Low investment in Ghana due to high lending rates – Investment Banker

You Are Here: Home » Investment, Lead Story » Low investment in Ghana due to high lending rates – Investment Banker

Dr. Sam Mensah

A renowned investment banking consultant and financial economist, Dr Sam Mensah has indicated that low investment in the country’s economy is due to high interest rates offered by banks to borrowers.

According to Dr Mensah, who is also the Chief Executive Officer of SEM Group Limited, an investment advisory firm, the average lending rates of banks in Ghana have been in the region of about 27% which makes it difficult for businesses to invest in the economy.

“If businesses are going to invest, they need to invest in a project that has a rate of higher returns to enable them pay back the loan and make profit,” said Dr Mensah at a World Bank organised meeting in Accra this week.

“If your average lending rate is 27%, then the project has to generate at least 27% of profit just to pay the bank without you paying yourself,” he emphasized.

According to him, economies grow by the number of investments they receive for the various sectors but if there are low investments, the economy finds it difficult to rise.

“We know that the economy grows by investments,” he added.

So for that reason, investment rates in Ghana are quiet low because there are too many projects that will need to generate 27% of profits to pay back loans and leave something small for an entrepreneur, he said.

He said in most efficient banking systems, the interest rate spread is very narrow, citing Canada as one of the countries where the spread between borrowing and lending is about 2% to 3%.

“But in Ghana, in the few months, the spread has been about 18%…if you compare that to the average rate in the sub-Saharan Africa which is about 12% with Kenya having 8.8%, Tanzania 7% and Nigeria 5%, by all standards Ghana’s interest rate spread is extremely high”, he reiterated.

Professor Cletus Dordonu, speaking at the same function indicated that interest rate spreads should be legislated to force banks to offer low interest rates to borrowers as it was done in Nigeria and China.

But former Minister of State at the Finance Ministry, Dr. Akoto-Osei raised a caution by saying “Ghana is not Nigeria or China and so if it worked in both countries, it does not mean it will work here.”

The deputy Head of the Financial Stability Department at the Bank of Ghana, Mr. Settor Amediku revealed that the bank has met over this issue at the last Monetary Policy Committee meeting but no conclusion has been drawn yet.

Investment in the country for the first quarter of 2011  recorded 109 businesses with an estimated value of $378.44 million, the Ghana Investment Promotion Centre (GIPC) figures show.

Investments into Ghana as at 2010 reached over $1.5 billion with 3,597 registered projects.

By Ekow Quandzie

| | Tweet This! |

Comments