Economy of Ghana: Yesterday, Today .. Part III

Fri, 31 Mar 2006 Source: Thompson, Nii-Moi

IV. Subversion, Regression, and HIPC: 1966-2001

Among the casualties of the 1966 coup was the 7-year plan, whose implementation was promptly suspended by the coup makers. Much has been written about what has happened in the years since then ? the general decline in the economy, our decaying infrastructure, both physical and institutional, and indeed the diminution of our very sense of being, our dignity, our self-confidence, as a people.

Without spending much time on cause and effect, I?ll focus on Ghana?s per capita income since 1962 in comparison to South Korea to illustrate the scale of the meltdown of our economic fortunes since the 1960s. I chose S. Korea because Ghana?s per capita income was higher than that of South Korea in 1962 ($190 vs. $110) But by 2000, the eve of HIPC relief, our per capita income was only 4.0 percent of that of South Korea?s - $340 vs. $8,900. (This is elaborated upon in the Power Point presentation).

There are several ways of explaining this dramatic meltdown in our economic fortunes. One way is to look at the rate at which we invested in our economy for productive purposes. As stated earlier, a hallmark of our earlier development efforts was the massive investments made. Hence, in 1960, Ghana?s gross capital formation as a share of GDP was 24.4 percent, compared to 11.5 percent for South Korea (or, to extend the comparison, 9.2 percent for Indonesia; 13.7 percent for Malaysia; 15.4 percent for Thailand; and 16.7 percent for Cote d?Ivoire.)

By 1970, when S. Korea?s per capita income surpassed that of Ghana, our gross capital formation ratio had fallen to 14.1 percent while S. Korea?s had risen to 25.5 percent. By 1983, when we launched structural adjustment, the ratios were 3.7 percent for Ghana and nearly 30.0 percent for S. Korea. By the close of the century, Ghana was back where it started ? 24.0 percent ? but this was almost entirely due to donor-induced investments in the public sector. Other data, such as private sector credit, showed continued decline. In 2000, credit to the private sector in Ghana constituted about 14.percent of GDP; it was 102 percent in S. Korea.

Why the disparity? Simple. While successive S. Korean governments, including the military dictatorship of Park Chung Hee, actively worked with the private sector to promote their brand of economic nationalism, government-private sector relations in Ghana were adversarial and too often punitive and ultimately pernicious. In short, we shot ourselves in the foot. But we have a chance to redeem ourselves yet.

The paradox of the HIPC initiative is that in order to qualify for debt relief, we had to do more of the very things that got us into it in the first place, that is, to have a ?programme with the IMF.? And this programme ? starting from structural adjustment, enhanced structural adjustment, and poverty reduction and growth facility ? has had the singular effect of depressing economic growth, limiting the possibilities for national development, and deepening our dependence on external charity for everything from roads to schools to mosquito nets to public toilets. Those of you who have been to the Elmina Castle lately might have seen the garbage can at the entrance with an inscription that reminds us that it was donated by the German government. Another national shame.

Another problem with HIPC, which I hope to discuss extensively in a separate presentation, is the statistical falsehoods that were used to stampede us into it. I was at Labadi Beach hotel, with a number of government officials in 2001, when a couple of nervous Britons, sent here by the British government to convince our government about the rightness of HIPC, made their presentations on the issue ? drawing largely from IMF material. But even that couldn?t disguise the major flaws in the strategy..

Our external debt, as I said at the time, was, based on a trend-comparative analysis, for example, should have been about $10 billion higher than the $6 billion reported, given the size of our economy and its under-utilised potential. I also noted that debt levels by themselves don?t tell us much about a nation?s ability to finance its debt, and that growth and an effective and efficient tax administration offer better alternatives. A badly run economy will have difficulty financing even $1 billion debt; a well-run economy would have no such difficulty financing 20 times as much. We suffered from the former. In addition to the above, some of the indicators of debt stress were flat out misleading. To take the debt stock in December, for example, and divide it by economic activity over an entire year of 12 months is bound to distort the true extent of debt stress. And in our case, it did, pushing us further into the arms of the IMF for more misguided policy prescriptions.

If we were to do a proper cost-benefit analysis of HIPC, these would be some of the costs, in addition to the well-known benefits that have been sold to us. V. Beyond HIPC: Rhetoric, ?Stability?, and Disaffection

With the declaration of the government?s intention in 2001 to access the HIPC debt relief initiative came a string of slogans meant to capture the government?s ideological and operational approach to growth and development. Thus we had Golden Age of Business. Property Owning Democracy. Positive Change (in chapters, I might note). Macroeconomic stability. Good governance. Yet even some of us who voted for this government now wonder if this was all rhetoric and nothing more.

