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The race to the flagstaff house: The State of the Ghanaian Economy

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The countdown to the polls on December 7 has begun in earnest. Presidential hopefuls are travelling the length and breadth of the country canvassing for votes. These tours have been characterized by numerous promises, some pretty outlandish. Labor agitations are on the ascendancy, as one worker group after another make all sorts of requests on government.

Will the country’s economic underpinnings be able to support these worker groups’ requests, and which finances amidst mounting debt stock, would fund the numerous promises being hurled on electorates? In an interview with the Director of one of Ghana’s foremost research organizations, the Institute of Statistical, Social and Economic Research (ISSER) based at the University of Ghana, Professor Felix Ankomah Asante, dissected the critical issues surrounding Ghana’s economic growth.

The Waning Agric. Sector

It appears that Sub-Saharan countries are directly replacing agriculture with services as the largest economic sector without passing through the intermediate phase of industrialization and an expanding manufacturing sector, the experience of almost all successful economies. Moreover, a large part of the services sector in many Sub-Saharan countries consists of lowtechnology and low-value activities.

These trends are of great concern, since manufacturing has historically been the main source of technological learning. This trajectory has also played out in Ghana, where the Services and Industry sectors have outstripped the Agric. sector in recent years.

Commenting on this trend, Professor Asante asserts, that “governments must find a way of improving how Agric. is done in the country” if we intend to improve the lot of farmers. He bemoaned the low standard of living amongst peasant farmers, who form the bulwark of food supply in the country.

He warns, that the entire country’s food security is predicated on the goodwill of peasant farmers. He notes, that the labor force coupled with the purported investments by government into the sector, is not commensurate with the output.

Comparing Ghana to developed nations, he points out the absence of incentives to farmers, undermining the commercial drive and mindset that is required within the sector.

Diversifying the Economy

The recurring chorus in Ghana is that the country remains too susceptible to price cycles of specific raw materials on the international economy. Sadly, this chorus is hundred years old and has lived with colonial and all modern governments.

The call for diversification of our economy has been made by many Economists, as an avenue for the country to explore new market opportunities and to wean itself of the sole-dependency on traditional exports such as cocoa. The fact that as much as 83 per cent of all Ghana’s exports come from only three sectors– gold, cocoa and bauxite – which happen to be commodities with volatile prices on the world market.

A diversified export base can minimize volatility in foreign exchange earnings, which for small, open developing economies allows access to capital, technology, and critical intermediate inputs. For many African countries exports are concentrated in a narrow range of primary products that has remained much the same over the past 40 years.

The top five export commodities account for about 70% of merchandise exports in SubSaharan countries. Oil-driven economies such as Saudi Arabia, Qatar and United Arab Emirates, among others, are making frantic efforts to strategically focus their attention on economic diversification.

The diversification agenda in principle is much supported. However, the approach is not strategic, as the Non Traditional Exports (NTEs) are made up of so many products.

“Where is our comparative advantage? Which agric. product should be prioritized?” Professor Asante questioned and also suggested that all these have to be supported by evidence-based research. Though, Professor Asante concurs with the rationale to diversify Ghana’s economy, he however notes, the approach being adopted via focusing on non-traditional exports (NTEs) is not very strategic.

A cursory look at the country’s NTEs reveals several products, which he feels fails to leverage the comparative advantage of the country. He contends that the country focuses on a few products, informed by empirical research.

This strategic focus, he continues, “will deepen the country’s competencies and expertise in relations to those products. This may even lead to agric-based services, where Ghanaian experts with the NTE sector are exported into other countries”.

The Enterprise Map of Ghana, which examines Ghana’s growth poles, exports contributors and profiles all major industrial concerns that contribute to the majority of Ghana’s exports, recommend that the country can only sustain its current growth rate of above 10 per cent for the next 10 years, unless it makes significant turnarounds in its policy environment.

This policy must enable local companies to integrate to the international supply chains and companies should continue to run their affairs properly. The country should use the cocoa, mining and now oil and gas sectors as growth poles to diversify the economy. This should have linkages with the rest of the economy and spur growth in other sectors and engender the springing up of several businesses, mostly indigenous.

