Government is being urged to devise policies to force the cost of borrowing down to levels below 20 percent to lubricate the business environment.
The high cost of borrowing which culminates into a high interest in servicing loans remain a major challenge, for businesses especially start-ups.
Renowned Economists, Professor Stephen Adei, says the high cost of borrowing has made Ghana’s business climate is very harsh.
“Some young people told me that they went to the bank and they said they had to pay 40 percent per annum, I mean that is crazy,” he said.
According to statistics from Bloomberg, 8 out of 10 businesses fail within first 18 months of operation, and paramount among the reasons for this is the high cost of funding.
The Bank of Ghana’s Monetary Policy Committee last month reduced the policy rate by 100 basis points from 21 percent to 20 percent.
This means the rate at which Bank of Ghana lends money to commercial banks now stands at 20 percent.
Customers, businesses and especially start-ups can now access loans at a lower interest rate because the commercial banks can now lend at lower rates.
At 20 percent, Mr Adei acknowledges government is trying to create a conducive business environment, but the renowned economist is positive a reasonable drop below 20 percent would bring relief to businesses for sustainable growth.
“Any business which has to start by paying anything above 20 percent is going to have difficulty, apart from those who have a quick turnover but if you are manufacturing penetrating markets, I think that there is no doubt at all that the macroeconomic inflation, the interest rate must come down drastically not a matter of 2 or 3 percent”, he said.
He spoke to Luv Biz on the sidelines of a business seminar organised by the Mighty Men of Valour (MMV) of the ICGC Trinity Temple in Kumasi.