Ghana struggles to turn around ailing economy

Abanking sector in crisis has also dragged down the reputation of auditors, leaving local businesses struggling against international firms. 

The combined effects of Covid and the Russia-Ukraine war have been devasting to the Ghana economy. The country has been struggling with high inflation and high debt levels, which have compelled the Government to introduce various fiscal measures to reset the economy. In December 2022, the Government announced a Domestic Debt Exchange Programme (GDDEP) consistent with negotiations with the International Monetary Fund (IMF), as well as international debt restructuring, in an effort to restore stability. It is also struggling with a banking sector in crisis that has damaged the reputation of local auditors. 

In 2017, Bank of Ghana (BoG) found that the banking sector was plagued with weak quality assets, weak management, poor corporate governance, insider trading abuses and a weak capital base. The BoG ordered the banks to raise their capital base from GH¢120 million to GH¢400 million. The BoG further undertook to reform or clean up the banking sector. Its approach was to revoke the licences of the non-performing or struggling financial institutions and appoint a receiver to take over the assets and liabilities of the affected institutions to be sold to pay depositors.

So far, the licences of the institutions revoked include nine universal banks, 347 microfinance companies - of which 155 have already ceased operations, 39 micro credit companies, 16 savings and loans companies, eight finance houses and two non-bank financial institutions. The BoG has also created the Ghana Amalgamated Trust (GAT) as a special purpose vehicle to support five other banks, including ADB, NIB, merged Omni/Bank Sahel Sahara, Universal Merchant Bank and Prudential Bank with GHS2 billion.

“Whether rightly or wrongly, some accusing fingers were pointed at auditors and the entire episode precipitated regulatory changes for stricter compliance by auditors,” said Kwame Manu-Debrah, founder and senior partner of Nexia Debrah & Co. “The practice of auditing and general accountancy has consequently become more challenging and demanding, requiring firms to be at the cutting-edge of appropriate knowledge and applicable technology.”

Auditors are also feeling the strain of a Companies Act (Act 992) that came into force in 2019, that requires that auditors be rotated. Under Act 992 an auditor is allowed to hold office for a term of no more than six years. The auditor is eligible for re-appointment after a cooling-off period of no less than six years. The Registrar of Companies instructed in 2022 that, following expiration of its grace period, companies comply with the provision of Act 992 after a reporting period ended on or before 31 December 2022 for clients that had been audited for at least six years.

“Many professional service firms may face existential threat as a result of the legislative requirement to rotate auditors,” said Osei Ameyaw, managing partner of Veritas Associates, a Crowe member firm. “The increasing rate of inflation and depreciation of the cedi have led to the high costs of providing services. Costs will only keep rising if these are not curtailed in the foreseeable future.”

Fees are also coming under pressure as, by law, billing for goods and services must be done in the local currency, the Ghana cedi. The economic challenges facing the country have led to severe depreciation of the cedi against all the major traditional trading currencies. The country is heavily dependent on petroleum products including diesel, petrol and gas for its energy requirements that have increased significantly in cost.  The combined effect of the high energy costs and the cedi depreciation is increased inflation that reached 54% in December 2022. The inflation rate in March 2023 was 35%, which is still high enough to impact on firm’s profitability.

“While costs of goods continue to surge, professional service providers are largely unable to appropriately price their services in line with rising inflation and depreciation of the cedi, as customers have resisted price increases to cut cost,” said Ameyaw. “The depreciated cedi has also created a challenge in winning new professional service jobs, including accounting, as potential clients continue to compare fee quotes to previous fees, while refusing to acknowledge that the value of the cedi has depreciated significantly.”

It does not help that owner-managed businesses in Ghana perceive accounting as a ‘necessary evil’, according to John Yeboah, managing partner of DFK professionals, a PrimeGlobal member firm. “Section 127 of Act 992, compels businesses to comply with the requirement of keeping accounting records and preparing accounts. Businesses including the accounting practices in Ghana, which were affected by Covid and the Russia-Ukraine war took adhoc measures to manage personnel movement and the high cost of living. That affected business performance negatively and created a drop in demand for accounting services.”

