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Opinions of Friday, 2 April 2010

Columnist: Kwakyi, Kwaku

A Good Economy Is the Only Way Forward

By Kwaku Kwakyi

What is a good economy and how can Ghana attain it? A good economy is one that encompasses more people who are gainfully employed than those who are not. Gainfully employed? How will this ever happen in Africa, sub-Sahara Africa to be precise? With most African nations stuck at the bottom of the global economy, one may wonder how an African country may break free from the chains of economic depression. With respect to Ghana, the answers lie in how the much-anticipated oil revenue is managed.

It must be said that Ghana is truly lucky to have found oil in commercial quantities at this trying time in her history. This country’s oil consumption is 56,000 bbl/day (2008 est.) out of which she produces 7,399 bbl/day (2008 est.), exports 4,843 bbl/day (2007 est.), and imports 45,380 bbl/day (2007 est.) - approximately US$2Billion import expenditure no chump change for a HIPC country. If one adds debt repayments, it is nearly impossible to engage in any meaningful socioeconomic development effort in the face of large expenses, including but not limited to education, food, health, housing, and transportation & communication.

In order to make a real difference compared to the fortunes of some oil-rich countries, the following five basic needs should be made available and affordable for the average Ghanaian:

Education – the act or process of training by a prescribed or customary course of study or discipline that imparts knowledge

Healthcare – The prevention, treatment, and management of illness and the preservation of mental and physical well-being through the services offered by the medical and allied health professions

Transportation and communication – Transportation: The act of transporting from one place to another. Communication: A dynamic process that individuals use to exchange ideas, relate experiences, and share desires through speaking, writing, gestures, sign language, or information technology

Housing – That which shelters, or provides a state of dwelling in a habitation

Food and portable water – Food: composed of carbohydrates, fats, water and/or proteins eaten with portable water. Portable water: simply water that is safe to drink, free from pollution, harmful organisms and impurities.

Let us note that many of these five basic needs are interrelated. A good research university is necessary to help improve the other four needs. A person has to be healthy to travel from point A to point B, have access to food & portable water, and access to an affordable dwelling.

Many people have written about Ghana’s new found resource – Crude Oil. People have thought through and prayed that the leaders do not misuse this great resource but carry out an equitable distribution of returns that will come out of this resource. First and foremost, Ghana should make every effort to pay off what she owes and save an optimal percentage of oil money in the form of cash reserves, for a rainy day. With the oil drilling nearing its start, it might be feasible for the government to take a careful look at how to disburse its share of net oil revenues. For the purpose of preventing an influx of (un)skilled workers to the oil industry (leading to the prospect of a single-product economy), the government should campaign for workers to stay in current disciplines. The following disbursements of net annual oil monetary receipts (including savings from current oil imports) may be considered:

3% to purchase 5 major foreign T-Bills (ex: USD, British Pound, Euro, Yen, and Yuan)
3% to pay down on local/foreign debts
6% to modernize Education
6% to enhance Healthcare
6% to develop Transportation and Communication
6% to transform Housing and Sanitation
6% to improve Food and Portable Water
6 % to reform national security, including protection/Police, and safety/Fire Service
5 % to provide affordable loans to private businesses by her citizens
2 % to support economically-deprived African countries
50% for other governmental policies and development goals and objectives
---------
100% Total

Essential point to note from my perspective is that the “50% allocation for other governmental policies and development goals and objectives” is bound to have some overlap, as some funds may have been earmarked into government sectors already.

Purchasing major foreign T-bills: Rule of 72 (works well in common interest situations) or Rule of 69 (more accurate for continuous compounding) may be used to estimate an investment’s doubling time. A typical 8% T-Bill may double in 9 years (with Rule of 72) or 8.63 years (with Rule of 69). Either way, a ten-year consistent foreign T-Bill investment (from 3% of net oil revenue) is likely to exceed US$1Billion for Ghana. This increased capital account balance will strengthen the GH¢, stabilize inflation, and make life better for our future.

