High Taxes, Raw Materials Cost Killing Firms

Call it the never-ending problem of the Ghanaian economy. Escalating raw material prices and the rising level of taxes have been identified as the main obstacles to the expansion of businesses in the country, a new Association of Ghana Industries (AGI) survey has revealed.

Although for the first time since commencement of the AGI Business Barometer cost of credit did not feature in the top-three challenges facing businesses in the country, the report revealed that these disturbing factors - including exorbitant electricity prices - need to be addressed immediately to prevent the loss of market share of local businesses to foreign companies.

The report covered the first quarter of this year and explained the probable reason for the cost of credit not being among the first three is because respondents have given up on this challenge. Over many years, the country has not been able to address this challenge in spite of it featuring in the top-three obstacle-list over the last six quarters, said the AGI boss Nana Owusu Afari at a news conference in Accra.

Operators in the manufacturing sector identified high cost of raw materials, high utility prices and access to credit as the top-three factors restricting growth of the sector. In the agricultural sector, the top-three factors identified as limiting its growth were access to credit, high cost of materials and lack of market.

In the services sector high level of taxation, high utility prices and cost of credit were ranked first, second and third respectively as the main obstacles confronting the sector.

However, the business community was highly optimistic of better business performance in the second quarter of 2011. Over 65% of the CEOs interviewed were confident that businesses will perform better in the second quarter of 2011 compared with that of second quarter of last year. The respondents attributed their hopefulness in better business performance to expected improved market, increase in productivity of their workforce, and an increase in the purchasing power of Ghanaians.

Market analysts are watching whether results for the second quarter will confirm this assertion Whilst about 26% of the business operators interviewed are indifferent between performance of business between Q1 and Q2 of 2011, only 9% are of the view that expected business performance in Q2 (2011) will be worse compared to Q1 (2011). Expected adverse government policies, increase in utility prices and fall in purchasing power of customers were the reasons why 9% of the interviewees were pessimistic in Q2 (2011).

Whilst over 65% of the CEOs interviewed expect their Q2 (2011) business performance to improve compared to Q1 (2011), only 58% of the respondents expected their Q4 (2010) to be better than that of Q3 (2010). High cost of raw materials moved from 3rd position in Q4 (2010) to 1st position in Q1 (2011), whilst access to credit dropped from 1st in Q4 (2010) to 3rd in Q1 (2011). The biggest movers were high level of taxation (from 8th position in Q4 of 2010 to 2nd position in Q1 of 2011) and cost of credit (from 2nd position in Q4 of 2010 to 6th position in Q1 of 2011).

Delayed payments swapped the 10th position (from 7th in Q4 of 2010) with lack of market which was ranked 7th in Q1 of 2011 (from 10th in Q4 of 2010). The AGI BBI measures the level of confidence in the business environment and predicts short-term business trends. It expresses the state of the business climate simply, in one number ranging between +100 and -100. It is calculated out of �current� business mood and �expectations� for the future.

Q1 of 2011 recorded a positive indicator of 30, indicating an increase in business expectation over Q4 of Q2010 (which recorded an indicator of 23.7). This means the CEOs interviewed are more confident in the business environment in Q1 of 2011 than Q4 of 2010.

Source: B&FT