We don?t hear much about ?property owning democracy? these days. The cynical among us would say that it?s been replaced with a ?property grabbing oligarchy? (a government of the few for the few). ?Positive change? died off gradually but was revived during the 2004 campaign only for it to relapse into oblivion after the elections. We continue to hear about ?good governance? but more in style than in substance. The passage of laws and the assignment of roles among public institutions at the national and local levels may facilitate governance, but that does not by itself constitute ?good? governance ? in the broad sense used in development economics. From an economic development standpoint, we have good governance only when government does what it is expected to do, and what it says it would do, to enhance the material and non-material well-being of the people. Period. Hence, if, for instance, you are paying increasingly more for water and electricity ? two critical services for economic and social development ? but the quantity and quality of these services are either stagnating or even declining, you have not good governance but bad governance. The microeconomist would tell you that both individual and social welfare are declining. The recent crisis in water provision as well as the worsening sanitation situation across the country, despite the fact that government takes money from us ostensibly to provide these services, are all evidence of the persistence of bad governance in the country. Let no one convince you otherwise. Some of you might be familiar with the story of the AMA tax collector who took in ?12 million but reported only ?120,000 (1%)! Now, that?s worse than bad governance. That?s criminally bad governance!. Interestingly enough, the mayor?s response to this crime was to refer the matter to the courts and then contemplate ?privatising? revenue collection, rather than fixing the rot as any good and progressive leader would and should do. It seems that privatisation has become a convenient cover for capitulation: Whenever you face a problem that you can?t or don?t want to solve, just yell, ?privatisation? and presto! all your problems would be solved. How facile can we get.

We are now left with two slogans ? macroeconomic stability and golden age of business. And here, too, the picture is mixed at best, grim at worst. Most of the data in the government?s own policy documents regarding the economy are either flat out wrong or selective in their representation of the economic and social realities of the country.

As shown in the Power Point Presentation, figures presented in the 2003 budget as depreciation rates of the cedi, for example, were actually the appreciation rates of the dollar; embarrassingly, the same mistakes are repeated in the Growth and Poverty Reduction Strategy II, whose implementation is expected to commence this year. Shockingly, when the government met its ?development partners? in November 2005 to solicit funding for the GPRS-II, a senior government official kept telling them ?not to worry about the technical quality? of the document but concentrate instead on how much money they could give us!. It?s like telling your architect not to worry about the structural integrity of your building, but concentrate on how much the building would cost! We should do better than that.

And even where the statistics are accurate, they provide a grim picture indeed. Page 46 of the 2006 budget, for example, shows a decline in the private sector?s share of outstanding credit from commercial banks, despite the ?golden age of business.? Significantly, credit for import trade increased while that of manufacturing declined. In the same vein, successive reports on the state of the Ghanaian economy by ISSER, University of Ghana, have shown declines in business registration and in foreign direct investment. Although there?s been a modest recovery in FDIs, the levels are still lower than they were in 1999, the year before the economic crisis that eventually led to HIPC.

As a footnote, it must be noted that contrary to popular claims ? and perceptions ? the annual inflation rate between 1997 and 2000 was 20.0 percent, while the rate between 2001 and 2004 average 22.0 percent. Clearly, inflation did NOT decline after 2000, as we?ve been made to believe, but it actually went up. Similarly, while the rate of depreciation of the cedi against the dollar has declined dramatically ? from about 50.0 percent in 2000 to around 2.0 percent in 2005, the inflation rate has also been higher than the depreciation rate.

This has had the effect of making Ghana?s exports uncompetitive, as evidenced by the steady decline in merchandise exports as a share of GDP from 37.0 percent in 2000 (having rising from 25.8 percent the previous year) to 32.0 percent in 2004. Indeed, according to GPRS-II, the share of manufacturing as well as water and electricity in GDP, all indicators of private-sector activity, have declined steadily since 2001, in addition to a fall in the fisheries sector?s share, despite the appointment of a minister of fisheries by the current government. Something ain?t right.

