Playing games with economic fundamentals
After a few unsuccessful attempts to get paid for my last consignment of cocoa to the PBC purchasing clerk, I could clearly discern his frustration. Just before I left his office, clothed with extreme disappointment, his district officer came round.
The hapless purchasing clerk hurriedly invited me to talk to his manager. I scoffed at the idea, bluntly telling him that I know enough of the economy of Ghana not to fall for any propaganda from a government official, and drove off in anger.
At the first cock crow in the holy village, I woke up with an intriguing thought about what a revered economist now turned a politician said some five years ago about how the economic fundamentals will expose anybody who played political mischief with the economy of this country.
How profound it was then, and how true it is even now! The only difference now is that I am a direct victim of the dichotomy between what the politicians tell us and the screaming reality confronting some of us as we dirty our hands on the entrepreneurial wheels.
While I was scheming on how to pay my creditors after those unfulfilled promises from the PBC clerk, I got a call from a journalist friend who was apparently excited about the three billion dollars Eurobond Ghana successfully floated and which was twice over-subscribed.
He appeared elated about the “term zero coupon bond” and asked me to read some writer’s opinion which sought to portray that now Ghana can borrow even without interest from the global market. After reading the article he referred me to, I had to quickly clear the apparent misconception carried in the said article.
My friend, like other people, got the mistaken impression that a zero- coupon bond comes at no interest or cost. This must be debunked. The borrowing comes at a discount such that Ghana obtains say 2.5 billion dollars today to pay back 3.00 billion dollars face value upon maturity in say 4 years. It is not free as it comes at a cost of about 6-8%, per annum.
The article referred to with the caption, “Ghana confounds sceptics by raising USD 3 billion in Eurobond” gave the impression that Ghana has become so credit worthy that the bond was twice over-subscribed. The bond issue is described as zero coupon as if it is without cost. There is therefore no point in patting ourselves that others are so willing to lend to us.
Remote HIPC reliefs.
It is true to say that compared with some earlier bonds, the 6-8 % effective interest is lower than previous flotations, but that must be seen to reflect the post covid global depression with low interest rates and high liquidity. International capital does not stay idle so the 6-8 % interest rate is compensatory enough for investors’ risk, hence the over-subscription.
The reality remains that our debt burden at over 70% remains high, particularly as interest costs swallow nearly 50% of annual revenues, leaving little room for capital investments to accelerate meaningful growth.
What makes our debt situation even more precarious is that unlike in the past where a chunk of the debt was owed to the IMF/ World Bank, this time, the bulk is held by private investors and the dynamics are different. We cannot therefore gloat over investors’ willingness to lend to us.
The prospect of debt relief as in the HIPC days are simply too remote and the impact on foreign exchange rates into the future can be dire if we continue to utilize these funds on consumption expenditures instead of invigorating our productive capacities for enhanced future revenues.
The judge, the rapist and the devil.
Our budget deficit is said to be hovering around 11% and expected to fall back to the mandatory 5% in about 3 years. The blame is hurriedly and conveniently heaped on post covid challenges.
I offered a lift to a first- year undergraduate student in my village. When the vehicle began the usual topsy-turvy gymnastics on the bumpy, dusty road, the young man jokingly quipped “ that this bad road too should not also be blamed on covid, as it had remained in this condition for over four years”.
I looked at him and simply shook my head, delighted that the young man is beginning to grasp governance imperatives. His reference to our penchant to blame our inadequacies on external forces quickly reminded me of the case of a jovial lady judge who sentenced a rapist to ten years imprisonment for the offence.
The accused pleaded that he had something to say. When the judge permitted him, the convict admitted the offence but blamed the devil for the offence.
The pretty judge simply told him that she too had a dream the previous day when the devil was fiercely denying before God that he (devil) was not responsible for most of the atrocities attributed to him. The devil was so embittered people were blaming him for everything, even when he was sleeping at the time of the crime and did not even know the culprits!
Should I consult an opthamologist or an economist?
Are there some fundamental changes in the economy that I am not seeing? Changes that will ultimately soothe my worry about the increasing national debt. Changes that will reduce govt expenditure radically without deterioration in health and educational facilities. Changes that will make the private sector the real engine of growth, create possibilities for the private sector to borrow at single digit interest rates, having doused the govt’s appetite to borrow and thereby crowding the private sector in the borrowing process.
When are we going to be real and accept that we have productive capacity challenges like unstable electricity supply and stop the pedestrian arguments about what constitutes a proper definition of dumsor? Perhaps I need to change my lenses or talk to a less partisan political economist!
Back to the Road Fund and specific appropriations
At the introduction of the Road Fund some years back, I was one of the many perhaps naïve optimists who believed that soon the country would see major expansion in the road sector. Several years down the line my hopes have been dashed completely, although the tolls are still being collected and other statutory appropriations still go into the fund. I am yet to see the massive infrastructure that I dreamed about as going to benefit from the Road Fund.
Very soon, we are going to grudgingly accept to pay more for road tolls. I wish for once, the authorities will use the incremental revenues for their intended purposes as our roads are not worthy of our cars. Indeed the road sector is a major contributor to our uncompetitive cost of doing business.
The same could be said about the GetFund, the Oil Stabilization Fund and other specific appropriations for various projects, whose funding go into other unintended, less viable projects to the detriment of educational and health infrastructure, inter alia.
To make matters worse, even specific borrowing for cocoa purchases cannot be used for their intended purposes to the extent that farmers have to wait interminably for payment for cocoa sold to the buying agencies.
I wonder whether the authorities appreciate the negative rippling effects such adverse expectations have on multiple sectors of the economy.
Technical versus grammar school education.
It has been over forty years since I worked as a clerk at the then Ghana Teaching Service Headquarters in Accra. The inherent disdain that I noticed towards technical education has remarkably remained the same to this day. Various bodies have been established to change the trend, including conversion of some polytechnics to university status.
These have had very limited success, with the difficult to erase perception that only less capable students attend technical institutions. Appropriations to the technical and vocational education sector annually have unwittingly confirmed the notion that they are less relevant for national development.
Very soon, another set of SHS graduates will enter the universities, hoping against hope that white collar jobs will be created to absorb them. We must make bold and radical investments in technical and vocational education to consciously tilt second cycle and tertiary student population toward this sector.
Failing that, we are going to swell the number of unemployed graduates who will spend their time at gambling centres and carrying wierd ideas about how to speedily enrich themselves through spiritual means, instead of self employment.
It is sad to note that although the real estate sector appears to be doing relatively better, even under covid, the investors in the sector prefer hiring artisans from neighbouring countries in view of the relatively higher technical skills set these immigrants possess. When shall we reverse this trend?
The Duke of Edinburg dies at 99?
Learning to convert fractions into decimals at Kwamo L/A Primary School in the 1960s, I recall the teacher saying that a decimal point beyond 5 could be rounded to the nearest whole number. I hope that principle still holds today. When I heard that the Duke of Edinburg died at 99 years, just two months shy of his 100th birthday, I said, waao, these British and precision!
Why could they not round his age to 100? If the old soldier was a Ghanaian, we would have gracefully credited him with 100, like most of the obituary notices in my village where every dead old person with a wrinkled face is said to have died at 105, 115 or 120 years.
I would be 65 years in June 2021, just two months away. If I should die before that date, please credit me with 65 years. I am a Ghanaian and an African. Let people say I almost made it as per the decimal conversion!
The writer is a Fellow of the Chartered Institute of Bankers, an adjunct Lecturer at the National Banking College, a farmer and the author of “Risk Management in Banking” textbook.
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