Policy Think tank IMANI Ghana is raising concerns over what it says is "a combination of very adverse conditions" that are making it difficult industry to survive in Ghana.
In a report covering a recent dialogue with some industrialists in Ghana, IMANI has listed a litany of the threats to industry and is urged the party that wins the 2012 Election Petition case to resolve those issues.
Read the full report below.
IMANI REPORT: AFTER SUPREME COURT VERDICT, WINNER NEEDS TO DEAL WITH THE THREAT OF INDUSTRIAL DECAY AND NEGLECT TO SAVE ECONOMY
As part of its outreach and engagement with the builders of Ghana’s economy, IMANI Ghana, a Policy Think Tank held a dialogue with industrialists on August 7, 2013 at the Alisa Hotel. 35 top executives from manufacturing, retail, financial services, legal institutions, agriculture, telecoms and technology took part in the meeting. The objective was to hear honest and frank firsthand accounts of the true state of the industrial economy with the hope to force evidence-based reform through collaborative efforts by government and industry and ultimately save the economy from its aggravated vegetative state.
The industrial sector in Ghana has for many years withstood many shocks and survived many hard times. In recent years however, a combination of very adverse conditions have made things very difficult for industries in Ghana, and they have been failing in alarming ways. Over the past few years some companies such as PZ and BAT have closed down their manufacturing plants and moved to Nigeria, choosing to import all their finished goods into Ghana. Others are considering moving out too. Those who believe a change is in the distant offing have their fate sealed; taking extremely risky measures to survive in order to not lay poor Ghanaian workers off. One factory buys a hundred (100) Tanker loads of water EVERY DAY, just to keep working.
Throw into the mix, a falling cedi, energy poverty, high fuel costs, unannounced increases in taxes, a multitude of levies and fees, a stifling bureaucracy, and high handedness of some municipal authorities, grid lock, unfair and corrupt practices at our ports regarding duties and brazen demand for bribes, unreliable and largely unavailable rail system, deteriorating roads, re-registration of foreigners (in spite of multiple identities they have acquired), questionable social security exaction from short-term foreign contractors and you have all it takes to weigh down a country’s economy and sidestep development.
OLD, BUT ENHANCED THREATS
ENERGY POVERTY
Power problems have worsened in recent times. Authorities seem to discriminate against Industrialists in favour of domestic consumers in price and allocation of power. This they believe is wrong and makes doing business in this country even more unattractive. It is a baffling phenomenon that Ghana still has not resolved firmly the issue of reliable power for Industry.
There must be faster movement towards enabling Independent Power producers to directly distribute to end users, instead of selling their output to ECG, which is perceived as incurably inefficient. A major solution to the energy problem is the creation of an Energy ‘free market’ which is what will facilitate the increase in capacity and efficiency and ultimately improve issues of supply, reliability and price. The discussion has stayed too long on how to provide subsidized power for domestic use, and should move faster towards the creation of a regulated energy market.
But the major problem is more with power generation by VRA, than distribution by ECG. Power which is unavailable cannot be distributed. In a situation of limited power supplies the distributor and its employees becomes susceptible to all manner of temptations. These can be fixed with the appropriate management strengthening and corporate cultural change. However it is critical the power availability through increased generation is quickly addressed through realistic pricing and efficient IPP processes.
TAXATION WITHOUT REPRESENTATION
A persistent issue that cut across the various sectors was that of taxation. Industrialists are constantly plagued by an increase in taxes often without prior consultation or notification. This lack of communication creates serious disruptions in business processes. Apart from the fact that Industrialists grossly disrespected when they are not involved in the decision making processes regarding new or increased taxes, it makes it difficult for them to fully cooperate and assist in the revenue mobilization process.
There is also a certain trend of high-handedness by collecting authorities both in fixing tax rates and collection. In a specific instance, a local district assembly increased taxes paid by a telecommunications company by 500% explaining that, the company was the only one in that district. It is reported that some authorities are treating cell sites as business operating premises (instead of infrastructure) and taxing them.
It is common knowledge that there is a huge informal sector whose operations are below government’s radar. Some of these so called informal sector operators have turnovers of $5 m (five million dollars). It is clear to industrialists who have above-board operations that these informal operators are competing them off the market, able to dodge taxes, levies and other payments because they remain informal and under the radar, in spite o f the fact that their goods are clearly on the market and they can be identified if the authorities wished. One industry executive said that due to corruption at the ports (which most importers in the meeting said was a major problem) his competitors were paying about 70% less duty than he is, he suffers because he is a large importer of the commodity and refuses to act improperly. This has made him uncompetitive in the market and is hurting his business.
