulama, 2006; Afrol News, December 5,
2005).
In contrast, Ghanaians appear to be fairly satisfied with how government is handling
crime. According to a survey by AfroBarometer (2006), 71 percent of Ghanaians in 2005
WS-JDE SPI-J076
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thought the government was handling crime fairly well or very well. This was a 15 percent
improvement from 2000.
In both the individual item analysis in Table 10 and the factor analysis in Table 12,
obtaining capital emerged as a serious problem for both groups of entrepreneurs. However,
Ghanaian entrepreneurs appear to face greater constraints obtaining short-term and longterm capital. There are a number of explanations for this difference. First, firm size and firm
revenue have been found to influence an entrepreneurs ability to obtain commercial bank
credit (Kariuki, 1995). Since the Kenyan firms reported higher business revenue and income
than the Ghanaian sample, they may have been better able to secure credit. Second, higher
business income can also reduce the need for external funds. According to Atieno (2004),
most entrepreneurs in Kenya still use personal savings and/or retained earnings as a major
source of financing. A higher business income would increase savings, which would reduce
the need for an outside source of funds. Again, the fact that Kenyan firms reported higher
business revenue and income may make them less dependent on external funding. Third,
Ghanaian entrepreneurs might face greater capital constraints than the Kenyan entrepreneurs
because a greater percentage of the Ghanaian sample was in manufacturing. In general,
manufacturing requires greater on-going capital input to purchase equipment, tools, and
raw material. Lastly, according to two recent studies, Kenyans understand how to obtain
credit in a credit-constrained environment. It has been shown that firms in Kenya often
borrow for a stated purpose only to divert those funds to a different purpose for which
funding would have been more difficult to obtain (Atieno, 2004). Vandenbergs (2003)
study of small manufacturing firms found that Kenyan MSEs often use irregular means
of obtaining credit. For instance, they might use customer purchase orders to obtain trade
credit from suppliers, ask for down payments from customers or buy needed equipment on
an installment plan. It is possible that these irregular means of accessing funds are more
developed in Nairobi than they are in Accra.
As shown in Table 11, 10 of the 12 problem items loaded onto four factors. Factor 1
includes Items 9, 10 and 11 and can be called Management Skills. Factor 2 includes
Table 11. Varimax rotated factor loadings (sorted) and communalities for problem variables (total data set).
Problem variables
Factor 1
Factor 2
Factor 3
Factor 4
Communality
9. Lack of management training

10. Lack of marketing training
11. Maintaining acct. records
3. Short-term financial capital
4. Long-term financial capital
2. Too much competition
5. Too much govt. regulation
12. Registration/tax system
7. Unsafe location
6. Limited parking
0.978
0.738
0.417
0.081
0.099
0.018
0.045
0.156
0.263
0.082
0.009
0.050
0.232
0.809
0.674
0.387
0.098
0.040
0.026
0.006
0.199
0.060
0.031
0.029
0.080
0.011
0.981
0.458
0.102
0.227
0.064
0.201
0.194
0.020
0.234
0.101
0.159
0.330
0.685
0.466
1.000
0.591
0.267
0.661
0.526
0.161
1.000
0.345
0.550
0.275
Variance
% Variance
1.794
0.179
1.327
0.133
1.286
0.129
0.969
0.097
5.376
0.538
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Table 12. Mean scores and differences between Ghanaian and Kenyan entrepreneurs by factor related to problem
variables.
Wilcoxon Rank Sum Test
Mean scores
Summated scales
Scale 1 Factor 1:
Management skills
Scale 2 Factor 2:
Financial considerations
Scale 3 Factor 3:
Governmental barriers
Scale 4 Factor 4:
Locational attributes
Ghanaian Entrepreneurs
Kenyan Entrepreneurs
Significance
2.927
3.074
0.185
3.814
3.482
0.003*
2.644
3.253
0.000*
1.913
2.722
0.000*
of the scores on problem Variables 9, 10, and 11; Scale 2 is the average of the scores on problem Variables 2, 3,
and 4; Scale 3 is the average of the scores on problem Variables 5 and 12; Scale 4 is the average of the scores on
problem Variables 6 and 7.
significantly different at the 95 percent level are designated with an asterisk. The level of significance is adjusted
for ties.
