Let’s get it straight: by committing to this path of fiscal retrenchment in our living memory the government has further gone for broke. The Budget for 2022, announced few weeks ago, offered the Finance Minister an opportunity to set out the government’s thinking on how it plans to solve the longstanding and unquestionably daunting challenges ahead. But, stripped of its grandiose rhetoric, Mr. Ofori-Atta’s effort fell far short of the occasion as a recognition of political realities.
Politically, the package in the Budget seems adroit. But also lays bare the fiscal cost of a savaged economy – not just a hard-hitter on the vulnerable. The question is whether his strategy is sufficient enough to confront the challenges facing post-pandemic Ghana. The answer, I fear, is that it is not.
The truth, alas, is that Ghana’s economy has long been mired in mediocre growth: the cedi is (still) in crisis without a plan to stop its depreciation against the dollar; stagnation as a result of massive unemployment and rising prices for decades with no clear-cup strategy to taming this beast. The best answer to this has to be faster growth with consistent commitments.
So what was missing in the Budget? One failure was to show how his growth strategy, taxation and his ambitious goals fit together. Instead, sobriety. But the Finance Minister still sounding reasonably confident about the 1.75 per cent E-Levy inflicted on its citizens without considering the long-term scarring – claiming “there is no alternative” to balance the public purse, and it’s a “burden shared” that has been added to the Consolidated Fund to help stimulate our foundering economy.
That’s the problem – the greatest national challenge met by the greatest national shortsightedness. The policy still remains a stalemate in the parliament, and it has given most of his punchy critics and sceptics a field day. Ken Clarke, a bigwig in Britain’s Conservative Party has always maintained that good economics is good politics.
Unfortunately, the government has turned this on its head. Mr. Ofori-Atta’s argument on E-levy reflect an eighteenth century cartoon which shows the central state as the ‘Dreadful Monster’, gorging itself at the dinner table on all the taxes it can grab. Meanwhile its ‘Poor Relations’, all poor because of taxes but also poor in the sense of needing special treatment are viewed as ‘drain on the state’, depicted in Julian Hoppit’s book The Dreadful Monster and its Poor Relations.
Framing his assertion that somehow Ghana has an economy fit for a new age of optimism, and that the plans put forward is a choice between the public and private sectors, is certainly good politics, but it is bad on economics. In reality, not only will it further impoverish the Ghanaian masses, the E-levy will also put consumer spending in retreat and force majority of private sector workers into further unemployment. With recent survey suggesting rapidly worsening business confidence and no evidence of an emerging hiring spree, the prospects of finding work in the private sector are bleak.
It’s not surprised some Economic and Fiscal Hawks like Mr. Kwame Pianim have all come out flagging their distaste towards the E-levy policy that has set the entire nation pulse-racing. But an even bigger concern is whether the government’s policy on E-levy justifies any optimism over longer-term economic prospects. We have given ourselves away to the International Monetary Fund and other private sector economists in downgrading further Ghana’s 2022 growth forecasts, to just below the rate required to lower unemployment.
I am an economic realist, and absolutely not a black arts politician. The public finances need addressing. I agree. But the plans announced in the Budget for 2022, alas, lack bold ideas. The current plans will only keep in place the bulk of structural deficit that has staggered Ghana’s economic growth thus far. The government’s proposal, designed without an escape hatch in the event of slowing growth, reflect ideology, not realism.
What was most striking in Mr. Ofori Atta’s Budget was the absence of an integrated response to Ghana’s many challenges. The government also has no plan for jobs: refusing to accept responsibility for the massive unemployment in the last five years is a slap in the face to Ghanaians. Did “One District, One Factory” arrived without a strategy?
Such a long period of low growth in productivity, real earnings and real disposable incomes has made the Ghanaian public look grumpy – lacking Green Investment Banks, a fragile-looking Trade Ministry, a weakened Hospitality and Tourism Sector (thanks to COVID-19) with a limping Financial Sector to boost growth is what sums up the complacency that has led to the panic to aiming for Mobile Money accounts in a form of E-Levy.
The government should instead focus on the jobs deficit – the number of those out of work. During its 1990s fiscal consolidation, Sweden made halving unemployment its priority. But in Ghana we have repeated, on several occasion, Japan’s response to its crisis: not putting enough stimulus into the economy, raising value added tax and rely too heavily on monetary policy – leading to unemployment and stagnation.
Ghana’s economy must be greener, more innovative and more balanced. In the face of widening current account deficit, we must play to our strengths in agriculture, and other creative industries – as well as a strong and properly regulated financial sector to avoid businesses going bust. This needs the public and private sectors to work in tandem, starting from 2022 with five steps to end unemployment crisis and address our fiscal deficit, here is what the government must do:
First: create a Ghanaian Investment Bank to facilitate investment into infrastructure, support good small businesses struggling to access funding and provide capital for export industries. The bank would be owned by the public, but would raise money on capital market and be controlled by commercially-oriented board. For decades similar banks in Germany and Nordic region have helped their private sectors flourish. Financial sector reform gives us an opportunity to join the party.
Second: set and achieve a goal of having 60 per cent of 18-30-year-olds in university, higher level vocational learning or apprenticeship by 2035. Growth depends on improving our skills base, not condemning our population to long-term unemployment with a failure of not having Future Jobs Fund in place.
Third: deploy the public sector to invigorate local economies by maximizing the multiplier effect of public services. Holding back Building Schools for the Future is not just bad for education, it will hit construction jobs too.
Fourth: focus on increasing productivity and quality of work in low pay, low value sector of the economy. This requires a new workplace settlement, based on hard work, innovation and fair pay. Reform corporate governance and models of ownership can be given employees a greater stake in the success of their companies.
Fifth: pursue an individual strategy for the 21st century, marshalling the state’s tools of procurement, regulation, planning and a better taxation strategy that will attract the private sector where it is needed most. We can learn from Portugal’s initiative on infrastructure for electric car-charging, a viable commercial case for investment in manufacturing. Germany’s renewable energy policy after COP26 combined feed-in tariffs with regional development areas and research, creating more than a million jobs. Israel’s incentive-based approach to commercialising university research has taken it to the top of the world’s innovation charts. Globally, governments are helping to expand the economic pie. Ours can follow too.
Mr. Ofori-Atta’s Budget for 2022 lacks these nuggets needed to attract businesses and boost economic growth. The E-levy initiative gives an impression of a desperate hungry lion – it would feed on anything that crosses its path. It risks undermining investment push, and thereby kill small businesses which remain the engine of our economy. So, my economic advice to the Finance Minister on E-levy is this: scrap it. And if he’s determined to put this right, it would boost the NPP into becoming the party of spreading wealth creation, not just spreading wealth. It is not good politics to have bad economics.
The writer has previously worked for Bank of America Merrill Lynch, Lehman Brothers, Deutsche Bank and JP Morgan as Global Equities and Merger & Acquisition Strategist in the UK.
