The Tragedies of African Democracies - XVI

The Tragedies of African democracies: why the best doesn’t mean good

“Price Waterhouse, Single Spine Salary Structure, Gas Waterhouse, and Double or Triple Spine Salary Structure, it is circus with no end in sight.”

Economics with Tears

The title of this section derives from my high school fantasies with a basic economics textbook, “Economics without Tears.” Metaphorically, this book was to provide candidates sitting for the ordinary level certificate examinations (or high school completion examination) the necessary means to master the subject to the extent that they would shed no tears, come the examination day. I chose the obverse figuratively for a title to imply that half a century on, Ghana has still not been able to identify the fundamental weaknesses of her economy in order to steer it out of the woods – a tearful situation, indeed. This section examines three aspects of the Ghanaian economy – the perennial adjustment of public sector salaries, Ghanaian history of loans and the natural resource rents, and the issue of regionalization. These three distinct but interrelated topics may help explain the Ghanaian economic trajectory and what reasonable economic projections can be made from a practical point than a political position on the economy.

Salary Adjustments for Public Servants

When in 2007 the Ghanaian cedi was redenominated against the US dollar - 1 Gh cedis was equivalent to US$1 or slightly higher - there were all forms of theories to explain a successful story of Ghana’s cedi brought in line with the US dollar or made stronger than the US dollar. The slogan: “the value is the same,” as an educational catchphrase, explained two antithetical concepts, depending on the political leaning of the recipient of the message and the motives of the interpreter outside officialdom.

While through unofficial conduits, enthusiasts of the ruling NPP tried to impute that the value of the cedi had dramatically been raised to the value of the US dollar per the redenomination, the truth was that the new 1 Gh cedi was equivalent in value to the old 10 000 cedis that used to exchange for US$1. The connotation, as it were, implied that the number of man hours a worker had to put in to earn 10 000 cedis was the same number of hours he would have to work to earn the new 1 Gh cedi. But sometimes, these political gimmicks are quite interesting and hilarious as an observer watches antagonists from opposing political camps lock horns in unproductive efforts to win their listeners over an illusion, for instance, the attempt to interpret redenomination to mean Ghana’s currency had dramatically been revalued overnight to the equivalent of the US dollar as real.

I am not suggesting that these gimmicks are limited to Ghana or developing countries exclusively for that matter. Even in the developed world, it is not uncommon to find some of these levels of ignorance among citizens. For instance, when the health care reform debate was ragging on in the US congress, being one of the most contentious bills to have passed through the US Congress in generations, I decided to interview the American in the streets to elicit their views for my journalism class. The results were revealing; I realized how outside the corridors of Washington DC, the fine, relevant but contentious issues pertinent to each side fades into the amorphous, irrelevant babbling on the streets, depicting the traditional lines between Democrats and Republicans. Pitched by Democrats as the human-centered solution to America’s inability to provide health care to all its citizens, Republican in the street maintained it was economically ruinous, especially at a time when the economic health of the country is in a terrible shape. As one Republican put it, “Obama’s Health Care “Deform” is sure to put the final nail in the coffin of our ailing economy. Beyond his Socialist policies, he is attempting to hand coverage to undocumented immigrants lurking around everywhere in this country. This is a disaster.”

Beyond the political gimmicks, redenomination was a prudent fiscal policy. When Joe, a friend, requested my assistance to exchange US$10 000 into cedis in May 2006, I was filled with trepidation for the simple reason that the same amount in cedis ran into millions and definitely an open invitation to armed robbers to come after us. When I changed that amount of money into cedis, the bundles were loaded into two big boxes, and I dreaded leaving the bank premises with those boxes to my car. There were countless stories of individuals and businesses trailed and robbed at gun point after leaving the bank with huge withdrawals. In the Ghana economy, where checks are hardly used and almost every transaction was done in liquid cash, it was a great frustration to both the business community and individuals at large to carry such large wads of cash for transactions.

It is noteworthy that merely recalibrating a currency does not increase its value. Today, just three years after the redenomination, the cedi has depreciated against the dollar, one of the country’s major trading currencies, multifold. Now Gh 1.5 is required to exchange for US$1. The inference is that Ghanaians would have been exchanging US$1 for 15 000 old Ghana cedis. The lesson is that if you do not increase your production base to strengthen your economy, you can go on to recalibrate your currency against the major international currencies as many times as you wish, but in a few months or years, the zeros would add up again.

