The upcoming budget is expected to set the agenda for year-2024 and government election commitments. However, Ghanaian society is afflicted by inequality and poverty which do not spare not even the employed population – who can generally be referred to as the working poor – let alone the unemployed, marginalised and vulnerable.
Government’s digitisation agenda and economic changes envisioned and promoted by the Akufo-Addo and Dr. Bawumia-led administration have been moderated by mismanagement and adverse impacts of the three Cs – COVID-19, Climate change and Conflict.
As a result, Ghana has been experiencing abnormally high food costs and general inflation (a cost-of-living crisis reminiscent of the early 1980s). This has mainly been due to macroeconomic difficulties exacerbated by a near-failure of government’s flagship programme ‘Planting for Food and Jobs’; domestic grain shortages and changes in global food and fuel supplies and capital outflows; unsustainable levels of debt; and a new era of low growth.
Looking beyond the 2024 budget, government will need to start reshaping it meaningfully if it intends working toward closing the deficit, while also funding its election commitments in areas of expenditure which have been lacking but are necessary to propel growth.
Revitalising the economy to make it stronger
There is no better time than now for Ghana to enact growth-enhancing structural policies that could potentially enhance short-term as well as long-term growth. These may generally include reforming anti-competitive product market regulation and reducing tax burdens for low-income workers, as well as launching major infrastructure projects and compulsory training programmes for the unemployed to be absorbed by incentivised small and medium enterprises (SMEs).
Beyond the above actions, however, we need to re-think the proposed strategies below as to how the Ghanaian economy has been operating – with a goal of not only making it a robust sub-regional economy, but also a cleaner and fairer one that will continue to attract direct foreign investments.
Ghana is currently on its knees partly because, major regulators in the financial services sector (Bank of Ghana, Security and Exchange Commission) slept on the job, only for the former to tell us in the wake of the financial sector crisis that from its Asset Quality Review, some indigenous banks were vulnerable – with inadequate capital, high levels of non-performing loans and weak corporate governance. The central bank Governor, for instance, is expected to raise the quality of supervision and bank operations to the world standard. That action was rather reactive, and an example of after-event supervision. The financial services sector occupies a vital position in the economy, and must be subjected to continuous reforms for efficient functioning.
Some entrepreneurs cannot be trusted to do the right thing. They many times engage in unethical deals that affect unsuspecting stakeholders in their business enterprises. A number of the indigenous financial institutions existed only on paper, window-dressed their financials and took advantage of depositors by siphoning their investments into other business ventures (creative accounting and exposure to related parties).
It is expected that lessons would have been learnt from the regulatory lapses, regulatory non-compliance and poor supervision emanating from questionable licencing processes and weak enforcement. As a people, we ought to as much as possible increase the amount of human joy and contentment in our dear country, Ghana. Conversely, we ought to as much as possible try to reduce the amount of not only evil but also undeserved happiness. We ought to be trying to increase, or at least balance deserved happiness over ills and evil, and undeserved excessive unhappiness.
To that end, anyone who is imminently culpable of robbing customers of their hard-earned lifetime savings and the entire nation of social good (I mean social amenities the state would have provided to make life a bit more bearable with the bailouts), doesn’t have to escape the scales of justice.
Innovation is key if Ghana is to emerge from the perennial economic crisis. Thankfully, the economic crisis has been met with a positive response by government and its bilateral donors to avoid a total crunch, through measures aimed at stabilising the economy and initiating rapid recovery.
What’s required in subsequent budgets is to ensure policies lead to recovery that is robust and durable – i.e., based on sustainable growth. Ghana’s current crisis should not damage the drivers of long-term growth, but instead be used as a springboard to accelerate structural shifts toward a stronger, fairer and cleaner future economy. Anything short of that will just be scratching the surface, as the macro-economic and structural roots of the current downturn will remain unattended.
This is where there’s a need to integrate long-term concerns in the budget policy packages currently assembled by government, and implement specific policies aimed at strengthening the economy’s supply side. Some of the medium- to long-term considerations must not be swept under the carpet, because:
They add credibility to government’s borrowing demands, thereby making a significant impact on fiscal sustainability;
II) The imperative structural changes out of the crisis offer opportunities for rapidly redeploying resources – from activities not doing so well to those which offer the largest, longer-term economic and social benefits.
