01.05.2000 Feature Article


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George Bernard Shaw once said that "the reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man". What that means is that we, as a country, cannot wait for other people or countries to offer us secure standards of living, jobs, careers, economic development. We are the only people who have to decide what kind of, country we want to have and we are the only people that can make that ideal country come into fruition. It is needless to say that every facet of our society is in dire strait of some sort, and consequently, crying for attention. To mention but a few, the moral morass, the near breakdown of our social and cultural fiber, the failing educational system, the ever-deteriorating health institutions, the joblessness, desultoriness, and hopelessness of our able youth, the peons of poverty and economic deprivation of the vast majority, and the distressing economy. To deal with all this would require a comprehensive and holistic approach steeped on the rock of vision. Yet none requires immediate attention than the economy because our ability to deal with the inherent problems in some of the areas mentioned elsewhere depends largely on the fortunes of the economy. It would require that our economy is resuscitated on a growth trajectory that is higher and sustainable for a long period of time. Fortunately, the tenets of economic growth and economic development are not etched in secrecy. As trivial and elementary as it may seem, nothing helps to raise living standards more than a greater abundance of goods and service. To produce goods and services in greater abundance, we must improve the productivity of the Ghanaian workforce. However, the investments that a nation must make in order to improve the productivity of the Ghanaian workforce take time to have the desired impacts. These include investments in better and functional education and retraining, research and development (R&D), and technology among other things. To have an idea how long these investments can take, we have to remind ourselves that it took almost two decades for the investments made in computer technology in the 1970s in the US to have the desired impacts on the productivity of the American workforce in the 1990s. To help achieve this objective of increasing the production and the availability of goods and services in the country, anybody with a background in Economics 102, that is, basic principles of macroeconomics, can recommend a few of the things our government must or should do. Here are few of such recommendations: 1. It is known that the private sector of the economy provides the engine for economic growth. For this reason, the government must seek to help increase the growth of the private investment. This can be done by the creation of a conducive or enabling environment, - an environment that promotes confidence in the sustainability of the country's macroeconomic policies. In addition, the government must have in place appropriate INSTITUTIONS and legal framework that promotes property rights and contract enforcement and encourages transparent governance; 2. In addition, the government must continue to provide the necessary ECONOMIC and SOCIAL INFRASTRUCTURE to enhance economic activity and growth. This includes the provision of quality roads and telecommunication network to provide linkages, having readily available quality labor force through training and retraining, increasing the quantity and quality of basic health care to ensure that the labor force is healthy, and the provision and accessibility of quality education to ensure continued supply of the necessary skilled manpower and other positive externalities; 3. One of the biggest knots of economic growth is the pursuit of SOUND MACROECONOMIC POLICIES. This requires a disciplined government that is fiscally responsible and is willing to strategically make the necessary investment especially in human capital and social and economic infrastructure. In our case it requires that the government would the steps to cut down the strangulating deficits, deal drastically with inflation, reform tax and customs administrations to in order to ensure efficient mobilization of revenue, and cut down unproductive outlays and wastes that stem from ballooning bureaucracy, corruption and sinecure jobs. 4. Contrary to what some may think, Ghana should continue with its STRUCTURAL REFORMS of the economy. However, there is the need for reassessing our structural reforms in order for them to have the desired impact on our economy. The reforms must ensure transparency of the divestiture/privatization program. Besides, there is the need for continued restructuring of the external sector of the economy by moving it away from the reliance on few raw materials as exports. In what has become almost a trite, we have to add some value to our exports if we want to maximize our export revenues from our resources. This means turning our cocoa beans to some of the well-known value-added products of cocoa such as chocolate, and skin-care or cocoa-related cosmetic products like cream and soaps, etc; turning our abundant oranges and other fruits into orange juices and other fruit-related juices for both local consumption and export; giving value to our gold, diamond, bauxite, manganese and other minerals. In addition, it is unfortunate that food production in Ghana has been discriminated against by past governments (with few exceptions) in favor of the cocoa production in particular. Thus while the country has the capability to be self-sufficient in food, we keep on importing such food items as rice, and lately even plantain, putting a lot of strain on our limited foreign reserves and invariably the local currency. Thus it about time the government encouraged increased food production much in the same spirit as the "Operation Feed Yourself" initiative by giving farmers incentives much in the same way we did and continue to provide for cocoa production. Increased food production not only would reduce the perennial inflation facing the country and save the country some foreign exchange but also we can export the surplus (of rice, maize, etc) to other needy countries particularly in Africa. Finally, the structural reforms must de-emphasize the overly concentrated attention on