After grappling with a range of macroeconomic headwinds in the past several years, Ghana is beginning to recover, experiencing an increase in commodity revenues, currency stabilisation and an improving fiscal situation. However, lingering effects continue to complicate the outlook for industrial producers.
Indicators are somewhat mixed, although broader recovery is clear. In March 2017 the annual depreciation of the cedi was 24.6%. This was down slightly from its peak of 28% in mid-2014; in mid-2015 it had slowed to 26.2%, before drastically falling to 3.3% in mid-2016 and ticking upwards again in 2017.
In July 2017 the Bank of Ghana’s fourth rate cut of the calendar year – of 1.5 percentage points – also suggested an improvement in economic performance. In a statement accompanying the decision, the central bank attributed its move to better indicators. “On the domestic front, consumer price inflation has steadily trended downwards since September 2016 partly due to policy tightness, relative stability in the exchange rate and some favourable base drift effects,” the bank wrote in the statement This moderate improvement in the economic and monetary environment was also evident in the industrial sector. In April 2017 producer price inflation fell from 6% to 4.8% as the cedi stabilised. This compares to a producer price inflation rate of 11.2% in April 2016. For manufacturers, inflationary pressures were even lower. In April 2017 producer price inflation for the manufacturing segment stood at 2.9%.
However, the impact of the macroeconomic performance in 2014-16 continues to weigh on the sector. While more stable, the lower-currency value has led to higher expenditures for producers. Although the previous rapid depreciation should have made exports more competitive, the country is largely reliant on unprocessed commodity exports, like gold, cocoa and oil. Furthermore, much of the industrial base is dependent on the import of raw materials, intermediate goods and equipment for production. As such, the cost burden for manufacturers has risen extensively.
“It is really difficult to reduce costs in a country like Ghana that is experiencing currency depreciation, because all of our equipment and raw materials are imported. The biggest problem for export-oriented industries is the currency fluctuation; it is not energy supply,” Arun Patil, executive director of Sterling International, a Ghana-based paint manufacturer, told OBG. “The currency is not as unstable as in other countries in the region, but this is one of the main factors for the development of the manufacturing segment. To succeed, export-oriented companies should be able to reduce the risk of currency depreciation.” The high inflationary environment has had other implications for the sector as well. Cost-ofliving increases have led to wage pressure and high commercial lending rates, for example.
President Nana Akufo-Addo’s administration has sought to alleviate some of these pressures through various tax reform measures. Government moves to reduce costs through other tax cuts include the abolition of a 1% levy on imported machinery and equipment. These measures have proven popular, but there is a push to expand the revenue base. “Expansion of the tax base is critical to ensure an even playing field and greater formalisation of the economy,” Reginald Sackey-Addo, general manager at Irani Brothers, a Ghana-based wheat and flour producer, told OBG.
Work is also under way by the government to improve revenue collection – and consequently, the fiscal situation – through a new flat 3% value-added tax. “If businesses think that the new tax rate will significantly affect their profit, then they look at ways to remain profitable and it involves cutting jobs,” Simon Madjie, executive-secretary of the American Chamber of Commerce in Ghana, told local press.