IMANI’s Critique of the President’s Address

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We were generally impressed by the tone and style of the President’s 2012 State of the Nation’s Address (“address”).

The content was also clear, crisp and straight to the point. The President was sober, succinct and restrained in his enthusiasm. As an organisation that has clashed with the Presidency in the past for painting over-optimistic pictures of the state of the nation and of his political program, we found the sobriety and composure heartening and assuring.

While the specific things His Excellency said are important in their own right, it is even more critical to treat the address as an opportunity to direct attention to the importance of rigorous and coordinated policymaking in this country.

We will therefore be critiquing the President’s speech with a focus on calling attention to the need to revise national thinking about some of the most important issues confronting our development. We do not aim to pass comments on those sections of the address that do not immediately raise new policy issues.

*THE ECONOMY*

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*The Macro-Economy*

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The President understandably placed the “macro-economy” at the very top of his address. Some very significant macroeconomic successes have been realised under his watch.

He mentioned the growth rate, provisionally pegged at 14%, as clear evidence of effective economic management. Even discounting the direct contribution of the roughly $2 billion worth of petroleum produced in the year under review (7% of GDP), and the indirect contributions to GDP as a result of the onset of the oil economy (pass-through effects on real estate, employment, infrastructure etc.), the resultant growth rate would still cross the historically impressive 6% mark.

On the subject of inflation, he had enough reason to pat his government on the back. The current official rate of about 8.7% places the indicator at a historical low.

Some commentators have expressed a concern that the low inflation rate currently being witnessed has been purchased too exorbitantly.

This is however debatable seeing as the “purchase price” usually mentioned in this connection is “low government spending”. The truth in actual fact is that government expenditure has been rising steadily and considerably over the last 3 years.

For instance, total expenditure was nearly 30% higher in real terms in 2011 than in 2010. Despite low growth in capital expenditure, this was more than made up for in high recurrent expenditure.

It cannot be emphasised enough how important it is for any government to maintain low and steady inflation.

Inflation is the cost of holding money. In that sense, it penalises savers and investors in most monetary projects (i.e. the situation is more ambiguous in the case of certain capital projects). High or erratic inflation makes it next to impossible for investors to plan effectively for the medium to long-term. It also renders government orchestration of various factors such as interest rates highly difficult. During cyclical economic downturns, this difficulty can actually lead to serial miscalculations, therefore deepening the crisis (instead of accelerating growth, as some non-orthodox economists sometimes argue).

It is true that inflation is poorly measured in Ghana. This is easily evident in the weakness of the data collection system of the Statistical Service. There are also weaknesses in the prevailing methodology that are yet to be improved.

All these notwithstanding, the truth is that these same weak tools of measurement have been in use for a long time, so that while they may be less than useful in gauging the absolute magnitude of inflation, they are nonetheless a consistent gauge of the “trends” from year to year.

Hence, while we may not be able to say with absolute confidence that the general level of prices rose, for example, by an average of 8.7% in the year ending February 2012, we can say, with a reasonable degree of certainty, that the level of inflation given as, say, 10.5% in the year ending February 2011 is higher than the one quoted for February 2012. Consistent interpretation.

The monetary authorities are certainly to be praised for assuring the market of their dedication to their self-declared goals and targets. Investors need this kind of predictability to plan effectively.

The concern we have is that the use of the Consumer Price Index (CPI) as the cardinal measure of inflation in this country, while orthodox and understandable, has led to a neglect of another important measure of inflation, the Producer Price Index (PPI). Whereas in many countries, the close coupling of the two indices renders any fuss over their different focusses pedantic, in Ghana they have diverged seriously, to the extent where the PPI measure is about twice that of the CPI.

Seeing as the PPI is the measure of inflation as perceived by producers and others operating at the wholesale level of the economy, and considering that it is untempered by imported disinflation (the rise of China as a global source of cheap manufactures has a sobering effect on inflation levels in countries like Ghana), its significance should not be underestimated. It may yet be one of our best gauges of the competitiveness of our industrial sector. Its stubborn "highness" is thus worrying.

