Connect with us

Business Interview

TRANSFORMING AFRICA: Strong collaboration, smart policy, sound investments—and a total change of mind-set

Published

on

The timing is right: Africa holds enormous potential for rapid transformation. A continent in transition, it is among the world’s fastest growing regions, with a young and growing population in rapidly expanding cities, an improving business environment, expanding Internet connectivity, rising incomes, and shifting consumption patterns.

Despite economic and political challenges, these enduring trends have created an abundance of commercial opportunities across the continent, transforming it into a market and opportunity that investors cannot afford to ignore. In particular, public-private partnerships (PPPs) are seen as key towards transforming the African economy and eradicating poverty.

However, investor activity on the continent has long been constrained by structural obstacles, a lack of risk mitigation mechanisms, and few financing options, all of which inhibit the effective distribution and mitigation of risk associated with large-scale or long-term projects.

But Africa does not give up. Its growing youth are working hard to do things differently, becoming more and more entrepreneurial even as older generation entrepreneurs and politicians have realised that without collaboration, nothing substantial can be achieved.

‘The most important transformation is the transformation of our mindset,” said Ghana’s Vice President Mahamudu Bawumia at the recent African Transformation Forum (ATF2018), held in Accra and hosted by the African Center for Economic Transformation (ACET), a leading Pan-African economic policy institute, based in Accra in collaboration with the Government of Ghana. “We can do what other countries and continents have done. It is not rocket science; it is not impossible. We must have a mindset of making things possible, not one of thinking that major achievements are impossible.”

Africa does not give up…the CFTA is proof

Africa’s problems, according to many analysts, is simply the inability to work together for a common good. For example, for decades, West African nations have been working to attain a common currency but that is yet to materialise. Politicians have promised collaboration but consistently failed to deliver expected results, leading to the unfortunate conclusion that as long as the continent does not work together, significant changes will remain elusive.

The Continental Free Trade Area agreement (CFTA) is an opportunity to change the narrative. Brokered by the African Union (AU) and initially signed by 44 of its 55 member states in KigaliRwanda on March 21, the CFTA marks Africa’s biggest attempt yet to work together to drive development through improved trade and investment.

The agreement initially requires members to remove tariffs from 90 percent of goods, allowing free access to commodities, goods, and services across the continent. If ratified, the agreement would result in the largest free-trade area in terms of participating countries since the formation of the World Trade Organization.

The United Nations Economic Commission for Africa estimates that the agreement will boost intra-African trade by 52 percent by 2022. The proposal will come into force after ratification by 22 of the signatory states.

Africa’s 11.3 percent intra-regional trade represents the smallest share compared to other continents of the world. Europe’s intra-regional trade stands at 70 percent, just like Asia’s. In North America the figure is 40 percent.

Africa’s sub-regions have the worst indicators than the rest of the world in terms of cost of trade. In ECOWAS and SADC, businessmen need 7.6 and 7.3 documents to export respectively whereas in the EU one needs just 4.5. Whiles you need 11.5 days to export in the EU, you need 27.6 and 31.2 days to export in ECOWAS and SADC respectively. The same situation applies to imports.

Paul Kagame, President of Rwanda and Chairman of African Union, speaking recently at ATF2018, noted that Africa is experiencing greatly accelerated progress towards the economic unification of the continent with the signing of the agreement.

In this year alone, the African Union has adopted the free movement protocol and inaugurated a single African air transport market, which will reduce not only ticket prices but also the need for stopovers on other continents.

“Joining up diffuse, fragmented markets would be a leap forward. Doing this across borders will require governments to work closely with each other, and with the private sector. By creating a highly networked, frictionless marketplace, we will encourage the best products, services and ideas to rise to the top. This will boost the economy as a whole and open up opportunities for women, rural populations and other marginalised groups,” he said.

Ultimately, the goal is to make the continent’s economies bigger and more dynamic, he says, adding that no country or company will lose out in the long term. This, he pointed out, is why business leaders are called upon to be champions of continental integration, first of all by seizing these new opportunities to grow Africa’s firms.

Financing infrastructure and the involvement of business

Business leaders now participate actively and meaningfully in African Union summits. This is based on the understanding that the shared prosperity at the core of the AU’s Agenda 2063 can only happen when the public and private sectors are working closely together.

