business condition report western region 4 · business situation than their current condition. 12%...

Q42019

Business Condition ReportWestern Region

CONTENTS

EXECUTIVE SUMMARY 2

INTRODUCTION 3

LEVEL OF EMPLOYMENT 4

LIMITATION FACTORS TO INCREASE BUSINESS ACTIVITY 5

LEVEL OF BUSINESS INVESTMENTS 6

REASONS FOR INVESTMENREASONS FOR INVESTMENTS 7

IMPACT OF THE DEPRECIATION OF THE GHANA CEDI 8

IMPACT OF GOVERNMENT POLICIES ON BUSINESSES 9

ASSESSMENT OF THE CURRENT BUSINESS CONDITION 10

EXPECTATIONS FOR THE NEXT QUARTER 11

RECOMMENDATIONS 12

CONCLUSION 13

SSekondi-Takoradi Chamber of Commerce & Industry | Quarter IV Report

4EXECUTIVE SUMMARY

One of the key activities of the Sekondi-Takoradi Chamber of Commerce and Industry (STCCI) is evidence based advocacy. This report, the fourth in the quarterly series for 2019, presents findings of a survey conducted in fulfilment of STCCI’s evidence based advocacy activities. IncIncrease in business activity is a key indicator of economic growth and development. It is therefore imperative that every effort is made to ensure that limitations to business activity are eliminated so that businesses can thrive - and by extension the economy, on the local and national level. In the fourth quarter of 2019, financial condition, competition in own sector and government policies were the key limitations to increase business activities in the Western Region. IncIncreasing competition in the various sectors is one of the major challenges to business growth. It was the second among the challenges facing businesses in the Western Region. As a result of the negative financial situation, proprietors of businesses were unable to increase the level of investment in their businesses. Only 19% out of 244 businesses made a higher investment in their businesses in the quarter under review. TheThe persistent depreciation of the Ghana Cedi against the major currencies like the US Dollar, British Pound and the Euro has been a source of concern to most businesses. Businesses, directly or indirectly, have been affected negatively by the depreciation. Asked about how their businesses were affected by the depreciation of the Cedi, 41% out of 244 respondents said their respective businesses were negatively affected, 51% reported no impact, with 8% reporting a positive impact.

MoMore than two-thirds of the respondents indicated that they were satisfied with the current state of their business. 54 respondents, representing 22% of businesses, reported a good business condition. Unlike the majority, though some 9% of respondents described their business condition in the 4th quarter as bad.

ExpectationExpectation for the future was bullish with 86% of respondents expecting a better business situation than their current condition. 12% of respondents were indifferent about their expectations for the upcoming quarter, with 2% actually expecting gloom.

WWe call on central government to focus on expanding the implementation of business-friendly policies and programs to reduce the challenges of doing business in Ghana. One of the key challenges to businesses is in the area of taxation. Some of the areas businesses are seeking government intervention, among others, include tax holidays for start-ups and tax breaks for some SMEs.

BusinessesBusinesses seeking support from financial institutions and/or partnerships should take record keeping and the preparation of their financials very seriously. Without this, it will be very difficult for the institutions to assess the viability of the business and the risks and mitigants associated with offering such support.

Busines Condition Report |2

4INTRODUCTION

As part of its advocacy actions, the Sekondi-Takoradi Chamber of Commerce and Industry (STCCI), through its research department, gathers empirical data to build evidence to support its actions. This report presents results of the survey, which was conducted between the 12th and 18th December, 2019, to find out about the situation of businesses in the 4th quarter of 2019.

SSTCCI is delighted to report some tangible outcomes of the research it undertakes quarterly: In August and September 2019, the International Finance Corporation (IFC) under their Local Economic Development (LED) programme supported STCCI to organize a training program for its members to enhance their capacity in the areas of financial management, access to finance and effective human resource management. The request for the intervention and the topics discussed were derived directly from the survey conducted by STCCI for the first quafor the first quarter of 2019.

As usual, the fourth quarter survey involved eight questions. The seven standard questions, repeated quarter on quarter to allow for comparability, and one that captures the specific changes in the business environment during the fourth quarter. The sixth survey question for the fourth quarter was therefore about businesses’ expectations on the potential impact of government policies and programs in the 2020 budget.

A total of 244 businesses were interviewed, representing a decrease by 45 respondents over the number of participants in the third quarter. The sectors surveyed include manufacturing, agriculture, general merchants, general service, logistics, construction, mining, and oil and gas.

