DEPARTMENT OF BUSINESS ADMINISTRATION

AN ASSIGNMENT SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS

ADMINISTRATION

17MBA010012

COURSE TITLE

International Management

TOPIC
What is the impact of Ghana's 2018 Budget on international business? Discuss

LECTURER

Dr. Sam Obi

DATE

November 26, 2017

Table of Contents

Definition of international business ..................................................................................................... 3

International business is important due to the following: ................................................................. 3

Environment in business ...................................................................................................................... 4

key issues highlighted in the 2018 budget ........................................................................................... 5

Tax Policies ............................................................................................................................................ 6

Tax holidays for start-ups by young Ghanaian entrepreneurs............................................................ 6

Tax incentives to support agro-processing businesses: ...................................................................... 7

Extension of Special Import Levy ("SIL") to the end of 2019 ............................................................... 7

Industrialisation .................................................................................................................................... 8

Exchange rate ........................................................................................................................................ 9

Gross Domestic Product (GDP):.......................................................................................................... 9

Ination rate: ....................................................................................................................................... 10

Creation of the International Financial Services Centre................................................................. 11

Interest rates ........................................................................................................................................ 12

Reference ............................................................................................................................................. 14
Definition of international business

International business consists of transactions that are devised and carried out across

national borders to satisfy the objectives of individuals, companies, and organizations.

International Business is the process of focusing on the resources of the globe and

objectives of the organizations on global business opportunities and threats.

International business defined as global trade of goods/services or investment. A more

comprehensive view does not focus on the firm but on the exchange process.

Transactions of economic resources include capital, skills, and people for the purpose

of the international production of physical goods and services such as finance, banking,

insurance, and construction. International business can also be referred to as

globalization.

International business is important due to the following:

1. To achieve higher rate of profits

2. Expanding the production capacity beyond the demand of the domestic country

3. Severe competition in the home country

4. Limited home market

5. Political conditions

6. Availability of technology and managerial competence

7. Cost of manpower, transportation

8. Nearness to raw material

9. Liberalisation, Privatisation, and Globalisation (LPG)

10. To increase market share

Environment in business

The business environment comprises a microenvironment and a macro environment.

Microenvironment The microenvironment consists of the actors in the companys

immediate environment that affect the performance of the company. These include the

suppliers, marketing intermediaries, competitors, customers, and the public.

The macro environment consists of the larger societal forces that affect all the actors in

the companys microenvironment namely, the demographic, economic, natural,

technological, political and cultural forces. It is quite obvious that the

microenvironmental factors are more intimately linked with the company than the

macro factors. The macro forces are, generally, more uncontrollable than the micro

forces.

A budget is one of the useful tools for monitoring the implementation of a correctly

costed operational plan of an entity. A public budget is a document indicating how a

public entity spends the financial resources in order to realize specific public goals.

Government budgets are developed by entities, to be approved through the legislative

process, it becomes a legal financial plan after it has been approved by the legislator.

Every elected government is mandated by its constituents to provide services to the

general public. In order to do that, it requires a budget approved through the legislative

process. Compliance with the allocated budget is therefore both a financial and a

legislative imperative.
Looking at the macro environment, this assignment seeks to discuss the impact of

Ghana's 2018 Budget on international business.

key issues highlighted in the 2018 budget

Real GDP growth for 2017 is estimated at 7.9% compared to 3.7% for 2016.

Ination reduced from 15.4% in December 2016 to 11.6% in October 2017.

The budget deficit is projected at 4.6% in September compared to 6.4% for the

same period last year.

Total expenditure, including provision made for the clearance of arrears, is

estimated at GH62,010.3 million, equivalent to 25.7% of GDP. This compares

to the projected outlook of GH54,141.5 million for 2017.

Total revenue and Grants for 2018 fiscal year is estimated at GH51,039.1

million, equivalent to 21.1% of GDP. This compares to a projected outlook of

GH41,254.3 million for 2017. There has been an overall shift to social spending

from spending on infrastructure.

In the year to October 2017, the cedi cumulatively depreciated against the US

dollar by 4.0% compared to 4.3% during the same period in 2016.

The Monetary Policy Rate (MPR) was reduced by 450 basis points to 21.0%.

Average weighted interest rates declined to 20.9% as compared to 25.3% last

year.
The effect of the budget on international business is as follows

Tax Policies

Tax incentive is a government measure that is intended to encourage individuals and

businesses to spend money or to save money by reducing the amount of tax that they

have to pay.

The 2018 National Budget proposes policies that focus on widening the tax net and

improving tax compliance. The main aim of the government was to put Ghana back to

work by providing income tax incentives to stimulate the growth of key economic areas.

Some of the proposed tax policies tend to affect international businesses in Ghana.

Tax holidays for start-ups by young Ghanaian entrepreneurs

The government will provide a holiday period to start-ups or early-stage businesses of

Ghanaian entrepreneurs who are 35 years or younger, through a National

Entrepreneurship and Innovation Plan (NEIP). A preferential tax rate will apply for a

period of three to five years thereafter after the tax holiday. The business will also be

able to carry forward tax losses for up to five years.

