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The ‘MIRE’ of Ghana’s Industrialization

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I ndustrialization is recognized as a shift from agriculture to manufacturing which is a key to development: hardly any country has developed without industrializing. This phenomenon has been so striking as to induce some economists to hypothesize that the manufacturing sector is the ‘engine of economic growth’. Development analysts have linked many developed countries to the boom in industrialization in those countries.

The emergence of manufacturing led to dramatic changes in the structure of the world economy and to sustained increases in the growth of labor productivity and economic welfare (Maddison, 2001 and Maddison, 2007). In fact, the industrial revolution started in Great Britain and the country became the technological leader in the world. It was the exemplar for other countries.

Manufacturing became the main engine of accelerating economic growth in the nineteenth century. In Ghana, there are still very strong proponents who believe industrialization still holds the key to the country’s development, even though many industries have collapsed after the reign of Ghana’s first President Dr. Kwame Nkrumah, who believed in industrialization as the gateway way to economic development.

In recent times, various economic activities have influenced the crippling of many manufacturing firms in the country and as a result, the Association of Ghana Industries (AGI) has renewed its calls on the need to develop Ghana’s industrial sector, citing it as one sure way to address the numerous challenges confronting the economy.

According to the association, successive governments, have over the years done little to improve upon the industrial policies and initiatives instituted by the first President of Ghana, Dr. Kwame Nkrumah. President Mahama, at the 2016 State of the Nation Address on the floor of Parliament, on February 24, 2016, highlighted some government interventions to develop the private sector.

One key intervention is the establishment of an EXIM Bank to provide funding to exporting businesses. But the President of the AGI, James Asare Adjei reveals that the lack of clear-cut policy guidelines toward meeting the objective of improving economic growth was conspicuously missing.

“We had wanted to see specific action plans or initiatives which were either undertaken previously or to be undertaken to ensure that we achieve that level of industrialization that we are yearning for as a country.

But it looks like there were no clear cut action plans or detailed strategies which would really let us know that we are moving from point A to point B within this specified period of time and I think it is necessary for private sector growth”.

The AGI President in acknowledgement of the President’s effort to have given support to certain sectors of the economy– the pharmaceutical and the poultry, believes that some support could have been extended to other key sectors of the economy like the aluminum industry, textiles and of course agriculture which is the backbone of the economy.

He noted that, though certain areas of the economy were touched it was too narrow broadly spread and he felt that this should be expanded in the very short term.

James Asare Adjei, on the issue of manufacturing industry’s contribution to GDP, assented to the continuous decline the industry is experiencing and attributed it to the collapse of State Owned Enterprises.

Furthermore, he also noted that there are myriad of other problems that are contributing to the industry decline such as energy unavailability, high cost of credit, unavailability of market, technical challenges etc. which all counts to the bleak nature of the manufacturing industry in the short term.

Notwithstanding these challenges, he disclosed the opportunities that abound in the medium to long term by virtue of availability of raw materials in the country, the availability of skilled and cheaper human resource and the establishment of the Ghana Export and Import Bank stated by the President of the Republic in the State of the Nation address.

He also cautioned that for the manufacturing industry to gain its desired momentum, the government and populace must be able to curb the influx of cheap products penetrating into the country.

The Scope OF Ghana’s industrial Policy

Like any other country across the globe, Ghana also, has an industrial policy which has been instituted for about five years. The question that begs asking is: what is the scope of Ghana’s Industrial Policy? He explains “Ghana has an industrial policy which was launched in 2011 and was supposed to be implemented over a five-year period which will then create the enabling environment for businesses particularly industry and manufacturing to be robust.

There are about four thematic areas where the policy will enhance productivity– increase production particularly in the productive sectors of the economy, create market access, make funds available for local businesses to retool and expand.

There is also what is referred to as the private sector support program which is to be the rolling mechanism by which the industrialization policy will be implemented. It is also in the policy that there should be a one billion Ghana cedi fund set up to roll out the industrialization policy.

As we speak now, probably six years into its launch, we have not seen much activity targeted at implementing the policy. Although, certain areas of the Industrial Policy have been implemented, we have not seen a full roll out of the policy.

Let me also mention that, the policy gave birth to EDAIF which is meant to support companies that are into exports, and of course, there have been a number of streamlining which are all geared towards supporting the full implementation of the Ghana Industrial Policy.

