Modernising And Restructuring Ghana’s Economy (II)

MODERNISING AND RESTRUCTURING GHANA’S ECONOMY:

IDEOLOGY OR PRAGMATIC INNOVATION?

PART II

Emerging new opportunities

With Ghana beginning to now exhibit most of the positive characteristics of the

early independence period, it is believed that an alternative model for state

involvement in the modernisation and restructuring of the Ghanaian economy is

needed.

With the fall of communism and the ascendancy of liberal economics as the

predominant way of organising a country’s economic affairs, the debate about using

socialistic frameworks to pursue Ghana’s development agenda is mute even if there

are still some segments of society that would seek, for nostalgic reasons, relating

to their association to the ideas of Nkrumah, for a reversion to state socialism[9].

Active state involvement in the economy has grown out of fashion and historically,

has proven ineffectual, despite the ingenious argument by some commentators that the

recent nationalisation of private assets in Europe and the United States of America

following the financial crisis of 2008 is a reversion to global socialism.

We therefore argue in favour of the modern registered corporation which

has since its evolution from the statutory and charter companies of the

nineteenth century continued to be one of the most desirable forms of

business organisation because of its utility for raising capital from a

larger shareholder base, the limited liability it gives to shareholders,

and the entrepreneurial spirit it liberates for managers to take

business risks.

Just like nineteenth century Europe and United States where the use of the company

galvanised successful development of business ventures in telecommunication and

transportation, conditions in Ghana are primed for the use of the vehicle of the

company to undertake large scale commercial ventures for viable projects that are

necessary for the development of Ghana but for which the government is itself unable

to undertake.

Considerable savings exist within the Ghanaian society[10], although because of

historical conditions relating to the state’s disregard for private property most of

it is held outside the formal banking system; there is also an overwhelming need for

major projects to be initiated to tap Ghana’s natural resources as well as utilise

the opportunities of its locational advantage; further, innovative technologies

pervade to avail business opportunities, with globalisation providing the needed

leverage; and Ghana abounds in managerial expertise for all these ventures through

its rich stock of human capital, both home and in the diaspora.

As argued by the Law and Development movement, and effectively championed by the

international financial institutions in Ghana and several other developing

countries, particularly in the 1980s and 1990s, the development of appropriate legal

frameworks is necessary if investments are to be attracted into a country.

Regrettably this postulation has been interpreted and pursued with a Western law

bias.

La Porta et. al. [1998,1999, 2000] have also argued that legal protection for

business owners, including shareholders, are crucial in determining whether a

market-based economy in which a managerial controlled and dispersed

shareholder-owned corporation[11] would develop.

Undoubtedly, the civilian democratic tradition of Ghana and the principles of the

1992 Constitution of the Republic of Ghana provide clear legal frameworks for

private businesses to operate, and assures ample confidence about the obligations

incumbent upon the State not to expropriate private property.

A new model for state involvement in the economy

It is therefore argued that a new model for the state’s involvement in the Ghanaian

economy is required, a model we call the Lift and Push model, where rather than

attempting to set up industries on its own, or leaving the private sector alone to

initiate their own undertakings, the state rather facilitates, through its agents,

the promotion of business ventures with mass Ghanaian shareholding.

In a sense the model is not entirely new, for during the government of

John Agyekum Kufuor the Ayensu Starch Factory was established along

similar lines, under the so-called Presidential Special Initiatives

programme, whereby cassava plantation farmers in the central region were

assisted to incorporate an entity for the processing of cassava into

industrial starch. It was however not systematically developed to

provide the needed credibility for it to sustain and it has also

suffered some political backlash.

What the Lift and Push model requires is a focus on two key issues.

First, acting under the mandate of article 192 of the 1992 Constitution of the

Republic of Ghana, the Ghanaian government should establish a small statutory

corporation with a clear mandate for developing strategic and viable business

ventures and promoting, solely for Ghanaian subscription, public companies for the

purpose of engaging in those projects.

The organisational structure of the statutory corporation should be such that it is

given political independence, save the broad directives given in its establishment

act only. Consequently, though it might initially be funded from the national budget

of Ghana, its organisational structure at the level of the board should be

a-governmental. The board could comprise representatives from constituent

stakeholders such as those from the investment houses, pension and insurance

companies, indigenous business associations, and Ghanaian business experts appointed

by an independent search committee. The Chief Executive Officer and senior

management should also be a-governmental and should be appointed solely by the

board, on a clear-cut competency based criteria.

Secondly, in its operations of promoting new business ventures, the statutory

company would need to hem in on areas such as infrastructure development of tolled

roads, railways, ports, and airports, within well-established and agreed principles

of public private partnerships. But equally important, it would also need to promote

value-added industrial platforms like agro-processing ventures such as cocoa, shea

butter and starch processing; refining of all of Ghana’s gold before exports, and

cutting and polishing of diamonds; processing of salt, caustic soda; and, taking

advantage of Ghana’s new foothold in the oil and gas industry, petro-chemical

industries. This should not, however, exclude tie-up ventures that can be

established in innovative industries such as electronics, leveraging the advantages

of globalisation.

The ventures to be promoted should have clear business plans, showing projected

costs for machinery and working capital, break-even analysis, the types of

managerial and other technical expertise required, and the expected returns to

investing Ghanaian nationals. All pre-incorporation contracts should be minimally

done, but letters of intent or memoranda of understanding to secure both domestic

and external sales should be worked out. Being in a fiduciary role, the statutory

company would need to work in the best interest of the putative company; bearing in

mind the national imperatives that have occasioned this policy option.