the service sector to support the growth of private initiatives in the manufacturing sector, especially light industrial production. There is no question that part of our economic problems is due to the fact that our manufacturing base is so thin. We must identify few industries that rely essentially on local raw materials for production and encourage their growth through incentive packages. In other words, Ghana should now CREATE A NEW COMPARATIVE ADVANTAGE through private initiatives in the area of light manufacturing that utilizes our abundant natural resources. These private local companies must be encouraged through incentives to not only aim at profit maximization but also market maximization by looking beyond the walls of Ghana for additional markets. Part of these incentives can be export subsidies or performance-based tax exemptions or a combination of them. But to qualify for these incentives, the firms/industries must be given some production/export targets they must meet annually. Indiscriminate export subsidies, studies have shown, can have a snowball or negative counter effect. Hence the need to make our export subsidies discriminatory and narrowly focused on only few items. 5. While the relationship between financial intermediation and economic growth is still a chicken-egg issue, there is growing evidence that the development of a country's financial sector exerts positive impact on real per capita growth and productivity per capita growth. In this connection, it is imperative that the country continues its FINANCIAL SECTOR REFORMS to bring it in line with modern operational and financial technologies. It is now well established that well functioning banks, for instance, improve resource allocation and accelerate total factor productivity by encouraging savings and other financial resources for private sector investment. Central to the financial sector reforms is the role of the central bank, the Bank of Ghana. To be able to play its useful role of administering monetary policy efficiently and effectively, the Bank of Ghana should be given a lot of degree of freedom if not outright independence. In exchange for this degree of independence, the Bank's managers must sign a performance-based contract that will tie their financial rewards (salaries, annual bonuses, etc) to a set target of inflation reduction. Furthermore, there is the need to strengthen the stock market to make it easy and cheaper to raise money for private investment. Making financial intermediation accessible to most parts of the country is crucially important. For this reason the rural banking system needs to be reviewed and strengthened to enable it play its intended role in national economic development. In a lump, the key to Ghana's economic revival lies in investment in the private sector through the strategic creation of a new comparative advantage that tilts the balance of economic activity in the direction of light manufacturing using our abundant natural resources. To achieve this, it will require a complementary partnership between the citizens and the government. The government's principal role entails three elements, namely (i) the creation of the appropriate and credible economic and political environment, (ii) motivating and mobilizing our human capital for the common national cause, and (iii) taking the initiatives where private initiatives are slow in their response to government's incentive schemes. DEVELOPMENT THROUGH DISTRICT INITIATIVES One of the positive things that happened in Ghana in the last two decades is the re-invigoration of the local government concept, even though it was done to be used as a conduit for carrying through the political programs of the then ruling government. The District Assembly concept, though incomplete in its structure, can be used to facilitate economic development in the country in a more effective way than the central government in Accra. One of the many advantages that the District Assembly concept brings to bear on our political system is that the political process benefits from what I call "Political Ecosophy" - political decisions based on local knowledge and wisdom - because we know our immediate environment (where we live) better than someone else that has not lived there before. For this reason, our District Assemblies can be used as effective conduits of development. In this connection, the appointments of District Chief Executives (in the absence of elective officers) must be done with a lot of prudence and level-headedness. In appointing the DCEs, the authorities should not allow political considerations to be the over-riding factor. Rather they should appoint people based on their effectiveness as leaders, the creativity of their ideas as well as their goals for the districts and how they intend to achieve these goals with the parameters of the available financial resources. Thus we must have of the prospective DCEs the same goal-oriented expectations as shareholders of a company would have of a company's Chief Executive Officer (CEO). There are several ways the central government can use the District Assemblies to facilitate economic development. Here are two suggestions: 1. The establishment of District Technology Centers The importance of APPROPRIATE TECHNOLOGY to national development is clear to all and sundry. The key term here is "appropriate technology" our rural communities to help farmers and other small and medium business increase productivity. When I talk about "technology centers" I have in mind a replication of "SUAME MAGAZINE" in our rural areas. While the concept could be similar to the SUAME MAGAZINE in organization and structure, the centers do not have to be solely automobile oriented. In some areas the focus can be furniture making. In others areas, it can be dress making, building technology, etc or in some instances a combination of these. Not only will these centers open up opportunities for our youth to learn trades to be self-reliant instead of looking up to the government's sector for jobs, but also they can have other unintended positive externalities on the development of the localities where they are set up. In this connection, the new Administration must charge all prospective DCEs to come up with their plans for technology centers for their districts. 