Mid-year economic performance and way forward — IMANI’s views (II)
The first part of this article was published yesterday
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In a nutshell, Ghana imports more than it exports. The discussion surrounding forex constraints has dominated the media for weeks only perhaps to be overthrown by the World Cup debacle.
The discussion is pertinent because it relates to fundamentals of the economy — exports and trade. The Finance Minister presented encouraging data that the trade deficit currently stands at $156.6 million, a significant decline from $990.8 million for the same period in 2013.
Exports came in at 7.5 per cent less than the outturn for the same period last year. It is, therefore, particularly worrying for the Minister of
Finance to attribute our foreign exchange shortfalls to dwindling cocoa and gold revenues. They have only been marginally reduced.
However, the usual suspect, as always, was the decline in commodity prices. Given that primary commodities form the bulk of Ghana’s export portfolio, more innovative measures should be adopted to mitigate these shocks.
For example, since two-thirds of all cocoa is derived from West Africa, an international community akin to the Organisation of Petroleum Exporting Countries (OPEC) may be pursued with a similar agenda of securing a ‘steady income to the member states and to collude in influencing [world oil] prices through economic means’ in the case of this example of cocoa prices.
This model must also be buttressed by a strengthened integration of the ECOWAS body where a huge market resides untapped. We could also begin to add more value to our cocoa beans by processing more locally or setting up processing units in countries that require chocolate paste for varied products. It would be wise to take advantage of the Economic Partnership Agreements to increase our earnings from non-traditional exports
To mitigate the balance of payment challenges, the President has issued a directive for all MDAs and MMDAs to patronise made-in-Ghana products to preserve foreign exchange. It is somewhat strategic, albeit the high cost of production in Ghana renders the prices of the final products higher, relative to foreign counterparts.
Rational consumers in a market economy are guided by the cost of a commodity, and ideally, the Government of Ghana should act as a rational consumer. Therefore, while forcing the hand of MDAs and MMDAs to patronise solely made-in-Ghana products, efforts should be made in the areas of capital expenditure to ensure that the prices of goods rival foreign counterparts in both prices and quality; which also has positive externalities of increasing our export competitiveness and further improving balance of payments.
Capital expenditure
In the President’s State of the Nation Address delivered earlier this year (February 2014), he indicated infrastructure as a pillar in building the economy. However, the Finance Minister disclosed a worrying trend in the mid-year review where capital expenditure is 22.8 per cent less than what was estimated for the period. The slow progress was attributed mainly to the ‘lower than expected foreign financed capital expenditure due to slow disbursement of project loans and grants’. Given the volatility of foreign financed capital, it is bemusing that a pivotal aspect of the country will be hinged on that.
As a nation that has ‘faith’ in its economic fundamentals, given that it has shrugged off cautions by Moody’s and Fitch, it is reprehensible to turn around and knock on the doors of the same international community, asserting that the donor partners have abandoned the country at its most pressing time of need. Similarly, the issue of the country’s ascent to lower middle income status and subsequent stricter loan terms is often contextualised as though punitive. It is not encouraging that those in charge of driving our development cite their inability to take soft loans as an impediment to running the economy.
The recent decision to abandon the pursuit of $1.5bn of the famed Chinese Development Bank Loan is an indication of our lackluster approach to serious international loan arrangements. The key to having the freedom and liberty to adopt a successful home-grown strategy is to have home-grown financing.
On a brighter note, the Ghana Infrastructure Fund, wholly owned by Ghana, has been approved by Parliament to manage, coordinate and invest in infrastructural projects in the country. A general consensus is that a dire gap exists in the funding of capital expenditure and the inclusion of private actors through public-private partnerships might symbolise the most viable and sustainable alternative available to the burgeoning lower middle income economy. It also reflects an inward looking approach to solving the infrastructural challenges rather than the outward looking alternative.
Capital expenditure in key areas such as agriculture reflects an increase in growth from 2.3 per cent in 2012 to 5.2 per cent in the first half of 2014. There has been a focus on irrigation, livestock and expanding the fisheries industry. Additionally, the budget statement included plans to create specialised farmer’s markets in the three northern regions.
