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“Ghana must still prioritize agriculture…” – Edward Kareweh

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An in-depth look at the sector’s economic role in the past, present and future with Agricultural Economist and General Secretary of the General Agricultural Workers Union, Edward Kareweh.

I t is an undeniable fact that agriculture plays a vital role in any economy as increased agricultural productivity tends to boost overall growth by way of job creation, foreign exchange etc. – due to its extensive value chain.

According to the Inter-American Institute for Cooperation on Agriculture (IICA), one way of visualizing the contribution of agriculture to development is by measuring forward linkages with other sectors of the economy. Forward linkages mean economic activity generated beyond the farm as products move along the supply chain to final consumers.

In the case of Jamaica, for every dollar generated on the farm, 55 cents goes directly to primary consumption, in a sense, missing opportunities along the supply chain to add more value. Only 16 cents per dollar goes to the processed food sector, 12 cents to hotels and restaurants while 9 cents per dollar is exported.

A similar exercise, IICA says can be done with backward linkages or the valued added generated in sectors that served as the source of inputs and services for agriculture (chemicals, transportation, financial sector etc.). For a developing country like Ghana looking to transform its economy on the back of an umbrella policy dubbed “Ghana Beyond Aid”, agriculture has been singled out as key.

It begs the question, how best could agriculture drive this especially against the backdrop of the continuous decline in its contribution to GDP in recent years? For some answers the Vaultz Magazine engaged Agricultural Economist, Edward Kareweh who doubles as the General Secretary of the General Agricultural Workers Union (GAWU) of the Trades Union Congress (TUC), Ghana.

AGRICULTURE AS A TOOL FOR  JOB CREATION

Agriculture in Ghana has over the years been undertaken mainly by rural folk as a subsistence activity rather than a commercial venture – despite being the backbone of the economy for years.

The sector has, thus, been unattractive to especially the educated youth who could apply their academic knowledge to boost productivity. The Agricultural Economist believes this trend could be reversed to help reduce the high unemployment levels in the country if government makes agriculture attractive as a business by way of policies.

“The young men and women are so intelligent and know what they want. You can’t force them into agriculture. Just ensure there is good market for agricultural produce whilst creating a conducive environment for people to venture into agriculture. Agriculture provides jobs for all including even the lowlevel labor force.

Ghana has a very young population that are largely unskilled. So to get jobs for such persons, agriculture is critical and that’s why agriculture remains important in all economies aside from providing raw materials, food etc.” he stated.

We are mismanaging our lands. The arable lands are reducing and falling in the hands of estate developers.

As in any other endeavor, human capital is critical in growing the sector – prompting calls for recruitment of more extension officers. Currently, the extension officer to farmer ratio is 1:1500 – compared with 1:500 standard by the Food and Agricultural Organization (FAO).

In a bid to bridge the gap, the current government in 2017 lifted the ban on employment of extension officers – recruiting approximately 3,000 more to support the Planting for Food and Jobs programme.

AGRICULTURE FOR ECONOMIC TRANSFORMATION

According to Mr. Kareweh, for a developing country like Ghana also seeking to put its economy on a higher pedestal, the role of agriculture is non-negotiable. “Even in developed economies like Europe and America still spend billions to subsidize agriculture because they deem it critical.

For a developing economy, agriculture is almost everything because it provides not only employment but also the raw materials for industries. Agriculture is therefore critical because, if you spend 1 dollar in agriculture, the proportional return is far higher than spending it in other sectors of the economy,” he revealed.

He therefore wants government to exploit this potential by first establishing a broader national economic development plan which clearly spells out the role of agriculture. “Because Ghana is already largely an agrarian economy, we should use agriculture as the foundation of development.

Other developing countries that are largely oil producing countries may want to use oil. Even though Ghana is now also an oil producing country, our comparative advantage is in agriculture and not oil because we have the natural factors like climate and good soils we can leverage,” he explained.

Mr. Kareweh however insists, this is still insufficient. “Let me give you the present statistics. According to the ministry itself, over 80% of the about 3000 existing extension officers have just about 3 years to go on retirement. The new recruitments are therefore certainly not a bad start but still not enough.

If you look at the magnitude of the problem, then, it’s just a drop in the ocean,” he stated. “Also, these new-recruits are not actually officers as they were picked from the Youth Employment Agency (YEA) and so may not be able to play the role properly because of lack of experience and motivation as they don’t have the same conditions of service like the real extension officers.