This policy could create an issue for international businesses here in Ghana in the long

run as this polices creates room for new competitions. The tax holiday and the ability

to carry forward tax losses for up to five years by start-up could influence a rise in local

options of some products originally provided by international businesses, this could in

time affect the market share and overall profitability of the affected international

businesses in Ghana.
It also creates the opportunity for export, as new start-ups would be able to grow to meet

the needs of customers outside Ghana, hence they become international business and

begin to export made in Ghana products abroad.

Tax incentives to support agro-processing businesses:

Government proposes to abolish duties on some agricultural produce processing

equipment and machinery and provide tax incentives to support agro-processing

packaging, and market access as part of its measures under the Akuffo-Addo Program

for Economic Transformation (AAPET).

Currently, there are tax concessions for agro-processing businesses and cocoa by-

product businesses. These incentives would create an opportunity for an increase in

local and international investors. There would also be an increase in competition in the

agro-industry as it would become an inviting investment option for competition. Theses

concessions for agro-processing businesses would also increase the overall export of

this product by the aid of increasing the number of products made.

Extension of Special Import Levy ("SIL") to the end of 2019

The SIL will be extended to the end of 2019 as the government is committed to carrying

out social interventions to improve the well-being of citizens, hence the need to

maintain some tax handles in the short term, as eorts are made to improve compliance.

Following the abolishing of the 1% SIL as promised in the 2017 budget presentation, it

was expected that the 2% SIL levy on imported goods would also be abolished with this

budget statement or at worst, left to end in December 2017, the time set for the levy to

expire.
The 2% SIL import levy was an attempt by The Government of Ghana, to increase

revenue generation. The purpose of SILB is to impose special import levies on the

importation of goods specified in the SILB at the point of importation.

The levy affects the cost of doing the business of the importers. The cost of doing

business will also increase for start-ups, emerging and established enterprises seeking

to import or depend on importation. This levy extension would mean that the importers

would continue to bear an extra cost of importation. The obvious consequence is that

for those businesses engaged in the supply of products and services, the demand for

which is inelastic the increased tax burden may ultimately be passed on to the

consumers.

Industrialisation

Industrialization is the process by which an economy is transformed from primarily

agricultural to one based on the manufacturing of goods. Individual manual labor is

often replaced by mechanized mass production, and craftsmen are replaced by assembly

lines. Characteristics of industrialization include economic growth, more efficient

division of labor, and the use of technological innovation to solve problems as opposed

to dependency on conditions outside human control.

The Government will allocate a minimum of GHS 2million to each district assembly

for the implementation of 1D1F, which is expected to generate about 250,000 direct and

indirect jobs in 2018, under the one district, one factory programme (1D 1F), 191

district enterprise projects covering 102 districts have been selected for implementation.

For this programme to be a complete success, there should be a conscious effort to

promote the consumption of made in Ghana goods to create demand for these

factories. This would affect international business in various levels, in that the increase

in the consumption of made in Ghana goods would reduce the desire to import more

hence affecting businesses engaged in the importation of goods.

Exchange rate

The exchange rate is the price of one currency in terms of another currency. Exchange

rates can be either fixed or floating. Fixed exchange rates are decided by central banks

of a country whereas floating exchange rates are decided by the mechanism of market

demand and supply.

The budget stated that the cedi is relatively stable in terms of exchange rate, with a

cumulative depreciation of 4.0 percent against the dollar. Businesses engaged in export

would be positively affected as the weakness in the Ghanaian currency makes it cheaper

for the country's international customers to purchase Ghanaian products, however, the

downside is that importation would be very expensive as the Ghana cedi is weaker than

the exporting country's currency. The weakness in the Ghana cedi may also induce the

foreign business to move some form of their business to Ghana in a bid to combat the

decline in the purchase level of their product by Ghana due to their country's currency

strength.

Gross Domestic Product (GDP):

Gross domestic product (GDP) is the monetary value of all the finished goods and

services produced within a country's borders in a specific time period. Though GDP is

usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

GDP includes all private and public consumption, government outlays, investments,

private inventories, paid-in construction costs and the foreign balance of trade (exports

are added, imports are subtracted). Put simply, GDP is a broad measurement of a

nations overall economic activity the godfather of the indicator world.

According to the 2018 budget, the countrys Real GDP growth for 2017 is estimated at

7.9% compared to 3.7% for 2016. This rise is considered a positive GDP number, this

provides a catalyst that builds confidence so that international business in Ghana feels

comfortable spending money on hiring new employees, expanding operations, buying

new equipment and building new plants. It also increases the confidence of foreign

investors looking to exploit capital investment opportunities, increase their markets or

to move operations.

Ination rate:

This is the rate at which prices increase over time, resulting in a fall in the purchasing

value of money. Ination reduced from 15.4% in December 2016 to 11.6% in October

2017. A steady decline in the inflation rate helps the Ghanaian exporter in the sense that

goods become more competitive because the Ghanaian goods prices will be increasing

at a slower rate. However, it does depend on relative inflation rates of other countries.

