The chairman of Unilever Ghana, Ishmael Yamson, has criticized the government for pursuing an export led economic growth instead of a domestic driven one. According to him the government has clearly shown its preference for an export led economy with provision of facilities for exporters to the neglect of operators in the domestic market.
Mr. Yamson, who was speaking at the 36th annual general meeting of Unilever, raised a number of issues affecting Ghana’s economy and urged government to implement its plans to address the problems without delay.
Mr Yamson did not mince words. Although he conceded that export is essential for the country he said he was worried that the domestic trade is not being given the same focus as the export sector.
He cited the lower profit tax, the free zones and concessionary credits given to exporters, as policies that show government’s bias. He said though these programmes are not bad they exclude those who invest in the domestic market.
Citing the experience of the Far East he proposed that government pursues both domestic and export led strategies with the same intensity.
The Unilever Boss added his voice to the call for a more ambitious growth rate saying the current rate of 4.9 per cent is woefully inadequate to create the catalyst for industrial growth and poverty reduction.
He said the projection for the manufacturing and service sectors are also not enough to transform the economy adding that companies can only grow when the economy grows.
Mr Yamson believes that given the growing social and economic pressures on the government it is imperative that a more aggressive growth strategy be adopted in order to solve the problems dogging the economy.
Below is the full text of Mr Yamson’s address:
ADDRESS BY MR I E YAMSON, CHAIRMAN OF UNILEVER GHANA AT THE 36th ANNUAL GENERAL MEETING ON THURSDAY, 17th APRIL 2003 AT THE NATIONAL THEATRE. ACCRA
Distinguished Shareholders:
I am delighted to be here and once again to welcome all of you to the 36th Annual General Meeting.
2002 was another good year. Unilever Ghana Limited performed strongly. Turnover grew by 23% in an economy which grew by only 4.5% with a yearly average inflation rate of 14.8%. Operating profit grew by only 9% but this should be viewed against a background of the 74% increase in the price of palm oil, which is our major raw material.
Profit After Tax and National Reconstruction Levy but including proceeds from the sale of properties however grew by 64.4%. One significant achievement of last year was that due to the efficiency and professionalism of our treasury department and the impact of the proceeds from the sale of properties, we recorded a net interest gain of 743 million cedis against a change of ?5.5bn in 2001. Finally the business continued to deliver strong cash while our balance sheet remains extremely strong.
I am also sure you are already aware of the attractive dividend proposal and the strong appreciation of your shares, which for 2002 recorded 109% growth against a GSE stock index growth of only 46%.
This is an outstanding performance. Four years ago we promised to deliver consistent, strong top line growth and profits and we have delivered that promise.
We have reported extensively on our operations in the Reports and Accounts that was sent to you so I do not intend to spend time on how we performed in the various Categories. Rather I want to raise some issues of environmental nature which are critical to the medium and long-term sustain ability of our growth and profitability and indeed the very viability of our business. Specifically I shall address the following issues;
- (i) economic growth prospects,
- (ii) the conundrum of domestic vis-?-vis exports driven development focus,
- (iii) the impact of uncustomed goods on local business
- (iv) the cost of doing business in Ghana and
- (v) the need to review with greater sense of urgency some archaic laws which still remain on our statute books but are impediments to private sector growth and development.
Security has improved considerably and is a significant competitive advantage for Ghana in a region, which is torn by strife, war and political instability. Peace and stability are fundamental to economic growth and Government has done very well in restoring to Ghanaians such a peaceful environment.
It is therefore important that we recognise as a country that the political stability we are enjoying should be protected and sustained. The maturity of the Government and the Minority parties should all be commended. We all know that it is when the collective leadership fails that adventurists threaten our peace and stability. So congratulations Government and Minority parties.
Second, industry further appreciates all the efforts being made by Government to create certainty in the economy. But for the interruption which followed the 100% increase in petroleum prices inflation was steadily on the downward trend, even if at relatively high levels .it is important that the fiscal management of the economy is brought under tight control because the fuel price increase has a potential on its own to reverse the falling inflation trend.
