“Our governments were also compelled to encourage foreign investments by providing tax holidays and other incentives that supported foreign companies to out-compete local industries. This was the genesis of the current weak economic structure we are struggling with.”
It was long overdue, but at last on October 30, 2022 President Akufo-Addo put on a brave face in the midst of tough economic challenges and assured Ghanaians that his government will implement equally tough policies to reverse the economic meltdown.
The highlight of the president’s address was his admission that the economy is indeed “in great difficulty”.
“We are in a crisis, I do not exaggerate when I say so. The budget drawn for the 2022 fiscal year has been thrown out of gear; disrupting our balance of payments and debt sustainability, and further exposing the structural weaknesses of our economy,” President Akufo-Addo affirmed in his first ‘Fellow Ghanaians’ series on the economy. These economic difficulties justify why government must make tough decisions to ensure the markets work for ordinary people.
Undoubtedly, and the president admitted this, escalating fuel prices and rapid depreciation of the cedi are driving the current economic hardships. Seven months ago, 100 Ghana cedis could purchase 14 litres of diesel; currently it takes 250 cedis to get anything close to 14 litres of diesel. That is the reality of cedi-depreciation. According to President Akufo-Addo, the whole world is shocked by the speed at which inflation is undermining people’s incomes.
Global economic hardships
While many well-meaning Ghanaians agree that Ghana’s economy is suffering partly because of the global economic hardships, there is no hiding the fact that the free market system being operated in Ghana is also to blame. At least, lack of control in the exchange market and petroleum price deregulation are two good examples that support my claim. While a free market is mostly considered the best system for allocating goods and services, when the markets fail governments often intervene to restore sanity and confidence in the system.
In the United States, United Kingdom, France and Germany – the homes of free market economics – they have regularly intervened to restore confidence in their economies. Discussions have centred on both the role of the state in limiting operations of the market, when the market proves harmful; and structuring the playing field so that players in the market and general population can better respond to market demands. Is this view correct, considering what is happening in Ghana – where market forces are rather to blame for soaring prices of basic goods and services?
My ordinary understanding of market forces is that they are supposed to enhance economic growth and support the provision of needs to improve the quality life. In the third-world context South Korea, Hong Kong, Singapore and to some extent Kuwait and UAE are good examples of countries which have raised growth rates and real income by operating free market systems. Can the same be said about Ghana’s economic experiments?
Under the Washington Consensus that led to adoption of the Structural Adjustment Programme (SAP), we were made to believe liberalised world trade and a reduction of government expenditure would lead to the production of goods that gave comparative advantage to poor countries. Without our governments investing and motivating local industries to grow, Ghana was compelled to abolish price and import controls, quotas, tariffs and monopolies.
Our governments were also compelled to encourage foreign investments by providing tax holidays and other incentives that supported foreign companies to out-compete local industries. This was the genesis of the current weak economic structure we are struggling with. The fact is that our governments failed to protect the national interest, and rather groomed a population that developed a taste for foreign goods, including imported intestines, gizzards and feet of animals killed in western countries. The very people with licences to import these shoddy and deadly goods to Ghana are the politicians, policymakers and their foreign business cronies.
I recall that in the early 2000s the Kufour administration took a bold policy decision to impose high import tariffs on imported rice and chicken to give a competitive advantage to local producers. The initiative had the necessary legislative support, but the IMF and World Bank invaded Ghana’s policy and legislative space by arguing that local producers had no capacity to produce in volumes to meet growing public demand for the so-called ‘perfume rice’. They argued that a shortfall in demand for imported rice and chicken could lead to social upheavals.