If we had really seen that consistent roll out of the entire four thematic areas which will culminate into actually providing the needed conducive environment for industrialization, then we would have seen its effectiveness but at the moment, we cannot see its full effect on the Ghanaian economy.”

The Minimal impact of the Services Sector despite boost in growth

Current surveys suggest that Ghana is churning out about 200,000 graduates every year from all the tertiary institutions within the country. The bitter truth is that majority of them do not get jobs at least in the first two years after graduation and this has continuously generated heated debate among Ghanaians; educationists, employers and others.

The Institute of Statistical Social and Economic Research (ISSER) for instance says that the country is sitting on a time bomb following the alarming unemployment rates. Some have also described the situation as a security threat to the economy.

But it appears little has been done by successive governments regarding the need to improve the industrial base which will ultimately reflect in other critical sectors like agriculture. Although the Services sector is seen to be booming, its impact is not sustainable as the needed channels for job creation are unavailable– the industries.

To make the services sector more viable, we need to develop the chains of production: agriculture – manufacturing – services. But in the absence of these processes, the boom in the service sector would be referred to as leap-frog investment approach. “I refer to the boom as leap frogging into services instead of going through the normal process of agricultural to industrialization or manufacturing then into service.

Now, what we have done is we have moved from agricultural-based economy straight into a service-based economy. Well, one will say once we are getting the level of growth or the employment creation in the service sector, there shouldn’t be any problem.

But the challenge is the service sector cannot create the needed employment.” He further observed, “Services account for about 52% of the GDP in the economy while Agric.

has also dropped drastically from over 50% to about 18% (which it is expected to be the backbone of the economy).

Such sort of reduction should have been complemented or traceable to the growth of the manufacturing industry but that is not really what is happening.

So, what we are looking forward to is a systematic and conscious effort to grow the Industrial base of the economy such that as our Agric. products are harvested, we will be able through processing, to add value and then also make sure that we can gain a lot more from our activities”.

Why the Boom in the Service sector and Decline in the industrial sector?

It is not far-fetched to notice the reason for the boom in the services sector as about 66% of tertiary intakes study humanities leaving just a handful of the remaining intake pursuing technical education to become the man power for the industries. It is noticed that the main cause of this decay is the education system which has lost its primary focus of positioning and training the right man power for the sector.

Also, job rewards and satisfaction have skewed towards the service sector as graduates within this sector in the shortest possible time take home huge returns as compared to their counterparts in the technical environment and as a result most of the youth are all desiring to venture into more appealing, comfortable and attractive job markets such as the service sector.

This issue needs to be carefully addressed to rebalance the career pursuit of the upcoming generation to curb the preferential selection of careers else a time will come when middle manager manpower for the industry will be no more and all products shall be import-dependent.

“I think that the government or the country should have a very consistent deliberate policy direction in trying to build technical competencies of our higher education that is why AGI was very much in support of government’s initiative in converting polytechnics into technical universities– that is probably a very high form of training for middle level man power”.

In converting the Polytechnics into Technical Universities, he cautions government not to convert all Polytechnics at once but should do them systematically and in stages and moreover, government should consider building capacities, both technical resource; by way of laboratory and equipment’s and also in human resource; in terms of lecturers who have industry experience.

Once all these things are in place, the institutions will run effectively and not be mere masquerades.

Strategic Positioning of Local Industries

In spite of all these challenges, local industries also face stiff competition from other competitors outside of the West African sub region as well as the global market. Recently, industries involved in the production of cement, rice, poultry among others have raised huge concerns at the impact of foreign companies who are exploiting the Ghanaian market as a result of ECOWAS or World Trade liberalization policies.

An example not far-fetched is Nigerian cement manufacturing firm, Dangote Cement which is giving local manufacturing firm such as Diamond cement a stiff competition both in the wholesale and retail space.

This, James Asare Adjei believes, is however surmountable if local manufacturers could hinge on some of the opportunities available to them as local industrialists; import substitution, efficient operations, synergistic decisions as well as bilateral trade conditions. According to him, “All is not lost. Hopefully, as we look beyond the challenges existing, we should be able to make some in-roads.”

He suggested that what industrialists needed to look out at was import substitution; if the raw materials can be gotten locally, there’ll be no need to import them. For that matter, if raw materials can be obtained locally, government should slap deterring tariffs on those who import such materials. Continuous use of the local raw materials, in fact, will enhance local content initiative.