Several countries had walked that path successfully including China, India, who integrated their manufacturing sector into the international value chain and “piggy-back on those to give international exposure to local exports.” Government through the Ghana Export Promotion Authority (GEPA) set an ambitious goal under the National Export Strategy in 2013 to achieve a $5 billion target from non-traditional exports (NTEs) by the year 2019. According to GEPA, exports of non-traditional products from January to December 2015 amounted to $2.5 billion, representing an increase of 0.32% over the year 2014.

The figure represents just over half of the $5 billion target. The statistics indicate that the marginal increase in revenue from $2.5 billion in 2014 to $2.522b in 2015, was mainly due to increase in agricultural products exports, particularly cashew nuts.

Total earnings of the sector stem from three sub-sectors – agriculture, handicraft, and processed and semi-processed products like canned tuna, cocoa paste, shea oil, among others.

New revenue streams, more growth?

The next government will coincide with two new oil fields coming on stream, TEN and Sankofa fields. It is been estimated that these new fields will lead to an economic boom next year, as revenues pour in from the oil, and the gas is used to fuel the country’s power plants.

The ISSER boss, however, feels the impact on the economy will not be as high as experienced in 2011, “because the basic infrastructure for the oil and gas sector are already in place”. The TEN fields started producing its first oil in August this year, 2016. This milestone was achieved on time and on budget, three years after the plan of development was approved by government in May 2013.

The TEN project, which begins at a time Parliament has passed the Exploration and Petroleum Bill into law to streamline operations in the oil and gas sector, adds on to the Jubilee oilfield which began commercial production of oil in 2010.

The field is expected to produce about 300 million barrels of oil equivalent over its lifetime (approximately 20 years), 80 per cent of which is oil and 20 per cent gas.

Average annualized production in 2016 will be roughly 23,000 barrels of oil per day, with full production at 80,000 barrels of oil per day. Associated gas production at TEN is expected to be re-injected into the Ntomme reservoir gas cap until gas export begins. Gas export was planned to commence 12 months after field start up, with the Tweneboa gas reservoir coming on stream a further 12 months later.

However, plans to accelerate gas export are currently under evaluation as the fabrication of the gas export facilities has been completed early and can be installed by year end, allowing connection to the existing gas infrastructure early in 2017.

The TEN fields will drive economic growth in Ghana through the marketing of our crude oil and boosting gas supply to generate power for industrial and domestic use.

The fact that the TEN project has come on-stream, just six years after the jubilee field goes a long way to demonstrate GNPC’s commitment to ensuring that Ghana benefits from its oil and gas resources’ The country’s Sankofa-Gye Nyame field is on track to deliver first oil in August 2017 and first gas in February 2018 to augment thermal power generation that will ensure sustainable electricity production.

The Sankofa project is expected to deliver an additional 30,000 barrels per day of oil and 180 million cubic feet per day of gas to Ghana. Gas from the project is expected to help generate 1,100 MW of additional electricity and once on stream, it will produce enough gas to increase the country’s electricity supply by 50%. The US$7.9 billion ENI led project represents the largest-ever foreign direct investment into Ghana.

The World Bank put in place US$700 million worth of backstop guarantees for the project in August 2015. This was comprised of a US$500 million guarantee, supporting timely payments for gas purchases by Ghana National Petroleum Corporation (GNPC), allied to a loan guarantee of US$200 million, allowing the project to secure financing from its private supporters.

Professor Asante advocates for the efficient spending of the revenues that will accrue from the new oil fields. He cites the thin spread of the revenues from the Jubilee field, as a cautionary example. His assertion is buttressed by expenditure analyses conducted from the Public Interest and Accountability Committee (PIAC) as well as other civil society organizations.

Ghana has earned $3 billion from oil since the beginning of commercial production in April 2011. $1.2 billion of this amount was used to fund projects outlined in the budget. However, despite the prioritization of four critical areas, petroleum revenues has been spent on capacity building activities with donations to MUSIGA, and other contentious expenditure like the mass bus branding.

Prioritize oil revenues into Agric. sector

Professor Asante asserts that we need to invest massively in Agriculture, as the country has enormous comparative advantage as well as the large labour force in that sector.

He continued that, “the much talked about industrial economy requires an agrarian backbone to provide inputs”. Despite modernization of agriculture is a priority area under the Petroleum Revenue Management Act (PRMA), the sector is still characterized by rainfall dependency and the predominant usage equipment of cutlasses and hoes.