It’s also like a stop gap measure for the Planting for Food and Jobs transition – not fully integrated into the ministry” he revealed. “Again, we have to rethink agriculture all together. Without seeking to suggest that other sectors like health and education do not deserve the treatment that government is giving them today, it only points to the fact that government’s attention is more on those sectors than on agriculture.

For instance, nurses are not only seen as professionals but allowances for their undergraduates have also been restored. We have just a few agricultural institutions in this country with a small student population yet without any such subsidies or allowances.

Also, graduates from agricultural institutions have no automatic employment unlike their counterparts in the education and health sectors. But if you see the agricultural sector as the backbone of the economy, it will reflect in the policy direction because if you go and employ YEA recruits and give them a package that is not good enough, then you certainly are not encouraging them to go into agriculture,” he added.

Land is another factor critical for increased agricultural productivity. Mr. Kawereh is worried some recent economic developments are negatively affecting land availability for agricultural production which requires immediate policy intervention.

“We are mismanaging our lands. The arable lands are reducing and falling in the hands of estate developers. Now, it is difficult to get a stretch of a thousand hectares of land without a house or two in between. For example drive on the Cape Coast stretch and see.

Yes, we need houses to live in but it’s not every land that we should use for estate development. The soil fertility is not the same, so we should, as a country differentiate between lands for agricultural purposes and that for estate development.

In the next 10 years if there are no lands but fantastic policies, what are you going to do? Are you going to grow the crops in the space? Mr. Kareweh questioned. The GAWU General Secretary also lamented how small scale mining is also gradually taking over farmlands and dreads the threat it poses to agriculture. “It is a very serious situation.

The cost of even reclaiming the land is so huge that we should have even been using that money to create jobs. Cocoa lands are also even being sold for mining. The way forward is to sustain the anti-galamsey campaign while enhancing legislation with more punitive measures.

It is also a multifaceted area which requires a concerted approach to effectively address,” he emphasized.

AGRICULTURE’S CONTRIBUTION TO GDP

Notwithstanding its economic potential, Agriculture has been declining in the last few years – consequently losing to the services sector its position, as the highest contributor to the country’s GDP.

The Agricultural Economist however describes this as expected – explaining that, once an economy develops, agriculture’s contribution to GDP is also anticipated to decrease for industry to take over and spearhead economic growth.

According to him, agriculture losing its status as the highest contributor to GDP should therefore not necessarily be of concern as opposed to what caused it. “Unfortunately the decline has not been because we are now processing more or industry is growing.

When you have the forward and backward linkages well integrated, agriculture will decline and even offload its labour force to industry which will invariably then grow. So, you have that organic relationship which is good. For a resource-rich country like Ghana, this should have been the normal trajectory compared with another country not endowed with resources and therefore can allow the services sectors to lead growth.

So in our case it’s an abnormality and need to try and correct it,” he explained. He blames the anomaly on reduced investment in agriculture and promotion of imports. “Banking, insurance and other financial services are offering their loans and services to importers rather than producers because of the decline in local manufacturing.

The warehouses that have historically stored products from the domestic factories have been sold out and turned into churches as witnessed at North Kaneshie here in Accra. The remaining few too no longer house domestic goods but imported ones. It tells you that we are not producing to fill them.

This is not by accident. The 1980 Economic Recovery Programme and the 1990 Structural Adjustment Programme which were hailed by the World Bank and others fundamentally made us liberalize the economy to cause these,” he averred. He however disagrees with suggestions that the services sector over-taking agriculture in terms of contribution to the GDP disproves the pivotal role agriculture has been hailed to play in economies.

“This gives impetuous to advocates of the services sector to call for more investments in that sector at the expense of agric. But the difference here is that, the growth in the services sector hasn’t created the type and number of jobs required.

The movement from the rural to urban areas and the social vices witnessed in our cities today are all because these people have come to look for jobs. So the argument is that, take the jobs to them where they are. That is what agriculture can do but services doesn’t necessarily because it is concentrated in urban areas,” he emphasized.

The Agricultural Economist maintains, Ghana thus has no option but to still prioritize agriculture as the foundation of the economy. “As things stand now, we have no choice than to look at agriculture as backbone of the economy and that is why government’s focus on agriculture is commendable. The only option for us today, is to use agriculture to build industry and stabilize our economy,” he noted.

NEED FOR A PARADIGM SHIFT

Successive governments have over the years rolled out several policies to boost the agriculture sector. Many industry watchers however believe even though some of the policies have yielded positive results they have yet to make the desired economic impact.

