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26.12.2010 Feature Article

PART II OF MODERNISING AND RESTRUCTURING GHANA'S ECONOMY: IDEOLOGY OR PRAGMATIC INNOVATION?

PART II OF MODERNISING AND RESTRUCTURING GHANA'S ECONOMY: IDEOLOGY OR PRAGMATIC INNOVATION?
26.12.2010 LISTEN

PART II OF MODERNISING AND RESTRUCTURING GHANA'S ECONOMY: IDEOLOGY OR PRAGMATIC INNOVATION?

This is the concluding part of a two part article of same title. The earlier article looked at the state's involvement in the economy of Ghana since independence, reviewed the performance of these state owned enterprises, majority of which performed abysmally, and noted the paradigm shift that pushed the structural adjustment programmes and the prevailing acceptance of the market economy as the best preferred form of organising national economic activities. The limitations with the Ghanaian experience is recommended for resolution through a state-facilitated organisation of private individuals to undertake viable business projects in common, as the route to create individual prosperity and national development.

Emerging new opportunities
With Ghana beginning to now exhibit most of the positive characteristics of the early independence period, it is believed that an alternative model for state involvement in the modernisation and restructuring of the Ghanaian economy is needed.

With the fall of communism and the ascendancy of liberal economics as the predominant way of organising a country's economic affairs, the debate about using socialistic frameworks to pursue Ghana's development agenda is mute even if there are still some segments of society that would seek, for nostalgic reasons, relating to their association to the ideas of Nkrumah, for a reversion to state socialism[9]. Active state involvement in the economy has grown out of fashion and historically, has proven ineffectual, despite the ingenious argument by some commentators that the recent nationalisation of private assets in Europe and the United States of America following the financial crisis of 2008 is a reversion to global socialism.

We therefore argue in favour of the modern registered corporation which has since its evolution from the statutory and charter companies of the nineteenth century continued to be one of the most desirable forms of business organisation because of its utility for raising capital from a larger shareholder base, the limited liability it gives to shareholders, and the entrepreneurial spirit it liberates for managers to take business risks.

Just like nineteenth century Europe and United States where the use of the company galvanised successful development of business ventures in telecommunication and transportation, conditions in Ghana are primed for the use of the vehicle of the company to undertake large scale commercial ventures for viable projects that are necessary for the development of Ghana but for which the government is itself unable to undertake.

Considerable savings exist within the Ghanaian society[10], although because of historical conditions relating to the state's disregard for private property most of it is held outside the formal banking system; there is also an overwhelming need for major projects to be initiated to tap Ghana's natural resources as well as utilise the opportunities of its locational advantage; further, innovative technologies pervade to avail business opportunities, with globalisation providing the needed leverage; and Ghana abounds in managerial expertise for all these ventures through its rich stock of human capital, both home and in the diaspora.

As argued by the Law and Development movement, and effectively championed by the international financial institutions in Ghana and several other developing countries, particularly in the 1980s and 1990s, the development of appropriate legal frameworks is necessary if investments are to be attracted into a country. Regrettably this postulation has been interpreted and pursued with a Western law bias.

La Porta et. al. [1998,1999, 2000] have also argued that legal protection for business owners, including shareholders, are crucial in determining whether a market-based economy in which a managerial controlled and dispersed shareholder-owned corporation[11] would develop.

Undoubtedly, the civilian democratic tradition of Ghana and the principles of the 1992 Constitution of the Republic of Ghana provide clear legal frameworks for private businesses to operate, and assures ample confidence about the obligations incumbent upon the State not to expropriate private property.

A new model for state involvement in the economy
It is therefore argued that a new model for the state's involvement in the Ghanaian economy is required, a model we call the Lift and Push model, where rather than attempting to set up industries on its own, or leaving the private sector alone to initiate their own undertakings, the state rather facilitates, through its agents, the promotion of business ventures with mass Ghanaian shareholding.

In a sense the model is not entirely new, for during the government of John Agyekum Kufuor the Ayensu Starch Factory was established along similar lines, under the so-called Presidential Special Initiatives programme, whereby cassava plantation farmers in the central region were assisted to incorporate an entity for the processing of cassava into industrial starch. It was however not systematically developed to provide the needed credibility for it to sustain and it has also suffered some political backlash.

What the Lift and Push model requires is a focus on two key issues.
First, acting under the mandate of article 192 of the 1992 Constitution of the Republic of Ghana, the Ghanaian government should establish a small statutory corporation with a clear mandate for developing strategic and viable business ventures and promoting, solely for Ghanaian subscription, public companies for the purpose of engaging in those projects.

The organisational structure of the statutory corporation should be such that it is given political independence, save the broad directives given in its establishment act only. Consequently, though it might initially be funded from the national budget of Ghana, its organisational structure at the level of the board should be a-governmental. The board could comprise representatives from constituent stakeholders such as those from the investment houses, pension and insurance companies, indigenous business associations, and Ghanaian business experts appointed by an independent search committee. The Chief Executive Officer and senior management should also be a-governmental and should be appointed solely by the board, on a clear-cut competency based criteria.

Secondly, in its operations of promoting new business ventures, the statutory company would need to hem in on areas such as infrastructure development of tolled roads, railways, ports, and airports, within well-established and agreed principles of public private partnerships. But equally important, it would also need to promote value-added industrial platforms like agro-processing ventures such as cocoa, shea butter and starch processing; refining of all of Ghana's gold before exports, and cutting and polishing of diamonds; processing of salt, caustic soda; and, taking advantage of Ghana's new foothold in the oil and gas industry, petro-chemical industries. This should not, however, exclude tie-up ventures that can be established in innovative industries such as electronics, leveraging the advantages of globalisation.

