Breaking the 17: Alternatives to IMF conditionalities (2)
This structural transformation will not happen if a country does not strive for monetary and financial sovereignty.
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Most of the countries referred to above are facing different levels of debt crises, with the external (mostly dollar denominated) component growing significantly.
Dollar dependency burden
For a country to be economically sovereign, it must reduce its vulnerability to external debts.
A common feature of most of these countries, with Ghana being no exception is that they tend to be dependent on imported food and imported fuel to power their plants and move their vehicles.
Based on recommendations from the World Bank during the structural adjustment programme, Ghana was advised to concentrate on the production and export of so-called high value cash crops like cocoa to the neglect of food crops like rice, maize and the production of poultry and livestock to feed itself.
This led to the country spending scare US dollars on importing food every year, while we prioritise producing so called high value cash crops like cocoa and cashew, which we don’t eat.
According to Ministry of Finance sources, Ghana’s import of essential food commodities reached an average of $2 billion dollars each year.
Key foodstuffs imported include rice, poultry, sugar and tomatoes comprise a chunk of the imports.
In relation to energy, Ghana imported $1 billion in refined petroleum in 2021, becoming the 95th largest importer of refined petroleum in the word, creating large trade deficits as we export raw materials and mostly low value-added products.
Imports
Refined petroleum and food imports alone average $3 billion per annum, the same amount of money we are getting from the IMF for the next three years.
These imports put pressure on the Ghana cedi as the country looks for more US dollars to bring the products in.
As the cedi loses value, the government borrows more dollars either through Eurobonds or the Central Bank using its reserves to artificially prop up the cedi, leading to not just higher external debt but also imported inflation as prices of these imported commodities keep rising, causing a higher cost of living.
Government in an attempt to intervene inevitably spends more and more leading to large fiscal deficits and more debt.
The country tries to attract this by attracting Foreign Direct Investment, which usually comes in the form of large multinational companies, that we give unreasonably favourable terms to, and who repatriate all their profit to their home countries, further putting pressure on the already limited dollars.
The country’s attempt to attract capital to its capital markets also only tend to attract high return seeking speculative investors who ditch our markets as soon as more favourable terms appear when the Fed hikes its interest rates and further worsen our exchange rate as we saw in the third quarter of 2022.
So, when the IMF team comes to town with its cocktail of policy prescriptions, of “living within our means, and cutting spending etc, they seem very obvious to right thinking people, but what we all miss is that the conditionalities characterised as prior actions and structural benchmarks, do not actually address the fundamental and structural reasons why we keep failing every year, and most often only go to worsen the plight of the citizens.
For example, some of the prior actions in this IMF Programme include:
• Three new taxes (mostly regressive)
• Utility tariff hikes (two rounds in less than six months, resulting in a cumulative increase of 57 per cent since 2022)
• And a Memorandum of Understanding between MOF/Bank of Ghana (BOG) to stop monetary financing as a prelude to amending the BOG law (while tightening the central bank’s inflation targeting framework).
These actions are at best palliatives that patch up deeper structural wounds that require a fundamental shift in the way our economy is set up.
The real alternative to the IMF comprises a mix of policies that will enhance economic and monetary sovereignty by de-dollarising using three key policy actions.
Eat what we grow
The agriculture sector of Ghana is highly vulnerable to climate variability and change as the sector is primarily dependent on rainfall.
As a result, the sector is characterised by low productivity levels.
Erratic precipitation patterns have severe consequences for productivity as only two percent of the country’s irrigation potential is in use; the majority of Ghana’s agriculture remains reliant on ran-fed production. 2.5 million hectares of Ghana’s land is arable.
Compare this to Israel; a major exporter of fresh produce and a world leader in Agriculture technologies despite the fact that the geography of the country is not fully conducive to agriculture.
More than half of the land area is desert and the climate and lack of water do not favour farming.
