Opinions of Fri, 7 Mar 201410
President Mahama is on point! The economy is not in crisis!!
After going through the reaction by Kennedy Ablakwa and other writers to my earlier piece the economy is not in crisis and the uninformed reaction to the statement by President of President Mahama that the economy is generally in good health in his SON address to Parliament, I find it imperative to provide an understanding based on the economic history of this country.
Dr. Kofi Abrefa Busia devalued the cedi by 44% when he was prime minister with J.H. Mensah as his Finance Minister. Devaluation was to strengthen the Cedi and help improve the balance of payment situation. Devaluation is a harsh economic measure by all standards, it causes the price of all goods and services to go up, but not only an effective way of mobilizing funds for development and progress but also regulate imports and exports ,thus eliminates the situation of continuous shortage of goods and services.
Devaluation is a harsh economic measure which can make governments fall, create the conditions for coup detas’, ‘revolutions’ etc. This is because it results in increases in the prices of all goods and services.
Dr. K A Busia economic created the condition for the Col Acheampong lead coup on 13th January 1972 leading to the overthrow of the Progress Party Government and the establishment of the National Redemption Council (NRC) . The Cedi was revalued upwards in response to popular demand. This consequently brought down prices of all goods and services.
The six year rule of Acheampong saw shortages and scarcity of all goods and services in the country. To arrest the situation price controls policies was introduced. This made matters worse because it led to hoarding and smuggling of goods and a profitable black market.
The situation became so bad, that it necessitated a palace coup which removed Acheampong and replaced him with General Akufo as head of state. To clear the economic mess created by price controls, General Akufo demonetized our currency and devalued the Cedi once again. This measure increased the price of all goods and services and as usual there was hue and cry which gave birth to the Rawlings led June 4th uprising.
The Rawlings led Armed Forces Revolutionary Council (AFRC) made up of young officers and the other ranks controlled prices so vigorously, that by the end of their three month tenure the shelves were empty; all goods and commodities in the country have been sold out. The economic situation was so bad that for instance volunteers were mobilized to harvest plantain fingers in the regions because the farmers were unwilling to do so.
The AFRC handed over power to the Dr. Hilla Liman led Peoples National Party (PNP). Dr Liman came inherit a tattered economy worsened with a vigorous price control regime which had popular appeal
Dr. Leman was at a loss as to which economic policy to pursue. He was faced with either pursuing the policy of price control or to liberalize the economy to encourage free trade and enterprise, to which the devaluation of the Cedi was a key factor. However devaluation of the Cedi will officially increase the price of all goods and services. This is a plague that has already caused the fall of two governments. The Government could not define any clear and enforceable economy measure for the country.
Dr. Liman’s indecision led to his overthrow by Jerry Rawlings led Provisional National Defence Council (PNDC) on 31st December 1981. The PNDC after some hesitation in March 1983 adopted the Structural Adjustment Programme (SAP) and embarked on unprecedented massive devaluation of the Cedi.
In this case however Rawlings was able to remain in power and set the stage for free market economy succeeding where his predecessors failed, and where his successor have continued up to date.
Has there been any economic measure by any government that the masses have ever smiled? Or not cry out the mantra: ‘we have no money in our pockets’?
The naked truth is that as a nation we consume more than we produce, import more than we export and have deficit instead of surplus. No nation of earth can make progress if she consumes more than she produces.
The productive base of our country must be strengthened; we must feed the birds that lay the golden eggs. The emphasis must be on where we have comparative economic advantage; it could be manufacturing, farming or fishing. That we must produce more than we consume is known to everybody. Why have we not been able to add value to our cocoa? Why can’t we grow jute to produce jute bags in this country even when the Cocoa Marketing Company is a guarantee market?
All these may be because it is cheaper to import than to export. That is what devaluation comes to correct!
Why it is that after all these years Ghana has to borrow about two billion dollars to buy cocoa beans from our farmers? Why is it that up to today roads that lead to cocoa farms or cocoa producing areas are bad? Why is that roads that lead to existing manufacturing areas are bad? Call it as you may, devaluation, structural adjustment or depreciation of the cedi against the dollar or the appreciation of dollar against the cedi. The deprecation or the appreciation of the cedi against the dollar is a corrective measure in itself and any interference does not make sense, because the Bank of Ghana decision to place restriction of forex market will cause more harm than good, for the scarce dollar will become scarcer.
The problem with this country is that our so-called intellectuals are too partisan oriented. When Busia devalue the cedi it was right; when Rawlings devalued the cedi it was wrong. When Nkrumah introduce free education it was wrong; when Nana called for free S.S.S. it was right. When Rawlings introduce VAT (10%) it was wrong; When Kufuor maintained VAT and even increased it to 15% it was right. What is wrong with the New Patriotic Party (NPP) and its unprincipled writers, serial callers, social commentators and pressure groups?
The economy is not in crisis, the dollar can be exchanged for three Cedis, and the economy will still not be in crisis because devaluation is a corrective measure. The cedi will sort itself out, for whatever goes up comes down and so applies to prices.
President Mahama must stick to his guns and not panic in the face of the alarm being raised by academics who have not been tried and tested.
Jake Addo is a Management Consultant and Chairman of the Site 18 Branch of the National Democratic Congress (NDC), Tema East Constituency.