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24.02.2005 Feature Article

It Is Time To Get Real

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In the week President John Agyekum Kufuor submitted a laundry list of 53 ministerial nominations to parliament for vetting in addition to the already approved list of 35, the government announced a 50 percent hike in the price of petrol.

From an already expensive retail price of $2.75 even according to standards in the developed world petrol now sells at a whopping $3.50 whereas it sells at $1.90 or less depending on where you live in the United States of America and Europe.

My immediate reaction to this recent fuel increases in Ghana and the whole business of deregulation in the fuel industry has been one of profound ambivalence. Paying almost $3.50 for a gallon of petrol in a country ranked among the poorest in the world was certainly not the idea that came to mind as I considered President Kufuor's “its time to bite the bullet” comment in retrospect.

To some degree I saw the sense in the decision to raise petrol prices to reflect the scenario on the international oil market arena and to that extent a very marginal adjustment in the price would have compensated for that. For some reason I have felt a strong attraction to the wisdom in opening up the fuel industry to private companies who experience have shown are better and efficient managers than state-owned institutions.

On the other stroke thinking about the impact the process of deregulation would have on so called “ordinary people” sends shivers down my spine and makes me more wary about what the future holds for Ghanaians.

The classic examples of Enron, WorldCom, Tyco etc where inordinate greed drove company executives to fiddle with their books in order to present a much sanitized, wholesome establishment to its shareholders and later sold off their stocks, costing several thousands of people their life pensions ought to be the moderating factor for all stakeholders in the deregulation process.

PROS AND CONS OF DEREGULATION

I have heard all the arguments for and against deregulation and they appear very convincing to the ears and appealing to the eyes.

Those in favor of deregulation assert that the oil industry as it stands now in almost belly up and is in need of massive injection of capital-capital which the government does not have or to put mildly would not want to spend due to competing demands.

Their argument is that the only way cash inflows into that industry could be guaranteed and assured is when individual companies are licensed to buy oil directly from the oil market and sell directly to the public as is the situation in several developed countries and even in some countries in Africa. This situation frees up money that government would have likewise used to subsidise the cost of petrol for other areas of national development.

This argument was basically what the Minister of Finance, Kwadwo Baah-Wiredu made when he announced the price hike in the cost of petrol last week.

He argued that government was going to use the subsidies, normally intended to cover a part of the cost of petrol to fund free primary education in the public sector. Sounds convincing, huh? Wait till you hear what the other side is saying.

Those in opposition to deregulation warn about the impact it would have on Ghana's fragile economy. While most widely diversified economies could stand the shocks presented by the unpredictable dynamics of the international oil market, the same cannot be said of Ghana. They contend that people in these parts of the world are relatively more productive than us and would do anything possible to maintain the lifestyles they have become accustomed to. If you raise the price of petrol to whatever amount it might have an effect in the short term but generally speaking it would blow over in the long term because their economies have been built to withstand and absorb these kinds of shock. Unfortunately the same cannot be said of our economy. The Ghanaian economy can manage to pull through from shocks coming from poor performance on the international gold and cocoa markets but that is to the excludability of the oil market.

The scenario where oil prices go through the roof on the international markets (which is very likely due to the unpredictability of the markets) could have a devastating effect on our economy and could take several years for the economy to grow back especially after it has been hit very hard.

Moses Asaga of the opposition National Democratic Congress (NDC) has cautioned against rushing the process. Most colleagues I reached over to in the days leading to the decision point chanted the same chorus.

At the way we are moving, it appears we are more focused on the compelling factors being the changes in international oil prices, pressure from the World Bank to get rid of subsidies etc instead of the moderating factors including the possibilities of creating an Enron-like monster in our neck of the woods and at worst crashing our burgeoning economy.

Capitalism is good but it could be cruel and heartless in more ways than one could fathom. That is why we have to tread cautiously and learn to take baby steps instead of huge, emboldening ones that could lead to more problems. The standpoint of the Kufuor administration has been fashioned by a policy to please the World Bank at all costs. At the heart of this conundrum is the issue of subsidies.

The World Bank is so diametrically opposed to the issue of subsidies in the developing world while closing its eye to a more systemic and atrocious abuse of subsidies in developed countries.

Subsidies in so-called third world economies are our way of creating safety nets for the poor and the have-nots in our society just like affirmative action, disability, welfare, food stamps, collecting unemployment stipends etc is in the developed world.

Life is relatively normal in a society with safety nets. It is like teaching a child how to ride a bicycle-you need training wheels. A day would come the child would not need the training wheels anymore. But until that day comes (and they do) they would need the training wheels to get through the day. This is how subsidies work in our neck of the woods. Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

Paa Kwesi Plange
Paa Kwesi Plange, © 2005

The author has 46 publications published on Modern Ghana. Column Page: PaaKwesiPlange

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