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Opinions of Friday, 17 November 2017

Columnist: Robert Nii Ardey Clegg

Is Nkrumah dictating Ghana’s economic policy from the grave?

Over the mature tenure of my forty-one years of existence, I have become ever more convinced that Ghana’s dream of becoming a beacon of democracy and development must necessarily hinge on freeing up the competitive business spirits of its citizens. To do so, there are features of this nation’s idiosyncrasies that must be toppled.

The historical chains

Having inherited a government with the trappings of the free market, Ghana became increasingly pro-East with its attendant central planning under President Nkrumah.

As a result, our commodities, education, industries, construction, aviation, employment, transportation, media to name a few, were largely if not wholly under the aegis of the central government.

With the collapse of the Berlin Wall, the disintegration of the Union of Soviet Socialist Republics (U.S.S.R.) and the fallouts of Perestroika, China’s reforms and the increasing global acceptance of Adam Smith’s “invisible hand”, Fabian socialism has lost its quiddity except in the minds of those who keep mouthing it without much action.

Even the Labour Party of the United Kingdom (U.K.) under Tony Blair and later Gordon Brown would speak of a “New Labour” which embraced market forces with unpredicted fervour. In the US, the Democratic Party’s Bill Clinton would call it “The Third Way”.

The Vestiges of the Socialism of the 1960s

Today, many of the State-Owned Enterprises (S.O.E.s) of the 1960s remain under the iron grip of central government despite the oft-repeated evidence of the shambolic performance of an overwhelming majority of them. A few were divested, with hardly any evidence of benefits to us, not so much because of a belief in the free markets but as a result of our obeisance to the prescriptions of foreign and international institutions.

The ghost of central planning has ensured that these SOEs, whose shares are held entirely by the government, are used as instruments of political patronage. Friends, cronies, relatives and party members are assured of seats on the boards of these establishments when electoral power swings in their favour.

They are not held to any standards of efficiency and are at liberty to operate with freewheeling nonchalance. They were never intended to be run on the measured rods of the hands of corporate governance with a diverse collection of the best business and governance brainpower. Their guide was Marxist economic theory and the capital market was never in sight for them.

The Ghana Stock Exchange

It was not until the 1990s that Ghana set up a stock market. Thus the driving principles behind the raising of capital, corporate governance, diffusion/dispersion of shareholding, shareholder activism, the constant improvement of corporate law among others are yet to take a firm hold.

Where government has dared to participate in the affairs of the stock market it has ensured that it retains massive controlling shareholder status. That way, it still calls the shots with respect to the appointment of directors and management whose qualifications are based more on ‘right standing’ than competitively determined competence.

In the end, citizen participation on the bourse is minimal, their participation in decision-making is non-existent, the alignment of the desires of shareholders (non-government) with directors/management remains a pipe-dream and the stock market has not become the linchpin it must be to the economy.

The result is a palpable unattractiveness of the Ghana Stock Exchange (G.S.E.) to the biggest corporations in Ghana and the disincentive to investors who in the absence of free-market choice of corporate leadership cannot bet on any great returns on their investment.

The Economy

An economy that imprisons the efficient market and denies the citizenry frontline participation in it does not grow in leaps and bounds. It does not create wealthy citizens. Its private sector is small and not influential and government continues to be the employer of the overwhelming droves of its workforce.

That economy is unable to provide infrastructural expansion to enable businesses to push the possibilities of their productive frontiers. Tax evasion becomes the order of the day as the informal sector balloons as a way to avoid the taxman.

Only a minutiae of the workforce pay tax and so it is not surprising that since 2011 Ghana’s tax to GDP has consistently hovered between 17%-19% and is edging below the lower end in 2017.

Investors will not touch such an economy with a long pole unless they are promised markedly high returns that pressurize government to embark on “smart borrowing” and not-so-smart borrowing sometimes for and on behalf of companies which should be allowed to deal on the strength of their own sets of financial statements.

To make matters worse, even the right of centre party relies on economic populism and the precepts of Fabian socialism (one district one this, free this free that etc.) in order to please a people whose mind-set is fixated on state largesse.

When a social democratic party hands over the baton to a “free market” party, the citizenry struggle to “spot the difference” in strategies such as the unbridled proclivity to issue bonds to raise revenue.

At over $4 billion dollars Ghana is the African country with the highest Eurobond debt, with a poor tax to GDP ratio (currently between 15%-16%) and around 70% debt to GDP ratio excluding its recent Energy Sector Bond.

Since the economy is not innately attractive to investors, beyond the high interest rates on bonds, the government finds itself scrapping critical taxes and granting exemptions to wealthy companies to keep their interest alive. This contributes to the low revenue ‘capture’.

The way forward

Change will only come if we want it. Our political parties must give us the best all-round persons as flag bearers. Our central bank governors and each and every member of the board of the Bank of Ghana must have formal education to the highest levels (at least post-graduate) in finance/economics/business with proven track records. Our finance ministers must be highly educated in economics/finance of the proper kind and be supported by the finest brains.

Our Presidents must choose competence, knowledge, training and expertise over petty considerations. They must set in motion the process to shed central planning and allow citizens to part-own, choose corporate leadership, run and manage those companies that government currently controls with perilous consequences.

In the process we may not always need to raise revenue through debt but equity by way of releasing shareholding in say the Ghana National Petroleum Corporation (G.N.P.C.), GOIL and/or COCOBOD with the attendant infusion of the competencies of the private sector.

If domestic investors had confidence in the way these entities are managed, government may raise millions from them by way of equity instead of the now fashionable option of a bond (debt), which attracts interest. The example of Colombia with respect to Ecopetrol’s 20% shares may serve as a useful guide with modifications to suit our circumstances.

Is President Akufo-Addo the man to ignite the untapped embers of the free market or must we wait for another government, which professes an unwavering belief in the free market economy?