Business News of 2014-08-12

Issues awaiting Spio-Garbrah at Trade Ministry

The nomination of Dr. Ekwow Spio-Garbrah by the President to head the Trade and Industry Ministry has heightened industry's expectations of the experienced diplomat, politician and businessman.
As he faces the Vetting Committee of Parliament on Wednesday 13th August, many are the issues that the Ghanaian business community hope Parliament will focus on, and avoid some of the levity that has characterised some other vetting sessions. These pressing issues awaiting Dr. Spio-Garbrah at the Ministry of Trade and Industry include:
EPAs and matters arising
The Economic Partnership Agreements (EPAs) between the European Union (EU) and the 16- member-states Economic Community of West African States (ECOWAS) was finally endorsed by the sub-regional body at an extraordinary meeting held in Accra last month.
The main sticking point of the EPAs was allowing free access to 75 percent of West Africa’s market in exchange for total liberalisation on the EU side. The EU had wanted 80 percent of ECOWAS, whose offer then was 70 percent.
The European bloc has promised €6.5billion worth of aid to help West Africa cope with the cost of adjustment to the EPAs.
Under the agreements, ECOWAS will open its markets gradually, starting from about one-quarter in 2014 to two-thirds by 2017 and the required 75 percent by 2022.
Indeed, the interim EPAs in place, which Ghana initialled in 2008, are said to have sustained the non-traditional export sector till date. An ActionAid study found that the interim EPAs “have sustained the non-traditional export sector, which would have suffered disruption” had the agreement not been initialled.
From 2008-12 trade between Ghana and the EU rose from €3.2billion to €7billion, with the trade deficit recorded by Ghana narrowing from €670million to €330million.
Oil constituted 48 percent of exports to the EU in 2012, with the majority of the remainder being agricultural products. On the other hand, imports from the EU are dominated by machinery and transport equipment, mineral fuels and chemical products.
However, Civil Society Organisations (CSOs) have opposed the EPAs -- citing the revenue the country stands to lose and the threat to local manufacturing companies. They contend that Ghana stands to lose import-duty revenue worth US$88.6million annually up to 2022 if it signs the EPAs.
With the agreement set to be signed by political heads of ECOWAS, there are issues that need to be addressed if we are to reap the full benefit of the EPAs.
The country needs to reduce its trade deficit with the EU as well as make up for what it is certain to lose in import taxes. The question, then, is how do we position our local industries to ensure that they can improve on their capacity and be able to export their products to the EU market with a focus on bridging our trade deficit with the EU.
Of particular concern is the education and training of producers in the non-traditional export sector on meeting the EU standardisation requirements.
Dr. Spio-Garbrah will be expected to discuss some of his ideas for building the capacity of our industries and ensure their products meet the EU standards when he meets the Vetting Committee of Parliament.
Industries’ woes
Ghanaian Industries are currently struggling to break-even amidst rising cost of imported raw materials, irregular power supply, high cost of credit, and the influx of cheap imported goods --barring the services sector that has seen significant growth year-on-year over the last 10 years.
The textile industry, for instance, is at its tipping point. From a vibrant industry a few decades ago that employed about 30,000 people, there are now only two textile companies employing just 3,000 people.
The textile sector has been badgered by cheap imported textiles and the activities of pirated textile designs sold cheaply on our markets.
Admittedly, the taskforce set up to identify pirated textile products, confiscate and destroy them, created a sense of awareness about the severity of the issue and a sense of optimism for textile manufacturers.
However, the problem persists and many have proffered various solutions including an outright ban on imported textiles -- which the trade ministry has rejected.
ATL has requested a capital injection from the Trade Ministry to turn around its fortunes, but the immediate past-Trade and Industry Minister Haruna Iddrisu said government is unable to intervene directly in the ailing fortunes of Akosombo Textiles Limited (ATL), due to the absence of a legal framework to justify intervention.
The absence of a fund -- specifically set up in the mould of the Ghana Infrastructure Fund -- proposed in the 2014 budget apparently means that the Trade Ministry cannot help ATL; and for that matter, other industries outside the agro-processing sector that need help. Disappointing!
The agro-processing sector can fall on the Export Development and Agricultural Investment Fund (EDAIF) for support, but not other sectors of the economy. The issues with EDAIF’s processes also merit attention. The regulatory regime governing the EDAIF requires a bank to on-lend to the borrower. However, there have been reports of banks going back on agreed disbursement schedules, which negatively affects the operations of agro-processing companies.
These issues beg the attention of the in-coming Minister to save hundreds of jobs and ensure that we are well placed to take advantage of opportunities offered by the agro-processing sector.
Another sector that begs attention is the pharmaceutical industry. The new VAT Act expanded its scope to include the manufacture or supply of pharmaceuticals.
Drug producers currently pay VAT on 66 items out of about 200 different materials used for manufacturing drugs locally, and are later reimbursed by the Ghana Revenue Authority (GRA).
However, producers have often complained about the GRA’s lengthy bureaucratic procedures which often cause undue delays in reimbursement to manufacturers, thereby often causing unsustainable losses for these local industries.
The pharmaceutical industry in the country is under serious strain from cheap, finished, imported pharmaceutical products mainly from Asia. High cost of credit, poor electricity supply, and expensive imported raw materials are some of the challenges bedevilling the sector.
The Pharmaceutical Manufacturers Association of Ghana (PMAG), the umbrella-body for local drug manufacturers, has tabled proposals to Government for total VAT exemption on selected raw materials imported for pharmaceuticals production. The discussions are still on-going.
PMAG has further advocated a fund for the industry, using savings from malaria medicines that government currently purchases at subsidised prices under a financing initiative of the Global Fund to Fight Aids, Tuberculosis and Malaria.
Another thorny issue that requires the diplomatic tact and experience of the well-travelled and experienced diplomat, as he prepares to assume the office of Trade Minister, is foreigners trading in designated markets of the country contrary to Ghanaian law.
Mostly Nigerian and Chinese traders, there have been challenges getting them to comply with the law restricting them from selling in designated markets in Ghana. Attempts to eject them raised diplomatic tensions between Ghana and the countries involved.
Stakeholders will be keenly watching the solutions Mr. Spio-Garbrah postulates when he meets the Vetting Committee.
Aluworks Limited: the aluminium products manufacturer’s market share has shrunk as cheap imported substitutes continue to undercut its business. The company’s market share has dropped from 25 percent in 2012 to 15 percent currently.
The CEO of the company has blamed this on the inability of government to introduce countervailing measures that local manufacturers have proposed against cheap and poor-quality imports...Just another issue awaiting the in-coming minister.
With Ghana having just initiated discussions with the IMF, hopes have been ignited that several of the core ailments adversely affecting the country’s economy -- especially cedi depreciation, budget deficits and arrears to contractors and other suppliers -- will finally be brought under control.
However, even these measures will not be adequate if the country is not able to reduce its dependence on imports, protect its industries and create new good jobs, especially in the manufacturing sector. These additional responsibilities lie within the Trade and Industry sector.
Many are hopeful that with the support of the IMF and a dynamic new minister at Trade and Industry, these two developments could spell the beginning of Ghana’s rescue from the abyss of economic travails and protracted difficulties. Wednesday’s vetting of Dr. Spio-Garbrah in Parliament will help us all to discover whether the rising hopes of the Ghanaian business community are misplaced or not.
Source: B&FT
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