Ghana’s beleaguered manufacturing sector has yet more to grapple with, as skyrocketing costs from jacked-up utilities tariffs and high cost of raw materials further undermine its competitiveness.
AGI President, Nana Owusu-Afari, said the huge increase in utilities tariff since June has translated into up to 300 percent increase in electricity bills for some manufacturers and is just unbearable, especially considering the other costs from high levels of taxation and costly commercial bank credits.
The Association of Ghana Industries Business Barometer survey for the second quarter 2010 showed the sector registering the biggest loss of confidence in the business environment, thus helping to drag the Barometer Indicator down to negative 0.2 - meaning the general confidence level of business people is below average.
Manufacturers over the past couple of years have consistently complained of high credit costs, high levels of taxation and competition from imported goods as persistent challenges to their survival.
Recent studies have shown that Ghanaian businesses obtain credits at over four times higher than their West African peers, and up to seven times their South Eastern Asian counterparts.
Government officials remain baffled: with a consistent decline in the inflation rate - which dropped to 9.52 percent in June, down significantly from the 20.7 percent recorded in June 2009 - banks’ lending rates still average about 30 percent.
The manufacturing sector has lagged behind all sectors and general GDP growth rates. Over a five-year period up to 2008 - while GDP averaged a 6.5 percent growth rate - the manufacturing sector could manage only a 3.4 percent average growth, and even actually recorded negative 2.3 percent growth in 2007.
Former AGI President, Tony Oteng-Gyasi, also holds that Ghanaian businesses - compared to their counterparts, are taxed-out and there is need to find more innovative ways of roping in the large untaxed informal sector rather than overburdening the few that already pay tax.
Some manufacturers claim that in recent times unannounced increases in import levies - of up to approximately 12 percent in some instances - have been slapped on some specific imported raw material inputs, thus escalating their production costs.
“Business people engage in business activity fundamentally to make profits,” Nana Owusu-Afari said, adding that if profit is unattainable and entrepreneurs rather consistently make losses through high costs of operations, the only option left for them is to wind-up their operations.
Nana said small and medium-sized enterprise (SMEs), which constitute over 80 percent of all Ghanaian businesses and which employ most of the labour force, are the hardest hit - and it is quite likely a number of them will fold-up under the current business environment.
The AGI, which claims that it is in principle not against the power tariff increase, has suggested a gradual increment of tariffs - beginning with a 40 percent hike from July this year and a subsequent 20 percent increase from January 2011.
“This will help businesses plan their costs and adjust smoothly to the power tariff increases,” he said.
Some notable manufacturing sub-sectors, including the timber sector operators and the food processing sector which depend mostly on electricity for their operations, have threatened to lay-off workers as a means of cutting costs in order not to suspend operations.
Q2 MAJOR CHALLENGES: MANUFACTURING SECTOR
By Emmanuel KWABLAH
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