25 April 2017

Ghana: Tight Your Belt - Economy Looks Gloomy

Photo: U.S. Department of State
Finance Minister Ken Ofori-Atta presented the first budget of the Nana Akufo-Addo presidency to the parliament lat month.

This is probably the deadliest prediction of gloom for Ghana's economy. Read it: "... one day we will wake up, perhaps, we don't have money to build roads; we don't have money to do any development infrastructure... "

Such is the forecast that Prof. Cletus K. Dordunoo, CEO of ClayDord Consult, gives about the Ghanaian economy.

It is his opinion that the economy is lopsided and dominated by indicators that give it a negative outlook, namely high levels of corruption, over-borrowing, high interest payments, high deficit, huge wage bill and weak industrial base, among others.

As such, allowing the trend to continue will only spell doom and compromise the ability to invest in key infrastructure such as roads and schools for use in the future.

"If you look at our deficit, in terms of our commitment, it's 10.3 (percent). In terms of revenue, we are doing only 20 percent of our GDP, including grants. But [for] total expenditure, we are 30.3 percent of GDP," he analysed.

The occasion was the recent Pentecost University College Graduate School Seminar on "The 2017 Budget in Perspective: Does it answer the Economic Goals of Ghana?" which came off in Accra.

It would be recalled that Finance Minister Ken Ofori-Atta presented the first budget of the Nana Akufo-Addo era to Parliament in early March, tagging it as the 'asempa' budget. A key highlight of the document was the removal and reduction of several taxes, described as nuisance taxes. As well, the document spelt out some initiatives of the new administration, including the one-district-one-factory policy and the free senior high school education policy.

At the PUC Graduate School seminar, Prof. K. Dordunoo's task was to provide a perspective on the 2017 budget, giving a "General Overview in Relation to Socio-Economic Development, Economic Growth & Job Creation."

The look at key economic statistics drew further attention to the wage bill, which constitutes about 8.3 percent of GDP as well as interest payment, which calculates to about 6.4 percent of GDP. The capital expenditure proportion to GDP is 4.6 percent.

"The reason you are paying interest is that you borrow. You borrow because you deficit finance. So, the deficit on the budget set off a trail of behaviour, which can compromise the future investments that we have to do. When this trend continues, one day we will not have money to do capital expenditure. We can't do roads.

"Why should that happen?" he quizzed.

"Because the returns from those projects are not yielding enough in terms of future returns for us to be able to pay the interest. So, there is a trade-off. There is a serious opportunity cost there.

"But in addition, what we are calling 'corruption' is able to steal our money... "

The conclusion he arrives on the above diagnosis is that: "What it means is that we are compromising the future investment and we are trading from future investments into interest payments... "

"So, one day we will wake up, perhaps, we don't have money to build roads; we don't have money to do any development infrastructure as long as you are heavily borrowing today and squandering the money."

He quickly purged himself of any tagging, saying: "I'm not anti-borrower. In fact, I borrow a lot myself so I'm not anti at all. But I'm afraid that for our company - Ghana incorporated - we need to be more careful."

Corruption

Prof. K. Dordunoo also had a view on the role that corruption has played in putting Ghana into the quagmire it finds itself. "If you look at the growth trends historically... you will see that it is corruption."

He posited that corruption has assumed more influence on Ghana that than good governance. "It means that as we strive to promote good governance, we must also try to fight corruption because corruption is much deadlier than governance in the opposite sense.

"The good of governance is not as impacting as the destruction of corruption on growth," he observed.

He had issues to raise with authorities over how they utilise the auditor-general's reports. "To what extent, when we see that the auditor general's report is pointing to malfeasance, do we hold the people responsible? So, you have transparency alright but without accountability. And once people know that they can get away with a matter, you are going to have it coming back again and again."

Industry the answer

According to the elderly economist, reversing the trend and positioning Ghana for recovery will require a mix of interventions, chiefly industrialisation.

He made his case by comparing the recent trends in growth in the agric, industry and services sectors, noting that "agric has been a huge share of our GDP but it has been giving way to services and industry is hanging in there. Industry declined by 1.2 percent in 2016.

"What it means is that we are losing heavily on job creation; the highest co-efficient of job creation - the highest parameter - comes from industry. You can get some three, four people, they will do services but to get the equal amount of value to be generated is going to be a multiple of that. "You can call it the industrial multiplier because you need to set up your premises, you need to get your plant, you need to have labour - that is where the job creation will take place and so on.

"But now we are jumping over industry and we are going to services. We are even using big amount of money, which should be in our domain to help us industrialise, in buying broni waawu (second hand clothing), among others - some of the things we can produce ourselves."

He continued that Ghana's imports always exceed its benefits in terms of export earnings; thereby leading to a huge deficit.

In such a situation why shouldn't the Ghanaian currency "be depreciating?" he quizzed. "When it is depreciating too we are annoyed. Some people were praying for the cedi to stabilise. They should rather tell government to pay attention to the industrial sector."

Taxation

In an examination of the 2017 budget's "Impact on Industry and Commerce (Specifically on SMEs, Services, Manufacturing and Mining)" Abdallah Ali-Nakyea, a tax expert lauded government's indication in the budget that it intended to establish a National Industrial Revitalization Programme.

According to government, the National Industrial Revitalization Programme will be accompanied by a stimulus package for industry to provide technical and financial support to existing companies that are currently distressed or are facing operational challenges, but are deemed to be viable to benefit from the stimulus package which will put them in operation in the shortest possible time.

"This programme is a laudable one as it has potential to ensure improvement and growth in businesses through the provision of technical and financial support to businesses facing operational challenges,"Ali-Nakyea noted.

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