In another scenario, which should shed light on internal mechanism at various points in raising the standard of living without the accompanying increases in production, I refer to an effort by the Ghana government (that was the NDC I) in 1996 to adjust salaries nationwide – so civil servants, teachers, and other categories of employees who received their salaries from government could be paid appropriate wages for their work (we can call it value for money); an exercise perceived by many as a route out of poverty. At the time, a trained teacher fresh from the teacher training college received just about US$100 or even less. The modification or the evaluation was pet named Price Waterhouse salary structure, taking after the name of the consulting firm that was engaged for the evaluation and the restructuring of salaries nationwide.

It was fascinating to hear some teachers hail the exercise as a route out of poverty for teachers. A close friend who was a teacher calculated that with the new salary structure, he would be earning between US$500 and US$700 monthly. He believed his life’s circumstances would improve significantly, and fantasized about Botswana, where a teacher’s salary could really “take him or her home,” to mean a salary enough to last a month.

I received the news with a pinch of salt and challenged them to a debate. “How can an economy whose 60% of annual budget depends on foreign loans and grants increase the wages of teachers, the largest number of employees on public sector payroll without economic implications? What about physicians, engineers, and so on,” I inquired. At the time, the salary of a physician was less than US$5000 per annum. While it was foolhardy to imagine such increases in wages for teachers, if even it did happen, there was no doubt that it was going to trigger similar demands from other professional bodies as well.

When the Price Waterhouse salary structured recommendation finally came into effect, some public sector employees including teachers, became worse off. So the two important economic policies – work evaluation and salary restructuring on the one hand, and redenomination of the Ghanaian cedi on the other - did not bring about the economic relief that the Ghanaian worker sought or yearned for. While the Price Waterhouse salary restructuring made some workers worst, redenomination only relieved those whose transactions with the banks and other financial institutions were in colossal amounts. At any rate, it makes an economic sense to evaluate the work of every employee and pay them what they deserve; so does a portable currency make sense.

Is it to keep the hopes of public sector employees alive in order to buy time or have some breathing space for other businesses, especially when a new government assumes office, promising a new pay policy – aptly job evaluation and restructuring of salaries – and nicknames it Single Spine Salary Structure (SSSS)? Described as a unified salary structure, it is supposed to place all public sector employees on a vertical structure with incremental pay points from the lowest to the highest level. The bottom-line is that jobs with same value would receive the same remuneration within the same salary range. This is to ensure there is equity concerning the same job but within different segments of the public sector to guarantee market value for similar qualifications and analogous responsibilities of job specifications.

Now, if the reason is to ensure that there is equity and fairness in public sector salary administration, then it is doubtful that the measure would lift all public sector workers from poverty or low income status to high income status. Logically, the wages of some employees, whose jobs attracted more remuneration than they ought to, would be brought in line with their colleagues doing same job elsewhere within the public sector. Similarly, those who received less than they ought to, would see an upward adjustment in their earnings.

The point is that with weak production base and high imports, it sounds bizarre for the Ghanaian to expect a jump in the quality of life by measures that are not meant to increase the value of their earnings, but to rationalize their earnings with their productivity. If all the internal sources of revenue to the state – cocoa, gold, taxes, and some nontraditional sources - remain stagnant, outstripped or even negated by population growth, there are a few ways that a country can improve its financial resources. Improvement in the country’s financial resources may concomitantly affect, positively, public sector workers such as teachers, police officers, and the military among others, who do not generate direct financial resources.

First, the country can either reduce imports and concurrently increase local production of goods and services that are imported but can equally be produce locally. This way, the hard foreign exchange spent on imports can be diverted into domestic productive ventures that provide local jobs that would generate axes, thus increasing the national kitty. Examples of this simple logic abound in the global market place. For instance, when US companies, in pursuit of lower labor wages, outsourced manufacturing jobs overseas to places like China, India, and elsewhere, it was just a matter of time before the Chinese mastered the technologies and with low overhead cost of production (especially in labor wage) flooded the US market with low-priced products. Initially, the American consumer must have found relief for the lower prices that met his or her budget. But overtime, American companies that are still producing on American soil with high cost of production were consequently either pushed out of business or forced to relocate elsewhere. Today, zero televisions are made in America, of over 1.2 billion cell phones sold worldwide in 2008, not one was made in America, and the list goes on for most other domestic or household products. The implication for the Chinese economy has been increased production at home, reduction in unemployment, increased tax base, increased in foreign reserves that could have been expended on some of the aforementioned goods that the Chines once imported but can now export, and overall growth of the Chinese economy. The rational American consumer, just like consumers anywhere else, looking to cut cost turns to the Chinese products. In the final analysis, America has lost her competitive edge in the manufacturing sector and most of her manufactured goods are now produced abroad. The implication is high unemployment at home, stagnating wages, and huge federal borrowing, among others.

