The Social Enterprise Craze: CSO Financial Sustainability in Ghana

2.1 About the Ghanaian CSO Sector

As one of Africa’s most stable democracies, Ghana has seen substantial growth in the number of civil society organizations (CSOs) registered in the country. The number of CSOs throughout the country nearly doubled from approximately 5700 in 2012 to 10,030 in 2020 (USAID 2018, 2021]). This growth in the third sector is spurred in large part by investments from external funding organizations. The growth in the CSO sector has been mirrored by the economic growth of the country as a whole. In 2010, Ghana was reclassified by the World Bank from a low-income country to a lower-middle-income country (LMIC) in recognition of its economic growth and increased stability (Kumi 2019). While this is a major milestone for the country, it also had unforeseen repercussions. Specifically, new sustainability challenges for CSOs in the country arose when major foreign aid partners signaled their intent to withdraw financial support from Ghana (Arhin et al. 2018; Kumi 2019; USAID 2019). Because the growth of the sector has been spurred by foreign donors, the withdrawal of those donors has raised questions about the financial sustainability of the sector.

2.2 Dependency on Foreign Donors

As with many developing nations, Ghana has depended heavily on international donors to develop and grow its civil society sector. Studies of the sector show that 70–90 % of Ghanaian CSOs’ funding comes from foreign sources (Arhin, Kumi, and Adam 2018; Kumi 2022). While foreign support has been pivotal to the growth of the third sector in many developing nations, an overreliance on international funding raises questions of accountability, efficacy, and best practices. It also leaves the sector vulnerable to financial pressure when international donors eventually withdraw or reduce their funding.

In a review of the literature, Banks et al. (2015) found that while the CSO sector has largely been reliant on foreign governments and private donors, this relationship has often gotten in the way of accomplishing long term development goals. As CSOs gain financial backing from outside the country, it can sometimes cause them to shift their focus to the priorities of the funder and away from those they are seeking to serve at home (Jalali 2013; Thayer 2010). This can make CSOs appear to be “trustee organizations” of the funding country (Ottaway 2000).

Further, Porter (2003) warns that relying on foreign aid can lead to what she terms a “master-slave relationship” where donors are driving the work, setting the agenda, changing the timeline, and hampering the ability of the local organization to address the needs in their community. Further, Porter finds that commonly used terms considered normatively good such as “accountability” and “transparency” actually act as constraints on organizations. In an attempt to implement accountability and transparency, donors from outside the country – often with little understanding of the culture or true needs of the community – can create a power differential that leads to “clientelism” (Porter 2003). The focus of the local organization is aimed upwards to the funding partners instead of downwards to the communities and people they are supposed to be serving (Ebrahim 2010). Kumi (2022) actually ascribes a perceived lack of transparency and accountability in the CSO sector to this upwards accountability, as the beneficiaries of the CSOs feel excluded from the discussion.

Dependence on international donors combined with a looming decrease in foreign aid has pushed both Ghanaian CSOs and the government to evaluate strategies for diversification and financial sustainability. The pressure to attain sustainability, especially financial sustainability, is one that has been seen in both countries changing status (Mawdsley 2014), and more generally in the CSO sector as a whole (Fowler 2000a, 2000b; WACSI n.d.). Ideals of sustainability have almost become so endemic to the third sector that it is beginning to lose its meaning (Appe 2019).

The “sustainability doctrine,” as Swindler and Watkins (2009) refer to it, is predicated on the idea that moving toward sustainable practices will cause people to be more self-reliant and give them ownership over community programming. However, they argue that in the Malawi context it has the opposite effect, ultimately leading the people to mask their true needs and focus on what they are “allowed to ask for.” In Bangladesh, Devine (2003) found that financial sustainability relies on relationships with those financially able to give, which can put an undue burden on organizations serving very low resource communities. It can also shift programming priorities to those programs that are able to generate revenue. So, while there is a push to “free” the sector from the influence of large international donors who may be out of touch with the local community, moving toward a model of sustainability can present its own problems.

2.3 Ghana Beyond Aid

Another challenge to CSO sustainability has come from government proclamations. In recognition of the shifting funding climate, the Ghanaian government signed a compact in 2010 with aid partners and CSOs which affirmed the goal of being an aid-free country by 2020 (Government of Ghana 2019). The elevation of Ghana to an LMIC, and the signing of the compact led development partners like the Department for International Development (DFID) and the Catholic Organization for Relief and Development Aid (CORDAID) to create plans to reduce their funding for programs in Ghana by about 2/3 between 2010 and 2015 (Arhin 2016). With a growing CSO sector, the decrease in foreign aid has meant an increase in competition for funding and highlighted the need for alternative sources of funding for the third sector.

