Business News of 2014-03-25

‘Radical change in economic fundamentals needed’

A former Deputy Minister of Finance, Professor George Gyan-Baffour, has called for what he describes as a radical change in the structure of the economy by focusing on the fundamentals of the economy which will create jobs and revive the private sector.

“Ghana is a small economy and it needs a radical transformation. For that to be achieved it requires that we do not tinker around macro indicators but look at the fundamentals or the foundation of the economy to change the structure and this, like I said, should be radical”, he told the GRAPHIC BUSINESS in an interview after the Graphic/Fidelity Dialogue series in Accra on March 11.

Although his proposition is not new, he noted for instance that, “we should convert our raw materials into finished products before exporting them”. Since independence, the country has exported its natural products in their raw form and a typical example is cocoa and gold, the two top foreign exchange income earners for the economy.

Presently, more than 70 per cent of the country’s cocoa is exported in its raw form while government’s over time continue to pay lip service to the idea of attracting investors to process the beans to raise its value for the country to rake in more revenue than it is doing presently.

Much as there may for initial challenges to that effort, it is on record how some other countries have been able to achieve that, a feat Ghana can emulate by starting on a smaller note.

Prof Gyan Baffour admitted that the challenge for the private sector to process raw materials from Ghana would be the volume of raw materials to be processed and wondered whether players in that sector would find that attractive in the face of the many challenges confronting the economy.

Presently, access to credit continues to remain one of the major challenges for the private sector coupled with the inconsistent electricity supply; high interest rates; higher taxes, among many other things.

Against this background, Prof Gyan Baffour called on the government to lead the way in ensuring that the private sector was supported. “The government has to do some joint ventureship with some of them and make sure that some of their challenges are fixed properly. For instance, the lack of credit in the market,” he said.

Need for Exim Bank

Exim (import and export) banks are usually set up by governments or semi-government agencies to commonly provide insurance cover to exporters against losses from non-payment by the importers, as a means to promote a country's foreign trade.

Other services offered by EXIM banks may include; marine insurance; post-shipment discounting of invoices; pre-shipment advances against confirmed orders, and help in finding new markets.

For many years, Ghana has been relying on Exim banks across the world to provide some funding for certain projects in the country.

But Prof Gyan Baffour noted that “When we borrow money from India and China, it’s not from the government directly. It is from the Exim Bank of China. These are subsidised credits and they give it to us so that we can import from China so that Chinese companies can produce and provide employment for their people”.

“They don’t give it to us because they like us but because we will be exporting our employment to that country so that they can employ their people and expand their economy at a reduced rate”, adding that “when you go there and they give you 2 per cent interest, you think they like you? No, it is a strategy”.

According to him, Ghana can do the same. “We can also say that well we have an Exim bank which will subsidise the credit for the private sector to produce, sell some locally and export some of them”.

He was of the view that should that be done, many more private sector players would be interested because then the problem with credit availability would be a thing of the past. “So there are minor things that the government can do to facilitate the process for the private sector to thrive”, he said.