Secondly, he informed that it is also very important that businesses needed to be efficient in their operations. He advised that where one found himself in a high cost environment, what is very important is efficiency of operation and then also being able to take advantage of economies of scale because the higher the production output the lower the cost and hence one can then compete effectively.

The third suggestion he proffered, is the synergistic approach where businesses can come together to perform bigger tasks together. He admonished that autonomous operations aren’t doing the industry players any good when they can capitalize on synergistic approaches such as jointventure, collaboration alliances etc. to form bigger alliances and fight the competition.

He acknowledged that Ghana holds that opportunity especially considering the country’s location. Lastly, he added, “Ghana and for that matter industries in the country, can take advantage of a lot of the bilateral and multilateral agreements that are available to the country.

For example, the Economic Partnership Agreement (EPA) which offers a huge market for Ghanaian products provided these products can meet the various quality requirements and standards. Also, there are ECOWAS protocols such as ECOWAS Trade Liberalization Scheme (ETLS) being one of such instruments that Ghanaian industrialists can take advantage of.

So, all these schemes are available to us such that we can leverage on such opportunities for us to be able to grow our businesses.”

Empowering the SME sector for explosive growth

The industrial economy equally comprises Small and Medium Enterprises. It is acknowledged worldwide that Small and Medium Enterprises (SMEs) are the engines of economic development and industrial growth, solving the twin problems of unemployment and poverty. They are said to account for about 90 per cent of all the companies in the world.

SME’s cut across various sectors including the manufacturing, service and business enterprises among others. They also contribute immensely to innovations, productive employment including self-employment and optimum utilization of latent resources. They usually operate on a relatively small scale and as such, hire from as low as three persons to as high as about a hundred staff.

In Ghana, nonetheless, this sector plays its vital role as an important economic dispenser. SMEs in Ghana have also been noted to provide about 85 per cent of manufacturing employment, contribute about 70 per cent to Ghana’s GDP, and therefore have catalytic impacts on economic growth, income and employment. This reveals that if this sector is supported and well streamlined, it will grow phenomenally to become the engine of growth as expected. “The SMEs can really spur economic growth when given the necessary support.”

Aside being important sources of employment and income in the country, SMEs with their flexible nature have a better adaptability to changing market conditions, making them better suited to withstand cyclical downturns.

Challenging business climate for SMEs

Despite their immense contribution to the economy, SMEs are faced with some challenges which impede their ability to record the impressive performances expected of them as players of Ghana’s economic development. Key among these challenges is the high interest rates. This has and continues to be the bane of quite a number of SMEs.

Not only are they unable to access credit, but the huge interest is equally a “turnaway” for them. The worst “culprits” of the high interests are definitely not commercial or traditional banks but the Microfinance industries that promise unrealistic interests on deposits and yet slap customers with high compound interests on credit they offer.

Also, the volatility of the cedi for a greater part of 2014 through to 2015 impacted adversely on operations of most SMEs. This was evident as cost of imported raw materials for instance went up making it difficult to plan and prepare for the growth of one’s business.

“I think the challenges faced by the SMEs are no different from what other businesses are facing. SMEs are very vulnerable and for that matter are unable to really stand the shocks of economic turmoil.

They also cannot stand the shock of depreciation because as an SME, it is impossible to access bank hedge for your transactions and as a result may have to contend with the challenges of unpredictable currency. So anytime there’s depreciation, especially those SMEs whose activities are import based, they lose a lot”.

He also added that SMEs faced the challenge of succession planning such that if the owner ‘manager’ is not there that becomes the end of the business. Solving these issues will definitely require commitment from both government and the business or industry players.

While the commercial banks or financial houses ought to diversify their portfolios to ensure easy, hustle free access to loan by SMEs, the government should also revise its taxation regime and allow for incentives such as Free Zone Board, operating duty free ports, as well as reducing the bottlenecks in the clearing processes.

Potentials of the SME Sector

The SME sector of the economy holds a huge potential for the economy. Currently, studies show that this sector contributes about 22% or more of the total employment in the economy. Countries like India and China have a well-developed SME sector and as a result that sector generates massive job opportunities for its populace.

“Well the SMEs hold a huge potential for the economy as they account for about 92% of the entire economy of businesses in the country and studies show that SMEs contribute to about 22% or more of the total employment in the economy and that is huge. So, if we can nurture SMEs and support them, they are going to be phenomenal and then really be growth oriented.” Mr.

