Making Ghana Competitive

In his State of the Nation address earlier this month, the President announced plans to establish in Ghana sometime this year, an International Financial Services Center. This will be a joint venture with Barclays Bank. International Financial Services Center is a euphemism for Offshore Banking. Two Ghanaian papers commenting on the news had two diametrically opposed views. While the Statesman saw the full potential of such a venture, Public Agenda on the other hand, employed an insidious canard in a futile attempt to derail the venture. Public Agenda?s editorial couched in moralistic obfuscation sought to portray offshore banks as the milieu where the devil only transacted business. It mentioned not only evil characters of yore like Adolf Hitler and Sanni Abacha but also terror mastermind Osama Bin Ladin as questionable characters that used offshore banks. This is an inaccurate depiction. The US government in spite of its public denunciation of such banks uses these offshore banks to further its national security interests. Many CIA front companies are established in the Cayman Islands with instructions to deal with US Companies only in arms length relationships.

This piece is not a rejoinder to or a critique of the Public Agenda editorial. I just want to bring to the attention of Parliament, aspiring Presidential Candidates and the current President, what other countries are doing to tap into the vast global business and what Ghana can do to get a piece of the pie.

Legislative Initiatives.

Most of the laws on the books in Ghana are antiquated and do not meet the exigencies of the global economy. Most of these anti-business laws were passed during the days of Nkrumah?s socialism, Acheampong?s yentua politics and Rawlings? discredited revolution. Why repeal these laws? The answer is simple. If Ghana is to become and remain competitive in global commerce, that is the most prudent thing to do. Smart countries have found out that they can not compete with China and India in the global manufacturing arena and are now looking at new and innovative ways to compete in the global economy. How? This is done through the repealing of anti-business laws and the enactment of pro-business statutes. Two such smart countries are Singapore and Ireland. This is where our politicians need to learn and stop singing the old refrain of asking foreign companies to come and establish factories in Ghana as the only way to develop. Just look at what Ireland and Singapore did.

Singapore and Off-Shore Banks

For decades, the filthy rich, (the good, the bad and the ugly) looking for discreet banking services gravitated to Switzerland notorious for its near sacrosanct account secrecy laws. In Swiss Banks, African dictators who pillaged the resources of their country, found a safe haven to hide their loot. Sanni Abacha and Mobutu Sese Seko hid their loot in Swiss Banks. In recent years, the Swiss authorities have acceded to pressure from the European Union to discourage tax evasion and money laundering that occurs in Swiss banks.

Singapore saw an opportunity to attract this business to its shores. The tiny Asian city-state beefed up account secrecy protections, changed trust laws and began allowing foreigners who meet minimum wealth requirements to purchase land and become residents. Private-banking money is also flooding in from the nouveaux riche of the booming Asia-Pacific economy, foreigners seeking to invest and do business in Asia, and Europeans moving money from Switzerland for tax purposes. The money flow demonstrates how one nation, in the amorphous and borderless world of international banking, can up the ante and use banking regulation as an economic development tool.

If Singapore utilized various legislative initiatives to attract wealthy foreigners, why can?t Ghana do the same? Under a rule change implemented in 2004, foreigners with assets of at least $13 million can now apply for residency in Singapore if they place $3.1 million in a financial institution in Singapore. Those applying for residency can use as much as $1.25 million of the $3.1 million to buy property in a government-backed resort-style residential development on Singapore's Sentosa Island. New residents are entitled to take advantage of Singapore's income-tax rate of about 20%.