Medium- and long-term initiatives could comprise the following: fostering innovation through promoting entrepreneurship; investing in smart infrastructure; encouraging R&D and green investment; upgrading the skills of workers; steering market actors toward innovation-related investments; and accelerating activities for which barriers may previously have been too costly.
Economic crisis management – the examples of Finland and Korea
In the mid-1990s, Finland experienced a domestic banking crisis that led to a collapse of consumption and investment spending. The crisis saw its output drop by more than 10% while the unemployment rate quadrupled to almost 17%. Overcoming the deep economic crisis required drastic measures to improve competitiveness and consolidate public finances. It also required very costly measures to revive the banking sector. Except for the Research and Development budget that had an increase, most public expenditures were cut and some taxes were raised.
Government made a bold decision to complement macroeconomic stabilisation measures with sustained investment in infrastructure, education and incentives for structural change, which helped greatly to put the Finnish economy on a stronger, more knowledge-intensive growth path from the crisis.
Korea’s experience indicates how good crisis management can be used to hasten structural adjustment. The Asian financial crisis of the late 1990s led to significant downsizing among large firms in Korea. This process was characterised by mass lay-offs of highly skilled personnel and large reductions in corporate R&D spending.
The response of the Korean government, in addition to boosting education expenditure, was to increase its R&D budget to offset the decline in corporate R&D spending. Moreover, it used the crisis as an opportunity to develop a technology-based SME sector – using the Special Law (enacted in 1998) to Promote Venture Firms.
A coordinated mix of policy measures was put in place: regulations that helped improve the environment for venture start-ups and their growth; government-backed venture funds and tax incentives for investors; as well as measures to support research. These measures fuelled rapid expansion in the number of corporate R&D labs (which numbered about 3,000 at the time of the crisis but grew to about 9,000 by the year 2001, with SMEs accounting for 95% of this increase. On the eve of the crisis, there were about 100 ‘venture firms’ in Korea. By the end of 1999, this number had increased to over 5,000 – and by the end of 2001, it had grown to over 11,000. The long-term effects of these measures are striking.
Promoting trade, investment and competition
Ghana’s, and by extension Africa’s, surest bet is to rely on trade, and not aid, loans or BRICS Asset-Backed Securitisation, or Barter trade, because it has been proven to be the case that China is gradually taking over Africa due to the latter’s inability to repay its loans.
According to the World Trade Organisation (WTO), the current level of trade between African states is as low as only 12 percent compared to 60 percent for Europe, 40 percent for North America, and 30 percent for the Association of Southeast Asian Nations (ASEAN). Certainly, the African Continental Free Trade Area (ACFTA) has great potential to establish the world’s largest single market and effectively boost trade between African states by 50 percent; however, we lag far behind the deadlines which were to have been met in 2017.
In his classic work of economics in 1776, ‘The Wealth of Nations’, Adams Smith argues that the wealth of a nation is not determined by its gold and silver reserves, but rather by the productivity of its citizens and efficiency of its economy. He further advocates for a system of free trade, in which individuals and businesses are free to produce and exchange goods and services without interference from government.
Zambian-born economist and author of the best-seller ‘Dead Aid’, Damiso Moyo, has stated that over the past 60 years at least US$1trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population lives on less than a dollar a day.
The issue is: if this economic development model of aid/loans is not working, why must it still be the purported route to attain sustainable development in the developing world/Africa? Conversely, China moved 300 million people out of poverty in 30 years; and India has approximately 300 million people in its middle-class. It’s significant to note that these ‘emerged’ giants did not achieve this by relying on aid to the extent that the entire continent of Africa does today, and has for the past half-century.
We have to realise that the strings, terms and conditions have not been favourable to Africa. They are primarily meant to keep us dependent. It’s been wondered, for example, as to why the West and Bretton Woods Institutions don’t invest in local producers of goods or invest in a manufacturing plant to produce the goods currently being shipped to Africa. Indeed, such ventures would be a sure way to spur job creation and ensure a sustainable way out of poverty.