We will see the full impact in the next few months. Nevertheless the cedi has also relatively stabilised although last year it depreciated by 13% against the US dollar and 30% against the Euro. Interest rates were declining and got to 26.3%. However early this year the Central Bank has had to raise its prime rate by 2 percentage points signalling potential inflation dangers. Yet all these are very positive developments.
Third, I must congratulate Government on the courage it has demonstrated in taking the decision to deal with the Tema Oil Refinery catastrophic debt. The debt had the potential of destroying some commercial banks with serious spillovers into the entire economy. The previous Government shied away from dealing with the problem.
Again congratulations for the courage and the boldness. But let me say that it also demonstrates the huge goodwill Government is enjoying from the people of this country. There is no country that I can think of where fuel prices can go up by 100% without major upheaval. The people of this country need to be commended. Hopefully Government will deliver on its promises to reciprocate this gesture from the people.
Fourth, the setting up of the Ghana Investment Advisory Council. This is a Council, which has brought together distinguished investors and business leaders from all over the world to advise the President on his determination to create a golden age for the private sector to accelerate the transformation of the country's economy and usher in aggressive growth and development. It is a landmark development in our economic history.
As a member of the GIAC I am aware that the meetings are frank and exhaustive. The issues covered are wide-ranging. The representations from Government come from all the critical Ministries.
We congratulate the President for creating such a forum and bringing Ghana into the league of open developing economies. What needs to be seen is the extent to which Government will take on board and execute the decisions of this Council. But so far so good. Even so the GIAC epitomises the very consultative style of this Government. The Government has demonstrated respect for all of its development partners, especially the private sector. It is a refreshing departure from the past.
Finally, let me commend the Central Bank for its professional management of monetary policy. Its timely policy intervention to moderate inflation and to stabilise the cedi can only be commended. It is even more gratifying that the Central Bank has now set up the Monetary Policy Committee made up of very renowned international banking personalities to advise the Bank on its policy development and implementation. This is good progress.
Let me now turn attention to the concerns I referred to earlier.
(I) ECONOMIC GROWTH PROSPECTS
In the 2003 Budget Statement and Economic Policy of the Government growth for period 2003 to 2005 was estimated at 4.9% p.a. below the average levels achieved in the 1980s and the early 1990s. Given a population growth of 2.6% (the World Bank still thinks it is around 3.0%) this rate of economic growth is woefully inadequate to create the catalyst for industrial growth and poverty reduction, In any case even in the bad old times we were growing at average 4.5% anyway so why should we set our sights this low.
Indeed for 2003 Manufacturing is projected to grow at only 4.7% and Services at only 4.9% and yet these are the two sectors which need to grow aggressively if we must transform the economy. Companies only grow when the economy grows. In a sluggish economy industries cannot perform strongly. The contextual impact of a slow growing economy on companies can be frustrating especially when Companies have been geared for growth by investing forward following Government's own pronouncements.
Government has recently talked about delivering a per capita income of US$1,000.00 by 2012. That surely requires growth rates in excess of 10% p.a. from now. The HIPC initiative means Ghana's debt burden has been or will be drastically reduced which means funds should become available for investment in the economy. In recent months also several laudable Presidential Initiatives have been launched with very ambitious growth expectations in oil palm, cassava, textiles and distance learning.
Given the above it is difficult to appreciate the slow growth strategy being pursued by Government. The projected growth rates clearly do not appear to reflect the benefits of HIPIC and the new initiatives being pursued by Government. Yet given the enormous cost pressures on Government, the growing social and economic pressures and the need to aggressively rebuild and modernise the social and economic infrastructure of the country, a more Aggressive growth strategy and plans would have been necessary.
The ICA, Ghana has commented on this, so has the Private Enterprise Foundation. It is indeed a matter of concern to the private sector that Ghana's growth should be projected at such low levels and Government will be encouraged to take a fresh look at its strategy.