What then, one is tempted to ask, has been the source of the much-vaunted macroeconomic stability? If we look at the external component of that stability, such as increased international reserves, the answer simply is ?luck?. For example, between 1997 and 2000, prices of cocoa beans on the world market declined by an annual average of 4.4 percent; they increased by 13.4 percent between 2001 and 2004. Gold prices declined by 7.5 percent in the first period but increased by 10.3 percent in the second. At the same time, oil prices rose at an annual average of 19.3 percent in the first period but slowed down to 6.4 percent in the second period. Unrequited private transfers have also increased. (This is elaborated upon in the presentation).

Suffice it to say that the social upshot of what is going on on the economic front has been one of growing public disaffection, as evidenced by the government?s Core Welfare Indicators Questionnaire (CWIQ) survey in 2003. According to the survey, 51.5 percent of Ghanaian households felt that their living conditions in 2003 were ?worse? than they were the previous year; only 27.0 percent said things were ?better.? A later study by the Centre for Democratic Development corroborated these findings in even greater detail. VI. The Way Forward: From H.I.P.C. to E.S.A.S. in 30 Years

a. ?What others have done, we can do? ? Marcus Garvey

Two major casualties of the coup of 1966 and the misgovernance that ensued in the decades afterwards were the dignity and self-confidence of the Ghanaian. Economists don?t like to talk about these in matters of national development perhaps because they are hard to measure or just not ?macho? enough, like hard statistics. Yet, they are perhaps more important than those so-called hard statistics. Ultimately, they explain why a country like Ghana, with all its natural endowments, goes to a country like South Korea, with hardly any endowments, to beg for development assistance.

With the loss in our collective dignity and self-confidence, beggary now becomes us. Our leadership and the general Ghanaian psyche now thrive on unabashed begging of all sorts (an NGO from Germany recently donated chamber pots to a hospital and the MP for the area was there to thank them ? in full glare of television cameras! That?s how low we?ve sunk as a people. Nkrumah must be spinning in his grave). We?ve been conditioned over the years to think that our ?salvation? lies outside of our borders and abilities. That?s false. If anything, it is our leaders who are most guilty of this crisis of dignity and of confidence. Under their mismanagement, today everything from the Black Stars to Ghana Airways to Black Star Line to portions of GIHOC to Ghana Telecom has been handed over to foreigners to run. Recently, even the Kakum National Park was offered to some outsiders to run. One is tempted to ask: If we can?t manufacture tooth-picks or airplanes and we can?t manage our own state own enterprises, including a park, then what are we good for after nearly 50 years of independence? I insist that ours a more a poverty of common sense than a material one.

To quote the current minister of Water Resources, Works and Housing, when he was handing over the management of Ghana Water Company to a group of Europeans and South Africans, the ?Ghanaian is not known for his management skills.? But if anything, it is Ghanaian leaders who may not be known for their managerial skills, for where the institutional arrangements are conducive, without political interference and all sorts of favouritisms, the Ghanaian has always excelled like his counterpart anywhere else.

The problem then is with the leadership, not the Ghanaian. That?s why we should begin contemplating replacing the current crop of leaders who have traded away their dignity for beggary, utterly lack self-confidence and, as one would expect, are consequently bereft of vision. It?s the only reason they would consider a measly $1,000 per capita income as something to aspire to over a decade when in fact we could, through good leadership and good policies, do much more than that. In fact, someone ought to remind our leaders that $1,000 in 2015 would not necessarily make us a middle-income country. Currently, countries earning $965 or lower (according to GPRS-II) are those considered low-income. By 2015, thanks to the effects of inflation on the value of money, the cut-off point would be much higher than $1,000. Hence, with $1,000 in 2015, we would still be a low-income country.

b. New Dawn, New Vision: An Agenda for the Social and Economic Transformation of Ghana

Once we?ve restored our dignity and self-confidence, the next step is to dream the kind of society we would like to have in the future and then work hard through good leadership and good policies to attain that dream. I propose a conscious and ambitious leap from HIPC to an Economically and Socially Advanced Society (ESAS) in about 30 years. Such a society would not only be characterised by high income levels but high quality of life as well, what our National Cultural Policy Document calls a ?fulfilling life? for all Ghanaians ? a society characterised not only by material progress but high levels of social, emotional, intellectual, and cultural development. Let no cynic tell you that this cannot be done. With the benefit of technology, we can accomplish in 10 years what others took 100 years to achieve ? and we would do it better.