“The business community should also contribute to holding governments accountable for putting what has been agreed into action, and pushing all of us to do more, and better,” President Kagame said during ATF2018. He was participating in the forum’s closing plenary, a frank dialogue between African Heads of State and business leaders.

Citing Africa’s vast transportation and logistical challenges, President Kagame said much more investment in big, joint regional infrastructure, including digital networks, is required. “Globally, there is no shortage of finance, both public and private. We can attract more of it to Africa, and help close the investment gap, by planning big projects of sufficient size to interest major funds—and enhance the business case.” This kind of activity, President Kagame emphasized, also makes regional integration “tangible and irreversible.”

But, he warned, African governments need to match external capital with African capital. “This can help reduce risk perceptions and ensure we share the upside of profitable deals,” he said, adding that African savings are not being mobilised effectively—an impediment to African capital investments that must be addressed.

To President Kagame, the biggest threats on the continent are also opportunities. With 450 million Africans expected to join the working age population by 2035—more than the rest of the world combined in that time—Africa’s population surge can power economies forward, as long as the growing labor force has the knowledge to perform available jobs.

But his worry is about schools and universities not keeping the pace with technology. “Over half of all jobseekers have few or no skills, while 41 percent have qualifications but no skills for the jobs available,” he said. “The gap is wider still in science, technology, engineering and mathematics.”

He opined that prosperity rests on good politics and a secure environment, because the transformation agenda requires a broad consensus that is sustained across decades. “Transformation requires leadership and accountability at every level, beginning at the top, but not stopping there.”

A need for banks to aid in development

Countries that are now developed economies have been strategic in their development process. In finance and banking, for example, developed economies incentivised banks to support risky but job creating and sustainable sectors of the economy. This led to banks becoming the agents of growth for decades and, in some cases, over a century.

At independence, Dr. Kwame Nkrumah, the first president of Ghana, established banks for specific purposes to aid economic development. For years after he left, these banks continued in that trajectory, from agriculture, housing, commerce, investment, and industry, until the turn of the new millennium when all banks became universal banks, which made them pursue profits to the detriment of economic transformation.

Due to the influence of development partners such as the International Monetary Fund (IMF), World Bank, and Western countries, Africa’s developing economies have allowed the banks to engage in ways they see fit without strategic guidance.

Ghana’s President Nana Addo Dankwa Akufo-Addo holds a different view. Speaking at the same Heads of State panel discussion at ATF2018, he expressed dissatisfaction with indigenous and foreign banks in Ghana that make profits and shy away from financing relatively risky ventures that can help transform the country’s economy.

“In our own country, the banks have, in the last 20 or 30 years, been very content to make lots of money and not be particularly involved in the risk-taking that contributes to economic development and transformation,” he stated.

President Akufo-Addo indicated that one of the major constraints to the transformation agenda of the country is access to capital and the cost.

“The foreign-owned banks are the main players in our economy and they have their own goals, which are not necessarily about the development of the country but about the profits that they make. I don’t have any difficulties with people wanting to make money, but I do have a problem with making money in an environment whereby it is not making a significant contribution to the transformation of the economy,” he said.

President Akufo-Addo further observed that the structure of Ghana’s financial and banking sector has perhaps contributed to the lack of desire on the banks to take all the needed investment and financing risk. He added that the state has a responsibility to ensure that good measures are put in place to strengthen indigenous banks to lead the financing of risky ventures in the country.

“Policy making would promote indigenous banks in our country to grow and be strong and take on the role of providing the financial wherewithal for transformation,” he said. “Without having banks that are ready to finance relatively risky ventures both in industrial and agricultural initiatives, it’s going to be difficult to make the transition we are seeking.”

With the continent holding 50 percent of the world’s arable land, more than 30 percent of the remaining minerals in the world, and the youngest and most vibrant population in the world, President Akufo-Addo reiterated there was no reason for Africa to be where it is presently. Fortunately, he said, African leaders are now taking seriously the role that governments need to play in the process of transformation by building strong economies based on sound macro-economics, educational reforms, and skills acquisition.

The President told the forum that his government had placed a priority on “sanitizing the macro-economy” leading to a significant reduction in inflation, interest rates, deficits, and national debt.

