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Business Sense Versus Economic Textbook Knowledge

Business Sense Versus Economic Textbook Knowledge

Sat, 10 Nov 2007 Source: Danso, Kwaku A.

Are some of our men faking it?

Raising the prime rate from 12.5% to 13.5% in a year where electricity was being rationed and has been very scanty and forced many companies out of business does not seem intuitively right to some of us in the business world. To raise the cost of doing business as a means to curb potential inflation from a one-time periodic economic indices over a quarter or one-year period in a nation that had no energy in half of the year, and had an estimated one third of businesses close down in 2007, does not make sense!

The report of Bank of Ghana raising the prime rate to curb inflation (reported on Ghanaweb November 6, 2007) seems to be a textbook policy rather than a policy based on set national vision and goals. In the report Dr. Acquah said:

?The Bank's Composite Index of Economic Activity (CIEA) picked up during the third quarter of 2007 rising from 15.2 points (5.10 percent) over the June 2007 level of 299.43 to 314.71 points in September?.

It will be hard to imagine that after a very difficulty half year for businesses and people in Ghana caused by the energy rationing or the load shedding of the Akosombo dam, the year?s economy did better than the previous! The cost of a private generator usage was estimated by this writer to be about an additional $1,500 per month for a small business. How can the high cost of energy due to the use of private generators at private homes, small and major businesses, not be a factor? The governor thinks the increase in business and economic activity is cause for inflation and hence raises interest rates. According to the report, the individual components of the Banks analysis and what makes the government think that there is excessive growth come from the following:

?port activities, sales of key manufacturing companies, credit to the private sector, imports, tourists' arrivals and domestic VAT collections?

Should it not be obvious that increase in port activities are mostly shipped goods from imports? When the economy is hard on Ghanaians, and old people have no source of income, who do they rely on but their children overseas? This year alone this writer has made four separate shipments with two separate shipping Agents in our area. This reflects the community where this writer lives, and one can sense an activity increase which multiplied by hundreds of thousands of Ghanaian families across the globe, only is a reflection of what the ports of Ghana are seeing.

The Private Sector

Ghana has very little one can define as major corporations. Ghanaian intellectuals however talk of the private sector as some foreign entity. One cannot blame them since most of them have never been in business for themselves. The suit-and-tie-wearing executives forget that the private sector includes their mothers and uncles who work at the Makola stores, the carpentry and metal fabricating shops, dress-makers, auto-mechanics and parts dealers at Kokomlemle, Abose Okai or Kumasi Magazine, or the farmers or corn mill producer. In America small businesses, called Mum and Pop shops, generate 90% of the employment, and the government takes a keen interest in their survival and provides them guarantee on small business loans through the SBA administration. Do we have that in Ghana? Hon J.H. Mensah may lament on the plight of the Ghanaian but these solutions should be elementary for a man of his reputed intellect. He should know that there is nothing wrong with the Ghanaian, but rather with the kind of people who get into positions which used to be held by the exploiting colonialist, if he sincerely wanted to find solutions and listened to the plight of the poor workers.

Credit in Ghana

Let?s examine credit to the private sector and credit. Any critical Business Analyst will tell any Banker or Economist that Ghana has been kept behind mostly due to the poor or scanty availability of credit to the private sector. This writer interviewed small businesses who could expand and create more jobs if they had access to credit. Many of them would not even dare approach a Bank. That is the kind of elitist aura created around our modern Western system of banking in Ghana. Our financial institutions need to adopt the system as done in the US where licensed brokers and intermediaries help educate clients on Banks lending underwriting requirements. Our Banks have not adapted well enough to meet the needs of the people of Ghana. An increase of lending to the private sector from September 2006 to September 2007 should therefore be seen as good news and a trend worth continuing and not a cause for fear and hence reason to curb this growth. The report said ?credit to the private sector and public institutions has increased by 1,348.5 million Ghana cedis (59.9 percent) to 3,600.3 million Ghana cedis compared with an increase of 542.1 million Ghana Cedis (38.9 per cent) over the same period in 2006?.