Pay down on local/foreign debts: Paying down on or paying off debts (as Russia recently did) will improve terms of long-term borrowing, and leave sizable savings (not debt) for future generations. The chief reason to pay off our debts as quickly as possible is, debt forms an integral part of ratings used by Fitch Rating. Fitch Rating agency, which cut the outlook on Ghana's sovereign 'B+' credit rating to stable from positive, cited rising external financing needs and a widening current account gap as reason for the cut (http://www.fxstreet.com/fundamental/analysis-reports/emerging-markets-weekly/2008-02-11.html)

Modernize Education: To succeed as a nation, we need quality schools for our children. Our economic growth is dependant on having bright minds to help design the future. It is therefore essential that all three types of education (Basic, secondary, and tertiary) must be upgraded with research facilities - equipment, quality instructors, competitive libraries, laboratories, research centers (particularly mathematics and science). A concerted effort in improving education will likely attract foreign technical assistance to meet policy goals and objectives. For example, a decade expansion of good quality basic education in India attracted over US$1Billion World Bank commitment to education in India since 2000 (http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:21493265~pagePK:141137~piPK:141127~theSitePK:295584,00.html)
President John Evans Atta-Mills recently stated that the level of science and technology education is low despite basic schools’ Educational Reform of 1987 and the establishment of resource centers at the Senior High School level. Undeniably, a 6% appropriation of net oil revenue will offer all the help President Atta-Mills needs to properly equip laboratories and workshops, employ competent/experienced teachers to simplify much-dreaded mathematics, science, and technology to every Ghanaian who needs a hand to learn and help improve Mother Ghana. By way of tertiary or third-level education (i.e. undergraduate and postgraduate) and higher education (i.e. vocational education), some of the money may be used to provide bursary, spruce up research facilities, exchange programs, and encourage competition involving government, business, and academia (ex: John Molson Undergraduate Case Competition - http://www.jmucc.ca/2009/index.htm). A tri-partite accord/agreement from such competition may evolve into a cache of patents which will benefit the parties involved.
The existence of world-class schools will not only ensure supply of quality workers for employers, it will attract superior students from the sub-region, across Africa and around the globe. The existence of first-rate educational institutions has enabled the United States to remain at the forefront of technology for over a century. A well educated population will unleash a fresh “can do” spirit that will propel our economy to new heights, improve research-based institutions, and thrust some of our universities to higher academic ranking in Africa. They will in due course, be prominently listed on Academic Ranking of World Universities.

Enhance Healthcare: Ghana’s healthcare is largely provided by the government and run by the Ministry of Health. For a country of 22Million people, there are only 172 hospitals, mostly in urban centers. People who live in rural areas often do not have modern healthcare. With over 60% of the countries citizens in rural areas, it is regrettable that most patients either make do with traditional medicines or travel long distances for care.
Ghanaians are lucky to have the National Health Insurance Scheme (NHIS) which provide NHIS cards for its citizens. However, long delays in providing these cards (especially to the poor and rural dwellers) coupled with payment delays do negatively impact healthcare delivery in the country.
To be successful as a nation, we must improve the quality of healthcare by building better hospitals or clinics in every district across the nation. These health centers should be supplied with highly-trained health workers, reliable equipment, and pharmacies/dispensaries. With 158 districts in Ghana, there will be no point building 158 hospitals in each district. Rather, authorities could build at least one superior hospital in each of the 11 regions. With time, all 158 districts will have their own hospital to provide quality healthcare for their patients. An important factor to consider is the achievement of low levels of mortality. Thus, standard hospital requirements should be used in building each district facility, irrespective of mineral or economic endowment of the district. To help maintain nation-wide healthcare delivery, government should provide adequate funds to maintain these hospitals. A private/independent auditor could be instituted to generate a scorecard for each district hospital. Steps may well be taken to improve ill-performing district hospitals (ex: attractive annual prizes/incentives may be introduced for the top 3-to-5 hospitals nationwide).

