Goldstreet Editorial: Ghanaian voters face electoral options for economic management

In a couple of weeks Ghanaians will go to the polls again to elect a government for the next four years.

This year’s election will be unique for two reasons. One of course is the fact that COVID-19 has made the issue of macro-economic management more crucial – and contentious – than ever before.

The other is that they can be guided, for the first time by the track records of both leading presidential candidates with regards to economic management since both have each served a full term as President in the recent past.

The contest pits the incumbent government of the New Patriotic Party, with its capitalist leanings against the opposition presented by the National Democratic Congress which it usurped from office at the last election since December 2016.

With regards to macro-economic fundamentals there is little in their respective manifestos to tell the two parties apart. Both declare their commitment to fiscal discipline with regards to maintaining sustainably low fiscal deficits and public debt stocks, will striving to keep inflation and consequent interest rates low. However it is instructive that neither party provides quantitative targets and neither has been particularly successful at any of this in the past, despite claiming better track records, while in office, than their political opponents.

The National Democratic Congress was established as a centrist social welfarist party but economic exigencies have pushed it further and further to the right – and thus closer to the right wing New Patriotic Party’s stance – over the past two decades.

Its overarching focus is on creating jobs and prosperity for all through human development, economic growth and the provision of infrastructure. The quantitative target is to create one million new jobs over the next four years if voted in to power.

Importantly, the NDC promises to focus on indigenization promising to ‘aggressively promote and protect indigenous Ghanaian businesses to ensure Ghanaian ownership of the commanding heights of the economy, such as banking, insurance, construction, telecommunications, the extractive sector, energy and international trade.’’

This is a subtle dig at the NPP which has put financial solidity of the financial sector over indigenous ownership.

It also claims that “local economic development will be the bedrock of our national development strategy. We shall collaborate with the private sector to establish agro-processing factories across the country based on regional comparative advantage. “

Again this is a response to the NPP’s one district one factory initiative but is less specific in its form.

Both major parties are offering similar macro-economic foundations because there is a national consensus on what is prudent in this regard. Both parties promise low levels of inflation that will translate into reduced lending and interest rates, high and sustainable Gross Domestic Product growth rates; sustainable fiscal deficits (actually this is capped at not more than 5 percent of GDP by law but the peculiar circumstances created by COVID-19 has suspended its implementation, thus leaving whoever is in power to use their discretion at least for now).

The last point of agreement is to contain the public debt within sustainable levels, an area where both parties have failed.

Both parties promise to broaden the tax base rather than raise taxes and reduce discretionary tax exemptions, increasing tax collection and rationalizing expenditures.

In choosing between the two, voters are left to decide which of the two parties is most likely to deliver, based on each one’s most recent track records in office.

However there are distinct differences in how each party hopes to achieve the macro-economic stability and accelerated growth they are both promising the electorate.

At the most basic level – albeit simplified for the purpose of explaining the difference – the NPP focuses primarily on supporting businesses in the expectation that their success will provide improved living standards for their employees, suppliers, customers and other stakeholders including the state itself.

Asserts the NPP manifesto: “Our number one priority is to stimulate growth, development and investment in the real sectors of the economy, particularly in agriculture, industrialization and digitalization by ensuring macro-economic stability and engendering the economic transformation of our country.

“We will leverage the growing formalization of the economy to deepen and widen our ability to mobilize domestic revenues by continuing to broaden the tax base, simplifying the filing if taxes, and improving collection regimes.

With regards to industrialization the NPP aims to support made in Ghana goods including the use of local raw materials; ensure stable and affordable power for industrial activity; promote the manufacture of digital devices locally; establish more Special Economic Zones; finish the bauxite refinery to complete the aluminium value chain; complete the establishment of an iron and steel industry through the Ghana Integrated Iron and Steel Development Corporation; deepen and expand the 1D1F initiative; process more cocoa and shea butter locally; and deepen the automobile assembly industry. It also seeks to produce at least half of Ghana’s sugar needs locally within the next four years; promote the local production of pharmaceuticals; complete the process for establishing a fertilizer producing plant; and emphasis component light manufacturing for vehicles and home appliances.

Crucially, the NPP aims to support a clear cluster of core economic sectors which would serve as growth poles than can pull up all the other sectors.

