Ghana’s private sector growth has lost the momentum it started the year with, slowing to a 22-month low in July, according to the July 2018 edition of the Stanbic Bank Ghana Purchasing Managers’ Index (PMI).
The report indicates that new orders rose at a much weaker pace and the rate of expansion in output was only marginal.
“The Ghanaian private sector experienced a loss of growth momentum during July as new orders rose at a weaker pace and the rate of expansion in output was only marginal. Companies continued to raise staffing levels and purchasing activity at solid rates, however. There were signs of building cost pressures, often as a result of currency weakness, but output prices increased only modestly amid attempts to attract new clients”, the report said.
The July Stanbic Bank PMI, however, linked the slowdown in the pace of growth to the completion of projects started at the beginning of the year and a general lack of money in the Ghanaian economy.
According to the report, “the rate of growth in business activity continued its sharp slowdown since May, with output up only marginally in July. The latest expansion was the weakest in the current 22-month sequence of growth. Anecdotal evidence linked the slowdown to projects reaching completion and a lack of money in the economy. Where output increased, panellists reported stronger inflows of new business”.
The PMI also reported a general rise in purchase costs due largely to the depreciation of the Ghana cedi against the US dollar and a rise in staff costs. “Weakness of the Ghanaian cedi against the US dollar contributed to a rise in purchase costs, and one that was the most marked since February. Staff costs also rose, albeit to a much lesser extent than purchase prices. Companies raised output prices in response to increased input costs, but efforts to attract customers meant that the rate of charge inflation was only modest”, the report said.
Speaking on the survey findings, Phumelele Mbiyo, Head of Africa Research at Standard Bank said:
“The private sector still showed growth for the 30th consecutive month. Nonetheless, the decline in the PMI in July signifies a loss of momentum in growth of the private sector. The pace of growth in output, staff costs, output prices and new orders decelerated in the month. Even though new orders and output have been decelerating since May, purchase costs and overall input prices have accelerated in that time”.
He continued that “the increase in input costs may be due in part to the depreciation of the Ghanaian Cedi in May and June. Yet, with competition for customers strong, these input pricing pressures have not resulted in generalized inflation pressures.”
Slow growth could end year
Economist and Adjunct Lecturer in Public Accounting of the Executive Master in Public Administration Programme at the Ghana Institute of Management and Public Administration (GIMPA), Dr Raziel Obeng-Okon said there were several indicators to suggest that growth in the private sector could continue to slow down to the last quarter of 2018.
“There are several sectors undergoing challenges which tend to shrink productivity. These include the financial services sector, mining, oil and gas among others,” he indicated.
Chaos in banking sector to impact productivity
For the financial services sector, Dr Obeng-Okon noted that Non-Performing Loans (NPLs) coupled with the current wave of banks collapse and the fear of the unknown for the remaining local banks could continue to impact negatively on productivity.
According to the Bank of Ghana quarterly bulletin, the NPLs ratio was 17.3 per cent at the end of 2016 but it increased to 21.6 per cent and 22.6 per cent at the end of December 2017 and June 2018 respectively.
“NPLs have rippling effects on private sector growth because it pushes the banks to shrink credit to the private sector and thereby reduce productivity. Total credit to the private sector increased by 18.3 per cent to GH¢35.6 billion in 2016 but the growth in credit reduced to 5.9 per cent (GH¢37.7 billion) by the end of 2017. Indeed real private sector credit growth has been negative from February to June 2018. Credit to the private sector may continue to slow down further with the collapse of local banks as most of the banks are now rather safeguarding liquidity as opposed to granting more loans,” he said.
Galamsey affects mining output
On the mining front, the issue of galamsey which rocked the economy since last year has continud to impact negatively on mining output, Dr Obeng-Okon stated.
Petroleum upstream players reeling under hostile environment
The oil and gas sector is also fraught with challenges of huge default in loan repayments to the banks and poor margins due to the numerous taxes imposed on petroleum products.
Structural reforms will be costly
As the government and regulators strive to streamline the operations of the sectors aforementioned, it may come with a huge financial and social cost including loss of productivity especially from the private sector.