Asare Adjei in acknowledging the huge potential the SME sector possesses proposed that the support that should be extended to this sector shouldn’t be skewed to only finances but also technical to aid them acquire the right governance structure, develop a good succession plan and resource prudency planning to enable them grow into bigger corporations.

Achieving the industrial goal… way forward!

Industrialization is a core function of development and must be the priority of any government. It may appear that the battle is not yet over in attaining an industry driven economy as Ghana traps itself in another wavering sector that is tagged: the Dutch disease– where its current development is hinged on the oil and gas discovery. This may be another regrettable strategy to developing the economy.

To reconnect to industrialization, there should be a deliberate and concerted effort on the part of the government to support the manufacturing sector to grow. The respective roles of the government, relevant institutions, business organizations etc. should be brought to bear in achieving this feat.

Role of Association of Ghana Industries…

This private sector advocacy group made up of over 23 sectors plays a strategic role by connecting prospective investors to entrepreneurs and business opportunities in Ghana.

Being in existence for about 58 years, the AGI has and continues to provide technical and financial support to its members to spur economic growth. “The AGI has developed a strategic plan over a 5 year period, 2016-2020, such that we will look at key thematic areas of the economy trying to link up with international institutions, to make sure we strengthen our advocacy drive and create development in terms of solving some of the problems we are experiencing.”

In addressing issues of funding for its members particularly those in the manufacturing sector, the Association is setting up an Industrial Development Bank which will provide access to credit at very concessionary rates of not above 10%.

Nonetheless, AGI says it intends to roll out programs it refers to as “competency based institutions” which aims at bringing industry close to academia so that graduates will not be found wanting upon completing their education.

Role of government on industrialization

Although, we practice a democratic system where governments are changed every four or eight years (depending on the number of times being re-elected into government), industry growth cannot be an area that can be compromised.

Every government in power should focus on industrialization by making industry development a priority on its agenda such that it can be able to select champions in the economy, look at key sectors in the economy and support and grow the economy. James Asare Adjei believes that for industrialization to kick in, the input of the government plays an important role.

He considers the government to play the lead role in providing the needed mechanisms for industrialization to private players. Moreover, he desires government to focus on a plan that tackles each sector per time to provide adequate maximization of resources. For example, Malaysia focused on oil palm and we can testify to that.

We have economies like Ivory Coast focusing on cocoa and coffee and they are doing marvelously well. At the moment, they are doing soya beans and they are making a lot of in roads. “So, what are we focusing on? The government needs to focus on key industrial sectors and grow them and I think as we do that we will have a resilient economy.”

Opportunities for existing businesses and budding entrepreneurs

The cedi volatility, high cost of credit, among other pertinent challenges, may be opportunities for enterprises to take advantage of and realize their full potential.

These could involve resorting to the stock market to raise equity or equally visit the alternative stock market where businesses can list and be able to raise interest free capital. For the youth and new entrants, “The worse risk you can take is to take no risk at all… There are a lot of funds available for youth empowerment that they can tap into and start something on their own.

They should not be too much fixated into getting the non-existent jobs but be able to create something and then be proud to be an employer through the efforts of their ingenuity.”

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Business Interview

AGI@60: A Persistent Private Sector Voice

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The AGI was established in 1958. Despite the country’s very young and unstable democracy, business leaders saw the need to have a stronger voice to represent their interest irrespective of who is in government.

As the adage goes: “Government has no business in running business”. This mean, businesses must focus on running business, creating jobs, paying taxes and sustaining economic growth. But to sustain business growth, businesses need a voice that cannot be suppressed.

Led by the iconic Dr Esther Ocloo, founder of Nkulenu Industries, the Association of Ghana Industries (AGI) was formed with only 10 local manufacturers with the initial name of Ghana Manufacturers Association. With time other manufacturers, including the multinationals, saw the essence of having a stronger production voice and within a couple of years, members soared.

In 1984, as though the membership was not enough, the association’s constitution was amended which opened to all registered companies engaged in manufacturing or the provision of services to the manufacturing sector and through associate memberships, other sectors including not-for-profit organisations have become members as well.

Such associate members include the Liquor Manufacturers’ Association of Ghana, Ghana Printers & Paper Converters’ Association, Furniture & Wood Products’ Association of Ghana, Ghana Timber Millers’ Organization, Advertising Association of Ghana, and others.

Today, the AGI now has over 1,500 members across over 20 sectors including advertising, agri-business, automotive & transportation services, beverages, business promotion & consultancy services, chemicals, construction, electricals & electronics, energy, exports, financial services, oil & gas, and food.