Develop Transportation and Communication: With Ghana’s plan to become a middle income country, she ought to introduce High-Speed Electric Rail Network just to remain in that category. Due to limited financial resources, a laborer is limited to a 10-mile radius in the job search. If a job does not exist within this radius, this person will remain unemployed indefinitely. On the other hand, a well-heeled, well-trained unemployed worker will have a bigger radius of opportunity and better chance of finding another form of employment than the laborer would. If these two people lived in Takoradi, the educated and well-heeled worker would have a better chance of finding a job in Kumasi or Accra as compared to the laborer. Conversely, the existence of an affordable and reliable rail network is likely to give this laborer a better chance of securing a job in Kumasi than not. The chief factor that may limit such an effective, reliable and fast transportation network may be attributed to funding constraints. A planned and consistent disbursement of 6% net annual oil monetary receipts can surely establish a High-Speed Electric Rail Network across the nation. This network may be done on a phase-by-phase basis with phase 1 connecting Accra-Koforidua-Kumasi. With time, subsequent phases can be implemented to connect all regional capitals with this network. Upon project completion, a worker from the northernmost location in Ghana can conceivably travel to work in the southernmost point and make it back home on a daily basis. This network will help to curtail the exodus of people moving to Accra in search of non-existent jobs. Political leaders may check out “Where High-Speed Rail Works Best – America 2050” (http://www.america2050.org/pdf/Where-HSR-Works-Best.pdf )
A good transportation network (i.e. the act of transporting from one place to another) has the tendency to attract foreign businesses. A first-rate communication network – a dynamic process that individuals use to exchange ideas, share desires through speaking or information technology – will speed up delivery of information and most likely reduce business cost. When transportation and communication networks are made efficient, the cost of almost everything in their paths will be reduced, paving the way for high-paying businesses to take root. To make this happen, government should perhaps mandate better vehicle imports/production, improved roads, support sidewalks (which improves people’s health), and better transportation planning (ex: subways in large cities).

Transform Growth in Housing and Improvement of Sanitation Methods: It was great to learn of the $10Billion-housing agreement between STX Group (by way of South Korean Government) and Ghana Government to roll out 200,000 housing units from 2010 to 2015. This agreement stipulates that 90,000 of the homes would be owned by the Ghana Government while the remaining 55% would be sold to consumers over 10 cities. One assumes that at $50,000 per housing unit, the majority of the houses would be built in the Greater-Accra area. It is obvious that $50,000 is enough money to build five-to-ten homes in small towns where the cost of land is cheaper and labor very affordable as compared to the cities. My suggestion is for the government to permit local construction companies to work under the STX Group to gain hands-on experience in energy efficiency, safety and security in housing, and preservation of modern housing structure. While the STX Group may not be interested in building $5,000-to-$10,000 homes, the local construction companies could use the modern know-how to implement similar projects for small-town and rural folks. The application of these learned modern practices will reinforce buildings and reduce the destruction of buildings and historical documents by fire.
In addition, it is an eyesore and downright disgraceful to see people (particularly women) easing themselves in public. This has been the trend from independence to date. We need to find ways to address this unhygienic means of going to the bathroom. People have voiced concerns that some would still use beaches even when public bathrooms are built. With government involvement, laws could be made to prosecute people caught using beaches in such manner. A good Ghanaian sanitation company to consider is Biogas Technologies West Africa Limited http://www.biogasonline.com/