Revenue expenditure within the sector has been largely inefficient. For instance, in 2014, GH¢170.62 million in oil revenues was designated for modernization of agriculture and 70 per cent of that was spent on construction of coastal defenses for fishing communities and construction and rehabilitation of irrigation dams. GH¢118.38 million of the allocated amount went into construction of sea defense walls in four fishing communities.

This nature of spending in agriculture modernization comes at a time when growth of Ghana’s services sector has outstripped agriculture and when agricultural productivity in Africa, is reported to still be lower than other world regions.

Democratic Rule, Manifestos and NDPC’s 40-year plan

Professor Asante notes that our democratic era since 1992 has been crucial to our economic development. Though he concedes that democracy is expensive, in terms of finances expended on different arms of government and the sometimes slow pace of decision.

He personally advocates for a “governance arrangement tinged with a little dictatorship”, though he doubts such a system would ever be practiced in the country. Regarding the brouhaha about political parties releasing their manifestos to inform the decisions of electorates come December 7, 2016, he offered a different opinion.

He notes that, “in nations where longterm development plans exists, manifestos merely offer tactical or operational plans to achieve the national goals therein”. He continued that “the overarching goal should be the quality of life”. This underpins all the critical needs of a people– education, health, jobs, shelter, food, etc.

Thus, he opines that “in the race to the flagstaff house, political aspirants need not promise to do anything outlandish, but rather focus on improving the quality of life of the people”.

It is that regard that Professor Asante agrees in principle with the National Development Planning Commission’s quest to design a 40- year strategic plan. He notes, “the final document should be concise and brief, and all governments must be compelled to operationalize their manifestos in alignment with the strategic plan”. He states that a “country’s developmental strategy/plan should go on irrespective of political ideologies”.

Fifth Eurobond & IMF Program

The government during the first week of August 2016 put on hold issuing a fifth Eurobond till the market conditions were right. The government stated it would continue to build on its dialog with international investors while monitoring the markets and the International Monetary Fund (IMF) Board process with respect to the third review of the program and will issue new notes at the optimal time and the right conditions.

Despite receiving positive feedback from investors on the ongoing fiscal consolidation process Ghana was unable to convince investors to dish out cash at a rate lower than 10.75 percent obtained in the last Eurobond.

The international media reported that investors rejected the bond because of the deteriorating Ghanaian economy. They also cited government’s unrestrained election year spending for the rejection.

Professor Asante believes Ghana’s historical data and government expenditure patterns during previous election years underpin the fears of these international investors. He continues, “the constant labor agitations and the political expediency in sometimes executing infrastructural activities in ‘record’ time, also does not build investor confidence”.

On April 3 2015, the IMF approved a threeyear arrangement under the Extended Credit Facility (ECF) for Ghana in the amount of $918 million with zero percent interest rate and a repayment period of 10 years to support the governments’ medium-term economic reform program.

The program calls for a strong front-loaded fiscal adjustment; structural reforms to strengthen public financial management and enhance fiscal discipline; rebuild external buffers to increase resilience to shocks; and enhance the effectiveness of monetary policy by limiting its fiscal dominance.

The planned strong fiscal consolidation is expected to dampen economic growth and reduce inflation in the short term. Growth is however projected to pick-up in the medium term, supported by the expected coming on stream of additional crude oil production while lower inflation and interest rates, combined with a stable exchange rate environment will help support private sector activity.

Though, Professor Asante concedes the government had no alternative than to resort to the IMF, he feels “as a country, we failed to learn from history and conditions that led Ghana to previous IMF programs”. He admits, the employment freeze and the fiscal discipline aspects of the program seem to be working but for how long can we sustain this. However, he doubts whether the government will have solved taxing the informal sector conundrum before the end of the program.

Issues to focus on during Election season: The six strings to Ghana’s economic growth

Regarding the impending elections, Professor Asante enumerated a number of critical issues he wants political parties to focus on. The first is the need for sustainable, inclusive growth. According to the OECD, Inclusive growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.

It is about ensuring that the benefits of development reach the entire population, including the most vulnerable members. The United Nations Development Program chief economist, Thangavel Palanivel also states that though there are multiple definitions of Inclusive growth, there are some common features, namely, growth is inclusive when it takes place in the sectors in which the poor work; occurs in places where the poor live; uses the factors of production that the poor possess; and reduces the prices of consumption items that the poor consume.

