Ghana: Inflation, cedi depreciation deepening already weak SME competitiveness under AfCFTA

Competitiveness of Ghanaian small and medium-scale enterprises (SMEs) under the African Continental Free Trade Area (AfCFTA) agreement, is set to be further challenged given the country’s current macroeconomic conditions.

With an already low competitiveness level as compared to African peers such as Egypt, Morocco and South Africa, the upward trend in the nation’s headline inflation (37.2%) and cedi depreciation against the dollar (40%) is expected to further reduce the competitiveness of SMEs  trading under the agreement.

The country’s prevailing macroeconomic environment has been identified by CUTS International as the single most limiting factor to the competitiveness of SMEs under the trade pact.

In a public-private dialogue on the role and participation of the private sector in the AfCFTA, on Thursday, October 13, CUTS International noted the national macroeconomic environment is not conducive to the survival of SMEs under AfCFTA.

According to CUTS International, inflation and the depreciation of the cedi are the two major factors that are hostile towards the competitiveness of SMEs under AfCFTA.

The rising inflation (both consumer and producer price inflation) and high depreciation of the cedi, make products of SMEs more expensive and hence uncompetitive against SMEs in other countries with lower inflation and currency depreciation rates.

The current hostile macroeconomic environment, CUTS International further asserts, presents SMEs with market, financial, operational and economic risks.

Some of these risks CUTS International notes include tax increment, fuel price increment and high lending rates which are major hindrances to operational activities of SMEs.

Aside the hostile macroeconomic environment, other factors that contribute to the uncompetitiveness of SMEs in Ghana include; lack of domestic and internationally recognised quality certification, lack of differentiated or unique products, high price of products and frequent changes in product prices, production below maximum capacity, limited access to trade infrastructure and weak systems of upgrading and training human capital.

On improving the competitiveness of SMEs, CUTS International recommended to government the following:

• Industry players and government should invest in trade infrastructure that gives easy access to trade information such as the catalogue of government policies and potential export markets among others.

• The bureaucracy at the various points of entry such as the ports and airports should be reduced or removed. Thus, conscious efforts should be made to make it easy to send goods abroad and clear same from customs. This requires more investments in ICT infrastructure.

• The time required in dealing with governmental bodies on documentation, registration, licensing and regulatory issues should be streamlined.

• There is a need for SMEs, policymakers and governments to enforce more collaboration between the industry players or businesses and universities on research and development.

• The Ghanaian government and financial institutions need to put in measures to make credit facilities more easily accessible to SMEs to expand their businesses.

• Relatedly, the cost of credit or lending interest rate should be drastically reduced. This will make it competitive to counterparts in Africa since these rates are considered very high in Ghana.

• It is also very necessary for the government and the relevant stakeholders to ensure that electricity supply is readily available, reliable and affordable. The high price and unreliability of electricity supply are one of the reasons why SMEs keep increasing their prices.

• There is a need for government to stabilize the exchange rate and inflation. This will make Ghanaian SME export products competitively priced.

• Government and the National Communications Authority (NCA) should enhance the general ICT infrastructure in the country. Also, internet services should be competitively priced and made more reliable

• There is the need to establish AfCFTA coordinating offices (at the MMDA level) across the country. These coordinating offices should have units solely designed to meet the needs of SMEs.

• There is the need to extend the education and sensitisation of AfCFTA to women, particularly “market women” in the informal sector.

AfCFTA guided trade initiative begins

 Meanwhile, the AfCFTA Secretariat in collaboration with the National AfCFTA Coordination Office under the Ministry of Trade and Industry, has kick-started the AfCFTA Guided Trade Initiative.

The Initiative symbolises the commencement of commercially meaningful trade on a pilot basis between Ghana, Cameroon, Egypt, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia.

The countries were selected to represent the five African Union regions, namely: Western, Central, Eastern, Southern and Northern Africa respectively.

The Guided Trade Initiative aims to test the readiness of participating state parties under the AfCFTA, demonstrate that the AfCFTA trading documentations are operational and viable and confirm that the Customs and Revenue Authorities of the participating countries under the AfCFTA agreement are ready to process imports and exports.

The Guided Trade Initiative is a very significant step towards realising the African dream of boosting trade with each other and developing closer economic ties among State Parties.