The core economic activity clusters it has identified comprise the following:

Agro-processing using local raw materials

Value addition to the country’s mineral and petroleum resources in petrochemicals; industrial chemicals based on industrial salt, iron and steel, aluminium and gold.

Vehicle assembling and automative industry;

Labour intensive and light manufacturing activities such as component assembly and textile and garments, that take advantage of the youthful labour force.

Pharmaceuticals

Vegetable oils and fats in (particular, oil palm)

Industrial starch from cassava

Machinery and equipment manufacturing

On the cards are efforts to develop Ghana into a regional hub by leveraging on its position within ECOWAS and as the host of the Secretariat of the African Continental Free Trade Area, AfCFTA. The sectoral focus would be on : creating a financial services hub; mining hub; aviation and logistics hub; petroleum hub; automobile hub; tourism, hospitality and creative arts hub; and digital services hub.

Interestingly the NDC has moved away from its erstwhile philosophy of trying to take everyone along at the same time, and instead has also identified 16 strategic growth areas based on their potential to grow rapidly create jobs contribute to exports and expand public revenues.

Even more interestingly the sectors are largely similar to those identified by the NPP implying a consensus which neither party would be willing to admit to.

NDC’s identified sectors would be supported under its programme dubbed Ghana Framework for Industrial Revitalization, Support and Transformation known simply as Ghana FIRST.

The sectors are:

agriculture and agro-processing; pharmaceuticals;

health tourism;

light manufacturing including apparels, accessories and assemblage;

educational services exports;

financial services;

furniture and furnishing,

ICT business services and logistics;

oil and gas;

strategic minerals including salt;

tourism;

tree crops development;

coastal landscape and forest management,
infrastructure/construction;
waste management;

high tech manufacturing including chemicals;
and textiles.

Both parties promise to use tax incentives to grow the micro, small and medium sized enterprises sector.

NPP says it will introducing a specific tax regime with regulatory flexibility for micro, small and medium sized enterprises, with specialized flexible provisions.

But the NDC goes further to promise complete exemption from corporate and personal income tax for small businesses and for medium sized firms that employ up to 20 staff, for one year. Those that employ more than 20 staff would be exempt for two years. Corporate tax rate for medium sized enterprises would be reduced from the current 25 percent to 15 percent.

Indeed the NDC is promising an unprecedentedly wide range of tax cuts, including exemption of commercial vehicles imported into Ghana from import duty.

It also plans to exempt investors in rural areas from dividend and capital gains tax while enterprises employing up to 50 persons would be granted tax exemptions on importation of capital equipment.

Add to these tax incentives on agro and minerals processing enterprises, pulp and paper industries and export oriented companies.

The NPP wants to address the issues constraining private sector growth rather than focus on wider tax cuts, its strategy being to enable corporate Ghana to be profitable enough to conveniently afford the current tax rates.

One of these that it has identified is the cost of power which it aims to reduce significantly to make Ghanaian industry more cost competitive within the West African sub region.

This will involve: a review and restructuring of the energy mix to generate cheaper sources for industries, including gas and renewable energy; completing the renegotiation of the existing power purchase agreements to reduce the take or pay commitments and the excess capacity charges that translate into higher power tariffs; rationalizing the fuel-mix for thermal plants on the basis of cost efficiency; improving efficiency by cutting down the technical and transmission losses of GRIDCO and ECG.

Another issue which the NPP government promises to tackle if given a second term is that of inadequate access to finance.

To do this it proposes to : reduce the risk of lending by leveraging on technology to reduce information problems between lenders and borrowers. Here, it expects the National Identification card and the Digital Addressing System to pave way for an improvement in the operations of credit reference bureau, leading to a de-risking in lending and a reduction in default premiums charged by lenders.

It also wants to restructure and redirect existing funding arrangements of the several public sector institutions already existing to support private sector businesses, such as the Venture Capital Trust Fund and the NEIP.

The restructured institutions will also have their funding replenished and their funds would be used to crowd-in private sector counterpart fund. Furthermore, preferential tax regimes and first-options on government funded projects would be used to direct projects to private sector businesses. Add to this the completion of the establishment of a new Development Bank for the provision of long term capital for agriculture and industry.

