The Association of Ghana Industries (AGI) says more commitment is required from government to chart a competitive path for industry, to ensure sustainable growth and improve job creation prospects.
Dr. Yaw Adu Gyamfi, President of AGI, said a critical look at the recent mid-year budget review, vis-a-vis the results of AGI Business Barometer for Q2, 2019, brings to attention, the need for Government to prioritize its policy interventions towards accelerating growth within the industrial sector and competitiveness of the industry.
The AGI Business Barometer for Q2 showed that Business confidence appears to be bouncing back from the previous quarter, rising from 99.8 to 103.2 points.
However, high cost of raw materials, electricity and the current tax regime remain major constraints to growth of the local industry.
Dr. Adu Gyamfi said efforts by Government to raise the tax to GDP ratio of about 13 percent to address revenue shortfalls should be geared towards tackling revenue leakages and capturing those outside the usual tax net, especially in the informal sector.
Touching on the straight levy regime introduced in the 2018 midyear review, Dr. Adu Gyamfi said it was still a disincentive to local manufacturing.
“Before the straight levy came into force, Manufacturers recover 17.5 percent input and 17.5 percent output Standard Rate VAT fully.
Under the regime, however, manufacturers can only claim 12.5 percent, leaving 5 percent as cost burden, likely to be passed on to consumers.
He said the 3 percent VAT Flat Rate scheme operators had been exempted from the 5 percent tax burden under the new regime, making manufacturers less competitive.
“It becomes cheaper to import and sell to make profits than to manufacture same commodity locally. This 5 percent tax burden translates into additional cost in millions of cedis to many local manufacturers.
It is unfair to shift this 5 percent tax burden to manufacturers (17.5% standard rate operators) and therefore the AGI is urging the Ministry of Finance to re-consider this negative impact on local manufacturing.
Dr Adu Gyamfi said the wholesale reduction of benchmark values for imports remains problematic as some of these imports to Ghana already enjoy significant export rebates from their countries of origin.
He said the locally manufactured products, including those for which Ghana already has local production capacity and comparative advantage, are under serious threat from imports.
The benchmark reduction policy may attract trade but undermines local manufacturing.
The situation is further worsened if importers of finished goods are not registered and captured under the VAT scheme as is largely the case and end up selling their products in the market without charging front end VAT/NHIL/GETFund.
The influx of cheaper imports will make local production highly uncompetitive and discourage investment in the affected sectors.
He urged government to maintain macro-economic stability in the coming months to further consolidate the gains, especially with the exit from the IMF.
AGI expects that the downward trend recorded for inflation and the current policy rate (16%) reflect in lending rates. It is however worrying that these, do not seem to make much impact on cost of borrowing.
He said the AGI welcomes the recent elimination of maximum demand charges on industry and plans by Government to review power purchase agreements, largely responsible for the capacity charges.
On the African Continental Free Trade Area Agreement, Dr Adu Gyamfi commended government for its efforts leading to the selection of Ghana to host the African Continental Free Trade Area (AfCFTA) secretariat.
“With the AfCFTA agreement coming into force, Industry is calling on Government as a matter of urgency to help develop local production capacity and also scale up implementation of its Industrial Transformation Agenda,” he said.
This will position Ghanaian industries to fully leverage the opportunities of the agreement, otherwise, Ghana runs the risk of being marginalized, he added.