Ghana’s President Nana Akufo-Addo is seen during the opening day of the International Labour Organization’s annual labour conference in Geneva, Switzerland June 10, 2019. REUTERS/Denis Balibouse Ghana’s government launched the ‘One District One Factory’ (1D1F) policy in 2017 to spur industrial development, but many of the country’s banks are not ready to deliver the dream of a modern industrialised economy.
The banking sector stumbled into a crisis in 2017 and 2018 due to a combination of economic challenges and poor management. In January, the central bank completed a restructuring of the financial sector that raised capital requirements and cut the number of banks to 23.
Ghana’s strongest banks are lending to companies setting up factories, but there remains a big financing gap.
The 1D1F programme aims to establish at least one factory or industrial business in each of the country’s 216 districts by 2021. Trade and industry minister Alan Kyerematen said in May that 57 factories had been set up since the 1D1F launch and are now operational. Private companies are developing the projects, which the government is supporting through tax breaks and other incentives.
Prince Moses Ofori-Atta, communications adviser at Ghana’s ministry of finance, argues that the banking sector has the potential to steer growth in the industrial sector if banks are prudent. The government, he says, has made “significant strides in ensuring that Ghanaian banks are in a strong position” to provide long-term finance. The central bank spent about $2.3bn on bond issuances as part of the financial sector restructuring.
Ghanaian economist Emmanuel Anyidoho says the problems are too deep-rooted to be solved quickly. He points to banks’ reliance on financing the government rather than the real economy. There has been a prolonged period of budget deficits and deficit financing, underpinned by treasury bill issuance by the Bank of Ghana. The bills have high interest rates, currently around 15%. Commercial banks are keen to buy them at that rate, Anyidoho says, meaning that banks are reluctant to lend to the private sector – a classic case of ‘crowding out’.
The government has “provided a disincentive to the banks,” he says.
High default rates on industrial loans are a further obstacle, Anyidoho says. The country’s credit rating agency has a weak “commercial addressing system”, which means it is unable to monitor borrowers adequately. The problems are compounded by government debts to contractors, who are the banks’ largest clients. “The level of […]
