Nduom`s Stimulus Package for Ghana 2
Continued from yesterday`s edition
Nduom`s Stimulus Package for Ghana
There is an aspect of the budget statement read in Parliament that needs to be revised in view of the global financial crisis. The Minister of Finance & Economic Planning said: “The policy thrust of the 2009 budget is to reduce the current budget deficit to sustainable levels, improve the exchange rate regime, and work towards the attainment of single digit inflation.” This policy thrust goes against the grain of what is needed to achieve self-determination which requires growth and aggressive action to get the productive sectors of the economy moving.
A survey of manufacturers, traders and small scale enterprises in Ghana if done with accuracy will show low production and productivity combined with high cost. Unemployment is increasing while at the same time, lending for buy and sell activities has increased. As most consumer goods are imported, our import level remains high with increasing pressure on the value of our local currency, the cedi. Without a doubt, we remain a raw material exporter and reliant on development assistance from other countries. This one fact which all our presidents and prime ministers have confronted is what makes us more vulnerable to global shocks – energy, financial etc.
President Nkrumah and to a much smaller extent, General Acheampong took bold steps to facilitate the development of local industries and promoted the implementation of solutions that would enable Ghanaians to gain the commanding heights of the nation's economy.
I am not asking us to copy the American, British, Japanese, French or Chinese stimulus packages. I am calling for a homegrown Ghanaian solution. The kind of stimulus package I am calling for is one that will give the commanding heights to Ghanaians, 'domesticate' the economy and create productive, sustainable jobs.
Ghana Stimulus Package
To have a package that would stimulate the economy in the right direction, it is important that we set the goals we want to achieve. I suggest the following goals:
Reduce the importation of what we can produce in this country – particularly products where we have a competitive advantage due to the availability of raw materials locally.
Transform the economy from a raw material to a manufactured goods producer.
Create jobs for Ghanaians and reduce youth unemployment. We need consensus over what type of package is needed in the country to meet these goals so I cannot pretend to know everything that needs to be done. This is my offering for the consideration of others with the ability to command the resources needed to make a difference. I know that what I am offering is not new - many others have promoted some aspect of these solutions. My contribution is putting the ideas together into a single package and putting them on a national stage for consideration.
Solution 1: Use Government's Purchasing Power: We need an aggressive crusade to ensure the mandatory procurement of local of goods and services by government.
No country that has prospered has done so with a liberal government programme that favours imported goods and services. One relatively inexpensive way to enable local producers to find their feet in the market, walk and then run is for the government to ensure that the taxes collected from the people go to fund local enterprises. A very good way to do this is to use the government's purchasing power. Locally produced items such as fruit juices, soap, electrical supplies, chocolate, rice, etc must be supported through a hard and secure policy that directs all government-funded organizations and projects to buy local with no exceptions.
Also, services provided by local professionals – consultants, architects, road/building/electrical contractors and investment advisors must be given a preference. In addition to providing support financially, such a policy must also come with measures to promote quality through technical assistance. The Koreans did this successfully which enabled them to overcome poverty and gain a giant measure of prosperity within two decades.
Solution 2: Restrict Importation of Consumer Goods Produced Locally:
Quite often when the matter of restricting the importation of consumer goods produced locally comes up, all manner of special interest groups rise up. Sometimes, they pretend they are protecting the consumer by ensuring that they do not pay high prices for inferior products produced locally. Other times, they question the ability of local producers to meet demand. Some also question the ability of local producers to meet demand. They forget that great and prosperous nations are built on sacrifice and a high sense of patriotism. Ghanaians can do what others through their sweat and determination have done.
Those old enough will remember that not too long ago, “Made in Japan” was not a great label. Now that label is widely respected throughout the world. Even in America and Japan, there are trade restrictions that regulate how much American beef is exported to Japan. The European Union does not embrace all imports from every country in the world without quotas, tariffs or special arrangements.
The developed economies became that way with support from their governments including import/export restrictions. Now that they can meet domestic demand, they want foreign markets by kicking the ladder they climbed to prevent countries such as Ghana from moving up the prosperity ladder. They have the support of the International Finance Institutions like the IMF and the World Bank whose policies appear directed at keeping developing countries from being self-reliant in terms of basic consumer products.
Pricing, quality and supply challenges can be overcome when we concentrate our attention on managing the program with a sense of urgency.
Government must spell out which industries and preferably which products will attract preferential treatment through import tariffs and where necessary, restrictions.
Solution 3: Adopt Value Addition to Raw Materials Policy:
This is a good time to spell out clearly the Government of Ghana's policy on adding value to raw materials prior to their export. A few days ago, the President of Brazil was very clear that crude oil discoveries in his country will have to respect his policy of value addition. He was very clear – Brazil will not become another exporter of crude oil. He wants his country to become even more of a petro-chemicals producer and an exporter of high value products, not raw materials. We need a firm policy that will affect crude oil, timber, cocoa, sheanut, gold, bauxite and other raw materials so that progressively, we can build an industrial/manufacturing base upon which foundation sustainable increase in our standard of living can occur.