Despite implementation of such policies over the years, agriculture continues to decline in terms of its contribution to GDP – which the services sector currently leads. This, many industry watchers believe is only a reflection of the lack of consistent well-coordinated policies and investments for the agriculture sector.

According to the General Secretary of GAWU, the longstanding woes of the sector are as a result of not only the lack of adequate policies but the failure to implement existing policies to the letter. “The policies as they stand are very good, the implementation is what Ghana needs to work on for the desired results.

So, we need an attitudinal change in how we also develop and implement the policies – which has largely been at the corridors of public officials. We need to also look for experts who can contribute significantly to policy development” he advised. “We also need to improve on policy governance and coordination so that people can own and integrate the policies in their lives rather than feel they have been imposed on them.

That is, the policies over the period have been largely top-down driven – prepared by government and imposed on the actors. But policy makers must consider the farmers as well because they know their system, challenges and priorities better” he added.

PLANTING FOR FOOD AND JOBS POLICY – A CASE IN POINT

The Planting for Food and Job Campaign is a five (5) year policy introduced by the current government to turn around the declining fortunes of the agriculture sector. Launched in April 2017, the policy involves an investment of 125 million Canadian dollars in improved seeds and extension services for farmers of five (5) main crops including maize, rice, sorghum, soybeans and vegetables.

According to the Minister for Food and Agriculture, Dr. Owusu Afriyie Akoto, the programme in its first year of implementation produced a total crop value of GH¢1.2 billion whilst creating a total of 745,000 jobs, mainly in the rural economy.

This, he attributed to the use of labour, improved seeds and fertilisers combined with increased extension service delivery in the production of an additional 485,000 MT of maize; 179,000 MT of rice; and 45,200 MT of vegetables. The initiative at its initial stage of implementation however had its fair share of challenges like farmers clashing with government over the repayment terms for the subsidized inputs.

A number of stakeholder groups like the Institute of Statistical, Social and Economic Research (ISSER) and the Peasant Farmers Association of Ghana (P-FAG) also expressed dismay over the lack of stakeholder engagement in the rollout among other concerns. Edward Kareweh says the implementation has been largely successful by far but not without the usual challenges associated with such policies.

According to him, the initiative may not yield the desired results unless the challenges are comprehensively addressed with a holistic policy framework. “You can’t use the Planting for Food and Jobs policy alone to transform the country’s agricultural sector.

The policy as it stands targets only the crop sub-sector at the expense of other sub-sectors. The good and important part however is that, it’s targeting the largest subsector which means it is going to reduce poverty. But that is not enough.

For instance, if you take cash crops like oil palm, cocoa and rubber, how would the programme boost their production? The relationship is not much,” he bemoaned.

THE WAY FORWARD

According to the Agricultural Economist, creating deliberate linkages between the Planting for Food and Jobs programme and livestock production is key.

“Such a link does not come automatically but must be deliberately created and nurtured. The policy does not have such deliberate linkages and that’s why while the Minister for Agriculture is saying that the programme has resulted in a bumper harvest, poultry producers are also crying that maize is not only scarce but expensive on the market.

If we’ve had a bumper harvest of maize, how come the price of the crop is going up instead of coming down,” he lamented. Mr. Kareweh insists market forces are largely accounting for this disparity and only targeted policies could address the situation. “It is all about demand and supply. In Ghana, we don’t have stable prices.

But such developments can be controlled with policy.” he said. He adds that such linkages when properly established would not only create a ready market for the crop farmers but also boost production in the other subsectors and ultimately help address some of the major constraints of agricultural production in Ghana.

“We must ensure that once we increase production, a part of it is deliberately allocated to other sub-sectors. For instance we should link the programme with the poultry industry so that they can tell the farmers what type and quantity of maize should be produced to prevent over production whereby it would go waste to affect the fortunes of the farmers,” he disclosed. “One of the major challenges with the agricultural sector is that, it’s difficult to predict the market; you don’t know who is producing what.

So we need to reorganize the agricultural sector in such a way that we can have data to say how much will be coming from which particular ecological zone and so on. We can then ascertain which market we are sending that produce. Because, remember agricultural produce are bulky and perishable so the market must be close to the producer in order to reduce postharvest losses which has been another bane of the sector’s growth as up to 35%, in some cases 60%, of produce go waste,” he said.