The following are some of the social features of an ESAS:

? Extreme poverty is eradicated (no Ghanaian would go to bed hungry). ? Child labour is eradicated; every child in school ? Public provision of basic social amenities like health, education and housing to complement the efforts of other social partners. ? Comprehensive rental reforms to protect tenants ? Consumer protection laws ? Unemployment Insurance and public assistance for workers and the poor ? Clean and Green Policy on Environment (quality of life issues) ? Cultural and civic development and awareness throughout the country. ? Public libraries, parks, zoos, and museums, for example, would be features of all Ghanaian communities as part of the non-material aspects of development. It is through such things, in addition to conventional education, that we can tackle the problem of superstition and ignorance that stand between us and our capabilities. ? Free and compulsory education of the highest quality for every Ghanaian.

The following are some of the economic features of an ESAS:

? Currently, agriculture, services, and industry, make up 40.4 percent, 32.4 percent, and 27.2 percent, respectively. At the highest development of ESAS, they should constitute, respectively, 10.0 percent, 70.0 percent, and 20.0 percent. This would be in line with the knowledge economy that would characterise ESAS. ? Under the knowledge economy, polytechnics, universities, and medical facilities (both general and research) will be upgraded to provide world-class services. This would be part of the strategy of making services, not merchandise, as the principal foreign exchange earner (In the U.S., for example, education ? the fees we pay to attend American universities ? is the second largest foreign exchange earner, after entertainment, in service exports). ? Along the same lines, we shall encourage financial and technical services exports. The plans by Unique Trust Financial Services to open offices in Kenya and Nigeria provides the perfect model for ESAS. It?s time for us to stop complaining mindlessly about ?globalisation? and take full advantage of it. We shouldn?t repeat the errors of the 1970s, when we expended all our energies calling for a ?new world international order?, when we should have been developing our industries to compete with others. In the event, we lost on both fronts. We should remember that nobody is going to hold back their progress for a bunch of whiners and ne?er-do-wells, and certainly no one is going to hand development to us on a silver platter. We?ll have to get out there in the global jungle and stake our claim. It?s a nasty fact of life these days but we have to get out there and confront it or be marginalized further, perhaps even perish. ? In terms of employment, currently agriculture accounts for 55.0 percent, services 30.0 percent, and industry 15.0 percent. Under ESAS, these should roughly be the following, respectively: 5.0 percent, 65.0 percent, and 30.0 percent. The fall in agriculture from 55.0 percent to 5.0 percent, for example, would reflect the massive improvements in agricultural productivity ? where our farmers would be so efficient that only 5.0 percent of the labour force should be able to feed us all ? and then export part of the surplus. The 65.0 percent of services should reflect high value-added jobs, such as Ghanaian-owned international construction services, Ghanaian accountants, lawyers, IT specialists, financial experts ? to name but a few ? of high international standing. (The rest is highlighted in the PowerPoint presentation).

? Modern rail network linking all regional capitals and major towns ? Inter-modal transit systems in all major cities ? At least one state-owned world-class university in each region ? Modern medical centres with research programmes for resident and foreign-based Ghanaian professionals

We have no choice but to dream big. It?s the only way we can accomplish big things. If we are lulled into thinking small, our accomplishments would correspondingly be small. And we, like the rest of Africa, would remain both objects of charity and ridicule by others.

Financing our way out of HIPC into ESAS:

Any proposals for the ambitious development of this country almost always promps the following question, ?But where would the money come from?? As alluded to above, the first step is to come to terms with the fact that, contrary to what the IMF and others would have us believe, there is no debt crisis (there never was) in Ghana. What we have is an egregious mismanagement of the scarce resources that we already have and our abysmal failure to generate resources domestically to finance our development and leverage our way into raising even more resources outside for development. A good example is to be found in the 2006 budget. A careful analysis of trends in VAT reveals that the ?7 trillion cedis proposed to be raised this year is only about half of what we could potentially raise if we had functioning systems. That?s about one billion dollars! Or one trillion cedis more than the six trillion cedis we expect in foreign aid this year. My friends, as the clich? goes, where there is hope ? and vision ? there is a way. The following are only some of the salient points of that way.

? Domestic revenue mobilisation

? Comprehensive tax reforms (back and front ends)

? C-cubed: Cost containment, cost reduction, cost management in state and non-state sectors

? Development Financing Authority (DFA)

? Tapping domestic and external commercial sources

? National savings mobilisation

For copies of the Powerpoint presentation, contact: niimoi@yahoo.com

Presented by Dr. Nii Moi Thompson, Economist
In Observance of the 49th Independence Day of Ghana
Organised by: Patriots of Convention People?s Party (CPP) and Youth for Action, University of Cape Coast
University of Cape Coast Auditorium

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

Columnist: Thompson, Nii-Moi