When the increases in the price of petroleum products was announced in January 2003, it was also forecasted that the impact of that increase on the cost of living was not going to exceed 13%. The subsequent Government Budget statement that was read, made certain projections on economic indicators for the year.
In less than 3 months after that budget statement, figures released by the Bank of Ghana pointed out that some of our projections were way off the mark. In fact, government initially disputed the inflation rate of close to 30%. Not even the budget review adjusted inflationary figure of 20% could be attained. We achieved 23%. The annual average inflation for that year of 26.7% remains the highest over the past 6 years!
The impact could have been more significant but for the reason that even in that year, we had good prices for cocoa and gold, and the cocoa harvest was good! It is clear that government underestimated the consequences of that increase.
In the President's state of the nation address, he stated among others that, "Deregulation will free the government budgetary resources, allowing it to cut down on borrowing and to increase allocations to vital social services. It will also allow the private sector to assume the role of a service provider within a well regulated environment."
Even though the President acknowledges there would be initial shocks, any underestimation of the effects of increases in the price of petroleum products can be very disastrous for the economy as a whole. Many industries in Ghana depend on fuel oil as sources of energy for their operations.
These industries are already suffocating under present conditions. Any erratic movements in the prices of their source of energy would surely lead to an accelerated decline in their capacity to face the already strong competition they face from, at times very heavily subsidized, imported substitutes. The textile, and food and beverage sub-sectors of industry readily come to mind.
If government is not careful with how we deregulate, we may end up creating more economic and social dislocations, and end up needing more borrowing rather than a cut down of it, as we envisage. What would be the benefit of a huge foreign reserve if we cannot utilize such reserves to mitigate the drastic effects of a periodic hike in world oil price? Unless of course government is prepared to forego the tax and levies in the price build-up of petroleum products in the event of high prices.
If our industries take a dip, they would lay off workers, they would be unable to increase capacity to recover cost, let alone declare profits. Government would therefore not benefit from taxes that profitability guarantees.
In an open market environment, it would not be difficult at all for the big multilateral companies in the industry to take over the role we expect the private sector to play here.
This is because petroleum imports require very huge foreign exchange capital to engage in. Our local private sector lacks the resource base for this. If even the government of Ghana, with all the goodwill that we have, finds this transaction strangulating, we can imagine how indigenous private businesses would fare.
With American presence in Iraq and the uncertainties in the Middle East in general, it seems we are in for a long period of uncertainties. With the current low levels of the Volta Lake, and its attendant erratic power production capacity, petroleum fuel has also become a major source of power generation.
Government owes it as a responsibility to hold in check factors that are likely to cause disharmony in the economy, as well as ensure that the social cost of policies are mitigated against. Where there are clear signs of danger, we have to stop, look, and listen.
It is our hope that the recent indefinite postponement of the slated public discussion on the deregulation policy is not meant to deny other stakeholders the opportunity to make input to enrich the policy.
Through such a forum, members of the public would also come to appreciate the enormity of the problem confronting us, thereby preventing or minimizing the potential for a backlash in the event of any hyper increase in fuel prices that may arise after such a policy had been effected.