2. Communal Capitalism: Elsewhere I have stressed the importance of investment, especially private investments in national economic development. However because habits are like soft sofas - difficult to get out of - private response to a government's incentive schemes may be slow. In such a situation, the government can and should take some of the initiatives to whip up interests among the population in private enterprise and investments. One way the government can do this is through what I call "communal capitalism". I have talked about this before. Communal Capitalism means that we should encourage joint ventures among citizens at the community level. Because in Ghana incomes are so low and individual savings are also so low, it is virtually impossible for a large segment of the population to start up business ventures (especially medium to large scale firms) of their own. This is why the virtues of joint ownership must be preached and practiced in our communities through government assistance. There are 110 districts in Ghana now. Using the District Assemblies as springboards, and under the leadership of the DCEs, the country can identify 110 firms, one apiece in each district according to the districts' respective comparative advantages. Thus for example, set up a chocolate factory in a relatively abundant cocoa producing district, etc. Using all communication media available, the District Assembles should embark on intensive and extensive campaign and education of their residents about business concepts of shares and stock holdings. Then under the auspices of the District Assemblies, we float shares/stocks to generate seed money for start of the identified business units. While these shares/stocks will primarily be should to residents of a district, they [shares] should not be excluded to the indigenes alone. Through shareholding the people become sole owners of the company (or at best with 5% government ownership). The choice of Board of Governors, Chief Executive Officers, management personnel and related staff should be done by the shareholders without any government interference. The shareholders will be the workers themselves. Once shareholders know that profits from the factory or firm will be accrued to them, they will make sure that it remains profitable. The government's only role in this approach is to help the people to buy the necessary equipment to start up the company. In some cases, the government may have to buy the necessary equipment and lease it to the local communities on a well-specified contractual agreement. This is significantly different from the old approach when the government owned the factories, and thus workers, through the problem of the "Tragedy of the commons" and "free riding", did not have the incentives to ensure their profitability. 3. Using faith-and community-based organizations: Here we can borrow a page or two from the new Republican Administration of George W. Bush in the United States. Most Ghanaians, especially those in our rural communities, belong to at least one form of faith-based or community-based organizations. While these faith-based organizations primarily provide spiritual fulfillment for most poor people, I think that with proper guidance these groups can be made to play significant roles in poverty alleviation and related socio-economic transformation programs. The best way small communities can benefit from the District Assembly Common Fund, is to channel this fund through community- and faith-based organizations that play positive roles in their daily lives. To qualify for the fund, these organizations must come up with a development plan that aims at improving the quality of life of their members and communities. These plans should be verified, scrutinized and debated upon by members of the District Assemblies to ensure their relevance and applicability. But in order not to blur the State-Church separation line, there must be clear instructions and guidelines in place to tell qualified faith-based organizations about what they can use the money for and what they cannot.

4 Bringing Ghanaians abroad on board: First, we must realize that in this global world, our embassies and high commissions are not only political representatives of the government and the people. Equally important, they should be made business/economic agents of the country. Given the dynamics of international economic relations, and coupled with our own economic exigencies, we should rather encourage our embassies to be more of economic agents than political agents - to organize trade fairs and exhibitions, investment seminars to provide information about the country's investment potentials. To help these embassies be successful in seeking investments for the country, they should be encouraged to employ "investment agents" on commission basis. In addition, these embassies should be charged to establish not-for-profit Development Trust Funds to which Ghanaians and Ghana-loving foreigners can contribute for tax-exempt purposes. The embassies can use "fundraising agents" on commission basis to raise revenue for these Development Trust Funds. Furthermore, there is a large pool of Ghanaian talents resident abroad which can be drawn on to help in our national reconstruction efforts. While Ghanaians abroad play a very useful role to sustain the economy of Ghana through their remittances to families and loved ones, the skills and talents of this group of people have been atrophied or at best underutilized in national development. It is time we made use of this minefield of talented and skilled Ghanaians for the country's development endeavors. To make this possible, we should charge all our embassies to build a database of all Ghanaians resident in their areas of administration/jurisdiction. It must be acknowledged that few private organizations, such as the Ghana Review International and the Ghana Cyber Group, have started this exercise of building database of Ghanaian talents abroad. So the embassies can coordinate with these organizations to give it some official weight. If properly coordinated policies are put in place, we can dwell on some of these talented Ghanaians to teach summers classes to our students in selected schools (every year) at the pre-tertiary as well as at the tertiary levels. These people can also be relied on to provide training for middle