Benchmark values pit manufacturers against importers

Domestic manufacturers are seeking solutions to the fallouts of the benchmark policy that they said was pushing them out of business after making imports cheaper.

The Association of Ghana Industries (AGI) told the Economic Management Team (EMT) at a meeting between them and the Ghana Union of Traders Association (GUTA) last week that the reduction in the benchmark values by up to 50 per cent in April 2019 had cheapened imports and dampened demand for local substitutes, resulting in a slowdown in growth in the manufacturing companies.

In a plea that had since been rejected forcefully by the umbrella body of the trading community, the advocacy body for manufacturers said the policy on benchmark value reduction must be reviewed downwards to safeguard manufacturing jobs and protect the fortunes of the sector from deteriorating further.

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Knock-on effect

The Chief Executive Officer of the AGI, Mr Seth Twum-Akwaboah, told the Graphic Business on May 14, that domestic processors of rice and edible oil were the worst hit, with big names such as the Avnash Industries Ghana Limited and the Wilmar Africa Limited shrinking operations and laying off workers, following the introduction of the policy two years ago.

He said following the drop in demand for their products, the local manufacturers have been forced to reduce their demand for raw materials from local farmers “and that is having a supply chain effect.”

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According to Mr Twum-Akwaboah, manufacturers that were worst hit had started contemplating of also importing finished products in place of domestic processing.

“In effect, what the policy does is that it makes the imports less costly and importing more profitable and we are saying that it does not encourage local manufacturing. Again, we think that it defeats the government’s own policy on industrialisation which is to encourage domestic manufacturing through the One-District, One-Factory (1D1F) initiative.”

“Because of that, we think that after two years of implementing it, we need to look at it again and review the wholesale reduction in the values,” the AGI CEO said in the interview.


GUTA’s position

In a separate interview on May 14, the President of the GUTA, Dr Joseph Obeng, said the AGI was being selfish with its demands by ignoring the benefits that the policy had brought to consumers.

According to Dr Obeng, the benchmark policy had served as a price stabiliser, as well as brought sanity into the import valuation system in the country.

Consequently, he said, "Any attempt to reverse this good policy of the government on the benchmark value will not only bring untold hardship but will also cause confusion in the country, especially among members of the private sector,” he said.

While calling out the AGI for “seriously lobbying the government to cancel the 50 per cent reduction of the benchmark value, the GUTA president said it would be callous for any group to call for the reversal of the policy which had helped in resuscitating businesses in no small measure.


Economic impact

An economics expert, Dr Said Boakye, said the reduction in the benchmark values was "contradictory" to the government's policy on industry.

He said by reducing the values by up to 50 per cent and keeping corporate taxes and levies on raw materials for local manufacturers, the government was "out-competing domestically produced goods."

"I have no problem with any policy that reduces taxes on goods but when you reduce for imports, then you have to reduce in equal measure for domestic manufacturing firms," Dr Boakye, who is the Head of Research at fiscal policy institute, the Institute for Fiscal Studies (IFS), said.

"To the extent that there is no commensurate reduction in taxes for locally manufactured goods, then the reduction in benchmark values is contradictory to the government's policy on industrialisation," he said.

He noted that domestic manufacturing firms had been at the mercy of their foreign counterparts for long through policies that undermined their capacity.

With the Africa Continental Free Trade Area (AfCFTA) in motion, Dr Boakye said the country needed to do more to make its domestic manufacturers competitive or risk becoming an importer under the free trade agreement.