Indeed, considering the limited market size of Ghana, it would be clear that any of

the ventures to be promoted, aside those to be incorporated for infrastructure

development in Ghana, would need to have a predominant export orientation that also

takes account of the country’s competitive advantage attributes such as factor

endowment, demand conditions, relating and supporting industries, etc. [Porter,

1990].

The managerial concerns of these putative companies would also need to be addressed,

in their articles of association, to ensure that managers work for the benefit of

their owners and are mindful of their actions on other stakeholders.

Benefits of the Lift and Push Model

Studies conducted in recent years in developed markets, including the Freedman

studies done in the United Kingdom, confirm that small businesses account for the

highest number of registered companies and make significant contributions to

economic growth and prosperity. It is however argued here that these small

businesses thrive because there are opportunities created by larger public companies

through forward and backward linkages and the provision of services. Similarly, the

creation of these new companies in Ghana would have multiplier effects as smaller

companies come up to service their needs. The goal for a modern and diversified

economy would therefore be on course.

Also, the creation of these new indigenous companies to exploit business

opportunities in Ghana would result in a shift from import consumption to domestic

investment, create new jobs and additional employment, improve income levels, and

help assure social stability. The experience worldwide suggests that jobs everywhere

are best created by companies bottom-up, not top-down by governments.

Further benefits of this model is that whereas in the past private indigenous

businesses have suffered at the hands of incumbent governments and have been denied

organic growth, these new companies with their wide shareholder base, spread across

different political and ethnic lines, would short-circuit the capricious actions of

governments as they would be wary and politically incapacitated from interfering

with these new businesses with multiple constituents. Ghanaians would therefore once

again assume the commanding heights of the economy and the quest for foreign

investments, which though useful but problematic, can be reduced.

Lastly, the Lift & Push model, by its mass shareholder base would help overcome the

trust deficit constraint which has hamstrung the partnering of Ghanaians in business

and has hampered industrial growth in Ghana. It is known that Ghanaians have a trust

deficit when it comes to associating with each other for the purpose of undertaking

a business in common and as a result most business organisations in the country have

been fairly restricted to the sole trader model which by its nature is inefficient

for industrial development as it constrains financing for bigger investments and

inhibits an appropriate role for outside managerial expertise.

Conclusion

In this essay we have reviewed the historical development and broad performance of

state-owned enterprises in Ghana, and drawn the conclusion that they had been

unable, with few exceptions in the public utilities like the Volta River Authority

and the Electricity Company of Ghana, and commercial enterprises such as the Cocoa

Board, make a meaningful difference towards the economic development of Ghana or the

achievement of their narrow establishing objectives.

We have also noted the changed global economic situation, which makes the socialist

development models unrealistic and proposed a new government-facilitated, but

indigenous Ghanaian market driven approach – the Lift and Push model – as a viable

alternative to addressing the historical concern of restructuring the Ghanaian

economy, both to modernise it, by way of moving away from primary commodity

production towards value-added industrialisation, and to make it more resistant to

shocks.

It needs to be highlighted that the success of the Lift and Push model – which

involves a state facilitated promotion of viable business projects for subscription

to Ghanaian nationals – would be successful only if there is a genuine commitment by

the initiating government. It would also require close collaboration with the

Securities and Exchange Commission, the Registrar of Companies, the Ghana Stock

Exchange, investment houses and insurance companies, and interested groups,

including the Ghanaian diaspora.

Like any other businesses in Ghana, however, the success of the new companies to be

established under the Lift and Push model would require an enabling business

environment, which includes soft frameworks like a stable macro-economic

environment, clear legal regime, and an independent and fair judiciary; but also

hard frameworks like good infrastructure such as all-weather connecting roads

throughout the country and with our neighbours, stable and affordable electricity

supply to make production competitive, and a trained technical manpower necessary to

work these enterprises.

The opening of tangible market opportunities within West Africa and the wider Africa

continent through enhanced regional free trade agreements would also be an

obligation incumbent on the government of Ghana if these new companies are to

succeed, first, in exporting their products beyond the Ghanaian market, and secondly

in establishing manufacturing presence beyond the national territory.

Notes:

[9] In our view, the logical method of reasoning by Nkrumah suggests that were he

himself to be alive in this era, he would, consistent with his rational and logical

way of thinking, opt for a different way of pursuing his agenda for a modernised

economy and model for national development in Ghana within a globalised liberal

framework.

[10] The success achieved by the SCANCON Ghana Limited, operators of Spacefon mobile

telephony, within a spate of about five years, when assets they acquired in Ghana

for US$500,000 were disposed off for US$5.5 billion to MTN and they was well as

their ability to offer the government of Ghana financial assistance in the sum of

US$20 million for improvements to water distribution systems, is demonstrative of

the internal mobilization capacity in Ghana.

[11] This is known as the Berle and Means Corporation, so named after Adolf A. Berle

and G.C. Means following their 1932 critique to the theory of corporate realism: The

Modern Corporation and Private Property, which made two significant observations

about corporations in the United States at that time – that ownership was dispersed

and managers were largely unaccountable which could be harmful to society. Other

works such as E.M Dodd’s For Whom are Corporate Managers Trustee? have equally

brought into focus the interests of stakeholders such as employees, customers and

the public, while the work of economic theorists such as Marris, Williamson and

Baumol have provided focus on the managerial factors internal to the firm as against

early neo-liberalist who studied the firm from the market level only.

Harold Agyeman, Antoa