Reduce prime rate to spur investments — Togbe Afede XIV

The Agbogbomefia of the Asogli State, Togbe Afede XIV, has called for collaboration between the Bank of Ghana and the Ministry of Finance to keep the prime rate and inflation down.

Describing the current prime rate of 27 per cent as too high, he said it meant the average borrowing rate for individuals and businesses would be 33 per cent, something he pointed out posed a very big challenge to businesses.

Togbe Afedi XIV, who is also an astute investment banker, said the high prime rate had made the cost of capital very expensive in the country which had led to difficulty in encouraging local ownership of business.

“In today's world, you are borrowing at 33 per cent to make how much profit and let alone be able to service your debt? It’s a big, big challenge. The prime rate is too high.  

“The prime rate is the rate at which the Bank of Ghana lends to the banks. So if banks are borrowing from the Bank of Ghana at 27 per cent, what do you expect?

“They can only lend to you at a higher rate. And if government itself, the biggest borrower, is borrowing on average between 27 to 29 per cent, what can you get? You can only get something higher,” he said.

Togbe Afede XIV, who chairs and owns a number of businesses in the country, including SAS Finance Group, expressed the concerns in an interview with the Daily Graphic.

Ghana has been hit by economic challenges which have seen inflation at a high rate, continuous depreciation of the cedi to the dollar and prices of goods skyrocketing.

Borrowing rates

Togbe Afede XIV said due to these high borrowing rates, Ghanaian businesses found it difficult to borrow and invest in their businesses, something their foreign business counterparts from Lebanon, China and England were able to do because of the favourable borrowing rates in their home countries.

Due to this, they go there to borrow and come back to invest in their businesses here in Ghana, a situation which had made them dominate the local economy of Ghana instead of Ghanaians.

“They don’t seem to realise that their policy is making it difficult for locals. So they need to lower our prime rates for interest rates for loans to be affordable to the domestic people,” he advised.

He said since the Ministry of Finance handled the fiscal while the Bank of Ghana handled the monetary, they should be able to collaborate to bring down prime rate and inflation.

He asked why the BOG based the prime rate on past inflation instead of expected inflation, explaining that had made Ghana a high-interest environment compared to its counterparts such as Zambia, Kenya and Tanzania.

Dollarisation, Cedi depreciation

Expressing concern about the dollarisation in the country, Togbe Afede XIV said Ghana was the only country where people could quote prices freely in dollars, and therefore, called for the need to protect the cedi as the only legal tender of the country.

On the frequent depreciation of the cedi, the investment banker mentioned the solutions to include a reduction of the budget deficit, expansion of production, support for the private sector with incentives and clear rules so that they could expand production to export more but should add value to the exports and import less, adding that the economy was too foreign dominated.

“All of these things have implications for demand for dollars. We import too much, which means we need dollars.

“When foreigners dominate our banking sector, when they make their profits, they have to remit the profits abroad in dividends. It has implications for our cedi.

“So the Bank of Ghana itself cites the fact that our economic structure is not good; the reason for high inflation, cedi depreciation,” the Agbogbomefia said.