As the third peaceful transition in leadership since 1981, the 2016 election cemented Ghana as a democracy. Just two months after taking office, President Akufo-Addo certified his commitment to an aid-free Ghana during a speech at the Fifth Africa CEOs Forum when he stated, “[w]e want to build a Ghana beyond aid; a Ghana which looks to the use of its own resources” (Rosenbaum 2019). Thus began a re-branding of the aid-free Ghana Compact of 2010 to “Ghana Beyond Aid,” a new charter released by the Ghanaian government in April 2019. The document states that the Ghana Beyond Aid Charter seeks, not an elimination of foreign aid, but a focus on developing the nation’s industries in an effort to reduce poverty (Government of Ghana 2019). The Charter also moves the deadline from 2020 to 2028, though this has now been revised to 2030 (Rosenbaum 2019). Although the Ghana Beyond Aid Charter is supposed to be a mandate by the government to the government, it will undoubtedly affect the third sector. With no promise of direct government support for CSOs in Ghana, should foreign donors withdraw from the country in response to the Ghana Beyond Aid Charter the sector will likely face economic uncertainty. This is especially true given the giving culture in Ghana.

2.4 Giving Culture: Generosity versus Philanthropy

Organizations are reliant on their giving environment to attain the resources needed to operate (Cornforth 2014; Hailey and Salway 2016). Therefore, understanding the giving environment is important to understanding the sustainability of that sector. However, examining giving in Ghana through a western lens leads to a “perceived lack of philanthropic culture” (Kumi 2019, p. 1334). This is true of many cultures, particularly in the global south. Due to the heavy focus on western philanthropic models, the majority of the literature narrowly defines philanthropy as financial contributions to CSOs. For this reason Wiepking (2021) calls the understanding of global philanthropy incomplete and points to a need for large scale, comparative research to conceptualize understandings of philanthropy around the globe. Sy and Hathie (2014) propose a new definition for philanthropy in the African context. African philanthropy can be defined as “the individual or collective effort or inclination to increase the well-being of a person, a group, people, or humankind; the sense of solidarity and sharing with people in need; [and] an activity or institution intended to promote human welfare” (Sy and Hathie 2014, p. 260). This definition is more inclusive, incorporating giving to individuals as well as organizations. Likewise, Wiepking (2021) recommends the use of the term “generosity” in lieu of “philanthropy,” since it is inclusive of all forms of giving behavior seen across cultures.

Ghana, like its west African neighbors, has a longstanding history of individual, informal giving (Kumi 2022). Ghanaians tend to give to their family members and neighbors, an act that is rarely recorded (Everatt et al. 2005). In Ghanaian culture, people tend to view the welfare of others as their responsibility. Individual giving is often conducted through social networks, particularly extended family units, and includes an element of reciprocity and mutual assistance (Kumi 2019). Fowler (2022) writes that there are historical reasons that Africans tend to emphasize giving toward those with whom they have a relationship. Much of this can be traced back to a distrust and resistance to colonial powers and their imposition of formal political structures. Thus, Ghanaian generosity is most often directed to the individual and focused on promoting human welfare.

There is no doubt that Ghanaians are generous people. The giving culture in Ghana is such that generosity is largely reserved for friends and relatives, whereas CSOs generally benefit from in-kind donations and volunteerism. While this type of generosity may serve grassroots organizations well, it could be an issue for the more formal, professionalized CSOs operating under westernized funding models. Because these westernized organizations are more likely to receive foreign aid, they are more likely to be impacted by the withdrawal of foreign funders (Arhin et al. 2018). In order for these organizations to achieve financial sustainability, they need both generosity in the global sense and philanthropy in the western sense.

4.1 Sample

The sample of 42 respondents consisted of the following sectors:

Based on Afrane and Filipovitch’s (2012) review of the sector, we find that we have over sampled in the Public and Social Benefit sector (42.8 % of our sample versus 16.3 %) and slightly oversampled in the Education sector (19.0 % versus 15.4 %). We have also under sampled in the Human Services (19.0 % versus 36.9 %) and Environmental (4.7 % versus 13.1 %) sectors. This could be due in part to our use of a snowball sample, our smaller sample size, and to the differences between our sector categories.

