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Opinions of Monday, 22 September 2003

Columnist: RFI

Ghana’s Continuous Financial Burden Created By ....

Dr. Nkrumah’s Economic Socialism Of 1957-1966

After independence from Britain, Dr. Kwame Nkrumah, Ghana’s first Prime Minister and President, embarked upon building an economically socialist nation. It was his perspective that government intervention in the market place was the panacea for the advancement and development of Ghanaian society. Unfortunately, the first eight years of his socialist practices put Ghana deeply into financial debt – so much so that the major thrusts of dismantling his misguided undertakings are still ahead of us in this new millennium.

In 1979, the remnants of Dr. Kwame Nkrumah’s ideological disciples, die-hard socialists who preached economic centralism, commandeered control of Ghana from its elected government by force. That cabal, the P/NDC leadership, was stuck with ruling the country without benefit of a sound economic plan. Therefore, they readily adopted the concocted World Bank’s Economic Adjustment Plan (EAP) of 1984. With that plan, the leadership opted for steering Ghana’s conversion from economic centralism to a free-market-capitalist society. The World Bank’s EAP for divestiture is designed to exchange certain governmental assets to the populace at a price. It was to be used as a conduit to transfer (divest) government assets to private (non-governmental) ownership. The financial market with its instruments is the best forum to accomplish this task especially in a society that does not have many people of affluence. (Just 20 years ago, the P/NDC (combined JJ Rawlings illegal and legal governing groups) challenged individuals with 50 thousand cedis or more to account for their source of attainment or to give it up. As expected, all of the confiscated amounts are yet to be accounted for.) Those in charge of this wealth conversion either did not understand or they had no experience with the various financial instruments available to accomplish wealth transfer. They choose to operate outside of the path of their own agreed upon medium – The Ghana Stock Market. The history of the divestiture outcome so far does not appear to have had the interest of the people and the nation at heart. There appears to have been a lack of advance strategic planning. This haphazard manner of divestiture has placed the nation on a course of suspended twirling without an outward path to economic security. Hopefully, the new Chairman of the Divestiture Implementation Committee (DIC) will promulgate Danquah/Busia’s philosophical outlook: The private sector is the best place to sustain capital multiplication in a market economy. This is in accord with and is the economic foundation of President Kufuor’s administration.

Multiple Generation of Capital

The concept of “multiple generation of capital” occurs when “credit” documents and/or financial instruments are used to transfer value in ownership, completely or partially, from one entity to another. That becomes floating credit, and when and how to use it is an indicative of comprehension of financial capital. Such transfers would be in addition to or without the use of cash/currency. The documents and/or financial instruments used might include stocks, bonds, insurance policies, deeds/titles, futures contracts, etc. By definition, these types of transactions are not restrained by cash/currency, location, national boundaries or time. Nor do the parties/entities affected by the transfer need to necessarily see the actual asset being transferred. The use of such non-cash/currency instruments is the basis of many prosperous economies. The benefit of using such non-cash/currency instruments is that they can be used to multiply or leverage the value of an asset. However, the use of non-cash/currency transactions by Ghanaians, either by the government or the private sectors, is very limited. This is one of the major factors as to why the Ghanaian economy is in the doldrums. One example of how the private sector is not utilizing non-cash/currency financial transactions can be observed in the indigenous Ghanaian entrepreneurs in the cocoa farming industry. They have adapted very well to the incentive built into the economic concept of risk/reward and have been rewarded with high profitability from the sale of cocoa. The evidence is represented by many modern homes that have been erected for people who are connected to the cocoa industry in places like Kumasi. However, the income/profit/private capital used to purchase these houses has been directly/completely consumed by the purchase price of the house. The use of non-cash/currency financial instruments would have allowed some of that income to be used for the house and some to be used for the purchase of other assets - or for savings. The effect of using non-cash/currency instruments would have resulted in “multiple generation of capital” rather than allowing all of it to be locked up in the purchase price of the house.

An example of how the government past policies inhibits rather than taking advantage of multiple generation of capital exists in governmental income tax structure of the cocoa farmers. The riches generated by the cocoa farmers became one of the major revenue sources for the Ghana government since independence. The first independent government imposed progressively escalating tariffs on cocoa producers to fund many of the government programs, such as the ill-advised manufacturing plants scattered across the nation but not functioning. This further illustrates an ill-placed, good-intentioned practice by the previous government(s) who locked up capital from the private sector – “the fuel of the economy” which could have been used to spark the engine of Ghana’s economic development.

In addition, the following instances illustrate how government failed her promise to a group of people and deprived them of any incentive to fend for themselves. It never occurred to our first Prime Minister that land ownership is the main source of financial capital.