(II) CONUNDRUM OF DOMESTIC VIS-A-VIS EXPORTS DRIVEN DEVELOPMENT
The next issue I wish to raise is the choice we seem to have made in respect of Ghana's growth strategy direction. It would appear that there is a clear preference for export-led economic growth than a domestic driven economic growth. This indeed did not start with the current administration. Our economic policies since 1984 have been focused on creating an economy, which is driven by exports.
That in itself is not a bad policy. After all if Ghana does not export it has no chance of meeting its international financial obligations since the cedi is not an internationally traded currency.
The issue is whether we should make a choice between the two at all. I believe we should pursue the two strategies with the same intensity. And the lessons of the Far East are there for us to learn from. The countries of South Korea, Taiwan and Singapore on one side and Malaysia on the other side provide clear examples. Singapore, Taiwan and South Korea are predominantly export-driven; Malaysia on the other hand drives both export and domestic trade.
Today only Malaysia in South East Asia can boast of a resilient economy since the East Asian crisis of the 1990s. I am making this point because I believe domestic trade is not being given the same focus as the export sector. For instance there are special credit facilities for exporters, exporters borrow on concessionary terms, exporters pay lower profit tax among many other facilities.
Indeed our Governments have often paid special attention to investors who promise to invest for exports. A whole Free Zone Board has been established to promote exports. And it is good. But why should all these be done to the exclusion and neglect of those whose investments serve Ghana's domestic markets. Can we imagine how much foreign exchange Ghana would need to satisfy the needs of all its citizens if those domestically oriented companies did not exist?
The major issue is that when companies, which manufacture for the local market face problems, the public sector is usually very indifferent, indeed sometimes even suspicious. That is why the manufacturing sector is sluggish and big time investors are shying away from Ghana. Let us remember that we should first learn to compete at home, sharpen our competitiveness before we can become a big-time world player.
Promoting companies which will bring all their materials and semi-finished goods into Ghana for assembly or finishing for re-export is good for the short-term but it will not create a self-sustaining economy. Their viability is grossly dependent on external economic environment. What we should do is build a strong domestic trade alongside the export sector. That way we avoid the shocks of international markets. History is there for us to learn from.
(III) COST OF DOING BUSINESS IN GHANA
The next issue has to do with the acceleration of the cost of doing business in Ghana and the danger of Ghana losing its competitiveness. Competitiveness is not a static game. It is not something you achieve and congratulate yourself and stop there. The parameters are moving everyday.
So let us not get carried away by research findings which put Ghana ahead of Nigeria and Cote d'lvoire when it conies to the choice of investment destination in West Africa. And why should we clap because we are better than Nigeria and Cote d'lvoire. And why should we think that West African countries are our only competitors? They are not. The world is the competition when it comes to investment funds.
Since January 2001, in cumulative terms, the cost of electricity has gone up by 167%, water by 149%, fuel by 173%. The cedi has depreciated cumulatively by 18% against the US dollar but over 40% against the Euro and we have suffered a cumulative inflation of 29.9% year-on-year and 16.8% average as at March 2003. We have also been told that the Reconstruction Levy has been extended for another three years. Interest rates remain high and only recently the Central Bank has had to raise its prime rate by 2 percentage points.
These are ominous and dangerous trends. Added to these are the deplorable nature of our roads, the inefficient and expensive telecommunications system and the crawling legal system. As if these were not enough new taxes are not only being introduced at the national level but there are cascading taxes emerging from Municipal Councils and District Councils and sometimes by towns and villages which are now imposing their own levies on trucks and tankers plying their roads.
Investors cannot cope with these rising cost trends and some definite attention should be paid to making not only the macro-economy friendly but also creating a more enabling micro-economic environment. I am aware that creating a golden age for the private sector will take time, given where we have come from, but it should be evident now that indeed visible actions are being taken.
