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Opinions of Friday, 1 October 2010

Columnist: Otchere-Darko, Gabby Asare

$16bn Worth Of Made In China Smoke & Mirrors

- Na Sika No Wo He?

By Gabby Otchere-Darko

The news across newswires globally was “China to Pump $16bn into Ghana”. Reuters, Ghanaweb, Bloomberg, Wall Street Journal, FT, and newspapers across Africa carried the news as if the money was their country-bound.

What was common about all the worldwide news was that the original source quoted was the Government of Ghana website. The Mills-Mahama administration certainly saw this as a timely massive dosage of do-much perception purely for domestic consumption, one may speculate.

But it was a serious PR mileage for China in Africa, in particular, and across the world. We can only imagine how many African countries are now queuing up to take theirs. Until this, China had been criticized for offering zero-moral loans to countries like Sudan and Zimbabwe. To offer such a mega-deal to Ghana, the ‘star’ of Africa’s democracy, is a huge PR for China.

You can be forgiven for reducing it to propaganda loans because the fanfare of loan announcements gives a signal that Mills is not Do Little after all. But do you really have to leap straight from Do Little Nkwanta onto Over-Do-Much highway.

But we have every reason to be worried. 81% of all nominally external loans contracted for the 40 years from 1960 to 2000 went to the PNDC/NDC regimes of 19 years. The NDC sees in loans where Ghana’s panacea resides, yet, experience should remind them that their earlier excursions to that place only took us to HIPC.

The China deal, at best, may be all fizz and little substance and at worst, probably the worst deal ever entered into, either by will or force, by any developing nation in history since the Trans-Atlantic Slave Trade.

If we don’t want to accept the folly in our own historical ways, let us then look east and learn lessons from Nigeria and how its leaders rushed to mortgage the country’s new-found wealth of oil in the 1960s-70s.

Today, a greater percentage of Nigerians are poorer than they were 10 years ago, 15, 20, 25, or 30 years ago.

So what is all this smoke and mirrors that our national head has brought back gleefully from China? In short, Ghana and China reportedly signed project loans and another deal, together totaling $16bn, during President Mills’ five-day visit to Beijing.

The details so far released are that the China Exim Bank and the government of Ghana signed a $10.4bn concessionary-loan agreement for various infrastructure projects, payable over 20 years.

A separate loan of $3bn, from the China Development Bank, is slated for the petroleum sector.

The China Development Bank also guaranteed more than $400m for water and what it called e-governance projects in Ghana, according to the government website. There was also a brief report of some $3.5 billion for the railway sector.

Another $1.2bn agreement was signed with Chinese company Bosai Minerals Group to build a bauxite and aluminium refinery in Ghana over four years, according to several Ghanaian newspapers, and with this one, the Chinese state-run Xinhua news agency.

Several questions have been raised in Ghana over these agreements, the $16 billion. Indeed, it is difficult not to be excited about this. It puts the total credit agreements which the NDC has committed Ghana to in less than 21 months at nearly $20 billion!

You may even stretch it to cover the entire $10 billion STX joint venture agreement which Parliament approved after four hours or so of deliberation, which will put the total amount closer to $28 billion.

This loan rush by the NDC excites different shades of Ghanaians in two contradistinctional ways.

There are those who believe or wish to believe that this unprecedented boldness in contracting mega loans is what will finally propel Ghana into a developed economy, with modern infrastructures, agriculture, housing and industries. Call this group the Ghanoptimists. It is where we all wish to be. But…

There are also those, call them the Ghanapessimists, who fear this is merely a one-way reverse ticket to HIPC status, once again saddling Ghana with unsustainable debts, sliding us back into impoverishing poverty and more poverty.

In short, Ghanaians are looking for clarity, details and assurances from the presidency. They want to know that these are not merely propaganda loans, all smoke and mirrors.

They want to know that these agreements constitute value for money. That it would not lead to more half-Chinese fatherless babies on our streets, the human by-products of imported Chinese workers.

The WSJ reported that, “Ghana Minister for Energy, Joe Oteng-Adjei, said details of the various projects will be disclosed after the President's delegation returns to Ghana.”

They returned to Ghana and gave no answers, except to pour more fuel in the fire of doubt raging over the China mega-deals.

Those who worry about President Mills and his Vice President returning us into a new age of HIPC raise legitimate concerns.

In 2000, for instance, Ghana’s external debt was over 150% of GDP. About a quarter of export revenues were used to service the interests on these loans.

This meant very little money was left to pay workers anything near a decent wage, increase pensions and provide vital social services. In fact, for 3 years, as prices of goods and services shot up in folds, pensions were never once increased.

Ghana's Deputy Minister of Finance and Economic Planning, Seth Tekpeh, who ‘confirmed’ the $10.4bn infrastructure loan, could only confirm our fears.

He said, “The repayment for these loans would not come from the budget but through exports.” Well, you are entitled to speculate which items are being targeted – oil, gold, cocoa.

But, should this sort of grammar of economic illiteracy come from our Finance Minister? What confidence can we derive from this? Would the budget, by this, not be denied that export revenue? Or have they negotiated a barter arrangement with the Chinese, as they sought to do with the Koreans on STX? Does the Oil Revenue Management Bill not prohibit the mortgaging of oil? Or is it going to be cocoa and gold?

It is all smoke and mirrors, as an economist friend of mine puts it.

What is worrying is that Government does not seem to understand that committing the nation in one deal to an amount that is bigger than the size of the country’s economy (less than $15 billion before revision results are known) is a very risky venture – especially one that does not appear to have been really thought through.

Information that I am picking up suggests that we can sleep easy – because most of what was signed in China were just letters of intent, weightier for their PR value than their actualization.

Smoke and mirrors.

Ask President Kufuor, if in doubt. I hear he signed similar letters running into billions of dollars. Except of course, he chose not to count his chicks before the eggs were even laid, as we are seeing now.

The Ghanaian team, led by President Mills, went to Beijing last week and the Chinese said to them, to the effect, “We are willing to help you up to this tentative amount.

But please, go back home, do your homework, get your feasibility studies done, let us know the bankability of these projects and let us sit down and talk properly.”

I attended an IEA programme yesterday which had the IMF Resident Representative, Peter Allum, talking with civil society groups about ‘Fiscal and Debt Sustainability in Ghana – Issues and Prospects.’

I asked him whether or not the IMF was worried about the current ‘loan-rush’ of the Mills-Mahama administration. His response was rather interesting.

After expressing concerns about the burgeoning debt of Ghana over the last few years, he said we should however, not read so much into the Chinese deals. He reduced them to ‘big headlines grabbing’ gimmicks. And that in his view, only a small fraction of it will materialize.

Government should be careful about raising hopes here. People will continue to ask: “Show us the money!” By 2012, the lies will be obvious. Most of these ‘projects’ will not have taken-off from the drawing board.

It is a grand deception, cooked at the Communications Directorate at the Castle, transported to China and back and served to Ghanaians but in a miscalculated manner, thanks to alert society. Except in this e-world, the whole wide world has been obtrusively sacked into this.

Smoke and mirrors. A friend of mine at both the bar and on Facebook added, “Gabby, it’s not merely smoke and mirrors, but cloak and dagger too.” If this is not another ‘Sakawa’ (deception) then let us see how these mega projects will be presented in the 2011 budget to be read in November.