The State Of Our Macroeconomic Environment

By Alex Baafi Bossman

It is the sacred duty of the government to create an enabling environment for businesses to grow in order to create wealth in the country. Government achieves this through its macroeconomic policy which aims principally to achieve two goals.

Firstly, to ensure that the key macroeconomic variables especially economic growth and inflation are at acceptable levels at all times. And secondly, to create stable economic environment in which the economy can be vibrantly flourishing. That is, to curtail fluctuations (ups & downs) in economic activities.

By the above, the government can create a more favorable environment for business. There are several macroeconomic variables that the government should make extra efforts to control in order to attain these desirable macroeconomic objectives and these can be grouped under four main headings as discussed below: Economic growth Governments try to achieve higher rates of economic growth over the long term. That is to say growth that is sustainable and sustained over many years and not just for a short period of time. This should be done with the determined effort to achieve stable growth avoiding both recessions and excessive short term growth that cannot be sustained. Normally governments go all out and are happy to give the economy an excessive boom before and during election years. Since independence to date, various successive governments have contributed their quota in terms of creating vibrant economic growth for prosperity. Available statistics show that the Gross Domestic Product (GDP) was 5% in 1966, 3% in 1972, 1.7% in 1979, 3% in 1981, 5.2% in 1991, and 3% in 2000. From the forgone figure, one could say with adequate certainty that economic growth fluctuations make any meaningful progress very difficult. Since then the country experienced a remarkable rates averaging 6% over the years till its impressive performance of 7.3% at the end of 2008. As a country, and with hind sight experience, we must resolve not to let fluctuations set in again to send this country backward. To get out of abject poverty and underdevelopment by improving the living standards of our people, we must work hard to continue to improve upon our GDP growth rate as it stands now. We must target growth rates between 9 and 10 % annually if our millennium development goal of achieving a middle income economy status by 2015 is to be achieved and any growth rate below the current 7.3% will be totally unacceptable.

Unemployment

One of the cardinal aims of governments is to ensure that unemployment is as low as possible, not only for the sake of the unemployed themselves but it represents a waste of human resources and a drain from the national economy. A nation’s wealth is created using other inputs by its human capital. No matter the technology, strategy or ideas, we depend on people as the most valuable asset of every nation. It is therefore imperative for us to make good use of our human capital. We must not loose sight of the fact that unemployment level in this country is estimated around 25% of the total labour. A situation where a quarter of a country’s labour force is jobless is a serious socio-economic issue. For example our unemployed people are without incomes, the longer the people become unemployed the more dispirited they become. Their self esteem continues to fall making them succumbing to stress related illnesses. They loose dear ones, friends, relatives and their personal relations of all forms get strained. There is widespread desperation among our army of jobless youth leading to increase in domestic violence, more broken homes, kayayei, child labour, increased in armed robbery as hunger, and malnutrition are rife in our society. The nation itself looses heavily as result of lack of revenue from personal incomes and corporate taxes and therefore the total national income (GDP) is always lower than its potential capacity.

Inflation

Inflation means a general rise in prices throughout the economy. The government’s duty here is to keep inflation low and stable. One of the most important reasons for this is that it will facilitate the process of economic decision making. That is to say, businesses will be able to set prices and wage rates and also make investment decision with confidence. Available figures show that inflation was 12% in 1992, got up to 25.2% in 2000 fell to 18.1% in 2008 and it is now around 20.5%. Generally, inflationary history of our country is not the best. In my humble opinion, 2-digit inflation in any progressive economy is unacceptable. Inflation leads to lack of economic growth because it creates uncertainty and makes trade and investments decision making very risky. On the international markets, it makes our domestic exports less competitive and imports cheaper. Such bleeds economic atmosphere where our economy always runs into balance of payments deficits, leading to lack of economic growth, unemployment and compounds our already heavy burden of poverty and underdevelopment. Inflation also leads to depreciation in the exchange rates thereby worsening the country’s current account position with our international trading partners. This makes our economy unable to compete with its international rivals in the global market, and always depending on donor supports and international financial institutions for our survival. 50 years of independence we have not been able to help ourselves economically and always running in circles in chase of our own shadows since most of our political and economic leaders have blindly refused to care for the poor because of their greed and selfish interests.

Balance of payment

It is the government’s responsibility to provide an environment in which exports can grow without an excessive growth in imports and also aim to create a climate in which the country’s foreign currency earnings at least match or preferably exceed the country’s demand for foreign currency. That is working hard to achieve a favourable balance of payments.

In order to achieve these laudable goals, the government should seek to control many intermediate variables. These include interest rates, the supply of money, taxes, government expenditure and exchange rates.

For example, the achievement of a favourable balance of payments depends, in part, on whether changes in exchange rates allow the country’s goods and services to remain price competitive on the international markets. A lower exchange rates, say fewer dollars, euros, yen, pounds etc, to the cedi will make Ghana goods cheaper to international or overseas buyers and that go a long way to boost Ghana’s exports which is why the government must rise to the task of resolving the current exchange rate depreciation which is more detrimental to the wellbeing of the economy.

Judging from our current situation where we still depend on rain-fed agriculture, even if the international trade conditions become favourable as a result of exchange rate depreciation that make our exports more competitive (cheaper), we cannot capitalize on that to export more.

I believe we have a competitive advantage in the exports of certain non traditional items like mangoes, banana, pineapples to mention a few, into the European and other international markets. The ministry of Agriculture in collaboration with the Ghana Export Promotion Centre could design an incentive package for our farmers. These may include setting up buying agencies like what is done for the purchasing and marketing of cocoa in the country. There are banks in the country that are capable and willing to extend credit to farmers but for want of collaterals these financial institutions are unable to advance credit. We must be able to do something to assist farmers to get access to credit not to mention provision of technical advices and the supply of subsidised inputs to farmers.

In my candid opinion, when we concentrate our energies on investing holistically and heavily in our agricultural sector, we will be making meaningful headway into solving our economic growth, inflation, unemployment, and balance of payments problems. The earlier we took bold steps as a nation to create a conducive and stable macroeconomic environment for businesses to grow with the aim of reducing poverty and underdevelopment, so as to raise the living standards of our people, the better for the better Ghana.

Email: abkbossman@yahoo.co.uk