Stronger trade deals for developing countries – that is to say, trade which ensures economic growth – are therefore the only sustainable way for Africa, and for that matter Ghana, to escape poverty. In addition to trading among ourselves, fairer trade with the rest of the world is the best way to lift Africa out of poverty. The ‘Africa beyond aid’ mantra should focus on achieving these ideals rather than our wantonly chasing China’s billions as if they are for free.
Again, if the world changed the current economic order that robs Africa of its ability to trade on equal terms in the world market, the continent would not need China loans or aid from the West. China and the Western world will not transform African societies, its only trade that can foster the sustained economic growth necessary for the transformation Africa needs.
Strengthening Corporate Governance
All the state-owned enterprises (SOEs), without any equivocation, are not doing well because of corporate governance failure. Corporations, if they are to create economic value and generate employment, are expected to be among the main drivers of wealth creation in modern societies. However, the governance structure has become an albatross rather than being crucial to the country’s economic development.
Well-functioning corporate governance means efficient use of scarce resources and higher operational performance, better access to cheap and patient equity capital that can contribute to sustained growth, and better and higher-quality employment opportunities. A recent survey by management consultants McKinsey indicates that investors are prepared to pay a substantial premium for good corporate governance because it ensures credibility, transparency, accountability and shareholder protection mechanisms – all of which are important in attracting foreign direct investment.
Luckily, the Institute of Directors-Ghana recently published a corporate governance code. Certainly, improvements in corporate governance quality will lead to higher GDP growth, productivity growth and an increased ratio of investment to GDP.
Entrepreneurship and business dynamism
Historically, economic crises are known to have been opportune times for industrial renewal and re-awakening. It is a period when less efficient firms fall apart, while more dynamic ones emerge and expand out of economic disruptions.
Creative destruction is an essential engine of long-term efficiency in market economies, and it intensifies in downturns. Available data from many Organisation for Economic Cooperation and Development (OECD) countries point to a sharp increase in bankruptcies and business failures in recent months.
However, new business models and new technologies – particularly those allowing a cost reduction, often arise in downturns; as was the case with low-cost airlines which grew out of the early 1990s recession. As dominant players weaken, they open space for new players and innovators. It is equally true that economic downturns can have a detrimental effect on the creation of new, innovative businesses when access to financing dries up.
A fellow African country, Rwanda, has made giant strides in promoting a greener economy. Thankfully, we have been spending much on the national tree-planting exercise. This effort has to be streamlined to become more beneficial instead of compounding the current economic crisis.
Ordinarily, environmental innovation is affected – as consumers buy less expensive goods and firms are reluctant to introduce innovations because it is more difficult to recoup price premiums during recessions.
These factors notwithstanding, the prospect of industrial restructuring offers tremendous opportunities for promoting environmentally-friendly investments into the emerging greener businesses as existing businesses phase-out old equipment due to downturn and obsolescence.
Both domestically and industrially, the current crisis should offer opportunity and incentives to improve efficiency in the use of energy and materials, and to move toward more sustainable manufacturing while developing new green businesses and industries. The state can facilitate this by investing in innovative energy-efficient buildings and transport systems, alternative energy supplies and ‘smart’ electricity grids, pollution control, as well as investments in environmental infrastructure such as sea-defence walls to protect the coastline.
Creating long-term solutions
Undoubtedly, the current economic situation poses hard new questions and choices for the state – although it offers an opportunity to strengthen the economy’s medium- and long-term potential by way of incorporating forward-looking structural measures that inject innovation into the mix of policies being adopted to tackle the economic downturn.
Obviously, there is much we can do to improve the situation – and not just distributing food and water to families in the short-term, but rather focusing on developing policies for long-term sustainable growth. Involving the middle-class in driving change is as crucial as it is fundamental.
The budget is therefore an opportunity for government to indicate direction for the digital economy and evolution of ‘Services Ghana’.
If we can be cleaner and fairer by way of –
- Promoting transparency and integrity
• Fighting corruption and money-laundering
• Combatting tax evasion
• Boosting employment and social inclusion
• Providing adequate education and healthcare – we may restore trust and share the benefits of globalised prosperity.
It is only when the above conditions are met that we will be able to look forward to stable growth and increasing prosperity.
The writer is a Corporate Generalist and can be reached via [email protected] or 0244 65 16 63