Singapore since 1998 has made a concerted effort to diversify its economy away from electronics manufacturing, which faces increasing competition from lower-cost countries such as China. In 1998, after the Asian financial crisis, Singapore implemented a program to turn the city-state into an investment-banking, mutual-fund and private-banking hub using as a model, Switzerland's private-banking industry. Switzerland is currently home to about 30% of global offshore assets. Banking confidentiality statutes that have been on the books in Switzerland since 1934 permitted foreigners to hold personal accounts recorded within the banks merely by numbers. The Swiss consider tax evasion as an administrative offense and not a felonious crime. Hiding behind the fa?ade of its banking secrecy statute, the Swiss refuse to cooperate with other countries in cases involving tax evasion. However, they waive confidentiality requirements in criminal matters. Until recently, Switzerland used its sacrosanct bank secrecy laws to allow African despots to steal and hide their loots in Swiss banks. So do I have any moral qualms about Ghana establishing offshore banks that would allow money from questionable sources to enter the country? Hell no. What is good for the goose is equally good for the gander. It?s payback time. Let all the monies flow in. If Ghana receives a request from another country outside Africa to investigate money from questionable sources, do as the Swiss do. Investigate but drag on the investigation for years. Meanwhile the banks will be using the money and getting interests on it and paying taxes to Ghana. I hope this time around, the offshore banking proposal will not be a lip service and would not fall victim to the proverbial Ghanaian ineptitude made famous by the phrase ?we are looking into it.? You know, when African politicians say we are looking into it, they never stop looking and that will be the end of the story-no action is taken.

Ireland & Round Island One Ltd

Ireland revitalized its economy be enacting one of the lowest corporate tax rates in the world. Ireland used its tax policy to help attract huge amounts of foreign investment, including some lured from higher-tax jurisdictions. One such company is Microsoft. On a quiet downtown street in Dublin, is the office of a four-year old Microsoft Subsidiary, Round Island One Ltd. This unit controls the licensing rights to Microsoft software programs sold in Europe, the Middle East and Africa. With a thin roaster of employees on its payroll, Round Island One controls more than $16 billion in Microsoft assets.

Virtually unknown in Ireland, Round Island One has quickly become one of the country's biggest companies, with gross profits of nearly $9 billion in 2004. Irish citizens may not have heard of Round Island One, but they benefit greatly from its presence and largesse. In 2004, the unit paid the government of Ireland, a country of four million people more than $300 million in taxes. It also helped Microsoft trim off more than $500 million from its annual tax bill. So through Round Island One, Microsoft is able to radically reduce its corporate taxes in much of Europe while shielding billions of dollars from U.S. taxation and Microsoft is fully compliant with current US statutes. Multinationals whose products are heavily based on their innovations, such as technology and pharmaceutical firms, increasingly are setting up units in Ireland that route intellectual property and its financial fruits to the low-tax haven. All this was done by changing the tax laws. Why can?t we do the same in Ghana? What we need to do in Ghana is very simple. Parliament should pass legislation lowering the corporate tax rate and ban taxing royalty income on intellectual property. This will make Ghana competitive with countries like Ireland and Cayman Island and the State of Nevada. This is why our honorable parliamentarians and aspiring presidential candidates and politicians in general, need to keep abreast with the times and come up with new legislative initiatives that would transform the economy of Ghana. Ghana?s economic development can not be judged solely by the number of factories we build. Ghana can equally be a service economy and a prosperous one at that.

Diaspora Remittances

According to the 2005 figures released by the Bank of Ghana recently, private inward transfers ? from NGOs, religious groups, individuals etc ? through the banks and finance companies for January-November 2005 amounted to $4.25bn, making it the largest source of foreign exchange. Of this colossal amount, the central bank estimates that $1.27 billion (30 percent) represented remittances from individuals.

From a policy perspective, the government should forge alliances with other governments, civil society and private sector institutions to share best practices and coordinate strategies to improve the flow of transfers. More importantly, the government needs to come up with a program of action on how best to utilize this cash cow to generate economic development in the country. Here are things that are being done in countries with high volume of remittances.

Philippines: Competitive market, significant participation of Filipino banks as Money Transfer Operators.

Turkey: Special interest rates for foreign currency deposits, import privileges for migrant workers, several banks offer efficient money transfer to Turkey Portugal: Accounts offered to non-residents at reduced tax rates, special financing programs to build or buy homes in Portugal, low cost remittance transfers

India: State bank offers bonds and accounts to non-residents, accounts have higher interest and reduced tax rates

Pakistan: Government program provides incentives to remit through financial banking channels; participants receive benefits such as import duty exemption

Morocco: State-run bank offers joint checking accounts for remitters and recipients, low fee wire transfers

Serbia: Diaspora got its own ministry in 2004; their first ever participation in elections was also in June 2004.