There is a major difference between technocrats and leaders. Let us all remember that Ghana is 50 years behind other nations that obtained political independence in the last half of the last century. It would be politically suicidal for any leader to think that since Ghana was in a negative growth rate some time ago, any rapid growth will cause inflation which should then be curbed. It is true in life that a starving man should be fed gradually. However this is not a mere joking matter. Ghana?s population is increasing faster than our GNP per capita increase over the last 40 or more years. In reality, Ghana?s GNP per capita has dropped from the 1950s from around $400 to $320, according to World Bank reports (2005). We do not need to be fed with spoons like babies simply because we were starving, if you want to use that analogy.

Take an example. Due to the poor credit system in Ghana, one can see many commercial buildings that could be used as offices, small incubator factories and warehouses and hence generate economic activity. These are sitting idle in our cities and suburbs, as individuals run out of money and abandon the project because nobody will aid them in the Banking sector. About 4 or 5 case studies have come to this writer?s attention in the last year or so of men who left the West and some spent $100,000 to over $200,000 of their own money to build a factory or other manufacturing facility only to fall short of completion and find no source of financial assistance from Ghana. One of them was for pharmaceuticals and one for computer related products. If one multiplies this many times, we can see that our policies of inaction of the past governments have actually helped stifle our development and growth. We usually laud one success story in the papers but we fail to realize that 99 others did not receive support that most developed government would gladly give their people if these entrepreneurs could come out with 10% to 50% of their own funds. It therefore does not make sense from a business aspect to stifle growth in the lending industry and use that as an excuse for raising the prime rate.

For raising the rate from 12.5% to 13.5% to Banks, simple business logic suggests that Banks will also raise their lending rate if they maintain their margin of profit. The report quoted Dr. Acquah as saying:

?the lending rate of banks remained unchanged within the range of 15.0 percent and 33.5 percent in the year through September 2007?.

With all due respect, anybody who had a good understanding of the operations of a business will know that there is no way the Banks are going to take the loss without passing it over to customers. Let our government executives stop this public deceit. The average Ghanaian today has some exposure to basic education and they are not dumb. In a short comment on Ghanaweb column, a writer asked if his mortgage payment on his house will increase due to this. The simple answer is that a 1% raise in increase like that will cause about $69 per month increase in the monthly payment of a typical $100,000 loan amortized for 15 years. Let us remember the average worker does not make $69 per month in Ghana and one person could lose his job if this home owner does not have an increase in revenue from other sources in his business.

Ghanaian small businesses are not able to compete with cheap foreign imports. There are many reasons, ranging from poor management, poor planning, lack of specific skills, but mostly due to lack of credit to expand and the high cost and poor quality of services provided to them by service companies such as electricity, telephone, broadband and even water. People should not make fun and look down on the Ghanaian entrepreneur. In America there are sectors who complain of cheap Chinese imports, from toys, electronics, hardware, shoes and clothing, cell phones, to even Christmas trees and fish from China! As such one can see that the forces of change, such as customer preferences and global competition, are not only hitting hard among the weak in Ghana but all over the West also. In Ghana our people lack the technology and the infrastructures, as well as the cultural attributes to compete favorably. These companies hired by government to supply services are all fully or partly owned and controlled by our government. As such one can see that the government?s inability and failure is the major impediment to business growth and development. In a research conducted in Ghana between 2004 and 2006, even before the electricity crisis hit the nation, businesses participants showed a very high level of dissatisfaction in the delivery of these services, from 70% to 90% in some cases (Danso, K.A., 2007. Leadership Concepts and the Role of Government in Africa: The Case of Ghana. Philadelphia: Xlibris).

Remittances and Social Benefits

Many have used the remittances as topics of political rhetoric, but the facts are clear. Ghana is not producing enough of what we consume, and not earning much from even Cocoa, Gold, Diamonds and other minerals, compared to remittances, moneys being sent home by Ghanaians overseas. The report cited Dr. Acquah as saying:

?transactions by banks and forex bureaux over the first three quarters of 2007 amounted to 6.22 billion dollars, which 29.0 percent increase over purchases and sales over the same period in 2006?

This figure of $6.22 billion projects to an annual amount of $8.29 billion. This is the moneys that are sent through forex bureaux alone. The ones that come through envelopes and sent per friends are not even captured in this number. It is a major failure in our nation?s leadership that our older people were not provided with any social benefits when they retire. This writer has seen some retired government officers being paid as little as $20 per month. In 2004 one former official of the Ghana Embassy told me that his retirement pay had been held up for over six months and he added that he knew why. The officials disbursing the funds wanted him to come to the office and offer them bribes before they would release the money, and he was not about to give in.

