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Mike Tyson, Magic Johnson, Dubai Inc. & Ghana’s Oil Revenue

Mon, 7 Dec 2009 Source: Ennin, Baffour

In the dog eat dog world of professional sports in the US, it’s commonplace to see boxers spending their retirement years in abject poverty- penniless and broke. Have you wondered why Mike Tyson is broke and Magic Johnson (former Lakers basketball player) is a successful businessman even though Magic stopped playing basketball when he was diagnosed with AIDS in 1991? Mike Tyson earned $300 million and blew through it and still owed the IRS $38 million. Magic Johnson earned about $50 million from basketball and parlayed his earnings into business ventures that are now worth about $500 million. The irony is that, most basketball players and most boxers come from the inner city from similar social backgrounds. About 99% of all basketball players are recruited from college and most have college degrees. On the other hand, 99% of boxers do not have college degrees and joined the boxing ranks straight from the ghetto. The moral of the story is that money in the hands of the uneducated and uninitiated can be a disaster. Mike Tyson’s outlandish profligacy is unparalled in the annals of nouveau riche consumerism. In his glory days, Mike Tyson employed 200 people, including bodyguards, chauffeurs, chefs, and gardeners. He spent nearly $4.5 million on cars and motorcycles, $3.4 million on clothes and jewelry, $7.8 million on “personal expenses”, $140,000 on two white Bengal tigers and $125,000 a year for their trainer, $2 million on a bathtub for his first wife, actress Robin Givens, $410,000 on a birthday party, $230,000 on cell phones and pagers during a three-year period from 1995 to 1997. Today, Mike Tyson is bankrupt. The Iron Mike analogy is germane to any discussion of Ghana’s new found oil. Iron Mike’s story demonstrates how fortune in the hands of the uninitiated can dissipate into mere pittance. The dangerous temptation to squander is all real when a windfall hits. On the other hand, Magic Johnson’s success epitomizes the very best of how to astutely manage a fortune. Mike Tyson has become the poster boy of mismanagement and bad behavior. Ghana can easily become the next post-petroleum poster boy of mismanagement and profligate spending in Africa.

Spending Spree

There are great lessons Ghana can learn from these two icons of America sports. The Mills Administration is virtually at a standstill right now with hands akimbo and eagerly waiting for the oil revenue to start pouring in, so that it can embark on a mindless spending spree. In so doing, Ghana may go the path of Mike Tyson and could become the new poster boy of wasted opportunity or go the route of Magic Johnson or become the next Dubai the poster boy of mindless profligacy. There are many lessons to be learned from Mike Tyson, Dubai Inc. and Magic Johnson.

A few days ago Dubai World became a victim of its own excesses. Another case of profligate spending without constraints. Dubai's chief engine for growth, Dubai World asked for more time to pay some of its $60 billion in debts. In the still unfolding story, international investors reacted with shock and outrage at Dubai World's announcement. Most Ghanaians know about the fairy tale city state, Dubai and its corporate entity Dubai World. But very few Ghanaians have heard about Nakheel, the real estate arm of Dubai World. The company's roughly $60 billion in debt constitutes the brunt of the at least $80 billion Dubai owes as a result of a meteoric decade-long growth boom that transformed the tiny city-state into a Middle Eastern financial and entertainment hub. Dubai World's story is a classic case of over-extension - a tale of a city-state whose dreams for development propelled it to stardom with its indoor ski-slopes, man-made islands and world's tallest tower. But that dream or was it a nightmare, was built on borrowed time and money. The global recession has pummeled Dubai, driving property prices down by 50 percent in a year, triggering layoffs and project delays and cancellations. Gone are the days of unfettered access to the easy credit on which it had pinned its growth. Dubai World was a key driver of that growth, with interests ranging from ports to real estate. Imagine Ghana in the midst of an oil boom and suffering a similar fate. Do you see the semblance between Mike Tyson’s spending spree and that of Dubai? That’s why profligate government spending should be discouraged in the post-petroleum Ghana.