Improve Food and Portable Water – Portable water is simply water that is safe to drink, free from pollution, harmful organisms and impurities. Without a doubt, Ghana is blessed with suitable supply of rivers, lakes, and other water bodies. However, the supply of portable water is mismanaged and poorly distributed nationwide. Ghana Water Company Limited (GWCL), the main supplier and distributor of pipe-borne in the nation, struggles to meet portable water demand in urban centers on a regular basis. To help offset this supply gap, most consumers have installed water containers on their homes and spend limited cash to buy water to fill these containers. Similarly, food supplies are plentiful and cheaper in rural areas but scarce and expensive in big cities. As water is needed for human survival and agriculture, water desalination may be the answer to permit satisfactory supply. The notion “sea never dry” succinctly illustrates my point with paucity of verbiage. Having abundant supply of this free resource, Ghana can desalinate seawater for improved food technology, salt, and portable water for local consumption/export (http://ga.water.usgs.gov/edu/drinkseawater.html, http://www.water-technology.net/projects/israel/, http://en.wikipedia.org/wiki/Solar_desalination, http://www.youtube.com/watch?v=h8rR0i8dASM).
It may be a good idea for the government to invest the 6% of net annual oil receipts to desalinate seawater, lay out water pipelines throughout the country to supply portable water for all Ghanaians as well as export to other West African countries. The dividends gained from job creation and maintenance in this process will be worthwhile. Additionally, the government could gain revenue by selling some of the unprocessed salt byproduct to the oil industry and process the rest for the food and other industries. Again, there will be great and stable employment potential for current idle workers and school graduates.

Reform national security, including protection/police, and safety/fire service: In the wake of increased violence and the drug menace in Ghana, the ministry responsible for security will welcome the proposed 6% in net annual oil monetary receipts to provide surveillance technology, improve ports and national borders as well as improve police responses, and the fire service. Just as banks hire armed guards to protect customers’ money, laws impacting the security wellbeing of the people should be toughened (ex: death penalty for armed robbery). This would not only prevent gangster/criminals, but should go a long way to set an example for would-be armed robbers to know the consequence of such behavior. The era of prison sentence coupled with clogged court cases should be a thing of the past.
Also, some of the funds might be used to train superior police & armed forces, provide better equipment (especially tug boats and submarines to flush out cocaine pushers from the high seas), improve training facilities, hire more lawyers and judges to clear up congested judiciary cases. A fortified security system at all points of entry in the country will help to reduce the number of guns coming to Ghana. Next, plans should be afoot to clamp down on guns in the country, starting with criminals. Firing squad should be instituted with no mercy. You get caught, you get it. With time, a few of the criminals will have their guns taken and these thugs eliminated from society. With more time, more criminals will be eliminated and available guns may remain with people who have registered them. While the crime rate falls, the number of registered guns should be reduced by increasing the taxes to the point where people like yourself will turn them in without a fight. Failure to tighten up security will reduce the influx of foreign capital from coming to Ghana but indirectly increase investment cost from provision of private security. Additionally, each regional capital should have functioning fire service stations, preferably one station per 5-to-10 square miles. It is sad that the capital being in an earthquake zone does not have adequate fire stations. God forbid, if Accra were to experience a major earthquake like Haiti’s 2010 Port-au-Prince (http://toronto.ctv.ca/servlet/an/local/CTVNews/20100113/haiti_earthquake_100113/20100113/?hub=TorontoNewHome). Can we afford the loss of life potentially running into hundreds of thousands, perhaps a million? Does the government not have social responsibility to protect her people against disasters such as fire, earthquakes, flooding, etc?

Provide affordable loans to private businesses by her citizens: The expansion of businesses will require large supply of energy throughout the country. The government would be well advised to use a portion of 3% net annual oil monetary receipts to line tourist deprived coastal areas with wind and solar technology. To wit: wind power in the US costs $0.09 per kilowatt hour/kwh (including land leases, legal fees to quiet people against disturbing ocean view with windmills) compared to hydroelectric power $0.058 per/kwh. If the price differential remains an issue, legislation could be pushed for wind and solar to account for 20% of county’s electricity within ten-to-fifteen years. In addition, Ghanaian wind and solar investors (including partners with foreign companies) might be given the right to sell electricity into the national electric grid at guaranteed rates for ten-to-fifteen years a period of time. With such a plan, government could seek her share of $100 billion green technology pledged by developed countries (during the 2009 Copenhagen Climate Change Conference) for developing states. Other business initiatives could include setting government-business partnership to improve the private sector (ex: East African Business Council http://eabc.info/node/373), and improve buying or selling businesses (http://www.buysellbiz.com/improve_success.htm). Obviously, government-led non-social projects anywhere on earth have been unsuccessful. Thus, a joint venture between government, educational institutions, and the business community will be the way forward in job creation and economic emancipation. The government could take the leadership in providing affordable loans to savvy businesses (with proven track-record) which should work with leading research academia for latest application and sagacious advice. Here are some for-profit trades that may be candidates for such affordable loans:
SANITATION: Biogas Technologies West Africa Limited, http://www.biogasonline.com/
Desalination: This will require a joint venture initiative between government, Kwame Nkrumah University of Science and Technology, Ghanaian business consortium and an experienced foreign company (ex: Kurnell Desalination Plant, Australia (http://www.water-technology.net/projects/kurnell-desalination/), Ashkelon Desalination Plant Seawater Reverse Osmosis (SWRO) Plant, Israel (http://www.water-technology.net/projects/israel/))