I guess politician Tony Aidoo needs to learn a lot from these countries instead of calling Ghanaians in the Diaspora, ?unpatriotic.? So the Diaspora remittance is a ready source of capital for economic development. The question is what are the banks doing with this money? That?s the age old Ghanaian paradox.

Home Grown Capitalism/The Cape Coast Paradox

Chief Justice Acquah speaking at the inauguration of Oguaaman Union in Accra on October 9, 2004, expressed regret that ?Cape Coast and its environs were lacking behind in infrastructure and human development and said there were no big industries, factories and manufacturing companies to offer employment to the people.? I was shocked to hear that from our Learned Chief Justice. Cape Coast has a University, Mfantsipim, Adisadel, Saint Augustine?s, Wesley Girls, Aggrey Memorial, Ghana National, OLA, just to name a few. All that Cape Coast needs is a well established service economy to cater for the needs of the students. Cape Coast is potentially a multi-million dollar economy waiting to be tapped. In the US, in every big University town, the retail giant Wal-Mart has a presence. All the students do their shopping there at the local Wal-Mart. What do they do in Ghana? The students bring their chop box. So very little shopping is done in Cape Coast by the students. Where are the businesses? What are the banks doing in Cape Coast? I give a great plus to the recent speech by the Minister of Foreign Affairs, Nana Akuffo Addo at KNUST about the need to create a new group of indigenous capitalists- capitalists who will see opportunities at Cape Coast and seize on it and not lament on the lack of factories in that city.

An overhaul of the tax system-Top on our legislative agenda should be a law streamlining the income tax system. Our tax system needs an overhaul. Whoever is aspiring to be the President and has no plan to present legislation to Parliament that would fundamentally overhaul our byzantine tax system, should not even dream of standing for election. We should get rid of the tax regime that allows a majority of the population engaged in legitimate business or otherwise to operate outside the tax system. We should say good riddance to the current porous, exemption-riddled tax system that allows the briefcase toting connection man, the globe trotting drug trafficker, the bribe-dependent civil servant and the countless kalabule business men and women to evade tax on their income with impunity. The politician who is convicted of bribery and embezzlement should pay tax on the monies misappropriated. The property owner who rents out or leases his property and is paid monthly rent in local or foreign currency should pay tax on his income. The property owner who gets a lump sum payment (advance or goodwill) for leasing his property should pay tax on this windfall. A capital gain tax should also be enacted to tap into the vast pool of untaxed monies earned by people who sell their properties, businesses and stocks. Ghanaians in the Diaspora do not face any tax liability on their foreign earned income back home. Ghana needs to come up with a rule that will require Diaspora Ghanaians to start paying taxes back home annually on their foreign earnings.

Sales-tax-Should the central government be receiving all sale taxes or that should go to the regions? Sales taxes should all go to the regions where they were generated.

Property tax- There is no reason why cities like Accra, Kumasi and Sekondi-Takoradi etc. should be primarily dependent on the central government subvention in order to function. With the boom in housing construction, the revenue from property tax should also increase exponentially. The problem is nobody pays property tax in Ghana. The current laws on the books have failed to curb the widespread tax evasion. That is why we need new and tougher laws to assist local governments in collecting the monies owed them. The various local governments should also be staffed with accountants, tax lawyers etc. to help them maximize their revenue from property tax. All defaulting land lords and property owners should have their properties forfeited and put on the auction block. There should be no laxity in enforcing the law. The various local governments should set the deadline for payment of property tax. If you?re in default after the grace period, the property should be sold to recoup the money owed to the local government.

Let?s see what vision our politicians have in running for public office. Let?s see how any politician running for any high office of the land intends to address the issues enumerated above. If he is clueless, please don?t vote for him or her. God Save Ghana.