Ghana’s President recently launched “Ghana beyond Aid” as his long-term vision for the Country. On the occasion of the unveiling of this grand vision, the President was crystal clear about the urgent need for Ghana to wean herself off development aid as much as possible. The vision statement has since become the new buzz in town and the most discussed issue among politicians, policymakers and the public. The discussions have been lively, passionate and occasionally partisan. Some have suggested the vision is “mere rhetoric”, some have also said, “Ghana Beyond Aid” is about Ghana and not any political party. Well-meaning Ghanaians, as well as government functionaries, have edged for support for the vision. Sadly, not all the commentary has been decorous as some have been unbenignly absurd and careless.
The government has, however, remained focused and gone ahead to set up a Committee to oversee the actualisation of the vision. The Committee which is chaired by the Senior Minister, Yaw Osafo Maafo (former Finance Minister) has the responsibility of drawing up a roadmap for achieving the President’s vision- a Ghana that is resilient and less dependent on foreign handouts. Other key members of the Committee are drawn from the Finance Ministry, Employment and Labour Ministry, as well as organised Labour and Private Enterprise Federation.
To many of us, the epoch where Ghana depended less and less on “Aid” is now and must represent the last leg to total liberation from colonialism and neo-colonialism. It embodies our last bet to full humanity and dignity and respect. It guarantees full autonomy and control over all facets of our lives. It is a dut that current generation must not renege but aggressively work at it to fully liberate and unlock the plentiful opportunities untapped for the betterment of generations today and tomorrow. It is a mission similar to the earlier political liberation struggles of our forebears.
This piece, therefore, seeks to contribute to the discussion by auguring that “Ghana Beyond Aid” is achievable; but acknowledges that it will not come easy. It requires leadership, sacrifices, clear tactics and strategy, determination and commitment of every Ghanaian to contribute his/her quota towards the attainment of this vision. And the president couldn’t have said it any better when he said, “Ghana Beyond Aid requires a deliberate, qualitative change in all aspects of our lives; especially, in the structure of our economy, the nature of our infrastructure, the education of our young people and acquisition of skills, and, above all, in our attitudes and holding firm to the values that define us.”
Ghana’s Destiny with Aid
Development Assistance has played a significant role in Ghana’s economic development and transformation over the past decades. Before the late 1970s and the early 1980’s, aid was regarded merely as welfare. However, in 1983, when Ghana signed up to the Structural Adjustment Programme (SAP) of the IMF, foreign development assistance officially commenced. Aid became an essential part of government financing since and was quite responsive to the political cycle of the country. Meaning, in periods where Ghana had democratic governments, aid support was higher than in periods of military rule. The support during these early periods targeted very much at unlocking the structural difficulties in the economy of the country. However, the support did not yield the desired result leading many- both home and abroad- to question the relevance of aid.
However, in the late 1990’s, the focus of development assistance changed from support for structural reforms to supporting targeted sectors of “Good Governance” and “Poverty reduction”. Ghana, subsequently, adopted the Ghana Poverty Reduction Strategy I&II which allowed the country to access concessional loans and grants from Multilateral and Development Assistance Committee (DAC) bi-lateral countries. Governance institutions as Judicial Services, Commission for Human Rights and Administrative Justice (CHRAJ) and Serious Fraud Office (SFO) received substantial grant funding support during this time. The most symbolic of such support is the construction of the Commercial Court building of the Supreme Court financed by DANIDA in 2004. Ghana enjoyed significant aid around this period, and the country was very much dependent on aid especially after it qualified for debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative.
With the discovery of oil and gas resources in commercial quantities along the shores of Ghana in 2009/10, and Ghana’s transition into a low middle-income economy, the Aid architecture changed markedly as Development Partners communicated their intent to scale down their support. In fact, the intent got officially sanctioned as on the 21st June 2012, the Government of Ghana and 15 DP’s signed a compact dubbed “Compact for Leveraging Partnerships for Shared Growth and Development”. The Compact which is from 2012 to 2022 had fourfold objectives with the topmost as “to reduce Ghana’s dependence on ODA and with increased levels and reliance on alternative development funding and domestic resource mobilisation”. Since then, aid has been on the decline with grants as a percentage of total domestic revenue averaging 12% (2010-2015). As a percentage of GDP, grant is about 1.2% (2008-2018). In the current circumstance, it is difficult to categorically suggest that Ghana is an “aid” dependent country.
To conclusively demonstrate that Ghana is not aid-dependent, I compare grant as a percentage of GDP for three countries (Rwanda, Mauritius and Ghana). Rwanda is acknowledged as one of the few countries where aid had had positive impact and grant as a percentage of GPD is currently about 7.5%. Mauritius is one of the few countries in Africa acknowledged to have a stable political system, continuous macroeconomic success, and high levels of foreign direct investment. It is also the gateway for financial flows from Europe and Asia coming to Africa and depends less on aid. The figure below shows grant as a percentage of GDP in these three countries. From the figure, it becomes apparent that Ghana is indeed, receiving less and less of development assistance recently. Especially, after the discontinuation of the Multi-Donor Budget Support (MDBS) and the District Development Facility (DDP) programmes in 2015/16, grants support has become much flatter, and Ghana is much closer to Mauritius’s grant position. Even in Rwanda, development assistance is tipping down, perhaps due to donor fatigue and slowing economic growth of the Western Nations.