“With the management of the national economy, a significant progress has been made in laying the foundation for an attractive investment destination for Ghana,” he said. 

To give or not to give: the tax holiday conundrum

Every businessman or CEO will accept a tax holiday. After all, business owners are constantly on the lookout for possible loopholes in tax codes and laws to avoid payment or reduce it to the barest minimum, especially on a continent where corruption is rife and government officials are notorious for looting the coffers of the state.

In Ghana, tax exemptions granted in 2013 amounted to GH¢2.9 billion; GH¢3.2 billion in 2014; GH¢4.5 billion in 2015; and GH¢4 billion in 2016, according to data from the Ghana Revenue Authority and GCNet.

According to a 2015 report authored by ActionAid International and Tax Justice Network-Africa, ‘The West African Giveaway: Use and Abuse of Corporate Tax Incentives in ECOWAS’, these incentives are mainly granted to foreign companies and cost the economy about US$2.27 billion every year.

Even though government in April 2017 introduced a policy that forced companies to pay duties and later apply for refunds on exemptions, pressure from business groups, especially importers, forced the government into a U-turn five months later.

Despite the availability of such alarming data, business leaders continue to push for favourable incentives. Aliko Dangote, one of Africa’s most celebrated and successful entrepreneurs, urged governments to use incentives to attract businesses that have the capacity to employ in large numbers and guarantee the sustainability of those jobs.

When tax rates are too high, he cautioned, is when people look for avenues to evade tax payments. “The less you charge, the more you can widen the net and collect a lot of taxes from a lot of people,” he said.

He gave an example of the taxes his sugar factory paid to the Nigerian government after the expiration of tax breaks in 2006. Between 2007 and 2017, he said the business paid about US$2.7billion in taxes.

According to Mr. Dangote, his company, the Dangote Group, paid about US$277.78million in taxes last year alone. He said tax holidays gave his companies a lot of room to accumulate cash to reinvest—and benefit people through expansion and new job growth.

Despite his advocacy for tax holidays, Mr. Dangote stated that one of the major factors he considers before investing in any country is the quality and integrity of leadership.

“The first thing I will look at is the president. Is he a man of his word? The two main reasons [African businesses] go bankrupt when they try to go into industry are lack of power and inconsistency in government policy,” he said.

About the ATF2018 and outcomes

The two-day forum offered an opportunity for the private sector and other non-state actors to engage on ways to help shape the course of economic transformation in Africa. The event brought together more than 300 active participants—high-level government officials, CEOs, as well as other leaders from the private sector—to discuss solutions and make commitments towards accelerating job growth, boosting investment, and implementing transformation policies.

Tito Mboweni, a highly respected international banker and economist who also chairs the ACET Board of Directors, opened the forum with a strong call to action for Africa’s political leaders to work together with all stakeholders to keep Africa’s development on track and in African hands.

“I hope you hear us loud and clear,” he said. “We want to collaborate with you moving forward. Help us fight corruption. Help us fight the ‘big man syndrome’. Help us ensure that resources mobilized for Africa’s development go into Africa’s development.”

Mboweni’s strong words echoed the theme of ATF2018: a dialogue for action. In keeping with this central objective, the first day consisted of five concurrent working sessions centered around the Pan-African Coalition for Transformation (PACT), which was established after the previous forum in 2016, as a mechanism to foster peer learning and collaboration on transformation challenges and solutions. Ministers who participated in the discussions shared the action plans and other ideas generated from these working sessions with the full Forum on the second day.

Dr. K.Y. Amoako, the President and Founder of ACET, ended the forum by announcing a few outcomes, including a more collaborative approach to enhance the contribution of Africa’s think tanks and the formation of the new African Transformation Leadership Panel to be chaired by Liberia’s former president, Ellen Johnson Sirleaf. The Panel will be formed over the coming months, he said, and it will comprise eminent men and women—proven experts and leaders—who will help promote important transformation policies at the highest levels.

“It’s clear that we all have much work to do between now and the next African Transformation Forum,” Dr. Amoako said. “But I think we also know how to move forward so that we are able to get where we want faster, and with lasting results.”

Continue Reading
Advertisement
Click to comment

Business Interview

AGI@60: A Persistent Private Sector Voice

Published

on

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.”

Continue Reading
Advertisement
Advertisement

Trending