Many people in Ghana think that with the advent of oil, Ghana’s pernicious socio-economic problems will vanish overnight. This is far from the truth. While in the short term, government spending will create the so called shovel ready jobs in the construction sector, the allure of quick and fast money will pull many young Ghanaians away from the classrooms. So when the construction boom is over, Ghana will be lacking people with technical skills to manage and maintain the completed projects. This will be disastrous for a country that has shown a persistent proclivity to neglect the maintenance of everything government-owned. The Mills Administration should learn a lesson or two from the Dubai debacle and also from Iron Mike Tyson. I know that the NDC does not believe in governmental minimalism. From Dubai’s financial woes the lesson should be learned that Ghana cannot go on a binge spending. We also cannot subsidize our way to prosperity. Dubai has no tax regime. So everything from the cradle to the grave is government subsidized. I know that as the debate on how to use the oil revenue heats up, the so called socialists within the NDC will clamor for Ghana to follow the Dubai model. As the oil revenue starts coming in, the government should resist the temptation to subsidize every facet of Ghanaian life. Ghanaians should resist every attempt at runaway government spending and unconscionable government borrowing all defining signatures of Mr. Mills and his pseudo socialist myrmidons. The post-petroleum Ghana should not be heavily leveraged. Ghana can’t afford to mortgage its future to China. The post-petroleum African landscape is littered with an array of failed economies, impoverished states that overnight became money sensation and did not know how to wisely spend the windfall. The oil money found its way into the hands of few government operatives who became overnight millionaires. My long-standing skepticism about the harm imposed by so few controlling so much still persists. Have you wondered how the Rawlings’, the Tsikatas, the Ahwois and the Annan’s all became rich during Rawlings’ kakistocracy? We should not let that happen again in the post-petroleum Ghana.

Roads

The government should have a plan ready for an inter-regional and an intra-region highway system for the country. I am talking about four-lane divided highways with on and off ramps and no traffic signals. We should set a national goal of having this ready in 20 years-a quantum leap ahead of the haphazard collection of country roads that currently dot our national landscape and that have become death traps. This will cost billions of dollars. But this is doable and it should not be financed solely from oil revenue. Parliament should set up a dedicated highway trust fund financed mainly by tax on gasoline and a national highway toll on existing road network. This fund should be used to finance the inter-regional highway system and for preventive maintenance when the highway network is ready.

Education

Before the oil money starts pouring in a non partisan committee should be empanelled and tasked to restructure our educational system. It is untenable to retain the status quo. The critical decision should also be made to settle once and for all, the issue of what aspects of Ghanaian education should be tax payer funded and what should be borne by the individual. The current system has failed the nation. So, we should have a new plan in place before we start throwing money to the wind. Our technical, polytechnic and universities should start offering courses related to the oil industry. Ghanaians cannot be mere onlookers while the oil wealth goes to enrich only foreign nationals.

Health Ghana’s health care delivery system is in shambles. A comprehensive health care policy should be advanced to address the crisis-ridden healthcare delivery system of the nation. In so doing, we should renovate the crumbling healthcare infrastructure. New healthcare initiatives should be aimed at fighting AIDS, Malaria, and childhood disease-the bane of Ghana’s healthcare system. Today, Hepatitis B&C, diabetes, hypertension and asthma have reached epidemic proportions in Ghana and we need a program to combat them. We should revamp the National Health Insurance Scheme and the government should put a funding mechanism in place to salvage the scheme. The introduction of copay, deductible and coinsurance will help share the cost between government and the citizenry.

Water

Thousands of Ghanaians contract preventable diseases every year because they lack what the developed world takes for granted - clean drinking water.

The government needs to examine the why, how and where of providing potable water in Ghana. Easily available potable water is the bedrock of sustainable development. Ghana can’t transition to an industrialized country status without clean and affordable drinking water. With oil revenue, Ghana has to mitigate the plight of the average citizen with regard to easy access to clean drinking water. The outcomes that will be engendered by this investment will be far reaching. Imagine, no child dying from diarrheal disease!

To provide clean water, oil revenue should fund water-supply activities and hygiene programs in every region of Ghana. The main focus of clean water efforts should be on:

• Improving governance and regulation of water utilities at local, national and regional levels; • Changing hygiene behavior with an emphasis on hand washing, filtration and purification of water and maintenance of personal sanitation facilities such as toilets; and

• Mobilizing local private-sector financing to build and support projects such as capped wells and piped water systems to supply clean water.

