The just concluded talks between the Government of Ghana and the IMF to try and ‘fix’ Ghana’s economy and its flawed budget including the ridiculous IMF sanctioned 17.5% VAT on Petroleum products, WILL result in some severe austerity measures that Ghanaians must brace themselves for.
However the essence of the article is to inform the readership that the IMF measures cannot solve the underlying fundamentals of the Ghanaian economy. This article will give an alternative budget that seeks to give some concrete measures to solve the Ghanaian economy.
It is important for the readership to know, to recognize and to appreciate that despite the economic indicators and the perception that Ghana is moving forward, the reality of the situation is the economy of Ghana is a colonial one in the sense that pre and post colonial rule, the economy of Ghana is one that has primarily been a resource base economy whereby it has raw materials like Gold, Timber, Diamonds, Oil and Cocoa but exports the raw materials cheaply, I may add, to Western and Asian conglomerates who then use these raw materials to make manufactured products then sell it back to Ghana at five times the price they paid for the raw material.
This is the underlying fundamentals of the Ghanaian economy that has to be changed from a colonial economy to an emancipated one that the budget DOES NOT address.
In order to achieve this Ghana MUST initiate a home grown economic policy (not a home grown policy dictated indirectly by the IMF) that should include the manufacture of goods and services that will transform the economy from a colonial raw material resource one to an economy that has a strong manufacturing base.
To achieve this Ghana must invest in industries such as agriculture by re-opening for example the Komenda and Ausutare Sugar factories, The Tomato factory at Wenchi, the Rice factories in the Northern and Volta Regions. The essence being that as a nation WE MUST CONSUME what WE PRODUCE and PRODUCE what WE CONSUME.
Next as part of this home grown policy that seeks to develop a robust manufacturing base, it is essential to invest in other industries such as re-opening the Bonsa tyre factory, re-opening the Gold factory at Prestea, the Jute and Shoe factory in Kumasi and so many others including helping Apostle Kwadwo Safo develop a Ghanaian car industry that will make Ghana a manufacturing powerhouse, two bring much needed jobs that will substantially decrease the massive unemployment in the country and more importantly bring much needed revenue into the Ghanaian treasury by way of taxation as a result of more people being in employment and also revenue from the receipts of these exports of goods and services.
Ghana will only get itself out of the severe economic crisis it is in by having a strong manufacturing and agricultural base that is producing key goods and services for both the internal and external markets.
No IMF plan will include investing in a strong manufacturing and agricultural base which is why it is important for government to develop serious and sustainable home grown policies such as promoting robust manufacturing and agricultural sectors, especially the agriculture sector because it is insane that we are importing tomatoes, rice and other food items when Ghana is blessed with fertile land where we can cultivate these food items and others ourselves so government should look seriously at subsidizing Ghanaian farmers instead of spending tens of millions of dollars importing food.
The next item that is essential for growth and development is the issue of revenue income. It is painfully evident that Ghana does not get enough revenue from its economic activities/output. It is this lack of revenue and more importantly how it is accounted for that is one of the fundamental reasons why the government has sought ‘assistance’ from the IMF.
However in order to address this issue of lack of revenue four things need to happen and this was missing from the budget, instead of the unnecessary 17.5% VAT on Petroleum products. The first thing is to widen the tax net. Again it goes without saying that many Ghanaians do not pay enough income tax and income tax is a key source of revenue that is missing from the coffers of the Ghanaian treasury.
In developed economies, income tax revenue is both an important source of revenue as well as being an important component of developmental projects such as roads, shopping malls, health clinics, tram/rail networks and so forth.
The government MUST expand the income tax net by including, as harsh as it may be the CHURCH – the Church makes millions of cedis annually tax free – The church is a part of society and if the church is serious about wanting to improve and contribute to the wider society, and not just its members, then it must pay its fair share of taxation to contribute to the wider growth and development of the nation – if the church’s’ members can pay income tax, I do not see why the church cannot contribute to the country its fair share of income tax.
Also the informal sector needs to be brought into the income tax net as the revenues generated from the economic activity of the informal sector that accounts for 90% of the SME sector in Ghana, is enormous.