BothBoth member businesses of the Chamber and non-member businesses located in more than 10 towns within the region were approached for the survey. The towns selected for the field survey included Sekondi-Takoradi, Agona, Aiyinase, Daboase, Tarkwa, Prestea, Bogoso, Apowa, Mpohor and Elubo.

ItIt is our expectation that the information contained in the following pages will act as a source of reference for our stakeholders and will be factored into their decision making. We believe that the data we provide will contribute to the stock of knowledge on the developments within the Western Region and Ghana as a whole. We also expect our members and non-members to be mindful of some of the challenges businesses are facing and to pay attention to some of the recommendations we make and solutions we offer.


Busines Condition Report | 4

4LEVEL OF EMPLOYMENT

GoalGoal 8 of the United Nations Sustainable Development Goals (SDGs), the agenda for the global development pathway until 2030, sees to the promotion of sustained inclusive and sustainable economic growth, full and productive employment and decent work for all. Countries shall strive to ensure sufficient employment opportunities and decent working conditions, so that people are able to offer their services for fair remuneration that enables them to meet their livelihood needs. The figure above illustrates the changes in employment in quaquarter 4 of 2019.

Though two-thirds of the respondents indicated that there was no change in the level of employment, mainly because they have not observed a radical change in their businesses, an appreciable 23% of businesses reported an increase in the level of their employment. These businesses speak to an increase in the level of demand for their products and the fact that they undertook an expansion of their businesses in both physical infrastructure and product offering.

ItIt was not all stable or rosy as some 13% of respondents reported a decrease in the level of employment for the quarter. These businesses cite unfavourable economic conditions as one of the factors that led to their decision to reduce the labour force. High labour cost was another major reason ascribed for the reduction in employment. This was found especially among the businesses in the mining and oil and gas sectors.

Figure 1

4FACTORS LIMITING BUSINESS ACTIVITIES

IncIncrease in business activity is one indicator of economic growth and development. Once business activity is curtailed due to challenges, employment is halted, and in most cases reduced; incomes of workers and households are affected, and the downward spiral continues. It is therefore imperative that every effort is made to ensure that limitations to business activity are eliminated so that businesses can thrive and by extension the economy, both local and national. The above figure illustrates factors limiting thethe ability of businesses to increase their activity levels in the period under review.

Financing conditions stayed as number one once again. 96 out of 244 respondents indicated it as their highest limiting factor. According to businesses, access to funds is a major problem. It is difficult to access loans from the bank or other institutions, they say. Most players in the financial sector have indicated tightening of liquidity. Banks and microfinance institutions have complained about low deposits that have affected their ability to provide loans to the business community.

6767 out of 244 respondents indicated competition in their industry as a limiting factor. According to them, the competition was very high as more businesses were entering their space. This of course has reduced their customer base and, by effect, led to lower sales.

OfOf the 244 respondents, 59 admitted that some government policies affected business negatively. Primary government policies that had a negative effect were in the area of taxation, depreciation of the currency and fuel price increases. 43 out of 244 respondents chose labour costs. Labour cost appears to be very high, especially among the mining and oil and gas sectors.


Figure 2

4LEVEL OF INVESTMENTS

Businesses thrive and grow when the promoters continuously invest in the business. Investment in physical infrastructure, new product lines, new and improved processes and machinery, etc., are key to the sustainability of businesses.

BusinessesBusinesses have been known to collapse when lack of investment leads to inefficient production, high cost and products that no longer meet the needs of the consumer. In some cases, such as photography, digital cameras have disrupted the photographic film industry. Mobile phones have replaced traditional cameras, etc. Businesses must therefore continuously invest to respond to changes in technology and consumer tastes and preferences.

TheThe figure above illustrates the level of investment that proprietors made in their business in the fourth quarter of 2019. 67% of 244 respondents reported about equal levels of investment in their businesses for the quarter, whereas 19%, and 14% reported an increase and decrease in their investment, respectively.

FIGURE 3


4REASONS FOR INVESTMENTS

TheThe importance of continuous investment in business cannot be overemphasized. The figure above illustrates the main reasons for business investment in the fourth quarter of 2019. 31% of the respondents invested in capacity extension. Capacity extension primarily refers to the investment in the human resource of the business. These respondents admitted that they needed to continuously improve the capacity of their staff to enable them to deliver quality goods and services, and to be able to operate new equipment and machines installed.and machines installed.