If there are lessons for the Ghanaian economy, the lessons are quite simple. A country can only increase or improve the value of her currency and the quality of life for the citizenry when the people are engaged in ventures that increase the production base of that economy.

The second option would be to play the “robbing Peter to pay Paul” game. As all sectors of the economy are in constant struggle for limited resources, depending on which sectors have the political priority, attention may shift from one sector of the economy to the other. For instance, investment in health, tourism, or agriculture may be starved off to increase investment in education. This may include increasing the emolument of teachers and administrative staff within the educational sector. But this device has dire consequences. Assuming education begins to attract more priority than health, we must not lose sight of the fact that health is equally a sensitive sector of any economy with consequences that may result in measurable health outcomes that may not be in the interest of any elected government. Besides, the bargaining chip of health professionals is so strong that it might cripple any government who dare to undertake such a project. It must also be noted that education already has the highest recurrent budgetary allocation accruing as much as between 28% and 40% of the national budgetary allocation in over recent years.

The third option would be to contract loans or grants and invest them in the emolument of public service workers including teachers. With about 60% of Ghana’s fiscal budget supported by donor funds, the third option is already a phenomenon that is occurring. But not an option that is sustainable in the long-term.

While other public sector workers, for example, the police, customs, and a host of others, who are in constant interaction with the public finds ways to extort money from the public to generate extra income, the teacher deals with pupils or students who are not involved in any income generating activities. Therefore, the economic fortunes of teachers are highly limited to what they earn per their emolument. And if the teacher goes to the same market with all these public employees, then the economic effects can be telling on the teacher. This tie-in with my earlier submissions on educational failures in our basic schools. The bottom line is that there was the Price Waterhouse, we can go on to have “Gas Waterhouse”, “double spine” and even “triple spine” salary schemes, if the fundamentals of the economy do not change toward high levels of production and manufacturing, the economic quagmire would not change, that is, Ghana can continue on this dangerous trajectory deluding itself with all the acronyms but the country’s situation will be further compounded by weaker economic conditions. In 1994, the per GDP per capita of South Korea, a country with a GDP less than that of Ghana in 1960, has a GDP per capita of US$9 525.44. Her GDP almost doubled by 2006 to US$18 340.76 and US$31 410 in 2011 with projections at US$40 777 by 2016. Can a non-politician help with the true state of Ghana’s GDP from 1994 to 2011 and what the projections are?

If Ghana is to even encourage massive production of cocoa, as a way of increasing production and putting the unemployed youth to work, there is evidence that Ghana does not have control over the pricing of cocoa and it is largely sold as a raw material. The number of jobs that could be created by processing it into finished products before export also eludes the Ghanaians. After all, many Ghanaians work in chocolate factories across Europe and the United States. Can’t similar opportunities be created for them at home? If Ghana had what it takes to process the product or even find ways for its preservation until such time that market prices can determine a good profit that would be a good option. However, there is evidence in the economic history of Ghana that the dramatic collapse of world market price for cocoa, one of the main sources of foreign exchange, plunged the country into a debt crisis in the 1960s. By the time Nkrumah was overthrown Ghana’s once substantial foreign exchange reserves (US$ 550 million) was exhausted and Ghana had debts totaling US$700 million.

You will be educating a community by printing a copy of this and handing it to a teacher (Just one teacher at a time).

Keep tuned in…

The above-title is serialized into 30 articles covering issues of politics, corruption, education, immigration, the economy (Ghanaian economy), unemployment, land tenure, dearth of policy innovation, and stories from the frontlines – Cote d’Ivoire, Kenya, ECOWAS and the AU. The series are syndicated and media houses/outlets interested in enriching the national debates in Ghana for the 2012 are free to publish all the series.

By: Prosper Yao Tsikata

Email: pytsikata@yahoo.com