In a way, the Kufour administration capitulated to the pressure from the Bretton Woods Institutions, whose mandate is to protect western interests. If Ghana closed its market to imported rice and chicken, in which markets would the western producers dump their cheap and subsidised products? I recall that in 1999 during a GBC television programme, ‘News Conference’, I asked then World Bank Country Director Peter Harold why the World Bank was against Ghana’s sovereign decision to subsidise our farmers to produce more rice for local consumption. He replied that our government cannot take loans from the west and use them to subsidise our non-competitive farmers. His response, though unwitting, revealed the ideological underpinnings of the west to keep Africa being a dumping ground for their finished products. As far as Africa remains dependent and in darkness, the west is happy.
Perhaps if the Kufuor administration had stood its ground based on our right to determine our future, the Akufo-Addo administration would not be talking about imposing tariffs on imported goods like rice and chicken 17 years on. We would have been saving the US$4billion used in importing rice – the very reason the cedi is under pressure and becoming more ‘useless’ each day. Nigeria took the bold initiative some years back, and today they have their destiny in their own hands; they can boast of attaining some level of food security by the mere fact of not overly-depending on imported rice. The current government needs to make tough decisions, now, on reforming the structure of our economy for future gain.
Structure of the economy
President Akufo-Addo alluded to the issue of free trade when he stated that, henceforth, Ghanaians must work to ensure that the majority of goods in our shops and marketplaces are locally produced.
Perhaps in these daunting economic times all Ghanaians need to support agricultural productivity and boost domestic industries under the 1-District-1-Factory initiative. A booming industrial sector is the surest ways to reduce our dependence on imports and increase exports to guarantee a stable currency. “Exports not imports, must be our mantra! Accra, after all, hosts the headquarters of the Secretariat of the African Continental Free Trade Area,” President Akufo-Addo noted. Undoubtedly, it is the diversification of the Ghanaian economy’s structure from import-based to value-added exporting that will ensure long-term sustainability for the economy.
President Akufo-Addo admitted that over-dependence of imports, including food, is a national security threat, saying: “We must, as a matter of urgent national security, reduce our dependence on imported goods and enhance our self-reliance, as demanded by our overarching goal of creating a Ghana Beyond Aid”. The fact is that, as the president admitted, “We are not making as much money as we need to spend, and what little money we do make is going to pay for the debts we have contracted to fund the development projects we must have. Not enough of us are paying our taxes, not enough of us are producing to generate the revenues that we need”.
In the light of the ongoing economic challenges, government’s plans for reducing the total public debt to GDP ratio to 55% by 2028 should be pursued with all seriousness. In this regard, improving revenue mobilisation should be a priority. The fact is that there are so many people and corporate organisations in Ghana which are not paying any form of taxes. An 18-20 percent revenue target as government is forecasting will still not be enough for Ghana to depend less on foreign loans.
Securing a reliable and regular source of affordable petroleum products for the Ghanaian market is long overdue, and it should not have taken this long for for the president consider this alternative. In fact, the incessant fuel price hikes are killing local initiative. Last Thursday when I went to/from my abode at Ablekuma, I noticed an easing of traffic – perhaps because a lot of people have resorted to parking their vehicles. In fact, the current measures to restore order in the forex markets are also long overdue. As I have stated in previous articles, it is sad that foreigners are dominating and dictating our foreign currency market.
I wonder why it had to go this far for the Bank of Ghana to implement its supervisory role over the forex bureau market and subdue the black market. Simply leaving the forex market to the forces of demand and supply is not in the national interest. It is not every demand for dollars that warrants us using our scarce foreign currencies to supply. There are sharks within our banking system who are undermining government efforts to stabilise the cedi, for which government must crack the whip. In many economies, foreign currency management is tailored to addressing the needs of priority sectors.
As the president has indicated, Ghanaians are expecting that any fresh inflows of dollars will be directed to critical sectors of the economy. We should only be importing goods that are essential to life – not forgetting goods that are used to support local manufacturing.
Finally, as the president indicated, a new legal and regulatory framework that compels mining companies to pay all foreign exchange into local banks is a prudent measure to boost the domestic foreign exchange market and save the cedi from further disgrace.