28% of those who invested in the quarter did that to improve efficiency. Their aim was to be more efficient and reduce cost. For others their intention was to increase production to foster turnover and profitability.

19% of respondents invested in product innovation to attract more customers and to meet changing customer demand.

Though not very impressive, there were some 7% of respondents who invested in environmental management. Most of these companies did that to reduce the significant negative impact of their business activities on the environment, e.g. reducing the release of toxic and harmful effluents into the working environment or controlling the level of noise emanating from their operations. With the increasing level of awareness concerning issues related to climate change, etc., we believe that businesses can do more in the area of investing in thethe protection, management and restoration of our environment, and STCCI will continue to encourage environmental stewardship in the business community.


Figure 4


4IMPACT OF THE DEPRECIATION OF THE GHANA CEDI

The persistent depreciation of the Ghana Cedi against the major currencies like the US Dollar, British Pound and the Euro has been a source of concern to most businesses. Businesses, directly or indirectly, have been affected negatively by the depreciation.

DiDirectly, companies have suffered exchange losses, higher replacement costs for imported goods, high cost of production and selling prices of imported finished and consumer goods etc. Indirectly, companies have suffered from reduction of sales as higher costs of other products have reduced the purchasing power of their clients. The figure above illustrates the impact the depreciation of the Cedi against the major international currencies had on businesses in the fourth quarter of 2019.

AsAsked about how their businesses were affected by the depreciation of the Cedi, 41% out of 244 respondents said their respective businesses were negatively affected due to the high cost of production and increases in the price of their inputs. 51% of the respondents reported no impact.

InIn contrast to what the majority reported, 8% of the respondents stated that the depreciation of the Cedi had a positive impact on their businesses. View the fact that most were exporters who received more Cedis for their export proceeds, this does not come as a surprise. We re-iterate our call to the Ghana Exim Bank to engage the business community more, especially the SMEs, to expose them to the opportunities within the export market and the kind of support they can offer to the businesses.

Figure 5

4IMPACT OF GOVERNMENT POLICIES ON BUSINESSES

TheThe national budget is the main vehicle through which government communicates its plans, policies and programmes to the nation and stakeholders, especially the business community. The government in its 2020 budget, presented on November 13, 2019, declared 2020 as the year of roads. The expectation of many is therefore that the government will increase the level of spending in 2020. It must be noted though that the government has stated in no uncertain terms that they will remain in the 5% deficit cap imposed byby the Fiscal Responsibility Act 982. Government is projecting a fiscal deficit of 4.7 for 2020. Businesses are expecting the increased expenditure to filter through to positively affect their bottom line.

This figure illustrates the impact businesses are expecting from government policies and programs (budget) on businesses in 2020. It could be observed that 55% of responses were positive about the effect of government policies and programs on their businesses. Because of the elections in December, they expect increased government expenditure, as it has been a tradition for successive governments. Government is also expected to pay down its debt to contractors, suppliers, especially to the NHIS, and other workers who are owed salariessalaries or allowances over the years. All these will lead to an increase in disposable incomes of Ghanaians, i.e. it will lead to higher purchasing power, which will translate into increased demand, and therefore higher sales and by implication higher profitability of businesses.

Some 40% of the respondents were indifferent about the impact of government policies and programs on their businesses. They claimed that they do not trust the effectiveness of government programs, thus they are not expecting much. To them, the government reads the budget every year and nothing happens.

As indicated in the chart, 6% of the respondents were pessimistic about government policies and programs. They do not think that the government will do enough to drastically change the course of their businesses.

Figure 6


4ASSESSMENT OF THE CURRENT BUSINESS SITUATION

With the issues that the respondents have articulated with regards to the first six questions, this question gives respondents the opportunity to assess the overall condition of their businesses. The chart above thus illustrates how businesses within the Western Region of Ghana feel about the current situation of their business.

MoMore than two-thirds of the respondents indicated that they were satisfied with the current state of their business. This proportion of the respondents believes their respective businesses are doing okay. Though they would have wished they did better, most of them indicated that they did not have much to complain about.

5454 respondents, representing 22% of businesses, reported a good business condition. For these businesses higher than expected sales and profits account for this. Unlike the majority, though some 9% of respondents described their business condition in the 4th quarter as bad. According to them, price spikes, low sales, higher competition, high cost of production and labour, had a toll on their businesses.