Items 2, 3 and 4 which relates to Financial Considerations. Factor 3 contains Problems 5 and 12 and can be called Governmental Barriers, while Factor 4 which contains
Problems 6 and 7 can be referred to as Locational Attributes. Based on the summated
scales reported in Table 12, Kenyan entrepreneurs perceive Governmental Barriers and
Locational Attributes as more serious problems than Ghanaians. Although both groups of
entrepreneurs rated Factor 2, Financial considerations as the most serious factor, Ghanaian entrepreneurs believe they are more hampered by financial constraints. There was no
significant difference between Kenyan and Ghanaian entrepreneurs when it came to the
management skills factor. As discussed above, the results of the factor analysis largely
support the earlier item-by-item analysis.
6. Discussion
Both Kenya and Ghana recognize the importance of their MSE sector. As a result, they
have developed strategies to create friendlier business environments. According to Ghanas
National Medium Term Private Sector Development Strategy (Government of Ghana, 2003),
private sector development has been constrained by taxes, levies and fees, as well as the
inability to obtain capital and limited managerial skills. A major part of Ghanas development
plan (Government of Ghana, 2003) is to remove physical and regulatory constraints. The
development plan targets specific export industries for additional incentives and funding.
This direct interventionist approach is based on the observable success of the Southeast
Asian tigers (Government of Ghana, 2003).
The Kenyan government has also developed a strategy to improve the business environment. Working with the World Bank, the Kenyan Ministry of Trade and Industry (MoTI)
has implemented the MSME Competitiveness Project. The project plans to simplify the
WS-JDE SPI-J076
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tax regime for MSEs, set up a one-stop approach to business registration, and provide
business skills training (World Bank, 2006g). The plan also addresses security problems
in Nairobi and infrastructure problems related to the roads and electrical power (Kituyi,
2005). The governments proposed restructuring and privatization of the state-run enterprise, Telkom Kenya, is another way to reduce the cost of doing business by reducing telecommunications costs (World Bank, 2006a).b Kenyas comprehensive Economic
Recovery Strategy for Wealth and Employment Creation proposes to modernize Kenyas
tax administration, reduce corruption in government, reform public security and reduce
bureaucratic obstacles to MSEs (Republic of Kenya, 2003). According to the World Bank
(2006e), Kenya has already shortened the business registration process from 62 days in
2004 to 54 days in 2005. In 2000, Kenya combined 16 individual business licenses into one,
which significantly reduced the licensing process. Despite this improvement, local governments still require annual renewals of licenses, which is an unnecessary burden (Kituyi,
2005).
As indicated by the factor analysis of problems, entrepreneurs in both Kenya and Ghana
view financial considerations as their most serious problem. Kenyas and Ghanas commercial banks are often unwilling to provide loans to MSEs for a number of reasons. First,
small loans are expensive to supervise and process and are inherently riskier than loans to
large firms. When small undercollateralized loans fail, banks have to absorb the loss because
it is too costly to try to recover the loan. In addition, banks prefer to deal with registered
businesses (i.e., businesses in the formal sector) and most MSEs operate in the informal
sector (Isaksson, 2004). Finally, banks require a business plan and/or accurate accounting
records, which many MSEs cannot provide (Tagoe et al., 2005).
In Kenya, the credit gap has been partially met by NGOs that specialize in microfinancing. In addition, Rotating Savings and Credit Associations (ROSCAs) provide small
business loans to their members. According to Atieno (2004), most Kenyan MSEs use informal institutions for savings and less than 50 percent use credit from any source. A survey
performed by the World Bank (2003) found that 53 percent of Kenyan firms used internal
means of financing and 32 percent used commercial bank loans or credit. Although 32 percent may seem low, compared to other sub-Saharan and developing countries this is actually
an impressively high number since in sub-Saharan countries as a whole, an average of 20
percent of firms use commercial bank loans or credit (World Bank, 2003). As evidenced by
the survey in this paper, Kenyan entrepreneurs appear to face less capital constraints than
Ghanaian entrepreneurs.