Additionally, our sample consisted of a 50/50 split in organizations with an annual budget of $1–$99,999 USD and those with an annual budget above $100,000 USD. Compared to Afrane and Filipovitch’s (2012) findings, this means we have over sampled wealthy CSOs (50 % versus approximately 10.2 %). This can once again be attributed to the snowball sample and the small sample size (Table 2).

5.1 Current Funding Climate

To understand where Ghanaian CSOs are in the process of moving toward financial sustainability, we first looked at their current funding sources. As anticipated, the majority of respondents are reliant on funding from international organizations and donors, though some also generate revenue through charging for service provision or product sales. Figure 1 shows the current revenue sources for respondents.

Figure 1:

Sources of revenue for Ghanaian CSOs.

Also unsurprisingly, respondents reported that rarely or only occasionally do individuals in Ghana make financial donations to CSOs. In-kind donations range from never to very often, though the majority of respondents state that in-kind gifts are occasionally or rarely given to CSOs. It is more likely to receive donations in the form of volunteer service, with respondents reporting at least occasional volunteer service. See Figure 2 for a breakdown of giving to CSOs in Ghana.

Figure 2:

How CSOs in Ghana perceive giving.

5.2 Strategies CSOs are Using to Move toward Financial Sustainability

We then asked respondents what strategies they are pursuing to become more financially self-sufficient. We intentionally created this question as open-ended, thinking that this would allow the respondents to interpret and answer the question as they understood it. We then coded the answers using Ahrin, Kumi, and Adam’s (2018) six strategies: (1) eggs-in-multiple baskets; (2) cost-cutting; (3) strength-in-numbers; (4) security-under-partnership; (5) credibility building; and (6) visibility-enhancement.

Unsurprisingly, we also found that 82 % of the organizations surveyed were trying to move towards financial sustainability. We found that all but one of the organizations that reported working toward financial sustainability was focused on income generation – the “eggs-in-multiple-basket” strategy according to Ahrin, Kumi, and Adam’s typology. This means that nearly all of respondents are focused primarily on income generation (instead of expense reduction or legitimizing the sector) to meet their financial sustainability goals, almost exclusively through the establishment of social enterprises.

When asked what steps they were taking to become more financially self-sufficient, one respondent stated, “we are trying to venture into social enterprises to raise income to support our core objectives.” This sentiment was echoed by another respondent, “by establishing [a] profit-making venture that will make enough profit to cater for the NGOs recurrent operating costs.” Some respondents were focused on specific avenues of social enterprises, for example, “focusing on services the organization can market,” or, “by coming out with physical products that can be marked to bring revenue in the long run.” Some of the plans for social enterprises were more specific. For example, one respondent stated they were “trying to set up [a] profit-oriented enterprise such as poultry farm,” while another said they were looking “to set up [a] skills development centre, income generation activities [like a] piggery project [or] day care centre.” One organization was very specific, stating that they were planning to “develop and provide sustainable and easy to use business development services, support clients (mostly informal MSMEs) to regularize their operations and conform to statutory obligations, and design hands-on-capacity building and training support for MSMEs operators and entrepreneurs.”

While all of the organizations working towards financial sustainability were pursuing additional income, primarily through social enterprises, very few were focused on other avenues of sustainability. Only two respondents mentioned decreasing expenditures through cost-cutting measures (4 % of the sample). As for legitimizing the sector, one respondent mentioned credibility-building, “we develop capacity to mobilise [sic] resources to improve internal organisation [sic] through better management and coordination, improved internal communication, and alignment on priorities.” Four others mentioned visibility-enhancement strategies, primarily the use of social media, but also “by building a local community of small but regular donors.” Figure 3 lists the strategies by percentage.

Figure 3:

Percentage for each of Ahrin, Kumi, and Adam’s categories reflected in sample.

It is clear that while previous work of scholars in this area shows that sustainability can take numerous forms (Appe and Pallas 2018; Arhin et al. 2018; Fowler 2000a, 2000b), when we focus on what steps are actually being taken, we see that CSOs are almost exclusively utilizing income diversification – and more specifically, social enterprises. That is, in the face of the looming reduction in aid from international donors, CSOs are focused on income generation as their primary source of sustainability. This focus outweighs other sustainability strategies, including cost reduction and legitimizing the sector.