The next aspect of revenue generation is public sector waste – there is a tremendous amount of public sector waste and immense corruption that is having an adverse effect on the revenue government has at its disposal. A recent report from the Auditors’ General alluded to the widespread corruption that is imbedded in the Public Sector. This corruption is robbing the state of much needed resources and money for social development projects.
One way in which public sector waste can be eliminated is through public sector reform, again something that was missing from the budget. Public Sector reform is trimming down the public sector and making government more efficient because there are certain departments that quite frankly do not need to be a part of government machinery – also the expenditure of the public sector needs to be curbed – for example the constant changing of cars for the undertaking of duties is unacceptable and the wastage for example of leaving the lights and air-conditioners on after work is also unnecessary and needs to be re-examined carefully.
Another part of revenue generation that was not mentioned in the budget is the amount or rather lack of taxation that is paid by Western, Asian and Arab multi-national companies operating in Ghana.
For example the European multi-national company Vodafone acquired a 70% stake in Ghana Telecom in 2008. Under the Sales Purchase Agreement (SPA) Vodafone enjoyed a tax holiday of up to 5 years paying no tax to the Government of Ghana. This state of affairs where Western multi-national companies like Vodafone do not pay any tax is scandalous and unacceptable and should be seriously looked into.
In the 5 years where Vodafone have had a tax holiday, they have made tens of millions of dollars and these vast profits have gone to shareholders whilst the Ghanaian public has not seen any great improvement in the quality of service provided by Vodafone.
Just because the Government wants to attract Foreign Direct Investment (FDI) in to the country, does not mean that it should surrender its sovereignty by allowing multi-national companies to have tax holidays in the process depriving the state of much needed revenue and therefore Government needs to review this policy of allowing multi-national companies operating in Ghana to have tax holidays.
The final issue to do with revenue generation and again an area that was not touched in the budget is the issue of revenue from commodities. Ghana has its fair share of commodities like Gold, Diamonds, Timber, Cocoa, Manganese, Aluminum and Oil.
However due to unfair trade rules, Ghana DOES NOT receive a fair price for its key commodities. A fine example of this is in the area of Gold. In 2011 when the price of Gold was at near record highs of nearly US$2,000 per ounce, Ghana only received a paltry 3% – 3% is hardly enough revenue to build schools, roads, hospitals, clinics, subsidies farming, improve the road network, improve the rail network and so forth.
Revenue from commodities is an integral part of government revenue and it is unacceptable that countries like Ghana have allowed themselves to first sign really bad contracts with multi-national companies and two allow western nations to control the price of raw materials leaving them the hewers of wood and drawers of water for others.
Again what the budget failed to mention was a comprehensive strategy with define costings to eradicate the power crisis for good. Without a constant and reliable supply of electricity the economic strides that Ghana wants to make will be virtually impossible as electricity is a very important component of economic development. The Government MUST be BOLD and tell the TRUTH to the Ghanaian public that there IS AN ELECTRICITY CRISIS rather than use deceptive language to fool the public into believing that everything is alright.
There are some serious underlying issues with the generation and distribution of electricity in Ghana from the maintenance of the Akosombo and Bui Dams, through to the supply and distribution channels and therefore a comprehensive strategy to tackle the ELECTRICITY CRISIS should have been outlined in the budget to give hope to industry and the public at large that something concrete is being done to solve this CRISIS.
For my part I would have loved to have seen in the budget proposals to invest more in solar and wind technology that would give more of a long term solution to the crisis.
Like I have said on many occasions the IMF ARE NOT going to allow countries like Ghana to develop economic policies that will liberate them from the shackles of economic enslavement. Please read:
• ‘How Europe Under developed Africa’ – Dr. Walter Rodney
• ‘The Confessions of an economic hitman’ – John Perkins
• ‘Why we should fear the IMF’ – Dr Joseph Stiglitz and watch the film
• ‘Life and Debt’ which is a 2001 American documentary film directed by Stephanie Black. It examines the economic and social situation in Jamaica and specifically the impact thereon of the International Monetary Fund (IMF) and World Bank’s globalization policies.
The Founders’ of this nation fought for political independence and the right to govern oneself. It is now time for the current generation of political leaders to fight for the economic independence of this country so that our total independence can be meaningful to the masses of the people.
The author is an Afrikan Historian, Researcher and Economist
By: Dr Kwame Osei