management, provide advisory and consultative services to various levels of government from the District Assembly level to the ministerial level. Prof. George Ayittey has suggested that the government use some of the skilled Ghanaians abroad as members of advisory boards for the various ministries. But I think we can go beyond that to include our regional and district administrations. I'm positively sure that most skilled Ghanaians resident abroad will be willing to spend their summers, a month, 3 months, six months or a year back home once in a while to teach, train, work, advise - that is do "something" for our communities/areas or Ghana in general. For example, if the tertiary institutions in Ghana instituted summer classes, or if the Ghana Education Service had regional summer classes for say final-year SSS students, some of us can use our summers to teach a class (subject) or two. THE COMPLEMENTARITY OF GOVERNMENT AND THE CITIZENS In a nation's economic development, there can never be complementary slackness between the government and the people. Thus, whenever one side of this government-people partnership slackens in its expected role, economic development suffers the consequences. For the citizens, it would require of us to develop "investment minds", wealth-creation attitude and entrepreneurial spirits.Developing these attitudes is the only way we can economically empower ourselves individually and collectively. How do we become investment minded and wealth creators? Well, here are a few things we can do: a. We have to develop "wealth attitude" and live it. To do this, we must recognize the difference between wealth and income, and even between income and money. Money is a snapshot concept It is how much you have at any particular point in time. Income, on the other hand, indicates how much you have or earn over a period of time. To see the difference between income and wealth, think about two people, a sun-scorching Makola woman with a big chunk of bank balances and a high-flying banker who spends every Cedi she earns. In this example, while the Makola woman accumulates wealth, the banker does not. Wealth is not only about what you own but also how you use it. It is not measured by the splurge on conspicuous consumption - how much Gucci, Calvin Klein or Versace you wear, what luxury and flashy car you drive or how fanciful and elegant your house is. As Carolyn M. Brown of succinctly puts it, true wealth is "the self-assurance and sense of well-being that comes from knowing that you have the money you need to be in control of your life, and that you use it wisely." b. We should all realize that entrepreneurship, the art of wealth creation, is about risk taking. That is why in most countries entrepreneurs are acknowledged as such and allowed to enjoy their risk premiums in the form of profits without any fear of intimidation from the forces of government. But should we be discouraged by the apparent risks that come with entrepreneurship? No, we should not. After all, a great deal of life involves and requires risk-taking behaviors to help us walk into the unknown future with some measure of hope and optimism. The sages could not have said it better that no one discovers new ocean unless they have the courage to lose sight of the shore. c. To be an entrepreneur you must be able to identify a "need". This "need" should be "something" that people really want. Fortunately, in Ghana, like in most developing countries, the challenges of economic development present a lot of opportunities for fulfilling the countless needs of the people. Every sector of our society has gaping needs crying for attention. A need can be something new (a new invention) or improving an existing need (that is, finding a more efficient and better way of proving an existing need). The need one wants to provide (the business one wants to start) does not necessarily have to be a huge project. Rather one can start from something small that probably employs 2 or three people, uses simple technologies and build on from there. Contrary to what most of us may think, economic development in most countries including the highly advanced ones, is propelled by small-scale businesses. In the United States for example, well over 90% of all businesses is classified as small-scale. As a labor-abundant country, building labor-intensive businesses has a lot of advantages - not only will it help us survive the global competition, it also helps us meet the employment needs of the country. One does not need state-of-the-art factories to produce the simple things like chocolate, fruit juices, T-shirts and others for which the country has raw materials. One can start with second-hand machinery. d. To be successful in whatever business one plans to do, one must do some background marketing research about the demand for one's product (s). e. In addition, one must do a simple cost-profit analysis of the business. One must be able to have a clear idea about how much it will cost to start the project and to produce the product. One must also have a clear idea about the supply stream of inputs for the uninterrupted provision of the good or service. Besides, one must be able to at least estimate the profit stream of the business. f. Implicit in the above discussion is the need for a business plan that clearly spells out what one wants to produce, how it will be produced, how funds will be raised to start production, the cost-profit analysis, and other related business decisions. g. Then there is the need to identify one's financial strength to determine whether or not one wants to be a sole proprietor of the business. If your financial base is thin and makes it impossible for you to go solo, then you must pool resources together with other people - relatives, friends or people in your neighborhood. You begin this by forming an "investment club" where each club member contributes a set of amount. The advantage of pooling resources together with others is that it lends a large degree of credibility to your business in the search for additional financial resources from the local financial institutions or individual money lenders (venture capitalists).

h. It always helps to seek professional advice about one's business, especially when technicalities are involved.

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