Figure 1: Grant (% of GDP)
Despite the slowing of development assistance to Ghana, it would be utterly naïve on my part to downplay significant impact the little is having on critical sectors of the Ghanaian economy. For instance, as reported in the 2016 Education Sector Performance Report (ESPR), 4.2% of the entire education expenditure (GH¢ 362,480,036.11) for the FY2015 came from the donor community. The national budget provided for 68% and the remaining 16.8% came from the internally generated fund, GetFund, 8.7% and Annual Budget Funding Amount (ABFA) was 2.2%.
Curiously, the budgeted amount only covered the entire compensation expenses, and the other sources covered the provision of capital infrastructure as well as goods and service. Donor support was for Capex and goods and services. There are similar aid supported interventions in many of the other sectors we cannot gross over. However, these supports are ephemeral and obviously thinking beyond them is a right thing to do at this moment in history where there is growing resentment and apprehension among citizens of Donor Nations concerning globalisation and global development assistance architecture.
Ensuring salient growth
For Ghana to entirely forgo development aid would require the following; that government expenditure is rationalised to safeguard value for many, embarking on aggressive FDI drive and finally, government becoming more efficient at domestic resources mobilisation. I will discuss these thematic areas shortly. Fortunately, the momentum is on Ghana’s side, and we cannot miss this opportunity especially that economic growth is slowly recovering. The non-oil sector is showing encouraging signs of recovery, and with the completion of the maritime disputes with Côte d’Ivoire, hopefully, new hydrocarbon wells might come on stream quicker than expected. Projections for real GDP growth for 2018 are robust and puts Ghana in the league of fastest growing economies of the world. In Africa, Ghana’s growth projections are few points shy of Ethiopia, Côte d’Ivoire and Senegal as I have illustrated in the figure below.
Figure 2: Real GDP Growth Rate- Africa (2018 Projection)
Pillars of “Ghana beyond Aid”
Now, I will discuss the three pillars which in my view are critical for the vision of “Ghana Beyond Aid” in the short, medium and long-term perspective. They are not exhaustive as other equally important factors like education, tourism and recreation, medicine and industry, technology and information systems etc. all present equal potential for leaping Ghana beyond aid. I am also aware of the five thematic areas the Vice President outlined recently. There are; enhancement of revenue mobilisation, increasing private savings, rectitude in the management of public resources, natural resource exploitation and deepen external engagement.
I have chosen to discuss them under three pillars because, in my opinion, these three pillars effectively reflect almost all facets of the Ghanaian economy, culture and society. They represent the cardinal focus needed to make the vision work.
Pillar 1. Aggressive DFI drive
The Ghana Investment Promotion Centre (GIPC) has been the primary agency charged with the responsibility of ensuring that Ghana becomes the preferred destination of choice for investment in Africa. The centre mainly assists (liaison) investors with all kinds of support services that expectedly is to create congenial investment environment for investors. The centre has a functioning website (http://www.gipcghana.com/) with all types of information relevant to potential investors. On my last visit to the site, I noticed that “first quarter of 2017 report” is the latest update on the activities of the centre. Certainly, this is not encouraging. In that report, 47 new projects got registered with the centre, and the FDI component of the estimated value of the registered projects amounted to US$2,954.61 for the first quarter of 2017. General trading, manufacturing, services, building and construction, as well as agriculture, are the sectors receiving higher FDI.
Historically, FDI influx has not been that robust especially in the 1990’s. Somehow, circa, 2007/08, FDI rose significantly to about 9% of GDP after the discovery of oil. The trend since has been on a downward dive and is also quite volatile as seen from figure 3.
Figure 3: Foreign Direct Investment of Ghana, net inflows (% of GDP)
In the wake of Ghana looking beyond Aid, requires that much attention is paid to FDIs. If there is anything that requires government’s prioritisation at this moment, then, that one thing for government is to work aggressively at attracting FDI flow to Ghana. The countless opportunities in the Ghanaian economy must become the catalyst to occasion foreigners to invest (equity capital, reinvestment of earnings, other long-term capital, and short-term capital) in enterprises operating in our economy or open new businesses. The influx of investments would solidify the industrial base of the economy, create jobs for the teeming youth and bring in tax revenues needed for social developments. Increased FDIs have the potentiality to influence economic growth by raising total factor productivity and resource use efficiency as well as positive spillover externalities.