Such laxity in the application of business laws, however draconian leaves there’s is a feeling among industrialists that some of these informal businesses were operating with tacit support of some public officials. Ultimately these acts of omission and commission make it difficult for honest business to succeed.
PORTS SHENANIGANS
The bureaucracy with importation of commodities is frustrating and costly to both industrialists and the government. As an import-driven economy, the clearance of goods should be efficient. The contrary exists at the ports where attempts to pass through the proper channels is often met with resistance from officials who have a preference for bribes in exchange for less bureaucracy. Circumventing the law becomes a preferable and simpler option. The reality however is that, evasion of the taxes and levies deprives the government of large amounts of revenue.
In one instance, an industry player was met with resistance and tremendous bureaucracy while attempting to follow proper channels in clearing merchandise through customs. This inadvertently caused a serious delay. Customs demanded fees for the delay even though they were the cause of delays; additionally, a three month minimum delay fee (instead of 2 weeks) was charged. These actions gravely hurt industry.
The lack of Import duty coordination across the West African borders is creating an incentive for smuggling. Government must take neighboring country regulations into account during the implementation of our laws. Currently, there’s a misallocation of the ECOWAS's Trade Liberalisation Scheme despite the apt and adequate regulations.
AGRICULTURE
Cocoa production was mentioned. There is a debilitating misalignment of policy from value addition to interventions such as subsidies and the cocoa production timelines. The persistent promises by successive governments to add value to at least 60% of our cocoa has never been fulfilled. There is waste and poor yield. Subsidized fertilizer arrives long after the crucial period it is needed lapse. Government should rethink new policies on agriculture, marketing and subsidies.
HOUSING
It is an undeniable fact that the demand for housing far exceeds the supply and successive government attempts to change that has failed. The situation thus gives private construction companies limitless freedom in setting prices. The cost of land and buildings has also escalated dramatically over the years with no end in sight.
NEW STRESSES
NATIONAL I.D. AND SSNIT
In recent months expatriates who are critical to the industrial sector, have without prior consultation and respect been asked to re-register for national ID and also pay an inexplicable fee of US$100 per person to do so under a very strange and questionable PPP arrangement between the National Identification Authority and a private company. Questionable because the Private company bags US$ 97 whilst the NIA gets ONLY US$3 per expatriate. Never mind that they initially registered with the NIA and their cards have all not been issued three years on. The state’s Social Security and National Insurance Trust (SSNIT) has wrongly interpreted the law and asked that foreigners on short- term contracts pay SSNIT contributions, when there is no system in place to enable them enjoy the pensions they are to pay for. Industrialists, who employ expatriates for their operations, feel unfairly targeted and burdened by all these regulations, which have combined to increase their cost of operations in Ghana because ultimately the companies pay on behalf of their expatriate staff.
FINANCIAL WORRIES
It also came to light that the financial system was seriously underserving industry, especially regarding foreign exchange transactions. Ghana is an import dependent country! From Real Estate to groceries, we import almost everything. What Government must do is facilitate things to make the end users enjoy better products inexpensively, instead of making life difficult for importers, because that does not increase exports or reduce consumption.
This failure and lack of capacity is a major stress point for industry, as many of the industrialists have to rely on their own networks to find foreign exchange, and when they do, the banking system seems to have a problem keeping and releasing foreign currency to them, that which they first deposited in the banks!
A CRIMINAL BANK DRAFT RACKET
Another major concern was the emergence of a serious criminal racket involving bank drafts which some of the companies present had already suffered. This has led to a decision (by a number of them) to reject all bank drafts. The bank draft system is one of the ‘sacred’ financial systems underpinning the financial system. Hence allowing this criminal racket to continue unchecked will severely undermine the whole financial system. Disturbingly, the Bank of Ghana has not indicated its knowledge of the problem and does not seem to have done anything to check it.
CONCLUSION
IMANI believes that Ghanaian business leaders are smart and intelligent, and are willing to help deal with Ghana’s many economic challenges if they are seen as real partners instead of cash cows. IMANI also believes there is sufficient but largely untapped good will on the part of managers of the economy. Therefore, as urgency stares us in the face to address the crumbling pillars of our economy, business leaders and the government, the supreme court verdict whichever way it goes must cause a deliberate shift in the posture towards business in courting industry in particular to improve the economy in order to positively affect indicators such as unemployment, the falling Cedi and general confidence in the economy.
It is crucial that government’s economic measures align with its long term strategic ones to grow the private sector, make it the real engine of growth and enhance Ghana’s competitiveness internationally. Making industry operations expensive and costly cripples Ghana domestically and internationally.
IMANI and industry leaders agreed that continuous engagement between government and businesses to co-regulate on critical drivers of the economy is the best way to achieve a win-win situation.
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