07.09.2001 Feature Article

Wereko Brobbey vrs Makola Economics

Wereko Brobbey vrs Makola Economics
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In politics, criticizing from the sideline is always easy. In fact, Monday football coaches have solutions to why a team lost on Sunday. But they, in most cases, would never have the chance of becoming coaches themselves. After eight months of real democracy in Ghana, it is now evident that sugar coated campaign promises run parallel with the reality. As a supporter of the New Patriotic Party (NPP), I criticized the National Democratic Congress (NDC) on several issues including high fuel prices, selling Ghanaian companies to foreigners, and political arm-twisting. In a couple of my unofficial phone calls to friends and family members back home, I did echo some of the many promises that came from the NPP during the Election 2000 campaign such as an end to hikes in fuel prices, reasonable pay for workers and most importantly a stable economy with greater potential for rapid growth not forgetting making the national water and electricity corporations provide efficient services within affordable rates for all. FUEL PRICE In the late 1990s when OPEC increased the price of crude oil, the NDC subsequently adjusted the price of fuel in Ghana, which was condemned by all parties on the other side of the political divide for poor management. The Public Agenda newspaper (4/10/99) reported that four main opposition parties at that time condemned the increase, saying "they place untold hardship on Ghanaians." The paper goes on to say the New Patriotic Party (NPP), United Ghana Movement (UGM), People’s National Convention (PNC) and Convention Party (CP), in separate interviews denounced the increase. In fact, Mr. Albert Kan-Dapaah then a Minority Spokesman on Mines and Energy challenged the basis for the price increase. The UGM leader, Dr Wereko-Brobbey, who is an energy expert, also, according to the paper, contested the increase, saying it was "dastardly because it is too mysterious" . Historically, "Makola economics" analysis show that any time there was an increase in fuel price there is a corresponding increase in prices of transportation fares, which later affects prices of food and other commodities. This means Wereko-Brobbey bought into the Makola analysis while he was in the opposition. What has led to a shift in his argument that high fuel prices will not affect the prices of other commodities? ECONOMIC RECOVERY AND FUEL REVENUE Paradoxically, the first thing the NPP did when it came to power in 2001 was to raise the price of petrol by 64 per cent. This immediately affected prices of other commodities. There is speculation that the government may increase petroleum products again by the end of the year by at least 15 per cent though the energy minister says there are no immediate plans to increase the price of petroleum products. So far the President and the sector minister for energy are playing their diplomatic cards well to let Ghanaians prepare for any possible increase. A reason given for the possible increment, according to the government, is to generate enough revenue for development. In addition to that, the government says it was wrong for the previous government to subsidize petroleum products. Since we don’t produce oil in Ghana and have no choice but to buy petrol for our vehicles there is little one can do but to go with what the government offers. That was why I disagreed with Mr. Kofi Wayo when he suggested that Ghanaians should jump on to the streets if the NPP made any attempt to hike the price of petrol again. According to Wayo, any fuel price increase would be as a result of poor management on the part of government. On the contrary, if the price of crude oil does not fall, which OPEC is preventing, the government has no choice but to go ahead with the increase. This will certainly be painful because it will definitely affect prices of other commodities regardless of government’s good intentions to let prices of other commodities remain the same. The government, I am sure, will continue to explain to the ruled why such an unpopular action is necessary. DR. WEREKO-BROBBY’S MOKOLA THEORY However, what some of us do not buy is Dr. Charles Wereko-Brobbey’s attempt to inform us that "increases in fuel prices do not automatically lead to hikes in food prices." He goes on to argue that those who think otherwise must "review their thinking." It is quite interesting how Dr. Wereko-Brobbey, an energy expert and CEO of the Volta River Authority, argues that "Ghanaians must learn to pay economic prices for fuel, because the days of government subsidy are over." Surely, Ghanaian workers do not want any government to subsidize those prices. However, as the workers learn to pay for the real economic prices of products, THE GOVERNMENT MUST ALSO LEARN TO PAY WORKERS ECONOMIC WAGES AND SALARIES to survive. We are in a country where the average minimum wage is less than $200 a month yet the government wants us to pay for prices on the world market? Such a demand from the government is what brews corruption. Where do we cough the extra money from? Dr. Wereko-Brobbey should realize that not all of us enjoy allowances, which are "fatter" than our pay. High petrol prices have and will always affect the prices of food in the country. There is no theory that says that an increase in the price of fuel decreases food prices. For example, during the days of Honorable Dr. Kwesi Botchway, he read his budget with all his economic theories to justify an increase in fuel, which should not affect the prices of other commodities only to realize that the ‘Makola Economic’ analysis always reigns supreme, at least in Ghana. Now lets look at the Makola Economic theory, which Dr. Wereko-Brobbey ignores. It states, "A rise in fuel prices increases the cost of transportation, which prompts drivers to charge more per load of food stuff and other commodities." That is, food vendors are more likely to pass on the extra cost incurred in transportation