While I can see why the government would turn to such a measure to reign in inflation and stabilize the economy in the short term, I also fear that this could become a self defeating measure in the long run. For example, com ... read full comment
While I can see why the government would turn to such a measure to reign in inflation and stabilize the economy in the short term, I also fear that this could become a self defeating measure in the long run. For example, companies that are forced to pay such levies will soon learn to take precautionary measures to protect themselves from becoming overexposed from such levies. They would soon begin to under report their profit position and thus end up paying far less of their profits into the fund. They could also decide to play along but guess what they will pass down the cost to ordinary consumers which will fuel inflation. This is why I think such an arbitrary measure should not be encouraged. The Central Bank needs to explore more sustainable measures such as increasing reserve requirements for banks and for the service companies encourage them to reinvest surplus profit in employment generating projects. They could also try a gradual withdrawal of currency from the system by various mechanisms at the disposal of the Central Bank i.e. bond issue etc...etc. But the main issue here is how we address our skewed import/export trade in a globalized world and that in my view is a more long term issue than short term. Immediately however, government can take measures to introduce countervailing import tariffs especially on commodities that already are produced locally and work toward diversifying our export base even further and faster. Our primary produce export status does not help the issue much because we export at low cost and import at very high cost. This leaves us at a balance of payment disadvantage with majority of our trading partners. And of course adds to the deficit. Government needs to begin to look seriously towards manipulating the import market in favor of production as against services and the distortion arising from our dependence on export crops can be address if we put in place long term plans to add value to our commodities before export.
Coming back to the issue at hand it is my fervent believe that government should stay out of company profits because such measures also serve to increase the overall cost of doing business in Ghana and if there is any situation which addresses that problem for companies in neighboring countries, it would not be long before we see them leave our country to go elsewhere. Governmental policy should never be done in isolation but in a coordinated and integrated way. Our civil servants need to be made to work. They have to begin to deal with the integrated nature of policy from a broader perspective to enable us to address every loophole in policies that we put in place. That we have prevailing high cost of goods is indicative of the fact that we are continuing to neglect our production and export base but the real question is do we even have one today which in turn suggests that unemployment has to be pretty high. We need to find mechanisms to bring cash and export to production. This should be the role of government. The high cost of money is not doing anyone good. If I have to borrow at 30% in an environment where Libor and other indices are at historical lows, then there has to be something fundamentally wrong with the economy I am operating in. This is the issue government needs to address in the near future in order to stem the declining confidence in the ability of the Ghanaian economy to deliver.
While I can see why the government would turn to such a measure to reign in inflation and stabilize the economy in the short term, I also fear that this could become a self defeating measure in the long run. For example, com ...
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