In Ghana, there are a number of alternative institutions and means of obtaining credit, but
awareness of these opportunities may be limited and the lending strategies are geared toward
manufacturing/export enterprises. Some of the major players in small business lending in
Ghana are: the NBSSI, EMPRETEC, IFC, APDF and ADF. For a good summary of the
funding opportunities available to Ghanaian SMEs, see Frempong (2004). Ghana needs to
b Privatization of Telkom Kenya has already been postponed a number of times since 2000. In June 2006, the sale
of Telkom Kenya was postponed again until the state-run enterprise can be made profitable. (The East African,
May 16, 2006)
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continue working to make funding available to MSE entrepreneurs in retail and service
businesses.
While both groups of entrepreneurs believed that internal factors were the most important set of success attributes, they ranked the management skills factor as the second most
important success factor. To meet this need, both countries must expand their existing
business consulting services. Two of Kenyas consulting initiatives: K-MAP (Kenya Management Assistance Program) and the voucher program should be revitalized. K-MAP is a
consortium of 47 large and well-established companies that provides one-on-one business
counseling to existing and potential entrepreneurs (Pratt, 2001). Kenya, in conjunction with
the World Bank, has also experimented with a voucher program designed to provide MSEs in
the Jua Kali sector with training, technology and business development services (Tan, 2005).
Ghana utilizes many institutions (NBSSI, ADF, APDF, EMPRETEC, etc.) for consulting
services. In addition, the Promotion of the Private Sector (PPS), a collaboration between the
Federal Republic of Germany and Ghana, provides consulting services to the government
and small and medium-sized enterprises (SMEs) to promote private sector development
(PPS Ghana, 2006). Compared to Kenyas consulting outreach services, Ghanas appear to
be less developed.
7. Summary and Recommendations

Entrepreneurs in both Kenya and Ghana indicate that the top two motivations for starting their businesses are to increase income and create a job for themselves. Kenyan
entrepreneurs appear to be more motivated by independence and self-satisfaction than
Ghanaian entrepreneurs. Since both countries have a high unemployment rate, it is understandable that entrepreneurs would create a business to provide self-employment. Knowing
that high rates of unemployment (especially among the young) can lead to social unrest,
government officials have every reason to encourage the creation of businesses by reducing
regulatory and tax burdens, providing financial support and teaching the unemployed how
to start a business.
Ghanaian entrepreneurs are also more motivated than Kenyan entrepreneurs by a legacy
effect factor that includes the ability to provide jobs for family members and to pass on
their businesses. With this knowledge, Ghanaian policymakers could design tax laws that
provide incentives to those who create a business to pass on or receive a business as part of
an inheritance.
Kenyan and Ghanaian entrepreneurs agree that hard work and high quality customer
service are the two most important success variables. While they also agree that access
to capital is important, there was a sharp contrast in their evaluation of the importance of
government support. Compared to Kenyan entrepreneurs, Ghanaian entrepreneurs believe
that government support is a necessary ingredient for success.
According to the factor analysis, both Ghanaian and Kenyan entrepreneurs believe their
own behavior and the product itself are the most important keys to success. These internal
factors friendliness, hard work, reputation for honesty, good customer service and a
good product are more important than politics and government support. With a belief
WS-JDE SPI-J076
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that the locus of control rests with themselves, Ghanaian and Kenyan entrepreneurs exhibit
an optimism often found in entrepreneurs despite the external conditions in which they
function. The factor analysis also found that both groups of entrepreneurs rated a factor we
call managerial skills as the second most important success factor.
