modernghana logo

FEATURED STORY Gov't Imposes Tax On Luxury Vehicle...

13 January 2017 | Feature Article

The NPP's Invisible Forces, Unemployment and the need for an Economy that works for all

The Private Sector needs a bold support from the state
The Private Sector needs a bold support from the state

There are many ways to explain the ongoing disturbances associated with the so-called NPP's Invisible Forces. One key explanation however is the lack of jobs for the youth who see the victory of the NPP as an opportunity to secure themselves the long-denied livelihood. Why will confisticate toilets, toll booths etc if they have gainful employment? Why will people takeover offices if they have employment security themselves?

But to understand the current crisis one needs to understand the way the Ghanaian economy has been structured and particularly the role of the private sector and the government in the economy.

Since the elevation of the private sector as the leading economic actor, engine of growth, and industrialization in 1983, the Ghanaian state/government has retreated almost entirely from the economy. The state's retreat has been both good and bad. One negative consequence is that the private sector has been left to the vagaries of the global economic weather. The private sector is very weak and needs government support to play the role assigned to it. But that support has not been forthcoming leading to Ghana committing economic suicide.

Consider the textile industry for example. Over the last decade, many of the textile firms in Ghana have folded up due to competition from China. The production of textile products from China however is heavily subsidised. Again consider the agriculture sector. European and American farmers receive billion of dollars in subsidies from their governments while the farmers in Ghana receive little to no benefits at all. In other words, while Ghana's competitors receive help from their governments to compete in the global market, businesses in Ghana do not receive such help. Given the competition, the firms and businesses in Ghana are not able to raise productivity, increase profits, expand and employ more hands.

Ghana has not been protecting its weak industries from foreign competition. For example the Kantanka automaker is competing with the well-established automakers like Toyota, GM, Mitsubishi, Kia, Hyundai, VW, BMW, Range Rover etc. If this continues, the results will be very catastrophic. Most of these foreign companies have reached their current enviable or elevated position because they received massive doses of subsidies from their governments and also received direct support from the state in the form of tariffs, quotas, export subsidies and subsidised credits, technologies, and training of the work force.

A country like Ghana with low productivity requires low interest rate to stimulate investment and high interest rates to encourage people to save. If interest rates (the cost of borrowing) is too high, it makes it unattractive for businesses to borrow to invest. And this has been a major problem facing the private sector. If Nana Addo wants the private sector to become the engine of economic growth and wealth creation then he must work to reduce the cost of borrowing (interest rate) which currently stands at 26-32%. At the same time if the price of capital (interest rate) is low it doesn't induce people to save but saving is crucial in the industrialisation process because it is the basis for capital formation and a precondition for banks to lend to businesses. At the same time if he wants the economy to grow then he must encourage people to save money so the banks can lend. However, people will not save their money if interest paid on it is low. Nana Addo's government must work with banks to increase the interest they pay to people with savings to encourage people to save more.

Ghana must strike a balance between an undervalued exchange rate and overvalued exchange rate. On one hand Ghana needs an undervalued exchange rate to boost exports, on the other hand Ghana needs an overvalued exchange rate to minimise the cost of importing technologies, raw materials (e.g. oil and gas), intermediate and capital goods and for foreign debt repayment.

Unemployment in Ghana will remain high so far as the private sector is not able to borrow at a cheaper cost or export at lower exchange rate or import at a higher exchange rate. The private sector needs support from the state and that support must be robust, direct and tangible.

Disclaimer: "The views/contents expressed in this article are the sole responsibility of Lord Aikins Adusei and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."

Author: Lord Aikins Adusei
Stories: 120 Publication(s)
Column: LordAikinsAdusei

quot-img-1There is no distance in the spirit realm.

By: Jonathan Hayfron-Ben quot-img-1