Figure 7


4EXPECTATIONS FOR THE NEXT QUARTER

TheThe figure above illustrates the expectations for the business situation during the next quarter. It seems the Ghanaian is an overly optimist person: From the seemingly gloomy picture that respondents paint about government policies, competition, etc, businesses are still bullish about the future. It must be noted that we find this very positive. It is the expectation of a brighter future that motivates the private sector to venture into various businesses. Thus, as long as businesses in the Western Region believe the future is bright, they will incincrease investment, which will affect employment positively and ultimately foster the economic development of the region.

Asked about their expectations as far as their business situation is concerned for the first quarter of 2020, the majority of respondents, representing 86%, reported that they expect a better situation than their current condition. Some of the reasons they adduced included their resolve to be more strategic in their planning and execution of their business plans. They expect this to improve efficiency and ultimately the bottom line.

12%12% of respondents were indifferent about their expectations in the upcoming quarter. The respondents had more of a ‘wait and see’ approach. There were however a few respondents, representing 2% of 244 businesses surveyed, who said they expect to face worse business conditions. Though not very significant this is important to point out, as these companies do not see the increasing challenges in the business environment going away soon.


Figure 8

4RECOMMENDATIONS

We present below some recommendations for government, financial institutions, especially the Ghana Exim Bank, and businesses operating in the Western Region and Ghana as a whole.

WWe call on central government to focus on expanding the implementation of business-friendly policies and programs to reduce the challenges of doing business in Ghana. One of the key challenges to businesses lays in the area of taxation. Some of the areas businesses are seeking government intervention include tax holidays for startups and tax breaks for some SMEs. This should be done deliberately as it will contribute to the government’s effort to achieve the UN Sustainable Development Goals, specifically Goal 8, which speaks to emplemployment, decent work and sustained inclusive and sustainable economic growth.

We cannot emphasize enough the need for effective support of businesses by financial institutions. As these institutions have indicated that they are struggling to raise deposits to enable them lend, the government should honour its pledge to pay outstanding remuneration to contractors and others who have rendered services so that they can also pay their obligations to the financial institutions. This will improve the liquidity and make it easier for the banks and microfinance institutions to support businesses with the funds they need to operate and inneed to operate and invest.

The continuous depreciation of the Cedi can in part be mitigated by increasing export and reducing import. The recent push for the consumption of local rice, which will lead to a reduction of our rice import bill, while improving the revenues of the farmers, is a practical example of how individuals and businesses can contribute to the stabilization of the currency. We call on Ghana Exim Bank to expose its products and services to businesses within the region that may want to go into export or that consider import substitution.

BusinessesBusinesses seeking support from financial institutions and/or partnerships should take record keeping and the preparation of their financials very seriously. Without this, it will be very difficult for the institutions to assess the viability of the businesses and the risks and mitigants associated with offering such support. As long as this is not done, the businesses are themselves to be partially blamed for their inability to access effective support.


4CONCLUSION

20192019 has been an exciting year for the Sekondi-Takoradi Chamber of Commerce and Industry, especially for the research department which has been undertaking these quarterly surveys. We are thankful for the feedback we have received from our stakeholders who consider our report helpful. We wish to assure them of our commitment to these surveys and report and assure all that we will continue to do more in 2020.

SSTCCI is dedicated through its events and advocacy programs to work with the local government authorities, policymakers and interested stakeholders to address the issues we continue to uncover in our research. We trust that we will be able secure more support from international bodies such as the International Finance Corporation (IFC) a subsidiary of the World Bank that supported us to train businesses in topics that will help them resolve their challenges.

SSTCCI will be rolling out new services in 2020 that will in part help businesses to overcome some of their challenges. We trust that our stakeholders will also do their part so that together we can contribute to the growth of businesses in the Western Region and beyond. Some of the services envisaged include business advisory, training and an e-commerce platform. Indeed we are excited about the prospects of the future.

As alwAs always, we cannot draw down the curtain on this report without expressing our gratitude to all the businesses that participated in the survey for their kind cooperation. We also thank STCCI partners HKH (Hamburg Chamber of Commerce), Sequa, and the German Ministry of Economic Cooperation and Development for their continuous support.


CONTACT US+233 50 167 8140

27 St Francis Street,Anajiwww.sekonditakoradichamber.org

[email protected]

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