Falling commodity prices, rising interest rates, mounting inflation, a trailing currency against the major foreign currencies have combined with acute power crisis and revenue shortfalls to sap business confidence, plunging them into hard times.
Business surveys by the Bank of Ghana (BoG), Institute of Economic Affairs (IEA) and the Association of Ghana Industries (AGI) show increasing concerns of the deteriorating business environment and the worsening state of the business confidence leading to job losses.
The BoG business confidence index shows a dip from 99.2 per cent in December last year to 88.9 per cent in March this year.
For the AGI, its 2015 first quarter Business Barometer Survey shows a dip in business confidence by 13 points from 98.0 to 85.0, fearing a lot more jobs will be lost in the next six months if the power crisis in particular is not resolved.
The survey shows businesses are neither absorbing job-seekers nor are they sure of doing so in the next six months, as about 50 per cent of CEOs interviewed said their employment levels would remain the same, while 27 per cent said they are sure to lay-off workers.
“For a growing nation with large numbers of students coming out of our universities, whenever we see job decreases being more than increases it should be a concern,” Seth Twum Akwaboah, AGI’s CEO, said.
“It means the manufacturing sector is not absorbing workers that much. Mind you, this also includes the services sector,” he feared.
The Institute of Economic Affairs survey was even more revealing, thirty-four per cent of businesses in the country laid-off workers in the last six months due to the power crisis and other economic challenges.
According to the IEA’s maiden Business Confidence Survey, most of the retrenchments were in the non-financial sector.
The business confidence survey solicits the views of private enterprises on how they are faring.
The survey was conducted in three regions of Ghana; the Greater Accra, the Western and Ashanti.
The survey revealed that the major obstacles in doing business in Ghana, 95 per cent of the respondents cited the erratic power supply which was closely followed by the cedi depreciation, taxes and government charges.
Business owners were, however, optimistic that the situation would improve within the next six months which they believe will yield more profits.
The cedi’s depreciation was second for all sizes of businesses except the micro sector, which named unfair market competition as its number-two challenge.
Presenting the highlights of the report, a senior fellow at the IEA, Dr J.K Kwakye stated that the net loss of job losses was to be expected due to the deterioration of the business environment.
Interest rates and currency depreciation take toll An unexpected interest rate rise by the Bank of Ghana to stem inflation failed to stop the debt-stricken nation’s currency plunging to a record low.
The cedi lost as much as 1.7 per cent and hit a low of 3.955 against the dollar before recovering slightly to trade at 3.915, following a surprise 100 basis points increase in the main borrowing rate to 22 per cent.
Ghana’s currency has tumbled by 17.2 per cent in 2015, underlining the economic difficulties faced by a country that was long one of Africa’s top performers but which has suffered from the fall in global commodity prices.
The government was forced to seek a US$918m bailout loan from the International Monetary Fund in March to plug a budget deficit that is expected to come in at 7.5 per cent of gross domestic product this year.
Dr Henry Kofi Wampah, Governor of the Bank of Ghana said the rise was intended to stabilise the cedi and rein in expectations for inflation, which hit 16.8 per cent last month on the back of a lower exchange rate.
“The higher interest rate should also serve to make the country less vulnerable to the adverse implications [of US interest rate rises],” he added.
While economists said the tightening would do little to anchor the currency in the short term, some said the move could renew investor confidence by providing evidence of the government’s commitment to fiscal consolidation demanded by the IMF.
Energy crises and fuel prices
Unfortunately, the fuel price increment comes at a time that businesses can hardly get some relief from the harsh economic situation. Business operations are currently surviving on generators at high fuel cost and this is also being stifled with an increase in fuel prices.
The cumulative effect of these challenges is the high cost of doing business. AGI can emphatically state that, Ghana is fast losing its competitiveness as a country to sub-regional economies.
IEA solutions The IEA, therefore, made three recommendations which will help policy makers revive businesses, as well as forestall any further job cuts.
The first recommendation was the need to urgently relieve businesses of the many constraints including the power crisis, cost of credit and infrastructure.
This, according to Dr Kwakye, would help promote the private sector as the engine of growth in Ghana.
The second recommendation was the urgent need to ensure a stable macroeconomic environment through public financial management to create a more conducive environment to aid business growth.
Thirdly, the IEA recommended that serious interventions were needed to address the unemployment situation at the firm level.
“This should be done through the provision of incentives for private firms to employ the youth to curtail the looming danger of more job losses.”
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