Others are hospitalities & tourism, information & communication technology, metals, building & construction products, pharmaceuticals & herbals, printing, stationery & packaging, rubber & plastics, toiletries & cosmetics, environmental and sanitation, garments, textiles and leather and wood processing.

With such a broad membership, the association has also increased its role in society beyond just the advocacy and advisory for policy and is now engaged in industrial sub-contracting and partnership, information gathering, analysis and dissemination, business plan preparation and development and trade promotion for members. Trade promotion, especially, has seen members, who hitherto would have struggled to enter particular markets are now operating on a global scale.

With the objective to contribute substantially to the growth and development of industries in Ghana and to create a supportive and competitive business climate, which will make Ghanaian companies internationally competitive, the AGI’s mission is to carry out proactive support services to the industrial sector with the view to contributing substantially to the growth and development of industry in Ghana.

Geographically, the AGI is physically represented all across the country with seven locations where members located in such areas report to the regional office and have their own sub groupings.

In an in-depth interview with Seth Twum-Akwaboah, Chief Executive Officer (CEO) of the AGI, issues such as relationship with government, industrial policy, local currency impact on businesses, power for operations, cost of credit, taxation, budget, trade, the AGI’s own Business Barometer and the future of the Association were extensively covered.

 

Relationship with Gov’t

Similar to any kind of relationship, Mr. Twum-Akwaboah, notes that there have been good and bad times. “The relationship with government has been good, but as every relationship it has challenges,” he says.

During the military regimes, he notes that, the AGI faced some of its most testing periods. While the AGI was pushing for and continues to push for a private sector led development, government was looking for state-led developments.

“At some point there was the tendency for the leadership of the association to be branded as anti-government. Most of the leaders of AGI were jailed or harassed by the military. Meanwhile all the AGI leaders wanted and continue to want is for the promotion of business at every point in time irrespective of who is leading the government,” he says.

Today, the AGI has become stronger for it and when it speaks through its regular statements, researches and the iconic Business Barometer, everyone listens. Since the commencement of the fourth republic, government has also recognised the significant role of the AGI in bringing in development to the country.

Significant roles played by the AGI now include making inputs in the national budget; by law and convention, the AGI is represented on several boards of public institutions, quasi government institutions and unions.

“If you want to influence policy, you do not wait till the end of year to make a statement. You need representation to influence policy at such levels. These are means of engaging. Due to our regional representatives, we engage policymakers such as regional ministers, district assemblies. There are some policies, at the local level, that have effect on businesses and industry,” he adds.

Despite the seeming strong power the AGI wields, Mr. Twum-Akwaboah, adds that not everything asked or requested of government is granted. Sometimes, he says, government blindsides the AGI with certain policies that could harm businesses especially in the areas of taxes, levies and laws.

“There are several government policies that have taken us by surprise and then we try to lobby for such policies to be reshaped to help businesses. We have such a regular working relationship with the government because it is needed to keep businesses growing,” he adds.

Budget Inputs

Touching on the AGI’s input on the annual and mid-year budget, Mr. Twum-Akwaboah, notes that the association presents inputs and afterwards holds a hearing with the finance ministry where individual AGI members speak about their views of the economy and what needs to be changed.

On the 2019 budget, the AGI presented a couple of inputs including the scrapping of the straight 5percent GETFund and NHIL on goods and services. “We thought its implementation was not the best and harmful to businesses because this is a cost happening across all levels of the value chain and has the potential to increase the cost of goods and services by as much as 20percent if the distribution chain is up to four,” he notes.

For big manufacturers with three distribution levels, he explains, the manufacturer will pass on the 5percent to the key distributor, who will now add another 5percent and move it to the wholesaler, who adds another 5percent to the retailer, who then adds 5percent to the consumer’s product.

“That is the cascading effect and will make the price of goods and services of local manufacturers very expensive,” he says, noting that for the importers, they just pay a flat rate of 3percent.

“For an agenda that seeks to promote local industries, this tax is inimical to local businesses. We engaged the minister and the tax policy unit with other stakeholders and we expected the 2019 budget to take it into consideration but it was not captured. We will continue to engage the minister,” he says.

But overall, the CEO of the AGI lauded the 2019 budget, describing it as “positive” but stressed that what matters is implementation. “A lot of the intentions are good including the making of US$1billion for industrial initiative, a stimulus package for struggling industries and industrial zones are good,” he says.