Solution 4: Provide Low Cost Funds for Local Producers: Most of the time, as Ghanaians we flog ourselves as being great planners and poor implementers. This has affected our attitude towards industrialization. We have great ideas, but ask any entrepreneur, and he/she will promptly tell you his/her biggest problem is lack of capital to start, continue and expand. It is the lack of private sector capital that led the Italian government to fund ENI and the French government, Elf-Aquitaine both oil companies. National entities such as Volkswagen, Lufthansa and Renault became multi-national companies through government support. In the case of Korea, a country Ghanaians love to compare their nation to, it was a case of government providing the funds and technical assistance under the Heavy and Chemical Industries Initiative. Government officials made investment decisions and controlled credit. Goldstar, Hyundai, Samsung and Daewoo all Korean brand names well-known in Ghana were nurtured and promoted with low-interest government loans, tax incentives and export/import facilities.
The question is where are the Ghanaian brand names? Also, how many people know that Ghana was ahead of Korea in its march towards industrialization in 1966? This was so because once upon a time, we had a state-driven industrialization policy similar to what has made Korea, Singapore, Malaysia to become more prosperous nations and their people better off than we are.
The Government of Ghana can no longer afford to mouth “the private sector is the engine of growth” and leave the situation to improve somehow. We need a deliberate, well-defined and broadly debated plan to fund plans prepared by new and existing local companies. A team of hard-nosed experienced business people, experts from government and the Bank of Ghana and professionals from the financial sector should be put together to help make the selection of companies/industries to support. This team can become members of the Ghana Domestic Business Stimulus Committee under the direction of the President of the Republic. This Committee should work to ensure the identification of beneficiary enterprises, the raising of the funding required and the effective implementation of the stimulus package.
(A related matter is the need to accelerate the implementation of the new Pension Law which if diligently done and actively promoted will help accumulate a significant pool of long term money that can be used in financing productive ventures in the country.)
We must be bold, innovative and comprehensive in our approach.
Solution 5: Reduce the Cost of Money: It is difficult to think that interest rates are as high as they are in Ghana and yet we still expect that agriculture and manufacturing particularly agro processing will gain a boost somehow as if by magic. The policy of inflation fighting which has been used for more than three decades now has proven not to be a stimulant for growing domestic industries. I am in favour of fiscal responsibility but we cannot use a low budget deficit as the indicator for success in a country in need of development and growth like Ghana. Therefore, we must attack the stigma associated with cooperation between the political administration and the Central Bank.
In addition to the support the Bank of Ghana must give in funding selected enterprises by the state, it must lead in the effort to reduce the cost of money that is used for productive purposes and not for buying and selling imported goods. The maximum level of interest rate should not exceed 15% for those enterprises selected to participate in a stimulus package designed to strengthen local production capacity.
Related Solution 6: Education, Sanitation, Public Sector Reform and Culture: The five solutions recommended above need to sit on an important bedrock made up of the type of education that will support industrialization, a clean and sanitary environment to rid the nation of preventable diseases for productivity gains; strengthening of the public sector to facilitate the work of the private sector; and attitudinal change so that we can development a culture of self-determination and the will to succeed.
Financing the Stimulus Package
We must find the money to provide the stimulus required. About 5 billion GH Cedis will be needed as an initial investment to begin the strengthening and transformation of our economy; to provide it with the ability to deal with external shocks in the future; and create the jobs our people need to improve their standard of living. It will take sacrifice and consistency of thought and action to find the money and make it work.
The sources of funding should be the Bank of Ghana, the Government of Ghana and the Financial Institutions. They should be tasked to commit to their share of funding at an agreed low cost to support the stimulus package over a two year period. For example:
The Government of Ghana working with Parliament should adopt the 'Buy Local' policy of using the purchasing power of the state for goods and services.
The Government of Ghana working with Parliament should pass laws that encourage local production and restrict imports through a combination of tax incentives, import tariffs, technical assistance, etc.
The Government of Ghana should commit to providing its share of low cost funding for the stimulus package (e.g. 2 billion GH Cedis).
The Bank of Ghana should commit to providing its share of low cost funding for the stimulus package (e.g. 1.5 billion GH Cedis).
The Financial Institutions – universal banks, savings and loans companies, rural banks, venture capital funds etc. should commit to providing their share of low cost funding for the stimulus package (e.g. 1.5 billion GH Cedis).
As has been said by others, “…extraordinary times require extraordinary measures”. I could not have imagined that the day would come for an American government to ask the Chief Executive of General Motors to resign his position in that company or give Chrysler a few days to execute a merger with an Italian company, Fiat. The question is “…what is the Ghanaian government telling local enterprises to do to become stronger financially and more competitive in the market place in order to create more jobs in this country?”
This is the time for Ghana's leaders to show what they are made of. I do not have all the answers. But this is my contribution. I believe that we need a stimulus package that will do something different and enable our economy begin the transformation from a primitive raw materials export base to a developed manufacturing and related service base.
We need a package that will be biased towards strengthening domestic industries, provide employment for our youth and give us the ability to fight external shocks successfully. It is my hope that what I have presented will be considered in the spirit with which it was prepared – as a contribution to the national thinking process to provide solutions to help us achieve a better Ghana. We must act with a sense of urgency to bring about change Ghanaians can feel in their pockets.