Lending Rates Threaten 2012 Budget

Consistent drop in Central Bank policy rates notwithstanding, inert high lending rates ranging between 25�30 percent for SMEs threaten realisation of the 2012 Budget objectives, says AGI. President of the Association of Ghana Industries, Nana Owusu-Afari, observed at the official response of industrialists to government�s 2012 budget proposals that the private sector requires ample access to opportunities under the policies proposed in the budget statement. The AGI was upbeat about the proposed SME Incubation Project Facilities, Sekondi Free Zone Project, Coastal Fishing Harbours and Landing Sites Projects, the Accra Intellectual Traffic Management Project, and the Accra Plains Irrigation Project. �These will all help increase the private sector�s involvement and output to the general development of the economy. �High lending rates however remain the biggest contributor to the high cost of doing business in Ghana. AGI is eager to see the work of the Working Group on Interest Rates translate into a real reduction in lending rates,� Nana Owusu-Afari said. Ghana�s private sector operators have in recent years complained about their increasing uncompetitiveness against West African neighbours who obtain credit at single digit rates � and they are even worse-off against counterparts from Asia and other emerging economies. The lowest interest rate available to Ghana�s private sector -- in the form of special intervention -- is the Export Development and Investment Fund (EDIF), to which agriculture has been included recently: but even that remains high at about 12.5 percent. �Government should work with the Bank of Ghana to ensure that the reduction in the policy rate and the stability of inflation leads to a reduction in the interest rate in order to increase the business community�s access to capital,� Nana Owusu-Afari said. Industrialists say this measure, coupled with other strategies including proper house-numbering and the credit referencing system, will help reduce the loss-provision of banks and bring down interest rates, as borrowers can no longer hide under fictitious and unidentified locations. The AGI also highlighted its concerns about the poor growth-rates recorded by the manufacturing subsector over the past decade, when average growth was just above two percent annually. Over the past three years, manufacturing growth has been even more abysmal. The sector grew by -1.3, 1.0, and 1.7 percent in 2009, 2010, and 2011 respectively, recording an average growth rate of 0.5 percent. The AGI noted that the impressive growth in the industrial sector from only 7.0 percent in 2010, to the projected 36.2 percent in 2011 is obviously due to the greater contribution by mining, specifically oil and gold. These mining activities however do not employ as many people as the manufacturing sector, hence the need for serious implementation of the policies outlined in the Ghana Industrial Policy and the Private Sector Development Strategy 11 to ensure revamping of the manufacturing sector. The industrialists also pointed out that the GH�5million and GH�2million allocation to the Venture Capital Trust Fund and Exim Guarantee Company respectively, is woefully inadequate and therefore proposes GH�50million and GH�20million respectively for the financial year 2012. They welcomed the VAT threshold from GH�90,000 to GH�120,000, but said the current six percent flat rate of tax imposed on SMEs places a huge tax burden on businesses that fall in this bracket and must be reconsidered. The viability gap scheme for the PPP (Public/Private Partnership) projects, they noted, should be designed to support indigenous Ghanaians who undertake or participate in PPP projects as this will significantly enhance the level of participation in the economy for Ghanaians. Whilst the industrialists also welcomed the policy proposals on water and energy resources, they noted that: �in increasing the supply of water to the communities, government should consider employing PPP mechanisms to increase availability of water to industries. �On energy, it will be helpful to see a number of power-sector projects designed through PPP mechanisms to boost the nation�s industrialisation agenda,� Nana Owusu-Afari said. The AGI disclosed that it is also ready to make its consultancy resources available to government in the development of local content for the whole economy, in order to ensure that Ghanaians benefit and have a greater share of the national cake. The Association, in this regard, is calling for a policy linkage between the local content policy and the creation of entrepreneurships and innovation. On the cocoa sector, the AGI noted that the crop recorded a remarkable growth rate. However, the contribution of local content to the sector is insignificant, and therefore it proposes that all cocoa processing factories in the country should be encouraged to process more of locally-produced seeds. The industrialists noted that the Tariffs Advisory Board, formed to address tariff-related petitions of the private sector, will achieve very little if it continues at the current pace of work. The Board, they urged, should speed up work their work to enable it process more petitions. Government, the AGI recommends, must consider making a direct linkage between employment-generation and poverty reduction. �We can push more towards the realisation of the MDG of reducing income poverty by employing more people if a discriminatory tax is employed by government, so that employers who increase a requisite number of staff and pay the relevant tax and social security contributions enjoy better corporate tax incentives,� Nana Owusu-Afari suggested.