  • “The late Dr. Kwame Nkrumah, Ghana’s first president, established the government-owned Nkwakubew Resettlement Farm (NRF), (for and by the villagers who were displaced by the creation of the Volta Lake) to embark on commercial production of poultry and pork." The socialist NDC cabal, led by their financial guru - Dr. Botchwey, could not devise any financial instrument to switch ownership for IOU as an example, but prefer the results such as the following result.
  • “The NRF employed more than 360 resettlers who worked there to for their children and parents. Unfortunately, it was closed down by the National Democratic Congress (NDC) government which short-listed the farm for divestiture in 1992, rendering many people in the area jobless and poorer." Under socialism, in the above instance, there was no provision for the workers to build equity capital even though that seemed to be the imbedded promise in exchange for relinquishing their rights to their land, properties and livelihood for the sake of the Volta Lake
One of the means that the government is using to deal with the bulk of the dead weight resulting from such failed government policies that are strangling the national economy, is to work closely with the World Bank to recast the nation’s energy sector strategy. The new strategy will address, among other things, the future of TOR, EGG and VRA, and the development of the West African Pipeline project. Additionally, the government is focused upon an effort of privatization by divesting the remaining government-held shares in a number of companies to improve her liquidity position. This strategy is no panacea for growth, unless it is linked to local capital, which has to be accessed through creative financing. One such example of raising local capital might be to mount upon a “bold decision” that the consumers of supply-water should own the facilities and pay user fees to support their needs. A segment of the total population who may seek government subsidy or support is socio-politically necessary at times, but although a privilege, it is not their RIGHT! Divestiture, being improperly applied, becomes the path of disinheriting the riches and resources our forefathers endowed to us.

Hoarding Mentality

Another way of demonstrating a lack of multiple generation of capital is illustrated by what can be called a “hoarding mentality.” A “hoarding mentality” takes place when capital is locked up in assets, as can be demonstrated, as example, by Ghanaian homeowners, like their Masai tribesmen cousins of East Africa, who quantify their riches by the number of cattle they own - free of liens. In Ghana most houses built out of revenue from cocoa industry are paid for with no liens. This traditional (and subconsciously unwitting) behavior of locking up capital from multiplying has continued as the norm of the new generation of Ghanaian homeowners today. The Ghanaians in the Diaspora, “chips of the old stock” mimic this behavioral trend. Ghana Government estimates that the Ghanaians in the Diaspora will transfer over 1.5 billion dollars to Ghana yearly, but most of it only to be locked up in non-capital transient assets – real estate ownership (Ghanaian style). Such behavior of inhibiting capital growth is pervasive and destructive to a prospering economy. Unfortunately, it is widely propagated among Ghanaian real estates developers as demonstrated by one of their typical advertised financing arrangements:
  • 1/3 of the purchase price down before construction begins
  • 1/3 of the purchase price due when construction reaches lantern level
  • 1/3 of the purchase price due upon handing over the keys at completion.
This practice inhibits the growth of many new start-ups “Servicing Business” that fall between construction management and mortgage financing brokerage. In the last two decades, there have been about 100,000 modern homes built in the country, and it is safe to express that an average house is worth $15,000, which translates to $1.5 billion of locked-up capital. The enlightened social leaders need to expose the fallacy of Ghanaian measurement of wealth by the items owned and clear from liens. Carefully crafted and creative fiscal policies would periodically unleash the capital that is trapped by Ghanaian hoarding behavior.

It is the desire of every chief or skin to seek development to improve the lot of his community and better the life of his people. Invariably, however, most of the leaders who are the custodians of the group’s assets approach their dream of accession to riches by reaching out to solicit donation (aid), levy fees or float company shares instead of looking inward to convert capital out of their group assets into money. This same old approach will not put a dent in the amount that is required to lift their people out of poverty.

Some will recall, in the 1950’s in Kumasi, a man called Kofi Nti used to roam around the market/commercial areas, lamenting on a question that eludes many of us today. It goes like this:

What is money (Sika)? When a White-man (Oboroni) seeks money, he comes to Africa (Abibirem) to exploit our soil for its rich minerals (gold, diamond, manganese bauxite, etc.). However, when a Black-man (Obibini) thinks of “Sika”, he is referring to a currency: Paper notes that bear the portrait of the Queen of England or the metal coin with the portrait of English royalty - all of which were made out of our exploited natural resources.

After half a century, the true meaning of his elegy still escapes us. Sika is the value representation of capital gain from the property that, we the people, have the sole, full, and complete rights to - verifiable by laws, treaties and constitutionally acceptable customary practices as inscribed in the Ghana Constitution. The real wealth is not the currency, the money, but the transient capital that dwells in the property we own.

Before the Dr. Kwame Nkrumah’s economic centralism days, the Ghanaian entrepreneurs had embraced risk/reward economic adventurism to attain riches The entrepreneurs had unwritten business plan and they “worked their plan” with demonstrable success without the Government setting up shops to compete with them. In the Golden Age of business, Ghanaians desire for better economic path will greatly be enhanced by acknowledging not so past era of prosperity, when profit incentive was the reward of their labour. That was, the days before Dr. Kwame Nkrumah ushered in the First Republic of economic centralism practice.

Frank Q. Antwi-Barfi
Financial Planner
Chicago, IL, June,2003

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.