RENEWABLE ENERGY: Small-to-medium scale renewable energy plants, including biodegradable, hydro, solar, and windmill should be strongly encouraged. While it is a good idea to work on large energy projects like Akosombo Dam, Kpong Dam, and Bui Dam, affordable loans should be given to Ghanaian consortiums to generate energy from renewable sources especially offshore wind farms (for select coastal areas), solar power, and small-to-medium hydroelectric dams.

Support economically-deprived African countries: Why provide assistance? Like Christian tithing or Zakat (one of five basic requirements "pillars" of Islam), most progressive countries do have provisions for helping economically challenged countries. This notion underscores the maxim: “to him that more is given, more is expected”. (http://www.polishaid.gov.pl/Why,We,Provide,Assistance,204.html). Ghana’s aspirations to reach middle-income status should include helping other economically-deprived countries. The form of assistance may include government scholarship program, disaster assistance, subsidized oil sale, etc. Again, if Ghana intends to reach middle-income level status and remain there, she should do what countries at that level do – strengthen the currency and general economic wellbeing, take care of home, and assist others.

It is my profound consideration that government agencies (e.g. Electricity Company of Ghana (ECG); Ghana Water and Sewage Corporation (GWSC)) should be mandated to purchase energy or water production at a set rate from independent producers. For this deal to benefit the country and people as a whole, ECG and GWSC should be required to extend utility and pipe lines to production areas within 25 miles. In other words, if a typical producer’s factory is further than 25 miles of the agency’s pipe line, it will be responsible for paying needed costs to reach said pipe line. Once a connection is made, ECG or GWSC may be required to maintain all pipe lines and pay the going rate to the producers. A careful review and implementation of this government-agency/private business/academia collaboration has the potential to contribute to the growth of the national economy and export the same to neighboring countries. Concerning loan repayment, care should be taken not to repeat the extended history of Ghanaian loan defrauders. Business loan approval criteria are necessary to ensure loans are fully paid. Current successful loan repayments have been ones whose creditors deduct payments from borrowers’ income. Potential borrowers may form respective associations to qualify for the loans. Likewise, a consortium of businesses may form an association to qualify for such a loan.

A good economy is truly one that encompasses more people who are gainfully employed than those who are not. Ghana should seize this opportune moment with this new oil discovery. The essence of this lucky find, in my view, is to disburse 50% of net annual oil monetary receipts by: Purchasing 5 major foreign T-Bills; Paying down on local/foreign debts; Modernizing education; Enhancing healthcare; Developing transportation and communication; Transforming Housing and sanitation; Improving food and portable water; reforming national security; Providing affordable loans to private businesses and supporting economically deprived sub-Saharan African countries. Essential point to note is that the “50% allocation for other governmental policies and development goals and objectives” is bound to have some overlap (as some funds may have been earmarked for government sectors already). My allocation of the first 50% in net oil revenues as outline at the beginning, would be what I would consider to be imperatives.

Needless to say, prudent use of Ghana’s net Black Gold receipts will go a long way towards raising living standards of the average citizen.


Kwaku Kwakyi
Huntington Woods, Michigan USA

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