Industry needs a break...High taxes, red tape, others

An economist is calling for more pragmatic measures to reverse the negative growth recorded in the country’s industrial sector.

These include a reduction in red tape, taxes and improvement in energy efficiency for businesses to thrive.

The recommendation follows the continuous poor showing of Ghana’s industrial sector in the last few years.

From a 4.3 per cent growth in the second quarter of 2022, growth declined to one per cent in the third quarter of 2022 and has since seen a contraction in subsequent quarters

The sector contracted by one per cent in the fourth quarter of 2022, contracted by 2.6 per cent in the first quarter of 2023 and 1.9 per cent in the second quarter of 2023.

This development has raised fears over the country’s ability to fully revive the economy, considering the huge role the sector plays.

The industry sector contributes 32.8 per cent to the GDP of the country, according to latest figures released by the Ghana Statistical Service.

From the statistics, it appears the sector has not recovered yet from the COVID-19 pandemic and the economic challenges that have plagued the country in the last two years, with the sector recording a negative growth for the third consecutive quarter.

In an interview with the Graphic Business, economist and lecturer at the Academic City University, Eugene Bawelle, warned that the continuous contraction of the industry sector should be of concern to government particularly in such a post COVID-19 recovery era where industry is fundamentally essential for a resurgence of the Ghanaian economy. 

He said when the real sector contracts, any growth in the economy, emanating from agriculture or services sectors may not reflect the full impact of the growth especially on the welfare of citizens.

Mr Bawelle said it was therefore important for the government to have a relook at the pull factors which affect the industry sector of the economy. 

“The cost of doing business in Ghana is one of the highest within the sub region. Government needs to take deliberate measures to reduce red tape, taxes and improve efficiency for businesses to thrive.

Sub-sectors 

Under the industry sector, the mining and quarrying sub-sector improved marginally from –0.5 per cent in the 1st quarter of 2023, to a growth of 0.8 per cent in the 2nd quarter of 2023. The electricity subsector also declined from 0.9 per cent in the 1st quarter of 2023 compared to -1.2 per cent in the 2nd quarter of 2023. 

The manufacturing sub-sector improved slightly to - 0.1 per cent in the second quarter of 2023 from –0.4 per cent in the 1st quarter of 2023. There was minimal improvement in the water supply, sewerage, waste management and remediation activities which recorded a -0.7% in the 2nd quarter of 2023 from -1.3% in 1st quarter 2023. 

Construction also declined to -3.1% in the 2nd quarter of 2023 compared to –1.5% in the 1st quarter 2023.

Strong GDP growth projection 

Despite the concerns over the industry sector, the Governor of the Bank of Ghana, Dr Ernest Addison, last week indicated that the Monetary Policy Committee was confident that the country’s economy would grow by three per cent in 2023.

This growth projection is double what is being projected by the International Monetary Fund (IMF) programme and also higher than the 1.6 per cent being projected by the World Bank, and the 1.7 per cent being projected by the African Development Bank.

It is however, just a bit higher than the 2.9 per cent growth being projected by Fitch.

The three per cent GDP growth is based on the strong growth for quarter one and quarter two and statistics from the Bank of Ghana’s Composite Index of Economic Activities.

Commenting on this, Mr Bawelle, said it was important for the BoG to indicate where the growth drivers would emanate from. 

He noted that currently, the government was negotiating another round of debt restructuring which would impact negatively on the economy again. 

He said banks were also going to record huge impairments in 2023 similar to what happened in 2022. 

“NPLs are continuing to go up while lending to the private sector by banks sees no significant improvement.” 

“Even though the economy is seeing a rebound, albeit slowly, we need to be cautiously optimistic about the growth projections,” he stated.

Second quarter growth 

Provisional real quarterly GDP growth rate including Oil and Gas, for the second quarter of 2023, was 3.2 per cent, compared to a growth of 3.5 per cent in the same period of 2022.

GDP growth rate without oil and gas (Non-Oil GDP) for second quarter of 2023 was 3.2 per cent, compared to 4.8 per cent growth in the same period of 2022.

The services sector recorded the highest growth of 6.3 per cent, followed by the Agriculture sector with a growth of six per cent, and the Industry sector with a contraction of -1.9 per cent.

The services sector was the largest contributor to GDP in the second quarter, with a share of 44.6 per cent, followed by the industry sector with 32.8 per cent. The Agriculture sector was once again the lowest contributor with 22.6 per cent.