The ventures to be promoted should have clear business plans, showing projected costs for machinery and working capital, break-even analysis, the types of managerial and other technical expertise required, and the expected returns to investing Ghanaian nationals. All pre-incorporation contracts should be minimally done, but letters of intent or memoranda of understanding to secure both domestic and external sales should be worked out. Being in a fiduciary role, the statutory company would need to work in the best interest of the putative company; bearing in mind the national imperatives that have occasioned this policy option.

Indeed, considering the limited market size of Ghana, it would be clear that any of the ventures to be promoted, aside those to be incorporated for infrastructure development in Ghana, would need to have a predominant export orientation that also takes account of the country's competitive advantage attributes such as factor endowment, demand conditions, relating and supporting industries, etc. [Porter, 1990].

The managerial concerns of these putative companies would also need to be addressed, in their articles of association, to ensure that managers work for the benefit of their owners and are mindful of their actions on other stakeholders.

Benefits of the Lift and Push Model
Studies conducted in recent years in developed markets, including the Freedman studies done in the United Kingdom, confirm that small businesses account for the highest number of registered companies and make significant contributions to economic growth and prosperity. It is however argued here that these small businesses thrive because there are opportunities created by larger public companies through forward and backward linkages and the provision of services. Similarly, the creation of these new companies in Ghana would have multiplier effects as smaller companies come up to service their needs. The goal for a modern and diversified economy would therefore be on course.

Also, the creation of these new indigenous companies to exploit business opportunities in Ghana would result in a shift from import consumption to domestic investment, create new jobs and additional employment, improve income levels, and help assure social stability. The experience worldwide suggests that jobs everywhere are best created by companies bottom-up, not top-down by governments.

Further benefits of this model is that whereas in the past private indigenous businesses have suffered at the hands of incumbent governments and have been denied organic growth, these new companies with their wide shareholder base, spread across different political and ethnic lines, would short-circuit the capricious actions of governments as they would be wary and politically incapacitated from interfering with these new businesses with multiple constituents. Ghanaians would therefore once again assume the commanding heights of the economy and the quest for foreign investments, which though useful but problematic, can be reduced.

Lastly, the Lift & Push model, by its mass shareholder base would help overcome the trust deficit constraint which has hamstrung the partnering of Ghanaians in business and has hampered industrial growth in Ghana. It is known that Ghanaians have a trust deficit when it comes to associating with each other for the purpose of undertaking a business in common and as a result most business organisations in the country have been fairly restricted to the sole trader model which by its nature is inefficient for industrial development as it constrains financing for bigger investments and inhibits an appropriate role for outside managerial expertise.

Conclusion
In this essay we have reviewed the historical development and broad performance of state-owned enterprises in Ghana, and drawn the conclusion that they had been unable, with few exceptions in the public utilities like the Volta River Authority and the Electricity Company of Ghana, and commercial enterprises such as the Cocoa Board, make a meaningful difference towards the economic development of Ghana or the achievement of their narrow establishing objectives.

We have also noted the changed global economic situation, which makes the socialist development models unrealistic and proposed a new government-facilitated, but indigenous Ghanaian market driven approach – the Lift and Push model – as a viable alternative to addressing the historical concern of restructuring the Ghanaian economy, both to modernise it, by way of moving away from primary commodity production towards value-added industrialisation, and to make it more resistant to shocks.

It needs to be highlighted that the success of the Lift and Push model – which involves a state facilitated promotion of viable business projects for subscription to Ghanaian nationals – would be successful only if there is a genuine commitment by the initiating government. It would also require close collaboration with the Securities and Exchange Commission, the Registrar of Companies, the Ghana Stock Exchange, investment houses and insurance companies, and interested groups, including the Ghanaian Diaspora.

Like any other businesses in Ghana, however, the success of the new companies to be established under the Lift and Push model would require an enabling business environment, which includes soft frameworks like a stable macro-economic environment, clear legal regime, and an independent and fair judiciary; but also hard frameworks like good infrastructure such as all-weather connecting roads throughout the country and with our neighbours, stable and affordable electricity supply to make production competitive, and a trained technical manpower necessary to work these enterprises.

The opening of tangible market opportunities within West Africa and the wider Africa continent through enhanced regional free trade agreements would also be an obligation incumbent on the government of Ghana if these new companies are to succeed, first, in exporting their products beyond the Ghanaian market, and secondly in establishing manufacturing presence beyond the national territory.

Notes:
[9] In our view, the logical method of reasoning by Nkrumah suggests that were he himself to be alive in this era, he would, consistent with his rational and logical way of thinking, opt for a different way of pursuing his agenda for a modernised economy and model for national development in Ghana within a globalised liberal framework.

[10] The success achieved by the SCANCON Ghana Limited, operators of Spacefon mobile telephony, within a spate of about five years, when assets they acquired in Ghana for US$500,000 were disposed off for US$5.5 billion to MTN and they was well as their ability to offer the government of Ghana financial assistance in the sum of US$20 million for improvements to water distribution systems, is demonstrative of the internal mobilization capacity in Ghana.

[11] This is known as the Berle and Means Corporation, so named after Adolf A. Berle and G.C. Means following their 1932 critique to the theory of corporate realism: The Modern Corporation and Private Property, which made two significant observations about corporations in the United States at that time – that ownership was dispersed and managers were largely unaccountable which could be harmful to society. Other works such as E.M Dodd's For Whom are Corporate Managers Trustee? have equally brought into focus the interests of stakeholders such as employees, customers and the public, while the work of economic theorists such as Marris, Williamson and Baumol have provided focus on the managerial factors internal to the firm as against early neo-liberalist who studied the firm from the market level only.

Harold Agyeman, Antoa
----end of part II and conclusion of article----

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