Government can’t do this alone. Hence need to leverage significant funding from the private sector. Domestic capital is available in Ghana, and the government needs to provide leadership by finding good "bankable" projects and getting business partners interested in helping fund them. The government needs to identify niche projects that entail productive combination of appropriate technology with community ownership -- critical ingredients to the sustainability of clean water projects like community wells. Innovation might be the key to maintaining the water projects once completed. Part of the costs for community water projects in the villages could be recouped through advertising displayed on the water towers built to store the water. Access to clean water have proved effective in South Africa (the Playpumps Project) in promoting improved sanitation and hygiene behaviors and a reduction in the spread of HIV/AIDS through public awareness campaigns. The PlayPumps’ innovative but simple technology also "spurs economic progress through the development of manufacturing, distribution, parts supply and maintenance services associated with the pump technology.

Agriculture

Oil should help solve Ghana’s perennial food problem. It is not enough for the government to say that it will be increasing food production in the post petroleum era. The NDC should have a workable plan to change the current agriculture regimen which is sustained by fair-weather productivity. The goal of any new policy initiative should be to replace the current system with a sustainable model driven by profit, economies of scale and post production preservation. We need to take a closer look at our post production infrastructure. Food items like, corn, plantain, yam, cassava, millet, rice, poultry, cattle, sheep and goats should be designated as Ghana’s strategic food items with national security implications with year round regularity or availability-be it preserved or fresh. For far too long, Ghanaian politicians have paid lip service to development and squandered opportunities to break the vicious cycle of poverty. They should be held to measurable performance guarantees. This time around, the metrics should include oil revenue impact on food production. We should not let oil sap other sectors of the economy as it did in Nigeria and Gabon. In the pre-petroleum era, Nigeria was the world’s leading exporter of palm oil, now it’s the world’s leading importer of palm oil. During the heyday of the oil boom, Gabon was the world's largest per-capita importer of champagne and Gabon though in a rain forest region, still imports banana from Cameroun. We should not allow oil to decimate Ghana’s agriculture.

Africa Paradox

Take a look at the other African countries that have had oil revenue for many decades. They have nothing to show for it. John Ghazvinian, author of Untapped: The Scramble for Africa's Oil, in researching his book visited all of the major sub-Saharan oil producers and typically found the same situation in each. “The sizzling oil sector was enriching a clique of politically connected people and creating boomtowns catering to the industry but seldom providing much wider economic benefit or even employing many local people. It's a capital-intensive industry, not a labor-intensive one," he points out. "So they don't need to hire a lot of people, and the ones they do hire are petroleum engineers. You have local people hired to be security guards, but that's about it." This is the reality of oil production and should come as no surprise to Ghanaians. The Mills administration should be reminded of this reality before the revenue starts coming in. It’s up to the government of the day to maximize its portion of the oil windfall and use it for the greater good. Ghana can’t become another Angola where economic disparity is so pervasive and stunning that it’s mindboggling. In Luanda, oil companies are renting apartments for their employees at $15,000 a month. This is a country where the average daily wage is $3.15. The oil companies often argue that their role in Africa is simply drilling the oil, maximizing profits and paying taxes. Politicians, they contend, are responsible for investing the tax revenues in education and infrastructure. You heard it from the horse’s own mouth, Ghana!! We should not mortgage the future of the country to cheap Chinese imports fuelled by petro-dollars. Ghana should be frugal in spending its oil riches. Should we allow Ghana’s oil to become still another arrow in the quiver of the warrior class of influence peddling Ghanaian politicians in the dispensation of patronage to their cronies and sycophants? Or will oil become another weapon in the armory of strategy for sustainable development in Ghana? If the latter is to be pursued then we will have to set our national priorities right. Ghana should not become another victim of an economic paradox called the “resource curse.” Every Ghanaian has a stake in this preventing the curse. I hope President Mills is listening.

Baffour Ennin Washington, DC

Columnist: Ennin, Baffour