The domestic hotel industry faces an uncertain future as hikes in utility tariffs and Value Added Tax (VAT), as well as other operational costs, threaten operators.
With electricity tariffs having shot up significantly on two occasions within
the last six months – 26.6 percent in September 2022 and 29.9 percent this
February totalling 56.5 percent; water has gone up 48 percent over the same
period, 39.7 percent and 8.3 percent for last September and this month
respectively. This, coupled with a 2.5 percent increase in VAT and rising fuel
costs, the Ghana Hotels Association lamented, is affecting hotels’ bottom-lines.
“Hotels are not even fighting for significant profit margins in this current
economic environment where we find ourselves. I do not think a lot of the
hotels are even making a profit anymore. It has become a game of survival. Any
changes to the rate will be based on the utility changes that we see.
“Additionally, VAT has gone up and some other prices have increased.
Unfortunately, we will continue to see some of these things until the business
landscape improves,” its President, Dr. Edward Ackah-Nyamike, told the B&FT.
Worryingly, he said hoteliers currently find themselves in a very difficult
situation over an inevitable increase in rates – due to rising cost of
operations against declining spending power of Ghanaians.
“The hotels have tried as much as possible to cushion some of the adjustment in
cost of their operations, but to what extent and for how long can they sustain
it? We will have to survive, and survival means that the input must balance the
output,” Dr. Ackah-Nyamike Jnr. said.
Should the industry decide on a rate reflective of the increases in other
variables, it means that hotel prices could see a significant jump – which
could potentially damage occupancy rates because of heightened economic
conditions. This will also impact the hospitality sector’s contribution to
national revenue.
Last month, the Public Utilities Regulatory Commission (PURC) announced a 29.96
percent and 8.3 percent upward adjustment in electricity and water tariffs
respectively, effective February 1, 2023.
The new adjustments were announced as part of the Quarterly Tariff Review
Mechanism and Guidelines and were occasioned by unfavourable macroeconomic factors
such as inflation and currency depreciation – and their effect on raw material
imports, utilities regulator the PURC indicated.
The Hotels Association is not the only business group that is lamenting impacts
from the latest hikes in utilities and VAT. The Association of Ghana Industries
(AGI) warned earlier that the hikes in electricity and water tariffs could
dampen hopes of business recovery and employment prospects.
AGI’s Chief Executive Officer, Seth Twum-Akwaboah, said in a statement to the
B&FT that: “The level of utility tariff increments for water and
electricity as captured in the PURC’s release is too high for industry to bear,
particularly at this time”.
He added that though utility companies need to recover the cost to sustain
their operations, when end-user tariffs get to unbearable levels the effect
could be dire for both industry and the utility companies.
Source: B&FT