AGI laments unstable economy

Members of the Association of Ghana Industries (AGI) have expressed pessimism over what they describe as worsening conditions and the direction of the economy.

According to them, the business community was reeling under pressure from a weak currency, unabating energy crisis and a multiplicity of taxes.

These were the conclusions of a survey conducted among over 500 captains of industry across the country between April and July this year and contained in the AGI business barometer for the second quarter of 2015.

The survey, carried out on a quarterly basis, is a tool that the AGI uses to measure the level of confidence in the business environment.

Multiple taxes

Giving a summary of the report in Accra last Monday, the Chief Executive Officer (CEO) of the AGI, Mr Seth Twum-Akwaboah, said business confidence index inched up to 87.0 points in the second quarter from 85.0 points in the first quarter of this year.

He stated that anticipation of an improved business climate towards the next quarter triggered a slight improvement in business confidence.

According to him, energy crisis persisted against the backdrop of over 5000 megawatts of power deficit.

“Weak micro-economic fundamentals with policy rate at 22 per cent and inflation at 17.1 per cent characterised the second quarter, with the exchange rate deteriorating to about GH¢4.4 to the US dollar,” he stated.

The CEO said taxes took a heavier toll on businesses, particularly the real estate sector, in the second quarter than the first quarter of 2015.

“It is not surprising that captains of industry denounced the 17.5 per cent special tax on petroleum products, among others,” he said, adding that by comparison it was much more expensive to run business on generators than on grid electricity.

He added that the cost of doing business had been worsened by the fact that businesses were bearing an additional 17.5 per cent on fuel for generators due to the petroleum tax.

Overall perception

Mr Twum-Akwaboah said irrespective of the challenges in the second quarter, 41 per cent of the respondents were optimistic about the economy getting better towards the third quarter, possibly due to the Eurobond issued and the International Monetary Fund (IMF) support.

“In respect of that, 20 per cent of companies indicated that business was better in the second quarter than in the first quarter,” he said.

Contrarily, he said 39 per cent indicated that business was worse than normal in the quarter under review, saying, “This situation is as a result of the continuing power crisis, cedi depreciation and increased levels of taxes, among others.”

“Fourteen per cent of respondents expect business to be worse than normal in the third quarter and between 41 and 44 per cent remained undecided, meaning their businesses had not improved or deteriorated and neither were they able to predict whether business performance would improve or worsen,” the CEO added.

Challenges

Mr Twum-Akwaboah said sectoral analysis showed that cedi depreciation and exchange rate volatility ranked first for the manufacturing, service and the construction sector, while in the same vein, inadequate power supply ranked second for all the sectors.

“The construction sector ranked delayed payment as their third challenge, while manufacturing and service ranked multiplicity of taxes as a third challenge,” he said.

He added that in the first quarter, inadequate power supply ranked first, followed by cedi depreciation/exchange rate volatility, while the second quarter saw a reversal where cedi depreciation came first.

“It is doubtful if Bank of Ghana’s intended intervention could be sustained to maintain the stability of the cedi,” he stated.

Employment

The survey results show 21 per cent of the respondents, largely in the service sector, say they will increase employment, while 19 per cent, majority in the manufacturing sector, indicated that they would decrease employment due to the prevailing economic challenges.
“Sixty per cent of the respondents were undecided as to whether to hire more or lay off workers,” Mr Twum-Akwaboah added.

Stabilisation of the cedi

He said the stability of the local currency was a strong indicator of the health of the economy.

According to him, when companies were asked their views on whether they envisaged a stabilisation of the cedi within the next three months, 75 per cent of the respondents said they did not foresee any such stabilisation, while 25 were more optimistic and anticipated a recovery over the next three months.

“To stabilise the cedi, it was recommended that the government supports industries to produce more for export, ensure fiscal discipline and adherence to the directive to do business in the local currency.

“The impact of Bank of Ghana’s intervention measures to stabilise the cedi is likely to be felt in the third quarter and beyond,” he added.