Unless we can assure investors that we can guarantee a stable and constantly improving investment environment, they will come here and make big statements but they may probably not return because they did not like what they saw and heard privately.
(IV) THE IMPACT OF UNCUSTOMED GOODS ON LOCAL BUSINESS
The next issue is probably not only the most destructive but also a very disturbing one. It is the age-old issue of uncustomed goods and their debilitating impact on the local manufacturing industry.
Today our markets and streets are full of imported goods; electrical goods, alcoholic and nonalcoholic beverages, rice, biscuits, cooking oils, processed tomatoes, toothpaste, mosquito coils, toilet soaps, other domestic hardware and many others. The country is inundated with goods from the Far East, the Asian sub-continent, United Kingdom and Europe, the Americas, Australia and New Zealand. There is no country in the world probably not represented on our markets.
Therefore at the average duty of 25% and VAT of 12l/2% Government should be extremely rich. But no! Government does not receive the full duties that are supposed to be levied on these imports. The imported goods are either undervalued (what we call under-invoicing) or the quantities are under-declared.
The under-valuation takes place even for products where there are world market prices, which can be accessed easily from the Internet. So why should those whose responsibility it is to collect the duties renege on their duty?
Government is losing billions of cedis from deals at our ports and this should not be allowed to continue. Ghana's industries and genuine investors have suffered enough from the hands of fraudulent investors who come here and establish import-export businesses only to corrupt our people and cheat our Government.
But is not only Government that loses, local manufacturers are at risk. Recently we found that cooking oil was coming into Ghana selling at prices well below the world market price, sometimes at half the world market price. For internationally traded commodities such as palm oil, this cannot be possible. For the importers to be able to sell at below world market prices they surely are not only paying the duties and VAT but are also under-declaring the goods they have brought into the country. And these importers may probably not also be paying any profit taxes to Government.
We believe that Government should tackle this menace as a matter of urgency. Local industry faces a real danger of collapse if the under-invoicing and under-declaration are not stopped.
But lest somebody mistakes this for a call for a ban on imports or a call for the protection of local industries, let me say that I am not calling for protection and I am not calling for a ban on imports. Protection leads to isolation and uncompetitiveness. What I am merely calling for is the levelling of the playing field for all economic operators. We are opposed to the advantage which fraudulent importers get by not paying the relatively very low duties and VAT that they are expected to pay.
(V) REVIEW OF ARCHAIC LAWS
Finally, let me again raise the issue of archaic laws on our books; most importantly the Companies Code, the Exchange Control Act and the Labour Law. But let me immediately say that Government has repeatedly said action is being taken to reform these laws and I am aware the new Labour Law has been before Parliament for sometime now. It is also true that the reforms need to be undertaken carefully.
However the reform of the Exchange Control Act started in 1992, the reform of the Companies Code started in 1994 and the reform of the Labour Law started in 1998. Enough time has passed to execute these reforms. These are laws which were passed by the Socialist Government of the CPP. They reflect -Socialist principles. They reflect a controlled economy. They are command economy laws. Their inconsistencies have been raised by the Ghana Investors Advisory Council. The time has come to accelerate work on reforming these laws. The longer they stay on our statute books the more we add to our uncompetitiveness as a country.
I indicated that I intend to raise five issues. Now I have done that let me turn my attention to how your Company will fair this year and our view of the medium to long term.
Looking forward we are confident that the strength of our brands, the dedication of our people and our distribution spread will enable us to continue to progress in 2003 and deliver long term sustainable strong topline growth and profitability. We have sound and clearly understood strategies, brands that serve our consumers' basic needs and aspirations and generate dependable cash flow.
These are essential elements, together with a proud corporate reputation, which will enable us to maintain the momentum of our Path to Growth even in the difficult times that may lie ahead. We have this year commenced the second phase of our growth strategy and we are confident to deliver on our promise once again.
We thank all our employees for their commitment, exceptional teamwork and enterprise throughout the year.
I thank you for your attention.
Accra, Thursday, 17th April 2003.
