Industry mounts pressure on govt; Demands macroeconomic stability
The Association of Ghana Industries (AGI) has prevailed on the government to, as a matter of urgency, ensure macroeconomic stability to enable players in the industry to predict and plan their activities.
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“Under the present circumstance, we are unable to predict and forecast beyond even a week or a month and that is seriously affecting our business,” the President of AGI, Mr James Asare-Adjei, said.
In an interview with the GRAPHIC BUSINESS, he said “We are operating in an economy where players in industry cannot survive in spite of the many potentials, and that is why we want these issues of the economy addressed as soon as possible”.
For many months, the macroeconomic environment has deteriorated to an extent that the cost of production keeps rising, making the economic environment highly unpredictable.
Presently, industry players are borrowing from the banks at an average of about 28 per cent per annum, and this is making the banks richer by the day, as depicted in their annual reports.
The case of industry is even more likely to worsen following threats by the banks to increase their base rates with effect from this week.
Should this happen, the average rate at which industry can borrow may hit 30 per cent and the impact will be grievous.
Aside the high interest rates, utilities tariffs also keep rising, while petroleum products are also not static.
In spite of the frequent rise in the utility tariffs, supply is also very erratic and unstable, and that is seriously affecting the machines and other equipment of industry players, compelling them to spend more money on maintenance works.
The depreciation of the local currency has also added to the woes of industry.
According to the Bank of Ghana, the cedi fell against the major trading currencies, particularly the United States dollar, by about 21 per cent in the first quarter of the year.
This means that industry is forced to change more cedis to get US dollars to import the raw materials they require to produce.
All these uncertainties, among other things, have created an unpredictable environment for business operators, and Mr Asare-Adjei is of the view that much as the government may not be able to deal with all the issues at hand at a go, there is still the need to take pragmatic steps to address them.
Producer Price Index
The woes of industry is confirmed by the latest Producer Price Index (PPI) which revealed that between April 2013 and April 2014, the country’s year-on-year Producer Price Inflation (PPI) increased by 31.5 per cent, representing an increase in producer price inflation by 3.7 per cent points, relative to the 27.8 per cent rate recorded in March 2014.
The PPI measures the average change over time in the prices received by domestic producers for the production of their goods and services.
According to the Ghana Statistical Service (GSS), the month-on-month change in producer prices between March 2014 and April 2014 was 2.7 per cent.
The manufacturing sector, which constituted more than two-thirds of total industry, increased by 2.7 percentage points to record 27.7 per cent while the rate for the utilities sub-sector rose marginally to record 56.5 per cent in April 2014.
During the 12-month period from April 2013 to April 2014, the highest year-on-year inflation rate of 31.5 per cent for all industry was recorded in April 2014.
Interest rate regime
Ghana is said to operate one of the highest interest rate regimes in Africa.
With an average interest rate of about 28 per cent or more per annum, industry players find it more difficult to borrow.
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What is worse is the fact that they also borrow short term for long-term projects and this makes it difficult for most of them to repay. Where they are able to do so, they return virtually nothing and the banks make a fortune.
Meanwhile, the banks have explained that the reason for their rates is a result of the macroeconomic environment in which they operate.
They noted, for instance, that to have the government borrow through treasury bills (T-Bills) at about 24.08 per cent for a 91-day bill; 21.29 for 182 days; 22.50 per cent on a one-year note and 23 per cent for a two-year note, it will be disastrous to lend at a rate lower than the prevailing T-Bill rate.
“If you do that, people will borrow money from the banks and buy T-Bills with them, and you as a bank will lose,” one banker said.
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Inflation
Since December 2011 when the government recorded one of its lowest inflation rates at 8.58 per cent, the inflation rate has been rising steadily through the months.
Inflation ended the year 2013 at 13.50 per cent, thereby missing the government’s target of a single digit.
The rate, as of the end of April 2014, was at 14.70 per cent, and some analysts have predicted that with the present trend, there is the likelihood that inflation will hit about 20 per cent before it finally begins to drop again.
The drop in inflation will be largely dependent on stable utility tariffs and petroleum products, as well as a stable local currency.
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It is now obvious that the rise in petroleum products is not solely dependent on the prices of crude oil on the international market but largely as a result of the fall of the cedi. This is because oil marketing companies (OMCs) require more cedis to convert into US dollars before they could import.
Since the utilities, particularly the generation of electricity, depend largely on crude oil, the tariffs may only be stable should the government absorb the increases on the petroleum products or wait for the gas production to come on stream at a cheaper cost for the production of electricity.
As a result, the more the prices of utilities and petroleum products go up, the more inflation rate also rises because the market will push the cost on to the consumers.
Way forward
The AGI boss asked the government to ensure that the recommendations of the National Economic Forum, christened “Senchi Consensus”, are followed through.
“We have confidence in the calibre of personalities invited to discuss the challenges in the economy, and we believe that should they (recommendations) be implemented, we will be out of the present difficulties because we need that stability to enable us to plan and forecast,” he said.