With respect to problems, entrepreneurs in Kenya and Ghana rank a weak economy as
their most serious problem. In addition, entrepreneurs from both countries were similar in
their concern about too much competition. Based on the results of a factor analysis, both
groups rated financial considerations the inability to obtain short-term and long-term
capital and too much competition as the most serious factors. There were some significant
differences in their evaluation of problem factors however. Based on factor analysis, Kenyan
entrepreneurs appear to have more governmental barriers and location-related problems in
Nairobi. In contrast, Ghanaian entrepreneurs are more concerned about the financial considerations. Although Ghanaians thought managerial skills were important to business
success, they thought it was less of a serious problem than Kenyans did.
If Ghana and Kenya want to further assist the development of MSEs, the results of this
survey indicate that they must take a number of actions. First, short-term and long-term
credit problems in both countries must be addressed. The government needs to expand
insurance facilities to back, at least partially, the non-performing loans of commercial
banks. This would reduce the risk of lenders, thereby expanding available funding to MSEs.
Both countries must make sure that MSEs are aware of sources for funding and channel more funds to nascent service and retail enterprises. Ghana needs to develop Rotating Credit Associations and informal means of obtaining credit similar to those available
in Kenya.
Second, according to the results of this survey, Kenyan entrepreneurs found the tax
structure and registration process too complex. In addition, the most serious problem for
both groups of entrepreneurs was a weak economy. By encouraging informal businesses
to register and become part of the formal sector both of these problems can be partially
addressed. As suggested by Isaksson (2004), tax incentives such as grace periods might be
used to encourage informal businesses to register. Ghana should waive its minimum capital
requirements for starting a business and Kenya should reduce its effective business tax rate,
while improving its collection regime. It is easier to collect taxes from registered businesses
and a broader tax base helps ease fiscal problems and improve economic growth. With a
greater number of registered businesses comes a broader tax base which enables a government to reduce business tax rates. Third, both countries need to continue to expand consulting
services to MSEs. This study indicates that managerial skills are considered important for
business success. Important services include teaching entrepreneurs how to design effective
business plans and maintain appropriate accounting records. An understanding of accounting will help entrepreneurs secure funding, lead to more efficient expansion and increase tax
receipts. As part of this initiative, both countries should provide greater opportunities for a
business education, particularly in accounting. Universities need to receive greater funding
for infrastructure and professors. Partnering with U.S. and European universities might help
them garner the financial support they need to become world-class institutions capable of
eventually attaining AACSB accreditation.
WS-JDE SPI-J076
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Finally, Kenya must make changes that will reduce crime and improve international perceptions of the government. Entrepreneurs in Kenya indicate that they are greatly concerned
for their safety. By reducing crime in Nairobi, the government will improve international
perceptions of the business climate and governmental institutions. Kenya has already taken
steps to reduce crime but greater community involvement, more police and a reduction in
police corruption would help further its initiatives. In addition, the Kenyan government
needs to ensure that civil liberties and political plurality are protected. Transparency in
government and a reduction in corruption will enable Kenya to access more international
funding, such as Millennium Challenge funds. (Millennium Challenge Corporation, 2006)
Improving international perceptions would improve economic growth by attracting additional foreign aid and investment.
Kenya and Ghana have already taken the first steps toward improving the economic
and regulatory environment for MSEs. However, Ghana appears to have achieved a clear
advantage in macroeconomic policy, governmental effectiveness and control of corruption
(Millennium Challenge Corporation, 2005, 2006; Atta-Krufi, 2006). According to the DFID
(2006), Ghana is considered an island of peace and stability in the West Africa SubRegion. Kenya, on the other hand, needs to take greater initiative to reduce tax rates,
corruption and crime. By doing so, it will attract greater foreign aid for MSE development
and consulting. For small businesses to be successful, entrepreneurs need access to capital,
support to learn managerial skills, and a safe environment. As both countries continue to
work toward free market economies, they enhance their potential to take their places on the
world stage as the new African tigers.
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Journal of Developmental Entrepreneurship

GHANAIAN AND KENYAN ENTREPRENEURS: A COMPARATIVE

HUNG MANH CHU