 

Industrial Policy Stutters

Government, in 2011, launched a comprehensive industrial policy to place industry at the centre of development.

The policy, which was started during President John Kufuor’s regime and completed when President Atta-Mills was in power, is a set of specific policy instruments and measures to be applied to increase access of the country’s manufacturing sector to competitive factors of production to enhance productivity, efficiency and competitiveness.

Key development objectives of the policy include expansion of productive employment in the manufacturing sector, promotion of agro-based industrial development and ensure spatial distribution of industries to achieve reduction in poverty and income inequalities. The implementation of the policy was expected to be done through an Industrial Sector Support Programme, which are time-bound interventions to speed up the rate of industrialization over a period of five-years.

The AGI, as the lead industry advocate, played a critical role in shaping the policy but since the launch of the policy nothing has come out of it and despite President Nana Akufo-Addo’s industrial agenda, led by the One District One Factory (1D1F) programme, the policy is still on the shelves.

When asked what is the current state of the policy, Mr. Twum-Akwaboah bluntly stated: “I do not think we have an industrial policy.” He notes that there was one, which was a good one, but implementation was poor and that led to the collapse of the policy.

To him, Ghana needs to incorporate the relevant aspects of the current government’s industrial agenda into the old policy and draw up a revised industrial policy and follow through. “Having a good policy and a plan is better than working on adhoc basis,” he says.

Does 1D1F fits into this policy?

He explains that what needs to be done for 1D1F to succeed is to allow the systems to work including using the 20percent of the District Assembly Common Fund, which is meant for district industrialization by law, to be used for its intended purpose.

“It was envisaged that, at the district level, you need industries to employ people and curtail rural-urban migration. That is why 20percent of the assembly’s common fund is dedicated to industrialization,” he says.

1D1F fits into the industrial policy because it envisaged the spreading of industries across the country and include locational tax incentives to push businesses into the other parts of the country and every location with specific raw materials. “That is an indication that we are encouraging industries,” he says.

But along the line, he notes, the AGI and businesses realized that such incentives were not enough due to the lack of markets, technology and infrastructure for businesses to thrive in such remote parts of the country.

1D1F requires patience

Asked about whether new members have joined the AGI as a result of 1D1F, Mr. Twum Akwaboah, advised that Ghanaians must be patient because 1D1F businesses will not just spring up overnight, especially when it is private-sector led.

Establishing an industry doesn’t happen overnight, especially sustainable private-sector led businesses. These businesses must be commercially viable, technically feasible and financially possible to get funding. To go through the process of acquiring technology, market assessment, right skills and have a proper corporate governance system does not happen overnight. The expectation that once you start, industries will spring overnight will not happen,” he says.

Secondly, he advised that one needs a very good funding arrangement to get the factories running, meanwhile, right from the beginning there was no funding for the programme.

To him, even though Finance Minister, Ken Ofori-Atta has made a pledge to mobilize US$1billion from various funding sources for small, medium and large scale enterprises to accelerate the industrial transformation agenda including the 1D1F programme, government should make a certain percentage for equity funding.

The AGI, he notes, tried to arrange funding to support the 1D1F, but he expects businesses interested in the venture to have some counterpart funding to attract investors. “We will love that the pace of the establishment of the 1D1F will be hastened so that we can all tell what is happening,” he adds.

 

The Business Barometer

One of the products of the AGI that any government is weary about is its Business Barometer. The Barometer is the true measure of business confidence in Ghana, spanning a period of over 11 years. It has consistently captured the views of 500 CEOs sampled from various sub-sectors of the Ghanaian economy.

Administered quarterly and largely through face-face interviews, the barometer touches several areas of economic activity across the 10 regions to ensure completeness of coverage. Assertions on the state of the business climate for the next quarter permit a ±5percent margin of error.

Often the Business Confidence index lies above or below the 100 base index with findings consistent with developments in the economy.

Starting as a Business Climate Survey, the survey was supported by the GIZ, a German development agency, as an annual report but when surveys were published which included key challenges faced by industry and businesses that were biting and needed quick interventions, the annual nature of it rendered it dud.

“We therefore converted it to a more frequent survey and allowed government and other stakeholders to quickly react to the needs of business,” he says, adding that it has helped a great deal in checking the policies being implemented by government in the short term.

 

The Thorny Issue of Power for Businesses

It is common knowledge that the AGI, for the best part of three decades, has been at the forefront of the campaign to not just reduce the cost of electricity or power for businesses, especially manufacturers to operate, but to overhaul the power sector to allow industries pay fairer prices which will allow them to compete especially against imports.

