High cost of credit collapsing businesses

Business News of Sunday, 7 April 2013

Source: Daily Guide


The foremost challenge militating against business establishments in Ghana has been found to be high cost of credit, a report has stated.

The Association of Ghana Industries (AGI)’s Business Barometer Report for the fourth quarter of 2012, which revealed this, said the high cost of credit moved from the fourth position on the list of challenges for 2012 third quarter to the first position in the last quarter of 2012.

According to the survey, the current stiff requirements demanded from private businesses by commercial banks in Ghana had created low access to credit by the private sector. A lot of SMEs have turned to non-banking financial institutions for credit at cut-throat interest rates.

Coming on the heels of the foremost challenge was the issue of erratic power supply. It is no gainsaying to state that the situation took a huge toll on the operations of businesses, particularly SMEs.

The unreliable power supply displaced the depreciation of the Ghana cedi, which dropped from the second position in the third quarter of 2012, to the 6th position in the latest survey. Other challenges on the list included the high cost of raw materials, the cost of credit, high rate of taxation, competition from imported goods, low purchasing power, delayed payment and high utility prices.

The report further indicated that the total result of the challenges led to a rise in the cost of production of goods and services. Nonetheless, about 67 percent of CEOs interviewed in the last quarter of 2012 expected their businesses to improve this year.

The AGI therefore suggested to government to try and offer some tax incentives to commercial banks so as to mitigate soften their stance on high interest charges. It is believed that if this is done commercial banks could offer a greater percentage of their credit portfolio to private businesses at affordable rates.

Of the over 1,200 registered members of the AGI, close to 20 percent of members are medium and large-scale industries while the rest constitute micro and small-scale enterprises.