Israel with arable land size of 185,000 hectares produces 95 per cent of its food needs, while Ghana with arable land size of 2.5 million hectares, imports most of its essential foods including rice, tomatoes and chicken.
Farmers in Israel have grown more with less water, using an average of 12 per cent less water to produce 26 per cent more food than its peers.
While farmworkers make us only 3.7 per cent of the labour force, the country produces 95 per cent of its own food, Ghana on the other hand reported close to 30 per cent of total employees working in that sector, imports most of its essential food.
If Israel, a country the size of Ashanti Region in a desert climate can produce enough food to feed itself why can’t Ghana do same?’
Energy sovereignty
Energy sovereignty refers to a nation’s ability to meet its energy needs through sustainable and renewable resources, reducing or eliminating dependence on imported fossil fuels.
As mentioned earlier, Ghana’s energy mix, though blessed with hydroelectric generation, is increasingly dependent on imported fossil fuels which heighten our petrodollar dependence, our main oil refinery has been non-functional for years as we spend up to billion dollars every year importing finished products.
Our hydro and solar potential have not been fully harnessed, and even the gas the we generate from our western enclave is mostly flared instead of investing in processing that could harness it for power generation.
The case of Costa Rica presents a good learning example.
The country made impressive strides in renewable energy generation, with renewables accounting for over 985 of its electricity production.
In 2012, the country achieved a major milestone by running entirely on renewable energy for 300 consecutive days.
This shift towards renewables has reduced the county’s carbon footprint and dependency on fossil fuel imports, bringing with it economic benefits like job creation in the renewable sector and reduced energy costs for consumers.
There is no reason why Ghana cannot do same.
Our quest to break the 17 time cycle must also consider value added exports and manufacturing akin to what is happening in Vietnam, a country that not too long ago suffered a brutal war, is seeing economic development using an export-oriented approach, focusing on manufacturing and export industries such as textiles, electronics, footwear and agricultural products, and by so doing benefitting from global supply chain integration and becoming an important player in the global manufacturing network.
Ghana has no reason not to do same!
The informal sector makes up 90.0 per cent of all enterprises and accounts for about 70.0 per cents of employment but contributes only 26.0 per cent of GDP - This suggests low productivity and low incomes, especially for the 67.0 per cent of the labour force involved in survivalist activities like petty trading.
The sector needs to be transformed to raise productivity, household incomes, and living standards.
This can only happen with better investment in skills training particularly of the Technical and Vocational type.
Quality business education:
What we are seeing today with this graduation is the product of investment in high quality education that will create the manpower that Ghana needs to industrialise and be globally competitive.
When I look at the quality of the faculty and emphasis of the programmes, the practicality and job and experience centered approach the Accra Business School adopts, I have no doubt that in the hall today are an important part of the critical mass of business leaders there is the need to make companies more effective and efficient and ultimately more competitive globally.
The school’s philosophy is instructive in this regard; “Long-term democratic stability hinges on rapid economic development led by a strong private sector.
To sustain the emerging democracies in Africa there is a need a new breed of business leaders, educated to global standards who can create jobs, increase incomes, and reduce poverty,”
This should absolutely be the priority and emphasis of all business schools in Ghana and on the continent.
Most youth in fact require wage employment as their first entry into the labour market and studies have shown that about 80 per cent of new jobs are created by existing businesses.
Therefore, the caliber of business leaders that are trained will determine the quality and quantity of jobs that are created going forward.
And the Accra Business School, in its 10 years of existence, has trained over 18,000 people, most of whom are high caliber business leaders catalysing the job creation process.
In summary, food sovereignty, energy sovereignty and value-added manufacturing together with high-quality skills training will form the basis of the country’s economic transformation that will not just focus on macro stability but micro inclusivity, a transformation premised not on superficial economic growth
Thank you.
This is the keynote address by the writer, a broadcast journalist with Citi FM/TV at the 14th Congregation of the Accra Business School