Earlier last year, government significantly reduced tariffs on electricity to as much as 25percent for big businesses but in the view of the AGI, the structure of the tariff regime is the problem not necessarily how much the reduction is.

Due to its squabbles with government over the cost of power, many believe the AGI is looking to run aground the power sector but Mr. Twum Akwaboah notes that that is not the case because power sector players such as the Volta River Authority (VRA), Electricity Company of Ghana (ECG) and Ghana Grid Company (GRIDCo) are all members of the association.

“How will we wish that our own members’ businesses collapse? We actually advocate for them as well. Power is a necessary input for production. What we have been asking for is simple: if you want Ghanaian industries to grow and be productive, they must have efficient power that can be given at competitive price,” he says.

The business principle of power

Apart from industry subsidizing residential users in Ghana, virtually the only country that still does this in the world, AGI’s main concern is the business principle of power being pursued by government which is killing industries.

“An instance is a company in Tema, with one metre, that pays GH¢3million in electricity bills per month. This business does not need a step down transformer because of the high volume of consumption and also does not need a lot of cables and poles to access power. To earn the same amount of GH¢3million from residential users, you need a whole community with several step down transformers, kilometres of cables and poles, hundreds of metres, and more manpower, all of which come at a cost.

That means it costs the service provider more to earn GH¢3million from residential communities than in industry for the same quantity or voltage of power. Also, the bigger the spread, the more leakages or waste occur and you are at a higher risk of illegal connections and other vices. Yet, the business, where the cost of service is cheaper, is paying more than residence where the cost of service is higher,” he says.

Ghana’s cost of producing power is too high

Another challenge the AGI has, when it comes to power, is the cost per kilowatt hour. In highly industrialised economies such as China and India, the cost per kilowatt hour hovers between 3 to 6cents but in the case of Ghana, it is near 20cents per kilowatt hour.

To Mr. Twum-Akwaboah, the Ghanaian industry cannot compete globally if it pays nearly four times the price in China and India, which are major industrial hubs. “It is important that we find ways and means to drive down the cost of electricity. We need to work hard, government and industry, because everybody is suffering when the price of electricity is high,” he adds.

‘Dumsor’

Touching briefly on the effect of the three-year power rationing, popularly called ‘dumsor’, he described its impact on industry as “devastating”.

To avert another power rationing and sustainably provide cheaper power for homes and businesses, he explains that what is needed is planning. “There is an eight-year cycle where the hydro source becomes inadequate and so you plan to get other sources in. unfortunately we did not plan in advance and that is what happened. In trying to solve it too, we signed countless Independent Power Purchasing (IPP) agreements that are not good for us.”

With the population growing, which is leading to sophisticated demands, the need for more energy is growing and so with efficient planning and regular investment in the sector, supply can stay ahead of demand so that Ghana will no longer experience the energy crisis we experienced between 2013 and 2015.

Renewables is the way forward

The AGI believes that with the advancement of technology in renewables, businesses and homes as well as government should aggressively consider the renewable option. “A few years ago it was very expensive to look into renewables but today the cost per production is getting cheaper and so government’s move in that direction is highly encouraged.”

With environmental protection in the face of climate change on the minds of the AGI, what the association wants to see is a flexible regulatory environment that will encourage a lot of private sector players into the space. “If you have a system that encourages the initial investment, then we can immensely benefit from renewables.”

 

Cost of credit, AGI’s bank and EXIM

With key macroeconomic indicators such as inflation, policy rate and Treasury Bill rate falling, AGI believes this should quickly translate into lower lending rates so that businesses can comfortably borrow and expand. “We welcome the consistent fall and we hope it continues to fall. Much as we want lending rates to fall quickly, we appreciate the gradual drops.”

The AGI, about four years ago, was pushing for the establishment of its own bank but not a word has been heard for the past year and a half. To Mr. Twum-Akwaboah, the establishment of the bank looked very good at the time it was being suggested but the economic climate and regulation makes it slightly challenging to run the bank in a manner that will be different from others.

“We wanted to create a scheme that will solve a major problem by providing medium to long term capital for industry. A lot of the banks today are not providing that, not even NIB and ADB, the development banks. With a universal banking license, you will have no choice but go by certain standards and that will make you no different from the others,” he says.

