‘Let’s work hard to achieve single digit interest rate’

If the country is really and truly desirous of a prosperous manufacturing sector, then it has no option than to work on achieving a single-digit interest rate regime, James Asare Adjei, President of the Association of Ghana Industries (AGI), has said.

“How can we compete with businesses in other jurisdictions which are borrowing at 5%, 6% or maybe 9%, compared with what we have here -- between 26% and 35%? How do you survive as a business, not to talk about the various other challenges like energy and lack of infrastructure?” he told the B&FT.


“One thing we need, particularly in manufacturing, is medium- to long-term capital at interest rates which are favourable. If we want to retool our industries, if we want to grow particularly the manufacturing sector, we have no other option than to provide affordable and available capital.


“We think that government should not compete with businesses for credit. Once credit is available and affordable, businesses will grow; and hence it is the duty of government, it is the duty of financial institutions to support industry.”


The benchmark interest rate in Ghana, as determined by the Monetary Policy Committee of the Bank of Ghana, was last recorded at 19 percent but financial institutions have gone way higher than that to over 30% in some cases.


Ecobank Research ranked the country first among 12 African countries with the highest interest rates.


According to the report, the yield on the 91-day and 182-day bill stood at 21.08 and 20.90 percent respectively.

Ghana was followed by Malawi and The Gambia with interest rates of more than 15 percent on the short-term dated instrument.


ECOWAS’ biggest economy Nigeria recorded interest rates of 12.26 and 14.06 percent respectively on its 91-day and 182-day bills respectively.


“If we want to drive the economy we have to create the environment that will make it possible for businesses to grow; not only growing in the domestic market, we have to be competitive,” the AGI boss told the B&FT.


“Now where we have countries around us either in the sub-region or probably not too far from us in Africa having single-digit interest rates, how can we compete? We are not only limiting ourselves to our domestic market of about 25 million people, we want to look at the sub-region of about 350million people -- and even beyond that to the close to a billion people in Africa. So what we need to do as a country is create an enabling environment so that when businesses start as SMEs they will be competitive, be efficient and take advantage of economies of scale, and be enabled to launch out into the market out there.”


The financial institutions have often cited high default rates, among others, as the reason interest rates remain so unbearably high in the country.


The AGI president believes, however, that concerted efforts are required to bring down interest rates in the country and make them cheaper for businesses to borrow.

“There is always the possibility that if you give credit to businesses at over 30% interest, businesses will find it very difficult to pay back,” he said.


“So, which one comes first? Is it a cheaper credit that businesses will be able to pay or because we think that there is that element of risk we should then hike the interest rates, such that even if some people default then we will get our money back one way or the other?


“Should we look at the non-repayment of some businesses and, for that matter, punish credible business operators who are really very willing to pay back their loans? I don’t think that is the way to go. So financial institutions must understand that as we grow the SMEs today they become the giants of tomorrow, and then we have more businesses.


“Let us look at what other countries in Africa are doing right -- such that they can give affordable credit -- so that we can support our industries.”