The NPP government also promises to scale back government activities that crowd out the private sector, which have been a disincentive for private sector investment.

Importantly, the NPP government promises to exempt prospecting and reconnaissance by mining companies from VAT and other taxes to incenticize investment in exploration activities to discover more ore resources.

It also promises to complete the fiscal reform of the mining sector by enacting a Minerals Revenue Management Act, similar to the Petroleum Revenue Management Act, using the Minerals Income Investment Fund Act 2018 as the foundation.

Another key aspect of the NPP ‘s agenda for accelerating economic growth during a second term in office is the effort to further improve the business operating environment.

So far gains have been made during the first term in office but they are marginal. Nevertheless thy have reversed the downward slide in Ghana’s ranking in the World Bank’s annual Ease of Doing Business surveys. Ghana has climbed from 120 out of 190 countries ranked in 2017 to 118 in 2019.

To further improve on this a second term would expectedly see several new initiatives.

One would be the introduction of a risk based licensing and inspection system and removal of licensing requirements for all companies that not pose any health or public safety risks.

The modernization of the legal framework for business and investment – which has found form over the past four years in the enactment of key new legislation such as the Companies Act and the Insolvency Law – would be continued with a new Borrowers and Lenders Act and a Construction Sector Legislative Instrument.

Several new sector specific laws that have been in the pipeline for several years would also be enacted including a new Insurance ;Law and a new Mining Law. Perhaps most crucially, the overhaul of Ghana’s Investment Code would also become binding law.

Other planned initiatives would introduce a single business identifier for interactions with all government agencies to reduce compliance cost and time for the private sector; set up a one stop shop that gathers together all agencies involved in the building permitting process for improved service delivery; introducing a specific tax regime with regulatory flexibility for micro, small and medium sized enterprises; and provide targeted investor aftercare to key foreign investments and anchor firms in Special Economic Zones and their lead suppliers.

The NPP also promises to focus on reforming local content regimes, emphasizing the largely neglected aspect of the supply and services value chain. Emphasis will also be placed on capacity development especially in the natural resources exploitation industries – mining and oil and gas.

With regards to export development and diversification a re-elected NPP government would promote a set of core economic clusters to attract investment and grow production capacity in them. It also promises to construct one of the biggest convention and exhibition centres in the world at the Ghana Trade Fair Company site to attract investment, especially into non-traditional exports.

It also aims to partner the private sector to complete the development of industrial parks under the One Region One Park Special Economic Zone programme to anchor labour intensive manufacturing for export; and use a Ghana Tree CROP development Authority as an anchor to increase funding and capacity building for export of selected agricultural crops.

All these promises being made inevitably brings up the crucial issue of financing.

The incumbent government’s game plan for the next four year’s is predicated upon using private capital to drive economic growth and development made crucial by the lack of fiscal space which the President Akufo-Addo administration inherited from its predecessor government.

Actually, this is why the incumbent government has put so much emphasis on its financial sector clean up.

Going forward several new initiatives would be rolled out as the NPP government would be seeking private capital to finance GHc70 billion of its ambitiousGHc100 billion Ghana CARES programme. These would include implementation of a capital markets master plan and completion of establishment of the International Financial Services Centre.

The plan also involves leveraging the strengths of public sector financial institutions such as the Ghana Infrastructure Investment Fund and the Development Bank now being set up.

The NDC for its own part plans to set up a Financial Services Authority to regulate the financial services industry, protect consumers and ensure fair competition in the industry. Interestingly, while the NPP is establishing a national Development Bank, the NDC in line with its focus on decentralization, wants to establish several, on regional basis.

It also wants to deliberately intervene to restore more indigenous participation in the financial services sector, including initiatives to strengthen the micro-finance, savings and loans and rural/community banking industries with the aim of providing, more support to indigenous enterprises in the hinterland. It also wants to allow municipal bonds and strengthen the Ghana Alternative Stock Exchange to enable it support SMEs better.

Much of the specific commitments in both manifestos however read more like wish lists than practical game plans. The ideas are good but financing constraints in both the private and public sectors will make implementation difficult.

What voters should be hoping for is that the areas of unstated consensus – both parties commitment to fiscal responsibility – takes precedence over the ambitious wish lists of specific initiatives laid out by both.