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22.10.2010 Feature Article

Ghana and the IMF/World Bank: Dr. Kwame Osei

Ghana and the IMF/World Bank:  Dr. Kwame Osei
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Readers will know that I have been a vehement critic of the International Monetary Fund (IMF)/World Bank and how the policies that they have prescribed to Ghana have created the socio-economic problems that plague the country.

This latest feature is in response to a recent article in another publication that stated that Ghanaians are under-taxed and that the government should not be encouraged to borrow more money.

These were the assertions made by a delegation from the World Bank/IMF who were in the country recently to assess Ghana's economic performance.

The first assertion made by the team is that Ghana is under taxed. Before we take this assertion head on let me first provide a history lesson for the readership.

As an Afrikan historian one of my teachers told me that “of all of our studies history is best qualified to reward our research.” This in essence means that if you want to know how a current situation has been created, one needs to go back in history in order to establish the genesis of that situation.

Therefore before the IMF/World Bank began to dictate Ghana's economic path in the aftermath of the coup of 24 February 1966, Ghana had

1. Full employment.
2. The best education system in Afrika that was 100% free.

3. The best healthcare system in Afrika that was also 100% free.

4. A thriving agricultural industry in that Ghana could feed itself and was a net exporter of food.

5. A strong manufacturing base that was producing amongst others TV sets and radio's for sale to both the internal and external market(s).

6. Constant and reliable supply of both electricity and water.

7. A thriving textile industry.
8. A gold factory at Prestea that was near completion whereby Ghana could process the gold mined into value added goods like gold rings, gold chains etc.

9. A first class transportation system.
10. An economy that was virtually self-reliant.
Today as a result of over 40 years of advice and following the dictates of the IMF/World Bank Ghana now

1. Has mass unemployment especially youth unemployment with figures as high as 70% youth unemployment in the North (Northern, Upper East and Upper West regions). This mass unemployment is compounded by the thousands of graduates who leave the Universities each year with no chance of securing real meaningful employment after their studies.

2. Has its once envied education system in shambles with poor quality education, poorly paid and de-motivated teachers, dilapidated classrooms and a system that is too Euro-centric coupled with the childish row as to whether the SHS should be either three or four years.

3. Has a healthcare system that was once the pride of Afrika now in disarray with poor facilities, poorly paid and over worked doctors and nurses, and crumbling infrastructure.

4. Has an agricultural base that is not producing enough food to feed its growing population and is now a net importer of food that is bad for the economy. A case in point being that Ghana which has an abundance of land for rice cultivation is actually importing up to US$500 million of rice every year – meaning that each year US$500 million goes out of our economy to feed someone else's economy and in the process giving them jobs that could have been secured for Ghanaians.

5. Has a weak manufacturing base that is struggling to compete effectively because of neglect, high tariffs, high costs of doing business and unfair competition from the likes of China.

6. Has erratic water and electricity supply that is acute in the capital, the rural communities and Northern Ghana.

7. Has a textile industry on the verge of collapse due to lack of sustainable investment and unfair competition from China.

8. Has a situation that the near completed Gold factory at Prestea is now under a sea of bushes and insects and the gold that is mined on our land leaves the shores of this country and is processed in western countries that then make value added goods and send them back to us at exorbitant prices.

9. Has a transportation system that is in a mess and not coordinated which as a result has created traffic grid locks in the capital and other provincial cities in the country.

10. Has an economy that is dependent on primarily the west, with China now playing a key role, is privy to external shocks like the global financial crisis and has created a situation where our governments are going round the world begging for money.

Now let us deal with the first assertion made by the IMF/World Bank team that recently visited Ghana. Ghanaians are under-taxed – I find this assertion absolutely outrageous and scandalous to say the least. Ghanaians when one thinks about the meager wages they get are taxed heavily indeed.

The ordinary Ghanaian citizen is taxed to the hilt – this manifests itself in paying school fees, Medicare (this despite the noises about free education and the NHIS), increases in road tolls, road tax, business taxation in the form of company registration, pays over the top for poor cell phone communications, increases in local gin, increases in rents, increases in utility bills etc – even the poor market women at places like Makola in Accra and Kejetia in Kumasi pay taxes to the likes of AMA and KMA who provide a poor service to the community they claim to be serving.

Therefore it is absolutely preposterous for the IMF/World Bank team to be claiming that Ghanaians are under-taxed, on the contrary Ghanaians are OVER TAXED. One gets the impression that the reason for this suggestion that Ghanaians are under-taxed is that government does not get enough revenue from taxes be they direct taxation or indirect taxation.

The reason for this is that firstly our tax collection systems are ineffective in that those who should be paying taxes are either not paying the right amount of taxes or that especially in the case of the wealthy because they have good accountants are cheating the system by tax evasion.

This results in a situation whereby the wealthy are paying too little taxes whilst the poor are paying by comparison too much tax.

Again Ghana is losing revenue in taxation as a result of some of the multi-national companies operating in this country either paying NO tax to the government or paying very little tax.

An example is Vodafone Ghana – when they acquired Ghana Telecom (GT) for a pittance, the Sales Purchase Agreement (SPA) states that Vodafone enjoys a tax holiday of up to five (5) years. What this means in reality is that Vodafone DOES NOT pay the government of Ghana any tax!!!

These multi-national companies operating in Ghana are making billions of US dollars a year in profits so it is totally unacceptable that they are not paying the right amount of taxes and they con the Ghanaian public by giving in essence what is small change to support so-called social/corporate responsibility projects.

