The President of the National House of Chiefs, Togbe Afede XIV, is blaming the collapse of indigenous companies on Ghana’s interest rates which have over the years, remained very high.
According to him, the high rates prevent Ghanaian companies from borrowing from the banks, which means they are not able to invest in their business and make profit.
The Monetary Policy Committee of the Bank of Ghana earlier this year reduced the Monetary Policy rate, which is the rate at which the Central Bank lends to commercial banks by 1.5 percent; from 16 to 14.5 percent.
Although some banks reduced interest rates on loans given to businesses or deferred interest payments due to the economic impact of the COVID-19 pandemic, the rate still remains a problem.
Togbe Afede XIV, speaking on Citi TV’s Point of View, said “I’ve never met anybody who disputed the fact that our interest rates have been too high. If you adjust the yields in our money markets for depreciation, the real return is still very high. Why are we doing this to ourselves? And we expect businesses to mobilize money and industrialize this country? We expect people to borrow money and risk in agriculture? It just would not happen.”
“We want to industrialize, talking about one, district, one factory, where would people get the desired capital from? Businessmen don’t come with a lot of money in their pockets that they invest. It’s a little bit of equity and a little bit of debt that goes to fund a company, but the interest rates that we have in this country make it almost impossible to do business profitably. That is why you look around and companies are collapsing. It’s hard to find Ghanaian companies that are 50 years old. But the foreign owned companies are able to borrow from abroad,” he added.
Ghana’s Monetary Policy Rate
Over the years, various businesses have complained and called on government to reduce interest rates on loans as they end up troubling them more. Majority of them are unable to pay back the loans due to the high interest rate.
Although it has currently seen a slight reduction, businesses want it further reduced as they are positive that will be more beneficial to their businesses.
The monetary policy determines the interest rate payable for borrowing.
The Bank of Ghana cut its base lending rate by 1.5 percentage points to 14.5 percent in March 2020. This was the first drop in 14 months.
It said the move was to stimulate spending in the Ghanaian economy and increase money supply.
The Monetary Policy Committee (MPC) of the Bank of Ghana maintained the policy rate at 14.5 percent in September 2020 citing an improved outlook to growth and inflation.
The central bank also attributed the verdict to disruptions in the economy triggered largely by the COVID-19 pandemic.
In the last five years, the rate has stood at 16 percent in 2019, 17 percent in 2018, 20 percent in 2017, 25.5 percent in 2016 and 26 percent in 2015.