However, FDI’s would not come if the environment is not adequately prepared for it. Not long, many held the notion that a politically stable country is more likely to attract FDIs as long as stability is maintained. Unfortunately, the environment is changed and not only political stability, functioning property right, and the transparent legal system is needed, but also a more conducive business environment with potentially direct impact on business profits are quite relevant. In the survey by Africa Renewable Energy Initiative (AREI) in 2015, businesses identified inadequate electricity supply as the biggest challenge to industries in Sub-Sahara Africa. So, as we ensure there is political stability, functioning property rights and legal systems, we must also invest resources in creating the environment that will make us attractive to investors. Areas such as electrification, rail and road transportation, aviation and housing must become the target areas for FDI inflows. We must also empower GIPC with all the legal backing either by making the Centre, an Authority so as to guarantee them autonomy. That would encourage the agency to go beyond it confront zone in attracting investments.
Pillar 2. Efficient Domestic Resource Mobilisation
Effective domestic resource mobilisation is at the core of the President’s vision. Ghana’s tax administration has within the last decade undergone significant modernisation aimed at ensuring efficiency and transparency in resource mobilisation and utilisation. The reforms were a part of the broader Public Financial Management reforms the country undertook. The establishment of Ghana Revenue Authority- the amalgamation of VAT Service, Customs and Internal Revenue Services was at the heart of the reforms. The performance of the Authority has been mixed. There have been improvements in revenue mobilisation, but still, there is room for improvement especially at this particular time.
Tax revenue as a percentage of GDP is still below Sub-Sahara Africa average of 20%. In the figure below, I compare the tax revenue mobilisation performance of Rwanda, Mauritius and Ghana. Clearly, Mauritius outperformance the two other countries. Also, Mauritius seem to have less volatility. Ghana’s situation though improving is not yet that robust. There is also high volatility which posses’ problems for fiscal planning and management. As a low middle-income economy, these numbers undoubtedly indicate there is something amiss. It is interesting to note that Aid dependent Rwanda at some point even outperforms Ghana.
If “Ghana Beyond Aid” is to become successful, it would require the GRA to continue improving its processes and procedures, introduce cleaver and innovative tax mobilisation measures. It equally calls for the ceiling of all loopholes in the system, brings more people into the tax base, strengthens economic levers to increase compliance and finally, introduce nudges as additional measures. There is also the need for the Authority to continue to build on its image to boost public confidence.
Figure 4: Tax Revenue as % of GDP
Pillar 3. Expenditure Rationalisation
The next component relates to Government ensuring prudent and judicious use of public funds. Ghana, just like many developing nations has been running a deficit budget for a long time. For instance, the 2018 budget statement and economic policy of Government envision an overall deficit budget of Gh¢10,971.4 million representing 4.5 percent of GDP. Projected total revenue based on the economic outlook for 2018 show that about GH¢51,039.1 million will to be mobilised in the form of domestic revenue and grants. This represents 21.1 percent of GDP. In the same period, the government plans to spend GH¢62,010.3 million representing 25.7 percent of GDP. Meaning that government is spending more than its projected income by an amount of Gh¢10,971.4 million. The financing gap is filled with borrowings from domestic and foreign sources. Simply put, we are spending what we do not have.
The many years of borrowing are now hitting hard on expenditure as interest as a percentage of GDP is unfortunately high as shown in figure 5. A significant part of government spending goes to pay interest on existing loans. The other big spending is on wages and salaries with an average of 7.2% of GDP. The average spending on interest as a percentage of GDP in Mauritius is about 2.6%, in Rwanda, it is at a low of 0.7%. In Ghana, it is at a high of about 6.1% of GDP. This is having a debilitating impact on public expenditure because of the statutory nature of such payments.
Figure 5: Interest (% of GDP)
Regarding the composition of public spending, Ghana’s situation is not particularly a good one. A significant proportion of Government expenditure is on current expenditure. Regarding capital expenditure, Ghana is experiencing a downward trend. Whiles capital expenditure as a percentage of GDP for Rwanda in 2018 is 13.4%, in Ghana is just 3.7%. In Mauritius, the figure is 6.2%. Figures 6 and 7 presents you the situation of current and capital expenditure as a percentage of GDP for Ghana, Rwanda and Mauritius.
Figure 6: Capital Expenditure (% of GDP) Figure 7: Current Expenditure (% of GDP)
I conclude with these remarks; that to achieve a Ghana beyond Aid will be hard and strenuous but surmountable. As Bo Burnham said and I quote “Uncharted territory is a good place to be in”. This wise counsel must guide and guard us as we take the destiny of our country into our own hands. And finally, it is important we know that this vision is critical for the soul of our country and as Bobby Kotick said…” Autonomy leads to empowerment. We work hard to maintain a balance between collaboration and cooperation and independence”. Let’s empower the Ghanaian by freeing ourselves from foreign handouts while maintaining balance cooperation, collaboration and independence. In such arrangement, Ghana will own and determine its development agenda.
Other related articles