If inflation is also falling in US, Europe, and other competition countries, then the

Ghana will not be receiving a competitive advantage because prices will not be

relatively cheaper. It also helps in attracting more foreign investment into Ghana. This

is because it becomes easier to predict future costs, prices and wages. The stability of
low inflation encourages them to take on riskier investment; this can lead to higher

growth in the long-term.

Creation of the International Financial Services Centre

In 2018, the Ministry will focus on the creation of the International Financial Services

Centre, establish the Financial Services Council and facilitate the development of an

informal pension scheme which will be piloted in the Cocoa sector.

A financial centre is a location that is home to a cluster of nationally or internationally

significant financial services providers such as banks, investment managers, hedge-

funds or stock exchanges. A prominent financial centre can be described as an

international financial centre (IFC) or a global financial centre and is often also a global

city. Regional and national financial centres interact with these leading centres and may

act as business feeders or provide local access to them. An offshore financial centre

(OFC) is typically a smaller, lower-tax, more lightly regulated jurisdiction that

primarily serves non-residents. Location of an international financial centre in a

developing country stimulates the growth of modern financial infrastructure for a robust

local financial market. The presence of many international finance professionals in the

centre is bound to enhance the financial skills of local financial institutions, thus

contributing to more efficient and higher-quality service to their domestic clients as

well. The creation of this centre would stimulate the inflow of more international

investment into Ghana, also resulting in an improved economy willing to grow and to

grow even more in terms of international trade.

Interest rates

An interest rate is the amount of interest due per period, as a proportion of the amount

lent, deposited or borrowed (called the principal sum). The total interest on an amount

lent or borrowed depends on the principal sum, the interest rate, the compounding

frequency, and the length of time over which it is lent deposited or borrowed.

It is defined as the proportion of an amount loaned which a lender charges as interest to

the borrower, normally expressed as an annual percentage. It is the rate a bank or other

lender charges to borrow its money or the rate a bank pays its savers for keeping money

in an account.

The annual interest rate is the rate over a period of one year. Other interest rates apply

over different periods, such as a month or a day, but they are usually annualized.

The budget stipulated that in the interbank market, the weighted average interest rate

declined to 20.94 percent in September 2017 from 25.26 percent in December 2016. In

response to the downward revision in the BoGs policy rates, average lending rates of

DMBs also gradually declined to 28.97 percent in September 2017 from 31.68 percent

in December 2016.

The lowering of the interest rate affects international business in various ways:

Ghana Export: the lowering of the interest rates, further weakens the cedi against

other currencies, Ghanaian goods will become even less expensive abroad and

Ghana manufacturing firms, which has been struggling, may enjoy from the

increase in exportation. This is because the cedi continues weakness makes the
 Ghanaian market attract to countries with stronger currency, like the united

states, to purchase from Ghanaian

Capital and investment: falling interest rates, reduce the cost of capital, which

can accelerate consumption, manufacturing, and production. With the reduction

in the rate as stated by the budget, the immediate impact on investment for

manufacturing and production is likely to be minimal. In all Lower interest rates

make it cheaper and more appealing for international businesses to borrow. it

also incentivizes international companies to invest money because parking it in

the bank is pointless.

Reference

Aharoni, Y., and Ramamurti, R. (2008). The Internationalization of Multinationals, Research

in Global Strategic Management, 14 ( November ).

Boddewyn, J J, and Brewer, T L, 1994, International-business political behavior: new

theoretical directions, Academy of Management Review, 19(1): 119143.

Braithwaite, J, and Drahos, P, 2000, Global Business Regulation, Cambridge: Cambridge

University Press.

Buckley, P.J. and Ghauri, P.N. (2004) Globalization, economic geography and the

strategy of multinational enterprises, Journal of International Business Studies,

35(2): 8198.

Coles, T. Hall, C. M. (2008). International Business and Tourism: Global issues,

contemporary interactions.

Gross Domestic Product GDP Accessed, 16-11-2017 from

https://www.investopedia.com/terms/g/gdp.asp#ixzz50SZ1Stje

Joshi, R. M., (2009), International Business, Oxford University Press.

Kotler, P. (2010), Marketing Management. Analysis, Planning, Implementation

&evaltion: London 49

MacGillivray, A. (2006). A Brief History of Globalization: The Untold Story of our

Incredible Shrinking Planet. London: Robinson.

Mintzberg, H. (2003), The organization as the political arena. Journal of Management

Studies.22(2).133-154.
Mintzberg, H. and Quinn, J.B. (1988), The Strategy Process, Prentice-Hall, Harlow,

1988.

Park Yoon-Shik and Musa Essayyad, International Banking and Financial Centres

(Boston: Kluwer Academic Publishers, 1989).,14

PricewaterhouseCoopers (Ghana) PWC (2017). 2018 Budget Highlights Putting

Ghana Back to Work

Seoul Financial Forum, Korea as an International Financial Centre: Vision and Strategy

(Seoul: Seoul Financial Forum, January

The 2018 Budget Statement and Economic Policy of Government.

Waldman, J.M. (1973) Corruption and the multinational enterprise, Journal of

International Business Studies, 4: 936