In an effort to stabilise the economy, Ghana is currently undergoing domestic and external debt restructuring as part of the conditions to secure International Monetary Fund (IMF) support. But the Economist Intelligence Unit (EIU) has warned that the IMF board approval for Ghana will be delayed as a result of prolonged external debt-restructuring negotiations, given the involvement of multiple stakeholders in the process. In its 2023 Country Report on Ghana, the UK-based firm said it expects Ghana to secure restructuring agreements on its public external debt during 2023-2024, involving official and private creditors alike. This will include a combination of write offs, maturity extensions and reductions in interest rates. “We expect official creditors to agree to a deal in 2023, and this, combined with the domestic debt restructuring that has already been secured, should provide enough reassurance to reduce Ghana’s risk of debt distress and allow the IMF to approve the agreed programme”, the report claimed.

But the fact that Ghana is going through debt restructuring at all increases confidence in investors, and a revitalised interest in the Ghanaian economy would create new businesses for the accounting industry to leverage on. Yeboah is calling for guaranteed fees to help local firms compete.

“Fee profiles are competitive among the ‘big’ firms with international affiliations,” he said. “Most accounting firms in Ghana are inadequately resourced with the desired personnel because of inability to pay competitive remuneration. The lack of guaranteed fees has created an environment for businesses in Ghana to offer low fees for accounting services. The Practice Society of ICAG made local recommendations to the Regulator on the minimum service fee for the public practice of accountancy based on risks affecting fee pricing, such as unrealistic price undercutting by practitioners and unfair dictation of audit fees by clients.”

According to Yeboah, guaranteed chargeable fees are needed to maintain and improve the standard and quality of audit, to set commensurate remuneration, and to level the playing field for practitioners to prevent ‘low-balling’.

“Fees chargeable are based on such criteria as volume, risks, estimated man-hours, calibre of assigned staff and firm status, rather than the fortunes of the client,” he said. “Partly and newly qualified accountants abound for recruitment. However, accounting firms are thought of as a training field for young accountants who invariably are underpaid, creating high iteration rates.”

“Recruitment of qualified staff with appropriate knowledge and skill and retaining them has become increasingly difficult,” said Ameyaw. “This is due to the high competition from the larger local firms and foreign competition for staff with relevant experience and skill. Medium-sized service providers are increasingly unable to match remuneration offered by the larger firms and foreign competitors that continue to poach or recruit experienced staff to partly offset their own losses. Meanwhile, firms have no option but to continue to incur increasing staff training costs to maintain the quality of their work.”

While the economic environment might be difficult, there is every sign that it will improve over the next 12 months. The Ghana Revenue Authority (GRA) is the authority responsible for fiscal revenue mobilization. To assist the government to address budget deficits, the GRA has adopted an aggressive approach to revenue mobilisation, and according to Manu-Debrah, this is driving phenomenal growth in the area of Tax Services.

He also pointed out that in May 2019, 24 states in Africa spearheaded the formation of the African Continental Free Trade Area (AfCFTA) to create a single borderless market with a population of 1.3 billion people and a combined GDP of USD 3.4 trillion, and Ghana hosts the headquarters of AfCFTA in its capital city of Accra. “It is our expectation that the opportunities from such a market would yield significant economic developments in the near future, which will also be of benefit to the accountancy profession,” he said. “Besides this, the government is pursuing an ambitious industrialisation program where it aims to build at least one industry or factory at each political district of the country under the One District One Factory (1D1F) initiative. The accountancy profession is an integral part of this initiative. The Ghana Investment Promotion Centre (GIPC) continues to be a credible avenue for foreign direct investments into Ghana. These opportunities are expected to yield further work for the profession.”

Yeboah also pointed out that the next 12 months fall into an election year which will be characterised by increased government expenditure with rippling effects on the general economic activities of local institutions. “Accounting firms will leverage on this to improve revenues,” he said.