Business News of 2014-08-19

IMF & MCA necessary but insufficient – Bernard Avle

Ghana has taken two important steps in the past 3 weeks which are seen as pivotal to the country’s quest to improve her economic fortunes. In this article, Bernard Avle; Host of the Citi Breakfast Show argues that these two important moves; engaging in an IMF program and signing the 2nd MCA Compact worth $498 million will not result in economic transformation if not backed by a well-integrated course of action.

One view that pervades all rigorous analysis of the Ghanaian economy is the need to transform the structure of the economy for growth to benefit more people.

Anyone who has studied Ghana’s economy over the past half century would come to one conclusion; the dependence on export of raw materials has to radically change to spur transformational growth.

Exploiting and exporting Gold, Cocoa, Manganese and diamonds have not significantly altered our economic structure, and neither will oil, if all we do is sell it raw and buy the finished product at a higher price.

The Economic Transformation Imperative

According to the Africa Centre for Economic Transformation, (ACET) “Economic transformation will come through diversifying our economy, boosting our competitiveness in world markets, increasing our share of manufacturing in GDP, and using more sophisticated technology in production.*”

In the past few weeks, our country’s leaders have been to Washington to initiate conversations with the IMF on an economic program and sign the much-lauded MCA Compact 2.

To ensure that growth is sustainable and continues to improve lives of many, countries now need to vigorously promote economic transformation. Ghana’s Economic transformation agenda, is therefore no longer an option, it’s an absolute imperative.

We have to diversify our production and exports and become more competitive in international markets.

Impact over Activity?In his speech at the signing ceremony on Tuesday August 5, 2014, the president stated the achievements and successes of the first $547 million Compact which include:

• 66,930 farmers received training in commercial agricultural practices, enhancing skills and agricultural yield;?• Four (4) Irrigation Schemes were rehabilitated, providing irrigation to 2,435 hectares of agricultural farmland;?• 20 Post-harvest facilities were constructed, providing storage so crops would not spoil;?• Thousands of farmers were provided with agricultural credit, worth US$23.1 m;?• Many roads have been constructed;?• 44 School Blocks were fully rehabilitated, while 206 new School Blocks were constructed, totaling 250;?• all Rural Banks in Ghana and their Agencies were interconnected, computerized and automated; provided with Generators, Computers and Wide Area Network;

This litany of laudable projects implemented under the first compact should neither have been the focus of his speech nor the reason for our optimism.

Activities and outcomes in themselves, no matter how good, do not translate into measurable, sustainable impact if these projects are not integrated into a larger plan for sustainable agribusiness.

We should be concerned about the effects the projects have had on the ultimate vision of strengthening the growth of the sector to lift more people out of poverty. The sad reality is that the growth of the sector fell from 7.2% in 2009 to 5.3% in 2010 and further declined to 0.8% in 2011, 1.3% in 2012 and 3.4% in 2013.*

These numbers in themselves may not mean much, but one cannot help but ask how whether at the very least we shouldn’t have maintained pre-MCA levels of growth in the sector?

We ought to have a plan to consolidate the gains made from laudable projects like the $547 million MCA and link the improved infrastructure and access to credit to measurably sustainable impact in agriculture.

We should also be asking our leaders to point out the real and sustainable impacts of these well-executed projects and initiating activities to consolidate the gains. Which begs the question; how transformational will this new compact be?

MCA-2 and Power Sector Transformation

The MCA 2 is a sensible idea aimed at restoring the financial and operational efficiency of our power distributors ECG and NEDCO. But I can bet my last depreciating cedi that merely involving a “credible PSP partner and blocking the leakages in these utilities would not result in the “TRANSFORMATION” of our power sector.

In the power sector, Ghana’s level of generation is a far cry from what it takes to industrialize.

Our generation capacity is presently a bit below 3000 MW, but the actual load on average is below 1500 MW.

Our focus must shift from simply announcing how many new power plants we have built to how much power actually reaches the end user. So far, it has been proved that nations need a reliable power base to industrialize.

The United States produces 3170 watts/capita, Europe 1700, Malaysia 813 and South Africa 900. Ghana’s watts/capita is a tiny 53.

This stark comparison means we cannot afford to just list a litany of projects to make the country an industrial one. The MCA-2 must be linked to a broader plan to massively boost our generation capacity, availability and accessibility.

We can exult all we want about how this compact will transform our power sector, but unless it's linked to a thoughtful and aggressive overall plan for the sector, transformation will remain a pipe dream.

IMF, Necessary but insufficient for economic transformation

Ghana’s decision to engage the IMF for an economic program has come with mixed reaction.

While some say it’s an admission of failed economic policies and mismanagement, others say it will serve as the stabilizing bedrock needed for economic takeoff.

The IMF prescriptions are sure to include plans to focus on fiscal discipline in the form of smaller budget deficits, fewer subsidies, tax reform, liberalized financial systems, competitive exchange rates, private sector participation and deregulation among others.

These are viewed differently depending on which side of the fence you sit.

Skeptics of the IMF and its policies see them as a part of a neo-liberal agenda deliberately crafted to serve the needs of wealthy countries at the expense of the poor.

They argue, for instance, that curbs on subsidies and increases in taxes directly worsen the plight of the poor, while privatization, financial liberalization and industrial deregulation work to the same effect by delivering windfall profits to domestic and foreign speculators, by stripping the state of its assets and weakening rules that protect consumers and workers from abuse.

Others however see their policies as necessary bitter pills to be swallowed to put poorly managed economies back on track and argue that the times that Ghana’s books have looked good have coincided with completion of IMF programs.

Whatever your views are on the IMF, what is clear is that their policy prescriptions may be necessary but insufficient conditions for economic transformation.

Many East Asian countries discovered to their chagrin that the kinds of transformation they needed, would not come from the IMF while Argentina, a long-term darling of the Washington development establishment is still not out of its economic woods (pun unintended).

This situation suggests that Ghana should approach the IMF with great caution and a broader plan.

Way Forward

One can already see the uncanny similarities between some of the conditions in the 2nd Compact and what we know to be the typical policy prescriptions of the IMF, the contentious PSP-partner for ECG/NEDCO requirement being a good example.

We must prepare for the changes that are sure to come from the power sector reforms and create space for competent local participation in areas like distribution franchises, Sub-station infrastructure, Metering and revenue collection and prepayment systems among others.

The twin “reprieves” of IMF program and MCA may be welcome reliefs for this country, but without a well-coordinated plan to diversify our economy, empower our local private sector to drive the development agenda, improve the use of technology in production and reduce corruption to a manageable minimum; our quest to transform Ghana will remain a pipe dream.

*2014 Africa Transformation Report *Provisional GDP September 2013, GSS

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Source: Bernard Avle
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