Answer to Question #173810 in Management for Wilfred Mwinso

Question

There is clear evidence that the COV-19 pandemic has led to market failures in some industries in Ghana. With relevant evidence discuss how the pandemic has negatively affected two industries of your choice, and evaluate the Government’s effort in trying to resolve the market failures in these industries.

Answer 1

The shock caused by the COVID-19 pandemic has had considerable impacts on Ghanaian firms. Following the global spread of COVID-19 and the arrival of the first cases in Ghana, a partial lockdown was introduced restricting economic activities in Greater Accra and Greater Kumasi. The partial lockdown forced many businesses to close, while even those firms not affected by the lockdown measures found themselves with fewer customers and orders. Firms also had increased difficulties in sourcing inputs and found it difficult to cover revenue shortfalls.

More than half of firms report difficulties in sourcing inputs. The most affected sectors were accommodation and food sectors. The industry suffered supply shocks. Of the firms reporting difficulties, 84.6 percent of firms reports that this was due to products not being available and 42.3 percent of firms report that the costs have increased. Firms relying on imports have been particularly affected. 75.1 percent of them indicate that they had difficulties finding supplies, and 85.4 percent of importing firms report that imports decreased.

Faced with declining sales while still having to meet other obligations, 75.6 percent of business establishments report a deterioration in their cash flow and 25.4 percent of firms report decreased access to finance. Firms in manufacturing sectors were most affected by cash flow problems. 95.6 percent of exporting firms report cash flow problems. Firms also indicate that financial institutions have tightened the terms of loans. Of the firms with a loan or credit, 16.0 percent reports that their financial institutions tightened the terms of the loans.

Given the high levels of food insecurity resulting from COVID-19, policymakers have focused on food aid and rebuilding agricultural supply chains. While the government has sponsored a food aid distribution program in the form of dry, canned, or hot meals, policymakers have considered providing cash in lieu of food aid. Distributing cash in lieu of food has spill over effects to local food markets who benefit from the increased business. Finally, regional coordination is vital to re-building supply chains and markets. To foster a sustainable economic recovery in the aftermath of the COVID-19 pandemic, it has been useful to coordinate supply chains and industrial policy with the governments of Burkina Faso, Cote d'Ivoire and Togo to ensure regional strength moving forward.

Policies have helped firms in adjusting to the “new” normal by providing support to increase productivity through business development services, worker and manager training and grant schemes to facilitate technological upgrading, including using digital technologies. Helping businesses adopt best practices is expected to increase their productivity and resilience to future challenges