Ghana’s business environment currently not favourable for private businesses – Mahama
Former President John Mahama, has noted that the country’s business environment is currently not supportive of private business growth.
Citing the example of the recent folding up of South African retail supermarket, Game, the former President noted that a lot of private businesses in the country are folding up in the wake of an almost collapsing economy.
“Today, businesses are folding up as investors cut their losses in the wake of an almost collapsing economy. Others have also closed their businesses in Ghana and moved to neighbouring country Ivory Coast,” he remarked, speaking at the graduation ceremony of students of Kwame Nkrumah University of Science and Technology (KNUST).
According to Mr Mahama, bad management of the Ghanaian by the current government is the reason for the country’s poor business environment for private businesses.
“The country’s labour force is about 18 million and the public sector employs only 1 million or less, unfortunately thriving parastatals (SOEs) that were flourishing a few years ago, have been run into the ground by political appointees who have mismanaged the affairs of the state owned enterprises and this constrains the ability of the public sector to employ.
“Compensation costs in our budget for 2022 was estimated at 55.3% of tax revenue. It means of all the taxes we collect, we spend 55.3% to pay wages and salaries in the public sector alone,” he quipped.
“Amortisation and interest payments, consume the rest of our taxes, and we even have to borrow to cover the total cost. This situation has compelled government this year in the 2023 budget to announce a freeze or should I say a ban on public sector employment.
“This means that the opportunities for employment for your cohorts can only be found in the private sector or through self employment, that is the reality you face.
“Unfortunately, due to mismanagement, and reckless expenditure by government over the past five years, the private business environment is also in a very poor state today,” he added.
Average lending rates to businesses by banks in the country rose to 31.4% at end-October 2022.
This is on the account of increments in the Bank of Ghana’s policy rate which subsequently leads to an increase in the Ghana Reference Rate (GRR) and risk assessment charges on borrowers.
The rise in the average lending rate marks a 11% (1,100bps) year-on-year (YoY) increment in interest rates when compared to the 20.34% average lending rate at end-October 2021.
The 11,000bps increment in the average lending rate is primarily driven by increments in the benchmark monetary policy rates set by the Bank of Ghana (BoG) and subsequently the Ghana Reference Rate (GRR).
On the back of the increments in the prime rate, the GRR also on a YoY basis grew from 13.47% at end-October 2021 to 27.44% at end-October 2022.
The rise in average lending rate means high cost of borrowing by individuals and particularly businesses which translates into high cost of doing business.
