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Economic Crunch Worsens
 
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30-Jun-2014  
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The purchasing power of the ordinary Ghanaian consumer will be further eroded effective tomorrow, July 1, 2014, as about four separate increases take effect without salary increases for workers.

This will further dampen the demand for goods and services and slow down business activities drastically.

The Public Utilities Regulatory Commission (PURC) has announced an increase of 12.09% in electricity tariff with effect from July 1, along with a 6.1% increase in water tariff.
The Value Added Tax (VAT) on 32 fee-based financial services will also come into force on the same day.

Barring any last minute change, prices of petroleum products are likely to go up by between 15 and 20% on July 1; consequently, the National Petroleum Authority (NPA) and transport organisations have agreed that transport fares should also go up by at least 20% to reflect the increase in the prices of petroleum products.

Actually, some petrol stations have already started charging the new price ahead of the real date for implementation. Motorists, having been unable to get fuel to buy for several days last week, have grudgingly accepted to pay the new prices ahead of time.

These increases will erode the purchasing power of the Ghanaian consumer because companies say they are reeling under unbearable cost of production - which has been further worsened by the increases - and therefore cannot increase wages and salaries of workers.

Between May 2013 and May 2014, the country's year-on-year Producer Price Inflation (PPI) increased by 33.1%, representing an increase in producer price inflation by 1.8 percentage points, relative to the 31.35% rate recorded in April 2014.

Even though public sector workers have enjoyed 10% pay increase for this year, it has been eroded by the increases in electricity alone, which has gone up by over 20% in the first six months of the year.

However, many private companies could not offer their staff salary increment, blaming the situation on unfriendly business environment. And some private companies are even laying off workers.

Indeed, consumer price inflation has risen more slowly; although at 14.8% for May, it is still at its highest since early 2010.
The discrepancy between producer price inflation and consumer price inflation shows that indeed corporate profit margins are being narrowed.

It is obvious that local industries have been an easy target for the government to collect taxes. In the end, their cost of operation goes high and they are forced to pass on the cost to the consumers, making the products uncompetitive.

The economy is in crisis. As of now, the country has only 10 days import cover, the rate of borrowing is skyrocketing, budget deficit has now broken bounds, multi donor support has not been forthcoming since 2012 due to loss of confidence in the economy, inflation has shrugged off any hold-back to its continuous rise, the value of the cedi is plummeting, plus many more negative signals.

In addition, water is not flowing through the taps, national electricity supply is in a shortfall of 300 megawatts, prompting load management regime, prices of goods and services keep increasing every day and everything seems to be in a mess.

Unemployment to worsen
About 80% of companies in the country say they do not expect to create any new jobs up to the end of the third quarter, which puts a damper on employment prospects for the teeming number of job-seekers.

Out of 446 Chief Executive Officers (CEOs) interviewed for the 2014 first quarter business barometer report of the Association of Ghana Industries (AGI), 63.5% of respondents said their employment levels will remain the same up to the end of the third quarter while about 15% said they are certain to reduce their employment figures.

The low employment-generation prospect, according to the AGI, is a reflection of the general state of the economy as many businesses are struggling to remain on their feet.

Rising cost of doing business
In the survey, industrialists mentioned rising inflation, high taxation, the increasing depreciation of the cedi as having a depressing effect on their businesses and reasons why they cannot create more jobs.

Industry is also faced with the challenge of inefficient water and electricity supplies and a continuous increase in prices of petroleum products.

That notwithstanding, the tariffs on utilities keep increasing almost every quarter, making the players in that sector unable to forecast for the year.

Confidence in the business environment among industrialists has taken its worst dip in four years, with the AGI calling for “drastic measures” to arrest the dwindling fortunes of businesses.

Business confidence dipped in all major sectors of the economy, including agriculture, services, manufacturing and construction, the AGI’s barometer survey for the first quarter of 2014 showed.

Over 60% of the 446 businesses surveyed do not expect an improvement in the business climate within the next six months, due to factors like rising inflation, the increasing depreciation of the cedi and high taxation.

The cedi has been tagged Africa’s worst-performing currency in 2014, as it declined 20.6% against the dollar in less than five months, its worst performance since 2000 when the currency lost almost 50% to the greenback.

Business confidence dropped to 90.13, according to the business barometer indicator, which expresses the state of the business climate numerically in one figure, with 100 as the base index.

The drop is the worst in almost four years since a similar decline was seen in the second quarter of 2010, which was attributed to the effects of the global economic crunch.

The AGI believes, however, that the current situation is “self-inflicted” and “internal” and requires drastic measures.

The industry sector contracted 1.1% year on year in the first quarter of 2014, with the manufacturing sector negatively affected by energy and water supply, as well as competing imported products.

The strong economic growth rate in the first quarter – year on year growth in GDP for the 12 months up to the end of March 2014 was 6.7% – comes as somewhat of a surprise to many analysts as the economy continues to struggle with rising inflation, a rapidly weakening exchange rate, large fiscal and external current account deficits, and a loss of investor confidence.
 
 
 
Source: The Finder
 
 

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