Economy faces tough future - Databank

The combined effect of a smooth transition of political power and the advent of a new government is certain to bring renewed optimism critical to Ghana's economic development, but existing structural weaknesses is sure to slow down growth significantly.

"The year is therefore going to be very challenging, especially for the new government, and economic turn around will not take place at least for the next two years," Databank Stockbrokers told the Ghana News Agency in Accra.

Mr Daniel Ogbarmey Tetteh an economist and Vice President of Databank Research said this when giving an economic outlook for the country this year and some steps the government of Mr John Agyekum Kufuor should take to bring renewed hope and confidence into the Ghanaian economy.

He said the effect of terms of trade shock suffered last year when the prices of Ghana's exports plummeted while her imports, especially crude oil, sky rocketed still exists "and this is what will slow the economy down heavily this year."

Mr Tetteh said depreciation of the cedi might be far slower than it was last year in view of the measures taken by the Bank of Ghana to control money supply.

The cedi depreciated by 49 per cent for most of last year until the last quarter when it went down by five per cent.

He said the speculation, panic withdrawals by depositors and the changing of cedis into dollar accounts in the period prior to the general elections will no longer apply due to the confidence that the new government is coming up with fresh ideas to revamp the economy.

"The cedi will thus get stronger and gain a better standing among other currencies. By this, more companies can borrow from the banks and have value for their operations".

Mr Tetteh urged government not to increase taxes, "but rather tighten the tax system and widen its coverage. All the loopholes must be plugged and made impossible for people to dodge.

The VAT for instance, must be widened and more people made to pay." "The outcome of this will not just come. It depends on the government's commitment to sustain its pledge, Mr Tetteh said.

He called for a value-added regime of non-traditional exports in order to make them more attractive and competitive on the international market.

Mr Tetteh was particular about the mode of government negotiations with her development partners and said there is no need to accept loans and other funds when they (government) know the targets for which the monies are given cannot be achieved.

"Our governments must be realistic with the kind of proposals they present to the donor community in order not to put the economy on the wrong footing," Mr Tetteh said.

"Ghana abounds in the right calibre of personnel to come up with the right proposals that will bring economic prosperity and this must be harnessed for the benefit of all."

He asked government to move very vigorously into agriculture and ensure that " agro-processing takes the lead in our agricultural pursuits.

For far too long we have stuck to producing primary products. But now we need to add high value to our products."

"The government also needs to look critically at promoting agro-processing industries to reduce, if not eliminate the high incidence of post harvest losses," Mr Tetteh added.

He urged government to maintain the 20 per cent tax on imports "because it is very relevant. We need it to support the capacity of local industries and discourage the importation of items that we do not actually need."

Mr Tetteh said "if anything at all, some items on the list must be looked at again and not a complete repeal of the law.

A wholesale repeal is definitely not in our interest." On the prospects for the Ghana Stock Exchange, Mr Tetteh said the average performance of the local bourse was a reflection of the Ghanaian economy last year.

"Last year, two things affected the market. The steep depreciation of the cedi, which kept away foreign investors and the anxiety on the political scene."

He said the peaceful change of government and the cedi's ability to gain strength over the period should help improve the confidence of investors on the market.

Mr Tetteh noted that companies, who were able to export their products last year and made gains, would make further gains this year.

But said those who rely on imported inputs - the breweries, Unilever, Mechanical Lloyd and Fan Milk - would have things quite tough. Banking and other financial stocks however, did well and are expected to sustain their gains.

Some of these companies, he indicated, may use this year to recover. "We (Databank) expect that things would improve marginally on the Exchange in view of the predicted stable cedi this year and lowering of the interest rates and the mood of the market which is positive".

"When these things happen, investors will then come in and drive the market Mr Tetteh said." He mentioned Enterprise Insurance Company, Aluworks Ghana Limited, financial and banking Stocks, and companies that are into exports as the stocks to watch this year.

He said divestitures should be done through the local Exchange, adding that the Mutual Funds Law must be passed quickly to enable more Ghanaians to take part in the process.