Business Confidence Grows in Ghana in First Quarter 2016

Business Barometer Indicator

Businesses experienced some relief and signs of recovery in the first quarter of the year, according to the Association of Ghana Industries’ (AGI) Business Barometer Indicator (BBI) report for the first quarter of 2016 which was launched on 10^th May, 2016. Power supply improved in the quarter under review which triggered a boost in business confidence, as compared with fourth quarter of 2015. Business confidence surged from 95.9 to 101.9- a little above the baseline which is 100”.

When the AGI talks about the industry, it is talking about manufacturing, services and construction sectors. The survey had a sample size of about 500 respondents. Comparing last quarter 2015 report to first quarter 2016 report in relation to power supply,11.2% respondents said the situation has highly improved, 40.7% said it has improved, 35.1% said they have seen a little improvement whiles 13% said there have been no improvement.

With regards to high tariffs thus electricity and water, 45% said their businesses have been highly constrained by the high tariffs, 43% said their businesses have been constrained, 10% said their businesses have been least constrained and 2% said, their businesses have not been constrained. In the last quarter 2015, inadequate power supply, unstable currency, multiplicity of taxes and delayed payments were the major challenges facing businesses in Ghana.

Key Challenges

The BBI is an AGI propriety tool that measures the level of confidence in the business environment and predicts short-term business trends. The index is calculated out of the “current” business mood and “expectations” for the future. Below is a table comparing the major challenges to businesses in two successive quarters, in order of priority.

Since its inception in 2009, the business confidence index hovered around the 100 base index but suffered the worst and most dramatic dip in 2014 largely because of the inadequate power supply and exchange rate volatility. For the first time in eight quarters, the AGI business barometer indicator for first quarter of 2016 marginally inched above the base index of 100, an indication that industry’s confidence in the business environment has improved somewhat.

Addressing members of the AGI at a public forum, the CEO of AGI, Mr. Seth Twum Akwaboah, “this does not mean business growth but when confidence is sustained, it can spur growth.”

AGI President James Asare-Adjei in a statement after the presentation of the barometer results said, “the AGI therefore commends government for the seeming stability of the economy, and urges its managers to do everything possible to sustain and improve on the relative macro-economic stability in this election year.”

Critical Issues

The AGI through its president pointed out some issues which need consideration.

·         High cost of utility tariffs. The high tariffs are rendering businesses uncompetitive. In December, 2015, electricity bills went up by 59.2% while water bills rose 67.2%, increases which were sharply criticised by both the AGI and organised labour. The government subsequently reduced the electricity tariff by 15%, although this concession is to be enjoyed only by ‘lifeline consumers’ or consumers who use 50kwh or less. The AGI is also calling for the reclassification of the tariff regime where industry subsidises domestic consumers. This, according to the association, renders them uncompetitive and should be changed.

According to Business Finder newspaper, prices of petrol, diesel and Liquefied Petroleum Gas (LPG) have gone up by about 12.41%,12.31% and 16.6% respectively since January 2016. The surge in petroleum prices increase cost of operation.

·         Access to medium to long-term credit still remains a major bottleneck to businesses in Ghana. The Monetary Policy Committee of the Bank of Ghana kept the policy rate at 26% in March 2016, citing an encouraging drop in headline and core inflation, and a balance in growth prospects and inflation risks. It’s likely the rate will be reduced or maintained in the upcoming MPC meeting in May even though inflation is not the only determinant of monetary policy. Inflation for the month of April 2016 dropped from 19.2% in March to 18.7% for April. This is attributable to the decline to the relative stability of prices of petroleum products and the local currency in the month under review. The key drivers according to the Ghana Statistical Service were transport, water, electricity, gas and other fuels, education, recreation, culture and clothing.

·         Businesses are overwhelmed by the multiplicity of taxes coming from government’s ambitious fiscal policies that continue to stifle growth of the private sector. Ghanaian businesses make 33 different tax payments a year, spend 224 hours a year filing, preparing and paying taxes amounting to 32.70% of profits according to Doing Business Report 2016. In December 2015, Parliament passed an Energy Sector Levy Bill (2015) that imposed more taxes including 17.5% Value Added Tax on petroleum products. The adoption and implementation of the ECOWAS Common External Tariffs (CET), albeit commendable as it standardises taxes across the sub region, has resulted in a net increase in import duties on certain commodities

·         The association also expects government to keep its expenditure budgets within limit to avoid overruns typical of election years. After successfully cutting its fiscal deficit by more than three percentage points to 7.1% of GDP in 2015, Ghana’s 2016 budget aims to further reduce the fiscal deficit to 5.3% of GDP. Government is on track to reduce budget deficit but should not be caught in the “frenzy” of election year overruns.

·         The AGI cautioned political leaders to maintain the peace of Ghana before, during and after elections. This will help boost business and investor confidence and spur economic growth. Ghana will be going to the polls in November this year- the seventh election since 1992.                                       

FORECAST

Business confidence has improved slightly because the power crisis has abated even though tariffs are expensive. If the PURC reviews the tariff classification regime, ensuring that industry does not cushion the cost of power for domestic users as the AGI is advocating, this will have a positive effect on businesses. As it stands, we are aware of companies which have threatened to exit the country should electricity tariffs not come down. Furthermore, as we head towards elections, the business community will be watching to see if the government’s tendency to spend furiously in the run-up to the polls will be held in check this time. Any hint of profligacy and mismanagement will add another string to the bow of industries in their grievances against government as taxes creep upwards.

Ghana just completed the third review under IMF’s Extended Credit Facility (ECF) program. Mr. Toujas-Bernaté-head of delegation- commended government for achieving most targets under the bailout program. He said; “Implementation of the programme, so far remains broadly satisfactory. Most of end-December 2015 performance criteria were met, with the exceptions of small deviations in the wage bill and net domestic assets of Bank of Ghana (BOG). This is likely to sustain business confidence in the country since government is on track in achieving bailout targets even though missing out on some targets.

Author: AMOAH-DARKWAH EMMANUEL Ch. E, CEPA

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