The AGI has repurposed the institution and has set up a fund, registered with the Securities and Exchange Commission (SEC) that can draw capital from government, development finance institutions and banks, and then AGI members can access this fund at much lower rates on medium to long term basis.

The ultimate aim, he explains, is to grow the fund to a level that AGI can secure a specialized license from the Bank of Ghana to operate as a specialized development bank.

Touching on the impact of recently established EXIM Bank, he notes that the AGI is very happy about its establishment but cautioned the business community to have patience for the institution since it is still early days yet.

“EXIM needs bigger capital and just the money coming from Import Levy is not enough. The whole idea of establishing an EXIM Bank is good because it can leverage its balance sheet to draw in capital from other institutions including other EXIM banks across the globe and create a bigger portfolio of funds and those moves do not happen in a day. We are monitoring and we can only be cautiously optimistic.”

 

Taxes and China’s US$2bn package

As businesses, paying taxes is unavoidable as taxes go a long way to develop economies and so with that the AGI wholeheartedly backs the government in pushing everyone to pay taxes. But AGI’s challenge is the implementation of some tax policies, especially the tax stamp, the frequent changing of the tax regime and the introduction of some new taxes.

The AGI, according to its CEO, has complained to government about some businesses that avoid taxes through under-invoicing and under-valuation and that led to the creation of a task force to monitor movements at the ports.

On the controversial tax stamp policy, which was welcomed by the AGI, the views of local manufacturers were not taken into account. The stamps, in the current format, will slow down high speed lines, especially for big beverage manufacturers such as Accra Breweries Ltd, Kasapreko, Cocacola, and Guinness Ghana Breweries Ltd.

But at the end, government and businesses have reached a compromise and now importers and local manufacturers are affixing the stamps and the Ghana Revenue Authority (GRA) is monitoring the situation aggressively. The textiles sector is the latest to start affixing the stamps, which is highly welcomed by players.

On the ECOWAS Common External Tariff, the AGI is still working on a comprehensive study to identify benefits and challenges but Mr. Twum-Akwaboah believes that being part of a common market is good for local businesses since the ECOWAS region is bigger than Ghana. “We just have to monitor how it is positively or negatively affecting our businesses.”

China’s US$2bn

The AGI truly secured a US$2billion credit facility with the China National Building Materials Company (CNBM) and so far several businesses have benefited. The whole idea, the AGI notes, is to use this to support the 1D1F.

The arrangement is such that businesses do not get direct financing but request for equipment when setting up factories and then repayment can be done till up to 10 years. The only challenges were guarantees from banks or government backing it with a sovereign guarantee but government is not prepared to do that.

So far, EXIM Bank and a few other banks have guaranteed projects for about 10 companies and construction is underway for some of the factories.

 

Future of AGI

For 60 years, AGI has become a stronger institution but the future is bigger and broader than one can imagine. Starting as a manufacturers association, it has moved beyond to encapsulate businesses. “As long as we continue to promote industry then AGI has a future but if we kill industry then there is no future for AGI. It is as simple as that.”

To Mr. Twum-Akwaboah, the current government has an eye for industry and a look at the 2019 budget leans heavily towards industry and initiatives such as 1D1F are industry focused and then there is the Ministry of Trade’s 10-point agenda. “As long as government itself has industry at heart, then AGI can only be smiling into the future and our core interest is to see members’ businesses grow.”

Therefore, the AGI will not relent in its efforts to engage with government to formulate business-friendly policies to see businesses grow. So far, the trend, he notes, is that global actions such as the ECOWAS Common Tariff and the Continental Free Trade Agreement are signs that the future looks promising for Ghana’s businesses.

“I am very positive that the future looks good but we need to advocate for the right policies and we need to have good entrepreneurs that are forward-thinking, committed and dedicated to doing businesses in a transparent manner,” he says.

 

Advice to members

To the members of AGI, over 1,500 of them including small, medium and large businesses, the association’s CEO believes that internally, implementing best corporate governance systems, good management style, recruiting the right talent, making sure efficiency is key and developing financial modules to survive during times of crisis, and prudent resource management will see businesses grow.

As the business grows, Mr. Twum-Akwaboah notes that there is the need for professional engagement. He further stresses “business leaders should not shy away from bringing in such help to develop and sustain their businesses. To go beyond generations, succession planning is key”.

For external factors such as inflation, interest rates, policies from government are not in members’ domain and so they should not be bothered about such actions. “Leave that to the association to handle.”

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