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Business News of Wednesday, 22 January 2014

Source: Kobina Nyanteh

Is Ghana’s trade liberalization policy leading us towards an economic cliff?

Five years ago, businesses could borrow from the banks for expansion and growth leading to hiring.

Today, according to the president, the banks are not comfortable lending to small businesses. Even if a small business is granted a loan, it comes at a whopping interest rate of 30-35%. How many small businesses have the profit margin to borrow at these outrageous interest rates?

The rate of unemployment is extremely high, especially among the youth, and one will expect every action of the government to be geared towards enabling the private sector to create jobs. Yet we have seen the opposite. Almost every policy adopted by this government can easily be described as job-killing policies.

No wonder, according to the president, his own party members are calling for Seth Terper to be fired. But can the president be isolated from this mess? Who does the buck stop with?

In a serious government, the nation will be looking at hiring seasoned economists to reverse the trend. Yet we observe the hiring of seasoned communications specialist to spin the depression. Is it possible for any seasoned communications specialist to sell a product being made worse by the day? Is it possible to spin the high rate of inflation? Wouldn’t it be better to focus on reversing the decaying trend?

Trade Liberalization

Trade liberalization could be structured as a mechanism for job creation. This can be achieved by doing the following:

1. Partnering with countries for technology transfer and allowing competition only in areas where our state is manufacturing a particular product at a cheap price but needs competition to enhance quality. For instance Brazil allowed competition in technology to enhance the quality of locally produced electronics.

2. Protecting local industry in areas where jobs could be lost or manufacturing could be curtailed by disallowing the importation of certain finished products.

Yet what do we see? The adoption of policies so terrible the newly sworn-in president of the Association of Ghana Industries (AGI), James Asare-Adjei, is asking government to reassess its trade liberalization policy that has led to the influx of all manner of cheap foreign goods into the country at the expense of local ones. Policies which allow struggling small scale enterprises to compete with their foreign counterparts who borrow not only at interest rates as low as 1-5% but sometimes have their production subsidized by their government.

The country’s relaxed and non-enforced trade policies have allowed the Chinese to export all kinds of consumer products including cheap electronics, garments and textiles. We even import cheap kente cloth for the local market. Do we consider that the importation of these products will eventually kill all the cottage industries engaged in weaving as well as the cloth manufacturing plants in Ghana? The downside is that the jobs lost are not easily replaceable.

It would have been satisfying to note that the cornerstone of our trade liberalization is technology transfer. But this is not the case. There is no emphasis in our agreements to enforce our trade partners to build manufacturing plants in Ghana. For instance, if the Chinese are printing kente cloth, obviously they will be printing mostly for the African market.

Wouldn’t it make sense to insist that import of kente cloth is not allowed but setting up a quality kente printing manufacturing plant in Ghana is preferred? That will mean Ghana can enforce the necessary standards of quality and rather export the ‘Made in Ghana’ cloth to other African countries. It would have also meant jobs will be created in Ghana and there would have been the transfer of technology.

This phenomenon is not new. Brazil insisted that cars to be sold to Brazilians should be manufactured in Brazil. Today, there are car manufacturing plants in Brazil offering thousands of jobs and most importantly improving human capital through training.

Foreign Investment

These terrible trade liberalization policies coupled with allowing a market controlled rate of interest are sold to the country with the explanation that it will eventually bring in foreign investment. This is far from the truth. A developing country like Ghana can attract foreign investment under these conditions:

1. The cost of living is low enough to permit the payment of low wages for unskilled labor.

2. The costs of utilities are low enough for the production of affordable consumer goods for the local market as well as for export.

3. The country is not perceived as corrupt.

4. The government is seen as investing in human development through training and education.

Considering the above, does anyone think Ghana is expected to see the kind of foreign investment which will lift people out of poverty? The cost of electricity has rather been increased by 59.18 percent.

The cost of water has been raised by 78.9 percent. Due to corruption in issues around GYEEDA, SADA, SUBAH and GRA Ghana is ranked 63 out of 177 countries in the global corruption perception index by Transparency International. Ghana performed below six African countries.

Instead of enacting comprehensive policies for the eradication of corruption and enforcing them, we have heard numerous directives, most of which are not being followed. Some of the directives are actually hard to believe.

For instance, the president's strategy to address sole sourcing is a directive instructing all ministers and directors with a project intended for sole sourcing to go through cabinet. He adds that should introduce a level of transparency. The question is since when did cabinet deliberations become transparent to the public?

The increase in Value Added Tax (VAT) will finally drive nails into the coffin of hope of encouraging manufacturing in Ghana. It will drive up the cost of goods leading to further increase in the rate of inflation and hindering the economy from creating jobs.

We hope that the government will rather consider strengthening the economic team and come out with policies (our own policies and not ones dictated by the IMF/World Bank) around the following to reverse the trend.

1. Ensure that our bilateral trade agreement has technology transfer as well as direct capital investments as the cornerstone of the arrangement.

2. Enacting and enforcing policies which will change Ghana’s place on the corruption perception index to bring the necessary trust that ensure foreign capital investment in our economy.

3. Working with the banks and AGI to create specialized loans for qualified small scale businesses which will spur growth and create much needed jobs.

4. Adopt a targeted tax policy which will ensure that local businesses and locally produced raw materials are protected.

5. Invest in human capital development by creating avenues for training not avenues for looting.

God bless our homeland Ghana.