SMEs to benefit from wage freeze
One hidden ambition of the Central Bank and the Ministry of Finance is to enable Small Medium Enterprises (SMEs) to benefit from low consumer price inflation.
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A concerted reason for targeting the rising trend of inflation is not only to be seen as a relief for governments, but also for small businesses, financial institutions, families and individuals up and down the country.
Policy makers believe that low inflation provides an anchor which enables businesses and investors to freely manage capital and for small medium entrepreneurs to absorb labour.
Initial signals over the past few years indicate how inflationary expectations are being actively managed through the shoring up of reserves. While these efforts are commendable, performance has been greeted with mixed feelings.
For instance, inflation, usually defined as the change in prices of goods and services, has consistently risen from July 2013 (then at 11.8 per cent to November 2013 at 13.5 per cent.) At the same time, the cost of borrowing, particularly to indigenous small and medium size enterprises, has remained high above the base rate of 15 per cent.
Holding that inflation is purely a monetary phenomenon generated by excessive growth of the money supply in relation to output, nothing will stop this beast otherwise called inflation, from rising, but a stop in the undue rise in the money supply.
To the extent that the present administration continues to engage organised labour head on, on the inappropriate expenditure on wages, is welcome news. While policies taken from hindsight on single spine may be irreversible, (even Jomo, my good friend in the far away constituency of Atiwa East, agrees with me) all well-meaning Ghanaians must come to grips with the fact that the public sector wage bill is unrealistic, unsustainable and does not warrant public discourse.
Jomo engaged my attention in a little research exercise. In 2012, he found out that Ghana spent 73 per cent of her tax revenue on wage compensation for 500, 000 public sector employees. Comparatively, Kenya spent 39.8 per cent, Tanzania 28.6 per cent, Uganda 15.6 per cent and South Africa 12.9 per cent on salaries and wages for public sector workers (Daily Graphic August 26 2013 page 26) . Perhaps, it is now evident as to why the freeze on public sector wage increases is welcome news.
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One lesson I left with Jomo and the people of Atiwa East is that if wage increases should lead to consumption on domestic produced goods and services, then productivity and economic growth would be achieved.
An increase in such industrial output would necessarily facilitate the rise in employment and cause prices to fall. This is the case in the China’s of today and the Malaysia’s of our days of independence.
If on the other hand, wage increases lead to higher demand for foreign goods and services, thereby crowding out demand for locally manufactured goods and services, then undoubtedly, imported inflation would ensue. This would be compounded by wage rise agitations.
At the end of the lesson, Jomo concluded that Ghanaians as a people have a stark choice; consistently aiming (by all governments) at controlling the beast called inflation or letting it loose.
He also agreed that SME’s should be encouraged to tap in local labour without extra cost to them because they are the engines of growth and employers of labour.
He promised to carry this message to Accra.
The writer is an Economist & Consultant
Kwame201290@yahoo.co.uk