With respect to the issue of “foreign direct investment (FDI)”, on the other hand, we have to dissociate ourselves from the conclusions reached by His Excellency regarding the figure of $7 billion-plus quoted as the dollar value of GIPC (Ghana Investment Promotion Council) – registered projects in 2011.

We are so inclined because the debatable policy conclusions drawn from the situation, as painted by the President, underline the importance of ensuring factual accuracy.

When disaggregated, we discover that the roughly $7.7 billion purported to be the value of registered projects include such abandoned and semi-abandoned projects as STX and the so-called Asanteman Hong development scheme. At any rate these projects have not commenced within the period under review. Therefore only 28% of the headline figure quoted is really relevant ($2.2 billion thereabouts).

Given our less than favourable view of disbursements of FDI based on our recent reviews, we will argue that only 14% (roughly $1 billion) of registered projects deserve any serious attention. In fact, we would argue that *the surest and most comforting measurement of FDI performance* in this context is the total value of registered transfers, which in the period under review amounted to roughly *$213 million* (less than 3% of the headline figure quoted in the President’s speech).

The right policy conclusion should therefore be that it is crucial to strengthen our investment agencies and improve the investment climate to ensure that more investor pledges are converted to actual transfers.

*EDUCATION*

*Basic Education*

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It is commendable that the Administration has made it a keystone educational policy to eliminate “schools under trees” in Ghana. That government has committed public funds to the elimination of as much as 40% of all schools under trees demonstrates a devotion to its professed social democratic ideals that is commendable.

We are however worried about some of the social interventions in the educational sector, and in particular about how these interventions are being converted into distorting indicators of good performance on policy delivery.

The fact that 60% of all school pupils qualify today to receive free school uniforms casts strong doubts on the official belief that the poverty rate is 28%. The only other alternative explanation, unthinkable in its implications, is that poverty has risen terribly over the last few years.

Our attitude is to evaluate some of the other interventions such as the “school feeding” and “free exercise books” policies in the same light. *An increase in the number of beneficiaries can never be taken as an absolute measure of progress or success. In fact, critically speaking, the converse should be true.*

Another distortion worth mentioning is the one occasioned by the “capitation grant”, which is geared to pegging the amount of government contribution to schools to the raw level of enrolment. There is evidence that this is leading to the inflation of enrolment figures by unscrupulous school administrators.

Furthermore, the system offers no performance incentive. For instance, it is not tied to BECE pass rates or to retention/graduation rates.

In general, there is a tendency to focus on quantitative inputs and to neglect qualitative outputs across the spectrum of social interventions.

*Second-Cycle Education*

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We are encouraged by government’s focus on making secondary education accessible to all students by 2016. Universal education is something to push for in our developing nation. But “universal” education means “affordable” education and *not* “free” education.

Given that the perennial challenge of our education system has been the lack of resources (against the backdrop of an overstretched budget in which the allocation to education amounts to roughly 25% of ALL government expenditure), it is completely sensible to insist that those who can pay for secondary education continues to do so. In fact, it is important that they contribute as much as is reasonable to attract more resources to the sector. Otherwise, quality may suffer.

However, we are not clear on why the resources currently allotted to LESDEP, NYEP and the National Apprenticeship Project are not being reassigned to improve the vocational and technical content of polytechnic education (including distant and mature students’ training), given the dire need of these institutions and the fact that they already have the structures to absorb such funds and contribute to the vision of youth employment in a more coherent manner.

*Science, Communication Technology and Innovation *

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The Administration deserves commendation for supporting the NCA and its partners to successfully execute the Number Portability Program.

We however have concerns about the level of transparency surrounding the digital migration program and will urge the relevant authorities to increase public education and transparency. Some of the technology choice issues are non-trivial, and we are aware of a few difficulties in similar implementations in East Africa.