However, a perennial challenge to agriculture, transportation, remains disconnected from the growth in the agricultural sector. Even as, pro-poor solutions target the rural poor, without adequate roads, the agricultural investment will not yield commensurate gains. This example typifies the need for policies that complement each other.
The government cannot do everything at once; it must prioritise, focusing on a concerted approach to policy on key focal areas that complement each other. As we write, the Cape Coast Fosu Lagoon is begging for $250m in private capital to build one of the best modern landing ports for fishing in West Africa. The government will spend very negligible sums under the project as international businesses have shown interest and are ready to hit the ground running.
The decision by the Ghana Investment Promotions Centre and subsequent parliamentary approval for pegging sole foreign investor capital at $500,000 and $1m for venturing into the retail market in Ghana has no legs in economics, except to create very few local champions who can’t compete among their peers.
Another key policy lesson stems from education where even as contracts have been awarded for the construction of 50 of the promised 200 day SHS school blocks, quality remains dire. The earlier decision to build 10 additional colleges of education against all advice that the existing 38 colleges of education needed expansion instead may have come to haunt us.
Most of the clauses in the minister’s speech concerning education referred to social campaigns rather than direct impact on the educational sector, in comparison to the November statement that laid out a number of aims for the education sector. Ghana as a country cannot continue to dance around the issues. Capital investments must be tailored, concerted and prudent in addressing the key priority areas.
Revenue mobilisation
The Finance Minister indicated that revenue mobilisation efforts did not live up to the expectation for the period. This was attributed in part to the lower national output in the case of taxes and the shortfall in grants and concessions (the latter which has already been tackled above). The national pie cannot grow when the essentials such as uninterrupted power, constant supply of water, adequate transportation systems rendered at global competitive prices, that is, the fundamentals do not exist.
The mid-year review laid out five strategies for mobilisation of revenue of which three have been presented in the earlier sections. The subsequent section focuses on the last two revenue mobilisation strategies which are pegged on the Ghana Revenue Authority (GRA) and the mobilisation of revenue from the oil and gas sector.
For a very long time, there has been vast dialogue on roping in the informal sector in order to increase the total tax revenue. Some have cautioned that excessive optimism should not be pinned on the informal sector, explaining that tax revenue from the informal sector alone cannot transform the structure of the economy. In a nutshell, roping in the informal sector must be undertaken alongside strategic capital investments to boost the entire economy. Again, a more concerted approach to policy making must be adopted.
Oil revenue mobilisation
Revenue from oil and gas exploration and production is expected to increase, particularly from the Jubilee, Sankofa-Gye Nyame and Tweneboa-Enyenra-Ntomme (TEN) fields and by the building of a second Floating Production Storage and Offloading (FPSO) vessel, thus the government’s focus should be on prudent expenditure. In the education and agriculture sector, the annual budget funding amount (ABFA) constitutes the second largest contributor to capital investments. It is indisputable that the ABFA is vital to capital expenditure.
However, a report by Africa Centre for Energy Policy (ACEP) has insinuated that the oil revenue is so thinly spread that very little utility is derived from the several projects it funds. Herein is another opportunity for prioritisation of strategic infrastructural instruments that will receive undiluted financial support with monumental effects capable of transforming the economic fundamentals.
A subsequent growing assertion by ACEP is the deliberate under forecasting of oil revenues in order for transfer of the excess to the contingency fund which is not under tight scrutiny and as heavily regulated as the ABFA. These assertions, if bear some truth, ought to be checked.
Conclusions
In conclusion, the current economic outlook of the Ghanaian economy is bleak, unless the measures suggested in this document are considered alongside other credible ones. Secondly, a gap exists in the motivation behind policy formation which the National Development Planning Commission (NDPC) must rise and fill, following the order of prioritisation presented in this article. Doing it all concurrently is not clever. Botswana or Singapore did not achieve economic success by doing it all. The key is to focus through prioritisation. How well have we risen to that challenge?
The writer is the president of IMANI, Ghana, a policy think tank