By Kofi Ahovi
The governing council of the Private Enterprise Foundation (PEF) has called on the government to provide special funding for Small and Medium Enterprises (SMEs) to enable them have unlimited access to loans.
According to a document presented to the government at the first biannual dialogue meeting between the government and PEF last week, PEF argued that lending rates are still too high citing a recent publication by the Association of Ghana Industries (AGI) which stated that high lending rates was the number one constraint to doing business in the country. “The situation has limited the ability of the private sector to source funding for working capital or invest in expansion and retooling of plants and machinery so as to be competitive in the market place,” PEF observed.
PEF attributed the high cost of funds to the large number of banks chasing a few large depositors in the country. “Competition for talent and facilities has also led to high operational expenses in the banking industry,” it added.
For several years, lending rates in the country have been high ranging from a high of 48% in 1996, 35.5% in 2002 and currently are still about 30%. However, in other African countries, interest rates are relatively low and in many instances are below 10%.
The commercial banks in the country have defended their high rates saying they borrow from depositors which set their rates three or four percentage points above Treasury bill rates, and thus have to factor this into their lending rates.
The banks have also noted that SMEs in the country have high risk factors considering their limited cash flows, and number of years they have been in business, peer management structure etc which contribute to high cost of the credit.
The umbrella body of private businesses in the country was of the view that other African countries like Nigeria are providing special funding to their SMEs which have had great impact on their entire economies and, therefore Ghana can do same.
According to PEF, government should make it a priority to settle its arrears with contractors on time since the delay has adverse effects on contractors, their suppliers and the banking industry, adding that this also affects the credibility of government as many banks are becoming reluctant to pre-finance government awarded contracts
PEF also recommended that government should encourage mandatory membership of business associations by enterprises in the country, adding “This would ensure that all businesses in the country are known by their peers and thus no business can escape the tax net.
The foundation further recommended that the public sector should also consult the private sector business associations especially with respect to tax issues “The council would like to see a more effective consultation where both parties can sit and debate on various tax proposals before incorporation into the budget,” the document stated.
On the pricing and service delivery of utility services, PEF suggested that the private sector should be allowed to participate in the production and distribution of utility services through public private partnerships. The foundation explained that the move would lead ultimately to a reduction in prices for the average consumer and to much better service delivery.
In his response, the Vice President of Ghana, John Mahama pointed out government’s concerns on high interest rates saying government has had several engagements with the Ghana Association of Bankers (GAB) and the central bank at which they raised issues regarding their lack of confidence about the current stability given the country’s past experience especially in election years and wondered how long the stability would last. “The onus is on government to show that it is committed to macroeconomic stability,” he stated.
He also mentioned that government would appreciate it if the banks fix their base rate based on their best customer, “this would allow for some flexibility when dealing with customers as not all of them will be borrowing at the same time.”
On the payment of arrears, the Vice President noted that government is working with the World Bank to come out with a strategy on clearing the arrears owed contractors from 2006 to 2011. “However, with large projects, government is looking at re-evaluating the work done on those projects and finding a way to repackage work yet to be done and offer them as new projects; this will enable government to apply for a facility from the World Bank to complete the projects,” Mahama stated.
The inaugural meeting between the two sides was held on October 2010 and the next meeting is scheduled for the six months time. The private sector was represented by Asare Akuffo, President of PEF, Dr Osei Boeh-Ocansey, Director-General PEF and other senior members of PEF.
The governing council of the Private Enterprise Foundation (PEF) has called on the government to provide special funding for Small and Medium Enterprises (SMEs) to enable them have unlimited access to loans.
According to a document presented to the government at the first biannual dialogue meeting between the government and PEF last week, PEF argued that lending rates are still too high citing a recent publication by the Association of Ghana Industries (AGI) which stated that high lending rates was the number one constraint to doing business in the country. “The situation has limited the ability of the private sector to source funding for working capital or invest in expansion and retooling of plants and machinery so as to be competitive in the market place,” PEF observed.
PEF attributed the high cost of funds to the large number of banks chasing a few large depositors in the country. “Competition for talent and facilities has also led to high operational expenses in the banking industry,” it added.
For several years, lending rates in the country have been high ranging from a high of 48% in 1996, 35.5% in 2002 and currently are still about 30%. However, in other African countries, interest rates are relatively low and in many instances are below 10%.
The commercial banks in the country have defended their high rates saying they borrow from depositors which set their rates three or four percentage points above Treasury bill rates, and thus have to factor this into their lending rates.
The banks have also noted that SMEs in the country have high risk factors considering their limited cash flows, and number of years they have been in business, peer management structure etc which contribute to high cost of the credit.
The umbrella body of private businesses in the country was of the view that other African countries like Nigeria are providing special funding to their SMEs which have had great impact on their entire economies and, therefore Ghana can do same.
According to PEF, government should make it a priority to settle its arrears with contractors on time since the delay has adverse effects on contractors, their suppliers and the banking industry, adding that this also affects the credibility of government as many banks are becoming reluctant to pre-finance government awarded contracts
PEF also recommended that government should encourage mandatory membership of business associations by enterprises in the country, adding “This would ensure that all businesses in the country are known by their peers and thus no business can escape the tax net.
The foundation further recommended that the public sector should also consult the private sector business associations especially with respect to tax issues “The council would like to see a more effective consultation where both parties can sit and debate on various tax proposals before incorporation into the budget,” the document stated.
On the pricing and service delivery of utility services, PEF suggested that the private sector should be allowed to participate in the production and distribution of utility services through public private partnerships. The foundation explained that the move would lead ultimately to a reduction in prices for the average consumer and to much better service delivery.
In his response, the Vice President of Ghana, John Mahama pointed out government’s concerns on high interest rates saying government has had several engagements with the Ghana Association of Bankers (GAB) and the central bank at which they raised issues regarding their lack of confidence about the current stability given the country’s past experience especially in election years and wondered how long the stability would last. “The onus is on government to show that it is committed to macroeconomic stability,” he stated.
He also mentioned that government would appreciate it if the banks fix their base rate based on their best customer, “this would allow for some flexibility when dealing with customers as not all of them will be borrowing at the same time.”
On the payment of arrears, the Vice President noted that government is working with the World Bank to come out with a strategy on clearing the arrears owed contractors from 2006 to 2011. “However, with large projects, government is looking at re-evaluating the work done on those projects and finding a way to repackage work yet to be done and offer them as new projects; this will enable government to apply for a facility from the World Bank to complete the projects,” Mahama stated.
The inaugural meeting between the two sides was held on October 2010 and the next meeting is scheduled for the six months time. The private sector was represented by Asare Akuffo, President of PEF, Dr Osei Boeh-Ocansey, Director-General PEF and other senior members of PEF.
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