We applaud the government’s efforts to promote computer literacy by widening access to ICTs. The distribution of laptops to about 1% of the student population is a step in the right direction. We are however unhappy about the lack of emphasis on digital educational content to give full meaning to the provision of computers. We believe greater openness should bring more entrepreneurial providers and corporate partners on board, lessening the current over-reliance on one company, to ensure a more holistic computer literacy program.

*JOB CREATION*

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We were disappointed in our expectation that His Excellency would use the opportunity to announce measures being put in place to fund the Statistical Service and other partners to begin the very critical task of gathering and publishing regular employment, and by default, unemployment statistics.

*AGRICULTURE*

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*Crop Farming*

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Government has been consistent in focussing on crop farming, and we applaud the results Mr. President announced in connection with a bumper harvest of various crops for the preceding year. Here too better statistics would be useful. To boost the credibility of such numbers, it would be helpful for critical organisations, such as the Food Security Network, to be involved in the collection and dissemination of such figures.

*Cocoa*

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We have a longstanding interest in the cocoa industry in this country.

We were glad to hear about government’s success in near-doubling the output of cocoa production over the last 3 years, and about the significant expansion in rural household incomes represented by that expansion, as well as the higher pass-through of higher world market prices to farmers.

We were disappointed to note the seeming lack of attention to the supply chain needs of local cocoa processors. This is particularly poignant when one considers the pricing dynamics of cocoa on international markets. This is one of the most supply-side driven commodity pricing situations in the world.

Very soon, we shall hit the “diminishing returns” point in our expansion program as prices on the world market begin to fall owing to wider and higher production in producing regions. Only an accelerated processing program can stabilise the local pricing regime in a context of persistently high production for increasingly saturated global markets.

On a related note, we are happy to observe the current focus on shea processing in the North of Ghana and tuna processing in the South.

*ENERGY*

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*The Power Sector*

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Government’s focus on expanding electricity generation capacity is commendable given the obvious link to the country’s industrial policy.

It is however important for “generation capacity” not to be confused with “power output”.

The current challenge in Ghana is increasingly also one of “underutilised capacity”. We are currently not benefitting from the full complement of potential (theoretical) output of our power plants due to a combination of fuel feedstock sourcing challenges, user tariffs and maintenance problems.

Therefore, the ongoing focus on nearly doubling the generation capacity over the five years to 2013 needs to be complemented by a range of policies aimed at enhancing utilisation through realistic tariff, feedstock and capital maintenance management.

*Rural Electrification*

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In a similar way, whilst acknowledging the important contribution of electricity to quality of life factors, it would be important to harmonise rural electrification and power output expansion, all the time keeping industrial policy in mind so that longterm production is not sacrificed for short-term consumption.

*HEALTH*

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*National Health Insurance Scheme (NHIS)*

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Though the President understandably touted the Administration’s reported successes in expanding utilisation of the National Health Insurance Scheme, experts continue to wonder about the quoted figure of “over 17.5million” users as at December 2011.

There is a growing consensus amongst some public health experts that the measurement methodologies may be flawed. Government would do well to institute an inquiry into this matter.

We were also disappointed in our expectation that the President would announce measures being taken to rationalise premium payments at the top of Ghana’s socio-economic strata in order to draw more resources into the fast-sinking program.

We are delighted, however, that the Administration appears to have de-prioritised the so-called “one-time premium policy”.

*Conclusion*

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Given the wildly differing views that have been expressed in the wake of the President’s address, pointing to vastly divergent expectations among the population, a case may be made for standardising the address through convention to enhance critical study and debate, because of better anticipation.

We modestly propose the draft template below to spur debate on this idea.

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*THE STATE OF :*

1. Health

2. Education

3. Infrastructure

4. Employment

5. Business environment

6. Economic indicators

a. Inflation

b. Unemployment

c. Port Tariffs and taxes

i. Rates

ii. Collection and administration

7. Cocoa

8. Farming

9. Oil

10. Corruption

11. Governance

a. The judiciary

b. Executive

c. Legislature

12. THE PUBLIC SECTOR

IMANI Center for Policy & Education (and syndicated via: www.Africanliberty.org)