Government must therefore be robust in its dealings with these multi-national companies to ensure they pay the right amount of taxes to the government and by extension the people of Ghana and fulfill their moral and ethical responsibility rather than trying to rip-off the government and the people of Ghana.

This is the strategy the government must and should pursue rather than listening to the flawed 'advice' of the IMF/World Bank and further taxing the already over-taxed Ghanaian.

The second claim or 'advice' made by the IMF/World Bank team was that government should be discouraged from borrowing more money.

For once the IMF/World Bank have made a suggestion that I in principle actually agree with which I also think is prudent. There have been noises made in some quarters that the recent trip to China and Japan made by the president that has resulted in Ghana being the recipient of billions of US dollars is a good thing.

I do not necessarily subscribe to this view. It could be viewed that the country will be receiving much needed financial support which we would have had anyway if Europeans and Arabs did not cheat us of proper income via our gold, timber and oil but what those who are rejoicing about this support and more importantly what media practitioners and commentators as a whole are NOT imparting to the people of Ghana is that what are the Chinese and Japanese getting in return for supposedly giving us this colossal amount of money?

As I said in a previous article that there is no such thing as a free lunch and that there are conditionality's and/or terms, clauses that are stipulated into these agreements with the Chinese and Japanese.

As Yofi Grant, an executive director of investment bank, Databank said “China doesn't just give away money. What they're really saying is we'll get a Chinese company to come and do a project for some amount”.

This is what government is not telling the people of Ghana and making people wrongly assume that it is game, set and match to Ghana. However reading between the lines and underneath the lines, there will be certain criteria that government has already committed itself into getting this financial support from the Chinese and Japanese.

Such criteria could be that more cheap Chinese goods flood the Ghanaian market – this is already bad as cheap Chinese goods have over-flooded the Ghanaian market, creating a situation that Ghanaians cannot compete and in some cases are forced out of business as a result – for example talk to Ghanaian traders in Makola market and they will tell you stories of how these cheap Chinese goods has affected their business.

Secondly more Chinese labour will be used to build our roads, schools etc – witness the increasing numbers of Chinese labourers, some of them ex-prisoners, who are engaged in working on the various construction projects in Accra, Kumasi, Takoradi and so forth.

To buttress the above points, Ghana has signed an agreement valued at US$1.2 billion with Chinese firm, Bosai Minerals Group to build a bauxite and aluminum refinery in Ghana over a four year period according to Chinese state run Xinhua news agency.

The deal means that the Chinese firm apart from bringing in their own people and materials to build the refinery will also be in the position to purchase 80% of the shares in Ghana Bauxite Company and also one would imagine get bauxite and aluminum either free or at extremely knock down prices, indicating a win, win situation for China.

This means that work that should be going to the average Ghanaian, thus reducing the massive unemployment queues, being given to Chinese migrant labour who earn more in Ghana than they would do in China.

Thirdly it would mean that the Chinese will be able to use their own materials rather than local materials for the construction of these projects.

In the case of the Japanese again the criteria for getting their financial support would mean that Japanese people would be getting jobs via the Japan International Cooperation Agency (JICA) to provide so-called technical assistance to Ghana.

Again it could mean that Japanese goods flood the Ghanaian market which would have its own implications adding to the massive importation bill and putting Ghanaian jobs at risk.

The above should inform the readership that borrowing money is not necessarily a good thing as there are anomalies at play that could have implications for the country.

Another reason why I am against borrowing too much money in principle is that the Ghanaian taxpayer will have to pay for this in the form of higher taxes in many guises in order to give the government the revenue that it needs in order to pay off the loan.

This implies that future generations will have to pay for this putting an unnecessary strain on them.

Another consequence of borrowing too much is the effect this can have on balancing the budget and some of the social effects of this. As we have seen in the West, over borrowing and economic mis-management from the likes of Greece and how this money was spent meant that the Greek economy became bankrupt which led to a situation that the IMF/World Bank had to bail out Greece with the whopping amount of US$146 billion.

Likewise over borrowing in many European economies like the UK, that has a national debt of over 1 Trillion Pounds Sterling, Germany and Spain has led to a situation where their economies went into deep recession as their expenditure far exceeded their income and as a result of this has created huge budget deficits in the European Union (EU).

Therefore in order to deal with this huge budget deficit, the likes of the UK and Germany are embarking on massive austerity measures in some cases cutting core public sector services by up to 40% and this has created a social time bomb in that the public in the EU are going to have to make big sacrifices just because their political leadership decided to borrow for today and not think of tomorrow.

The effect of this is that just recently there were public demonstrations all over the EU protesting against the severity of these austerity measures across the EU with trade unions warning of more massive unemployment if these austerity measures are not put in check.

Similarly in the US where because of over borrowing the budget deficit is over US$1.5 Trillion and as a result has seen record numbers of bankruptcies with unemployment in the US hitting unprecedented highs.

The above is a situation that we want to avoid in Ghana, where we over borrow and are not able to plan strategically enough and end up being in huge debt and causing unnecessary hardships for the people of Ghana.

Our political leadership must be astute enough to make bold decisions that are in the national interest and believe in their ability to make decisions based upon our social and cultural reality and politely ignore advice from the very same institution that has crippled the economy of Ghana - in essence it is high time we begin to think for ourselves and chart our own destiny if political independence means anything at all.

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