Our survey was conducted in January and February of 2020, shortly after the release of the Ghana Beyond Aid charter. We were interested to see how CSOs perceived this proclamation by the Ghanaian government and its likely impact on CSO sustainability. During our preliminary field research, we identified that there was some confusion about the aim of the Ghana Beyond Aid charter. The title of the charter itself is a misnomer, as the stated goal is to build up Ghana’s resources in order to become less reliant on foreign aid, not to decline foreign aid altogether. Additionally, during our field work some of our key informants were skeptical of the goals of the charter, maintaining that it was a ploy by the government to ensure that all aid dollars flow through the government instead of directly to the third sector.

This skepticism was echoed by one-third of all survey respondents. They indicated that they saw the Ghana Beyond Aid charter as political posturing and highlighted the fact that the government did not have a clear plan to implement the charter. As one respondent stated:

We do not fully understand the goals. But we wonder about them because we do not see many government programs for vulnerable people … it’s not clear what Ghana herself would be working to sustain.

Even though many respondents dismissed the Ghana Beyond Aid charter as propaganda, they still expressed concern that the charter would affect them indirectly by making it more difficult to solicit and receive foreign aid.

I think that the aspirations in the document align with a key strategic focus for our organization. We are also focused on civil society resilience and sustainability to a large extent civil society beyond aid. However, we have realized for this to be meaningful deliberate steps need to be taken to provide an enabling environment for domestic resource mobilization and local philanthropy.

Just as with financial sustainability in general, in reaction to the Ghana Beyond Aid charter nearly half of all respondents stated that they are working towards generating funds locally, with the majority of these funds being generated through affiliated businesses or social enterprise schemes (eggs-in-multiple-baskets). However, unlike with general sustainability questions, when reflecting specifically on Ghana Beyond Aid, nearly a third of respondents stated that advocacy and community building efforts to encourage local philanthropy are part of their plan. This falls under the ‘credibility-building’ strategy in the Arhin et al. (2018) model.

Regardless of their perspective on Ghana Beyond Aid, most of the CSOs who completed our survey indicated that they are taking steps to diversify their income streams. Some of the organizations in our survey indicated that the decrease in international aid had already started, so Ghana Beyond Aid is simply pushing them to diversify sooner. However, others felt like the charter was the impetus for the decrease in foreign donations. While it is clear that some are moving toward sustainability to fulfill their understanding of the charter, others were already taking steps toward financial independence.

6.1 Limitations and Future Research

Our reliance on a snowball sample and the relatively small size of our sample are limiting factors in our study. Our use of an online survey, coupled with the fact that we relied primarily on a formal organization (WACSI) to recruit respondents, means that we likely missed smaller grassroots organizations that lack access to the internet and/or are not affiliated with a larger convening body. We also know that we likely missed more informal, often “hidden” organizations doing important community work. This is especially important to note, since we acknowledge that due to the more informal nature of giving in Ghana, this is an important component of civil society. Finally, since our fieldwork was conducted primarily in Accra, the capital and largest city, our sample reflects that as well. Future research would benefit from expanding the sample, both in size and scope.

One aspect of giving that is underreported in many African countries is religious giving. In our survey, when asked who Ghanaians give to, aside from family and friends, churches were most often cited. When asked if this money goes to the community or only to the church, 74 % said it stays within the church. Future research should explore this type of giving and see if there are any strategies of trust building that churches have developed that CSOs might be able to utilize.

Another area for future research is how CSOs have been affected by the COVID-19 pandemic. We know from current research that CSOs in the United States have been hit hard both financially and in their ability to provide direct services (Johnson et al. 2020; Maher et al. 2020; Newby and Branyon 2021). The 2020 Sustainability Index hints at the impact COVID-19 has had, and a deeper investigation is likely warranted (USAID 2021). In a sector that is reliant predominately on foreign donations, has COVID-19 made CSOs even more reliant on foreign donors because of in-country restrictions, or has it pushed CSOs to new sustainability strategies due to a decrease in foreign funding? Our assumption would be that the impact depends on the mission of the organization.

We mentioned that our sample likely is missing many informal and grassroots organizations. Because these organizations generally do not have the same capacity as more formal, westernized CSOs, they tend to receive less funding from international donors and may be less reliant on this funding source. Future research should specifically seek out grassroots and informal organizations to examine their sustainability strategies and examine if they differ from more formal organizations.