High lending rates drive investments away

GHANA should introduce measures that will help halve the cost of borrowing or risk losing investments in agriculture and agroprocessing to neighbouring countries, the Team Leader of the West Africa Food Markets (WAFM) Programme, Dr Terry Lacey, has observed.

Unlike Ghana where lending rates hover around 22 per cent, interest rates in Nigeria, Burkina Faso and Niger average some nine per cent, making cost of funds in Ghana twice the amount in its three neighbours, he told the GRAPHIC BUSINESS in an interview.

This is because those countries “have much better banking systems,” Dr Lacey told the paper on the sidelines of a forum dubbed: ‘Regional Lessons Learnt’ organised by the WAFM in Accra.

He explained that Ghana’s situation undermined the potential of business growth, especially small and medium enterprises (SMEs) and investments in agriculture.

He said although the country had enormous potential in agribusiness, the financial environment had blocked the natural energies of farmers and entrepreneurs, thereby limiting growth. 

Should Ghana succeed in halving the cost of funds, he said, the country “will have an explosion in agricultural production, manufacturing and production.”

Giving Burkina money to Ghana
Using the WAFM programme to buttress his point, Dr Lacey said the cost of money in Ghana had weakened the potential of the programme, making it difficult for his outfit to invest more in factories to help increase food production for domestic and export markets.

“Unfortunately, the cost of money as of now is the major barrier to developing the thing (WAFM programme) further because it has the highest cost of money among all the countries.

“If we go from Ghana, where my cost is 22 per cent to fund a factory, across the line into Burkina Faso, we are going to get the same money for nine per cent.

And we have actually been using Burkina money to pull sales out of Ghana into Burkina Faso instead of using Ghana money to push sales out of Ghana into Burkina Faso and that is because the cost of money is high.

— Dr. Terry Lacey

Quicker solutions
Dr Lacey said his outfit had since tabled the concern before the Bank of Ghana (BoG) and a commitment received to help introduce reforms that would address the bottlenecks for rates to fall.

Although the central bank had put an official in charge of the concern, signifying its commitment, he said the WAFM programme and other stakeholders would like to see solutions quickly.

With oil production halving the contribution of agriculture to gross domestic product (GDP) from 32 per cent to 16 per cent, he said the country needed to prioritise the financial hurdle to face the agricultural sector to help lift growth in the sector and boost job creation.

Beneficiary firms
Dr Lacey said the WAFM had benefited over 560,000 small holder farmers, more than four times its original target.

It has also raised more than £16 million alongside a UK grant of £7 million to support improved food production, promoting economic integration and regional food trade in ECOWAS.

“This has helped to bring together Anglophone and Francophone West African countries to combat food insecurity which has affected more than 10 million people,” he said.

He said 12 firms in the four countries benefited from the programme.

In Ghana, three companies benefited and they are Premium Foods in Kumasi (which diversified from maize to include cassava processing along with a major new processing plant), Amya Agro Plus, which is processing cassava starch mostly to export to Burkina Faso and Kedan Limited, a maize trader that was supported to diversify into commercial maize processing.

About WAFM
WAFM is a UKaid/Department For International Development (DFID)-funded project aimed at addressing regional food insecurity in the Economic Community of West Africa States (ECOWAS) and enhancing staple food trade along the Ghana-Burkina Faso and Nigeria-Niger corridors.

It was an enterprise-driven programme where private sector firms were supported to reach farmers, consumers, youth and women, creating and consolidating jobs and improving nutrition, incomes, prosperity and stability.

The programme was managed by the Palladium group and implemented in Ghana, Nigeria, Niger and Burkina Faso.

The forum in Accra was to provide stakeholders an avenue to share their experiences on the five-year programme which ended this year.

It brought together more than 60 partners and stakeholders, including UKaid/DFID and 12 agribusiness firms from Burkina Faso, Ghana, Nigeria and Niger as well as Cross Border Trade promotional groups.

@Terry Lacey

Republished with permission from 

https://dfn.finance.blog/2019/10/27/high-lending-rates-drive-investments-away/