Phones Lie Unsold on Ghana Store Shelf as Rates Choke Business

Isaac Kagya sits behind the glass counter of his mobile-phone store in central Accra. With few customers, he worries...

Isaac Kagya sits behind the glass counter of his mobile-phone store in central Accra. With few customers, he worries about where he will get the money to pay the next installment on a loan taken out in December to keep his business afloat.

A 38 percent plunge in Ghana’s currency against the dollar since the end of 2013 has increased the cost of phones, covers, headphones and other accessories, discouraging shoppers as Kagya struggles to raise cash to cover his debt. The odds against him have worsened after the central bank kept interest rates at the highest levels since 2003, the government raised utility prices by at least half and a new tax on gasoline imposed in January helped push up the cost of fuel up by more than 5 percent.

“If the interest rate on my loan could go down, I would reduce prices so that more people can buy,” said Kagya, a 42-year-old father of three. “The price of everything has gone up, so people are not able to buy.”

Sales are down as much as 90 percent at his shop from 2013, when he would take up to 4,000 cedis ($1,000) in a day. The Ghanaian currency gained 0.8 percent to 3.83 per dollar as of 7:09 a.m. in Accra.

Bank of Ghana Governor Kofi Wampah has increased the key benchmark lending rate by 4 percentage points since July to stem losses in the cedi and combat inflation that soared to a record 19 percent in January. That’s not helping the economy in the nation of 26 million. Growth in the world’s second-largest cocoa producer, an oil supplier since 2010, is languishing near the slowest pace in 20 years, with the government expecting expansion of 4.1 percent for 2015. Almost a quarter of the population live below the government’s poverty line, with income of $340 a year or less.

“We expect the central bank to increase interest rates by 100 basis points in the first half of the year,” Cobus de Hart, a senior economist at NKC Independent Economists in South Africa, said by phone. It could be 2017 before Ghana sees policy easing, he said.

The impact is being felt worst by small businesses that don’t have the ability to absorb rising funding costs, like Kagya’s phone store, said Leslie Dwight Mensah, an economist at the Accra-based Institute for Fiscal Studies. Ventures with 10 or fewer employees contribute 70 percent of gross domestic product, Mensah said. Companies with sales of less than 10 million cedis ($2.57 million) a year account for 92 percent of all businesses in Ghana and more than four-fifths of manufacturing employment, he said.

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High interest rates are crippling small businesses, said Carine Tsekumah, a researcher at the Association of Ghana Industries, whose 1,200 members are mostly this type of venture. “Some will tell you they have suspended operations, and that is the last time you heard they were in business. Because they are small, most of them are not able to absorb the shock of interest rate increases.”

Ghanaians are paying the price for government overspending that led to budget deficits exceeding 10 percent of GDP for the three years until the West African nation accepted almost $1 billion in emergency loans from the International Monetary Fund in April. The Washington-based lender said in January “a continued tight monetary policy stance” will be needed if the central bank fails to bring inflation under control. That gives Kagya little cause for optimism that his repayment burdens will ease.

“People are not buying and the monthly repayment is drawing near,” Kagya said, pointing to goods that have been on the shelves for almost a year as pedestrians rushed by his store in the busy Ghanaian capital. “I may have to borrow money from our business association and give to the bank. They charge almost double interest compared with the bank, but it’s better because if you default the bank will charge you a penalty.”

To contact the reporter on this story: Moses Mozart Dzawu in Accra at To contact the editors responsible for this story: Robert Brand at, John Viljoen, Rob Brand

By: Moses Mozart Dzawu

©2016 Bloomberg News

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