In many countries, people have not seen their incomes rise for years. The gap between rich and poor has widened, with those at the top capturing the ‘lion’s share’ of growth.

Rising inequality in earnings and in wealth is a major concern, but money is just one aspect of people’s wellbeing. In just about every area, whether it is education, life expectancy, or employment prospects, success is determined by socioeconomic status, wealth and assets, sex, age or the places where people live.

In other words, inclusive economic growth is not only about expanding national economies but also about ensuring that we reach the most vulnerable people of societies. The “equality of opportunity” and “participation in growth by all” with a special focus on the working poor and the unemployed are the very basis of inclusive growth.

The second issue he cites is that the country’s economic growth should be employment-centred.

Presently, the country produces thousands of graduates annually, with very few being absorbed into paying jobs. Professor Asante notes that with a coherently designed strategy in place, the country can even export its human resources, as Cuba has successfully done in the health sector with their world-class doctors.

Today, unemployment seems to be the most serious development challenge confronting the nation, so much so that it has become the number one concern of Ghanaians that they want the government to address. In Ghana, the importance of employment is underscored by the recognition of the right to work not only as a basic human right but also as a constitutional right.

This right to work, however, is gradually becoming very difficult for both government and individuals to realize due to the rising levels of joblessness. A recent World Bank report on jobs in Ghana revealed that about 48 percent of the youth in the country, who are between 15-24 years do not have jobs. The report explored the opportunities for youth inclusion in Ghana’s labor market.

Third is the need for judicious management of the country’s natural resources.

He advocated the need for governments to think about future generations when resources are being utilized today. African leaders have consistently failed to prioritize development challenges confronting their countries so that revenue from the extractive industry did not just fill budget gaps but rather catalyzed specific development agenda.

The bane had been corruption and bad governance. Good governance on the continent had become a slogan much talked about but not delivered.

In Ghana, a large section of the populace were expecting the oil and gas sector to be the panacea for the economic challenges confronting the country, however, five (5) years down the road, it has become apparent that the sector alone cannot break the back of poverty.

The fourth issue is developing the country’s infrastructure.

The Government of Ghana is currently facing monumental challenges in infrastructure development, which are proving to be a constraint on growth and development. The provision of public infrastructure is one of the prime mandates of governments all over the world and Ghana is no different. Infrastructure (roads, power, water, sanitation and airports, among others) is a fundamental prerequisite for economic growth and development.

Studies across the world have consistently shown the close relationship between infrastructure and the strength of economic output. A study recently carried out by a World Bank team at the request of the Ministry of Finance on behalf of the Government of Ghana to address Ghana’s infrastructure deficit shows the country requires sustained spending of at least $1.5bn per annum over the next decade to plug the infrastructure gap that exists.

To close the infrastructure gap, Professor Asante advocates for a Public Private Partnership (PPP) approach. A PPP has several advantages in the provision of infrastructure and services.

Principally, it enables the government to provide better infrastructure through the use of private sector financial, human and technical resources, thereby freeing government resources for other equally important uses.

Fifth is the critical role of science and technology to the development of any country.

He bemoans the sad situation where few of our tertiary institutions (mainly universities), offer science related courses. The few that offer science related courses (mainly public universities), he continues are also bedeviled with limited facilities and vacancies, thereby limiting their impact. This he says does not augur well for the economic fortunes of any country.

First world economies like USA, UK, and the Asian tigers have spurred on their growth rates through a relentless focus on science and technology. Science and technology has helped these economies to sustain their growth as well as improve efficiency.

It has also placed them in good stead to transition smoothly into an information society.

Lastly, there should be a laser – like focus on improving the country’s human capital and also increasing access to quality education.

The World Bank report on unemployment, recommended as one of the panaceas, the need to equip the youth with relevant skills through the educational system. Access to quality education is essential for development.

Not only does education provide children, youth and adults with the knowledge and skills to be active citizens and to fulfill themselves as individuals, literacy in particular contributes directly to poverty reduction.

It has been estimated that global poverty could drop by 12 % if all children in low income countries could read. Education also contributes to sustainable economic growth and to more stable and accountably societies and governments.

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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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