Exposing weak research fundamentals - Part 2

Bawumia Seleop Vice President of Ghana, Dr Mahamudu Bawumia giving a lecture on the economy

Sat, 6 Apr 2019 Source: Isaac Ato Mensah

Your Excellency , The Economic Management Team, Ladies and Gentlemen.

What we saw and heard from the town hall meeting, at the auditorium of the Ghana College of Physicians and Surgeons on Wednesday, can only happen in the land of make believe!

Let us examine three different sets of analyses in H.E. Dr Bawumia’s written speech and see how soon we can find our way out of Neverland.

‘Real GDP growth (Our ability to produce goods and services in the economy) declined from 9.1% in 2008 to 3.4% in 2016.’

Clearly, H.E. Dr Bawumia, the economist, should know that this kind of analysis will get him into trouble. Why?

Even if the base years were the same, there comes a time when marginal changes to the base you have attained is difficult. Also, every economist or student of basic statistics knows that one percent of $10 billion (Answer; $100 million) is bigger than 50 percent of $1million (Answer; $500K).

Again, the vice president’s statement read,

Again the vice president’s written statement said:

‘The strong growth performance of the economy translated into a steady rise in the share of every Ghanaian in national output, which today at GHC9,864 is 30% higher than in 2016 (Figure 3).’

Now let us round off this GDP per capita to 10,000 Cedis (USD,2000). That for 2016 therefore becomes 7,000 Cedis. If one is to use a weighting scale of the average Cedi depreciation rate/exchange rate against the US dollar for example, for 2016 and 2018, the real GDP per capita will be known and any significant difference could be debated.

Never in an Economics class has any lecturer agreed to such an analysis as was presented within the same paragraph without a weighting scale because it is misleading and does not present a true picture.

Therefore the vice-president’s written speech exposes him, the EMT and the current administration to embarrassment because cool heads are reading, listening and watching, and some of these are Economics students within the various political persuasions.

Your Excellency, The Economic Management Team, Ladies and Gentlemen

Let us turn our attention to the depreciation of the Cedi which is the main concern which prompted Wednesday’s town hall meeting.

‘Rising public debt had pushed debt-to-GDP beyond the 70% threshold for comparable economies to 73.1%. As a result, Ghana was classified as a country at high risk of debt distress, a classification that we are still trying to change.’

Respectfully, this is disingenuous. Every Economics student and indeed every logician knows that to be consistent one has to use the same GDP base to determine the debt-GDP ratio.

The Ghana Statistical Service (GSS) is the authorised agency to settle this matter. It is important at this stage, in order not to pollute the airwaves with noise, that the GSS gives the nation the Debt-GDP ratio using the previous benchmark and the benchmark post re-basing of the GDP.

As a matter of fact, the GSS does this analysis all the time.

On 1 July, 2007, when the Cedi was redenominated, one needed only 97 Pesewas (less than a dollar), to get one US dollar.

Twelves years later one needs at least five Cedis to get the same one US dollar.

In the study of Economics, we never say the Cedi has lost over 100 percent of its value, but in English language we can say the Cedi is worthless.

During the EMT, whilst the vice president was saying the fundamentals are strong, Yaw Osafo-Maafo, the Senior Minister, was agreeing with a questioner (who compared Ghana to South Africa) that trading in dollars in every corner of our towns by money changers despite numerous forex bureaux was a canker this nation has not been able to surmount.

So respectfully which fundamentals are we referring to?

The kind of analysis we have seen in the vice president’s written speech ‘can only happen in the land of make believe,’ as my mentor is fond of saying when we are subjected to such shaky analysis – analysis not based on didactic rigour.

Your Excellency, The Economic Management Team, Ladies and Gentlemen

What are fundamentals?

Investopedia has clear answers.

‘Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being and the subsequent financial valuation of a company, security or currency.

Where qualitative information includes elements that cannot be directly measured such as management experience, quantitative analysis (QA) uses mathematics and statistics to understand the asset and predict movement.’

Your Excellency

The Economic Management Team

Ladies and Gentlemen

We at writersghana.com have taken up the vice president’s call for a clean debate.

We await your learned response.

Thank you.

Columnist: Isaac Ato Mensah
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