to consumers, which eventually raises the price of food on the market. This Makola argument of the relationship between petrol price and food hold true for all other commodities on the market. Dr Wereko-Brobbey’s argument becomes viable only when the government decides to control prices like the military governments did. Of course, no one wants to revisit the days of price control, hoarding and military brutalities. So the VRA CEO should rather review his thinking about the relationship between how petrol price hikes are linked to food prices. What’s more, Ghanaians have been lied to, politically, for so long therefore the trust in government is fading. It is not uncommon to find government appointees using theories to justify some unpopular actions while the ordinary Ghanaian continues to feel the pinch. During the P/NDC periods, Ghanaians witnessed various IMF-World Bank prescriptions to revamp Ghana’s economy. The structural adjustment programme quickly comes to mind. Again, the Central Region, Swedru-Asafo born economics professor was able to use abstract economic theories to support his claims any time he presented Ghana’s annual budget. Accordingly, he did an excellent job in all his budget presentations without any doubt in my mind that the minister knew what he was talking about. In fact, few articles I read on IMF-World Bank and Ghana’s economy those days showed that Ghana’s economy was doing fantastically well by all indications from these international financial organizations. However, those of us who used trotro, taxi or go to Asafo and Makola markets everyday realized that practically those theories did not transform our pockets. Dr. Wereko-Brobbey may be thinking like those IMF officials who visit Ghana for a day or two and tell the rest of the world how great Ghana is doing. But those of us from Asante Akyem-Obogu still argue that the economy of Ghana is in bad shape and any increase in petroleum products will have a corresponding effect on food prices. This is a simple Makola Economic theory; it is not in the books but it works. It is against this background that I reject his pronouncement that an increase in fuel prices does not automatically lead to hikes in food prices. For example, an increase in petroleum products will eventually hike the production cost of VRA’s power generation for Ghana, which will lead to higher electricity bills to affect the net incomes of consumers. I think the Kufuor administration is trying to reinvent government in Ghana and win the trust of the people. As Dr. George Ayittey, president of GCG, USA, noted in his recent interview on one of our FM stations, he rightly argues that some of the policies would be difficult to swallow but there are already signs that they will work in the interest of all. SHIFTING WORDS I did not get enough time to do an in-depth analysis of the effect of a change in petrol price on food; Nevertheless I was able to look at some of the media reports from 1999 to present on increases in the price of petrol in relationship with prices of other commodities. I specifically compared the reactions of the NPP while it was in opposition to the reaction of the NDC. My unscientific observations showed that the NDC is using the same or similar statements the NPP used against it while the NDC was in power. For example, in 1999 Mr. Kan-Dapaah argued seriously that the NDC government had no justification to increasing fuel prices, which he said would make prices of other commodities unbearable for Ghanaians (Public Agenda, 1999). Similarly, the Minority Spokesman on Energy, Mr. Kofi Asante in 2001 says, "the government has no justification to increase petrol prices," he argues another increase in less than 12 months would have "a knock-on effect on the prices of services and worsen economic hardships in the country." (, July 28, 2001). There are several of such examples but space has prevented their publication. However, the fact I am establishing here is that an increase in fuel prices will affect other commodities including food as noted by Kan-Dapaah and Asante. I think politicians sometimes need to swallow some of their pronouncements for the interest of the nation. Mr. Kan-Dapaah needs to be commended for admitting that the government cannot do away with the 15 percent ad-valorem excise tax on fuel, which was hurriedly abolished by the NPP in February. According to him, the NDC "beautifully developed" this policy and he sees no reason why the government should not reintroduce it. This policy is already in effect. CONCLUSION I would argue that if one critically studies some of the policies put in place so far by the NPP, there are signs of good hope. However, I would also admit that the people have accepted not all these policies with a smile. For example the privatization of the national water industry still draws divergent views, which I think, are healthy for the democracy Ghana is building. Petroleum products are so essential that no nation can ignore them. Unlike the oil rich countries, Ghana imports oil and a change in price of crude oil affects the income of Ghanaians. Historically, almost every price increase in fuel has affected transportation and food prices. However, since government generates revenue from fuel taxes, any price change on the world market will affect the final consumers. Previous governments have used economic theories to justify why a rise in product X would not affect product Z. But basic Makola Economic Theory holds it that any time there is an increase in the price of fuel, other prices also go up especially transportation. I find it very hard and almost impossible to disagree with a respectable public figure like Dr. Wereko-Brobbey, however, I am compelled to rethink with him on the relationship between fuel and food prices. As l respectfully differ with his analysis, I conclude that Makola economics says any increase in fuel prices will have a corresponding increase on the prices of other commodities including food.

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