For the larger number of Ghanaians who retire and were self employed, they have absolutely no benefit from government for the years of market lampoons or taxes they paid through VAT. It is not the fault of the small businesses if government men sent to collect these lampoons or taxes pocket most of the money. In the year 2007 our government with PhDs and MBAs should have been smarter than 5th graders in collecting taxes and accounting for the moneys! Even with the NHIL, retired people have to pay upfront for medical services. In one case studied by this writer, the service cost for X-Rays and Blood tests was far more than the monthly income of the person. To put it in simple terms, one can say that Ghanaians are not manufacturing and producing hardly any products with high value to the rest of the world markets. Due to the beggar status of the past and current government policies, Ghana has been forced or coerced into opening our markets, importing cheap and sometimes useless unreliable imports. The cheap imports, added to the high lending rates and poor infrastructures and cost of services, have caused the death of our domestic capacity for production and competitiveness. The high lending rates of the Banks only help put the last nail in the coffin of our small businesses.

A nation consists of the collective sum of individuals. The only way for Ghana to survive then comes from moneys sent by their sons and daughters overseas to feed the hungry, educate the youth, clothe the naked, and finally bury the dead!


It is highly recommended that the people in the government sectors who have no idea of what it takes to be in business for themselves think twice and consult the business community when they make policies. Our budgets over the last four or more decades have been designed by men who may have had degrees in Economics but did not understand business. There are men like Hon J.H. Mensah, and most notably Dr. Kwesi Botchwey who would raise the price of petrol and kerosene and decide what prices transport owners should charge for their private vehicles, while at the same time claiming he would reduce inflation rate. Not to be personal but it was obvious to some of us that such incoherent ideas and policies, from men who faked their way through the job ended up destroying Ghana?s economy. Our current UNDP reports for poverty reduction, GPRS and GPRSII are full of major loopholes and have no chance of helping our people through job creation. The idea of ?poverty reduction? is a great deceitful misnomer that should be cut out of our vocabulary. The current administration has borrowed billions of dollars worth of money without using the money for intended purposes such as water. A good example is the grant of $103 million (January 2005) and a loan of $500 million (January 2006) for water from the World which to date has not seen open accountability. Other moneys borrowed have no specified means to paying back the loans. Would this make sense to a business-savvy person?

Our elders warned us that there was a difference between classroom knowledge and wisdom or common sense. One should perhaps issue a caution and warning to the elite government executive staff that continuation of falsehood in public policy (aka ?window dressing?), and the pretence of executives lead to a false image that Ghana is doing well. This does not in anyway imply that Dr. Acquah is personally involved. However, our executives should be honest with themselves and open their minds to learn as well as face the fact that they are paid far in excess of their performance and productivity levels. They cannot compete and are rather selling Ghana?s assets and major corporations. That is a reflection of failure on their parts! More than 95% of Ghanaian executives, according to our study, are computer illiterate. Many do not know how to operate a fax machine. Most are not even aware of the benefit of the Internet as a tool for modern global business and communication. Are these people smarter than a 5th grader? ? one may ask. The large majority of self employed ordinary Ghanaians are surviving but the poor unhealthy living conditions and lifestyle are reflected in our average life expectancy of 57 years, still 20 years below that of other nations. We should face reality and design policies and implement visions to compete globally. The window-dressing policies and reports to obtain loans should stop! This may be beyond the level of a Bank governor. However, let us know within our hearts and minds that we are as intelligent as the members of the Western world where most of our policy makers have studied and even worked. Nothing but the best is good enough for Ghana! If we can grow our economy 15% or 20% per year that should not be a cause of concern but joy so far as we are not faking and we are trying to help our people to produce what we consume. Without individuals surviving in small businesses, to employ two, three or more each, and credit from the Banks, our nation stands to be taken over by foreigners who will only use our people as cheap labor, bribe the Ministers and destroy whatever we have built since independence.

Dr. Kwaku A. Danso
(The writer, Kwaku A. Danso, is an Engineering and Management Consultant and Owner/Manager of a small Real Estate and Mortgage Finance company in California. He may be reached at Email: k.danso@comcast.net).

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

Columnist: Danso, Kwaku A.