The General Secretary of GAWU however insists though welcoming, the Planting for Food and Jobs programme is not necessarily the panacea for the agricultural sector’s woes – adding that its sustainability too will depend on a number of factors. “Sustainability will come in a number of ways.

If government’s commitment to provide resources and on time continues into the future, then that part of sustainability is guaranteed. Beyond that, government will have to also look for other funding sources as the project expands.

For example, last year the project was only targeting 200,000 farmers and in 2018 it’s targeting 500,000 farmers and that means resource allocation will have to be more than double. So government will have to find other funding avenues to create that sustainability,” he advised.

INVESTMENT IN RESEARCH AND TECHNOLOGY

Edward Kareweh is of the view that Ghana is making steady progress in terms of adoption of technology in agriculture but more needs to be done to boost policy implementation. “You can see that we are beginning to accept the fact that technology is critical for the sector.

For instance, we’re now using the electronic systems to register and create database of farmers under the Planting for Food and Jobs programme” “Following implementation diligently to the end is not going to be done by human discretion alone.

Technology will make those given that responsibility efficient, ensure they don’t circumvent the system and also ensure the inputs are utilized the way they are supposed to be,” he noted.

Research is also key in finding for solutions to challenges that have bedeviled the sector for years. “Research is a continuous activity. What we have seen over the period is that we have not actually utilized the many agricultural research findings by the research institutions. For instance, they have developed many varieties of crops and so on but yet to be implemented,” he revealed.

AGRICULTURE AND “GHANA BEYOND AID”

The current government’s “Ghana Beyond Aid” agenda towards economic growth has made agriculture development even more crucial. Government has in this light reiterated its commitment to revolutionize agriculture by way of policies directly linked to agro processing. Mr. Kareweh describes the agenda as only a clarion call for massive development of the agriculture sector through stronger synergies between the government and the private sector.

“The agenda is crucial for economic development even though many still don’t know its parameters. Agriculture is mainly a private sector business with farmers as the main drivers. So once we’ve initiated a programme like the One-District, OneFactory which is to be largely private-sector driven, the factories could be given some tax exemptions, concessions and facilities to efficiently produce and compete with the imports” “Government must also help in the search for foreign markets for the domestic producers – that’s why it has diplomatic missions in other countries.

So, that burden is taken off the domestic producers before it unduly increases their costs and ends up shooting the price of their products up and making them uncompetitive against imported products”. He also impressed on government, the need to institute countervailing measures to deal with trade policy implementation undermining domestic production.

“Our trade policies are supposed to enhance domestic and industrial production. It is only when you cannot produce a particular commodity sufficiently or at all that you import. But if imports become the main source of supply when you have the potential to produce then it becomes a challenge” “If you talk about rice, there’s so much cheap imports in this country.

So, even if you increase local rice production you won’t get the market. If you produce rice in Ghana, it’s supposed to be cheaper but it becomes otherwise because you still need to mill it, bag it, process it and advertise it and all that is additional cost.

If you are not efficient in all these, you will be crowded out in the market because the cheap import come well packaged and also well-advertised. It’s not about just producing something that is good but also marketing around the world,” he concluded.

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Business Interview

Recapitalization– The panacea to the woes of Ghana’s insurance market? – Mr. Justice Yaw Ofori -Commissioner of Insurance, Ghana

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In a bid to ensure a robust Ghanaian insurance industry, the National Insurance Commission, NIC, has initiated moves towards recapitalization. The initiative, yet to be officially announced, involves a planned increase in the Minimum Capital Requirement (MCR) for insurance and re-insurance companies by over three (3) fold. The industry regulator has engaged stakeholders to ensure smooth implementation of the exercise which has seen financial analysts draw a parallel with that witnessed in the banking industry last year.

This has prompted questions- some comparative analysis with the banking one as well as questions about its economic significance. The Insurance Commissioner, Justice Yaw Ofori, in an interview with the Vaultz Magazine, gave a detailed explanation of the exercise.

 

State of the Ghanaian insurance sector

Ghana’s insurance industry has in recent years witnessed a significant growth especially in terms of the number of new entrants recorded. The industry however continues to record low insurance penetration which still hovers around 3%.

The Insurance Commissioner believes this among other issues highlight the need for the industry recapitalization.

I would say Ghana’s insurance industry is strong despite the challenges with respect to recapitalization. The market is still virgin and there are a lot of areas which are untapped and that is why we see foreign companies coming into Ghana to do business. The oil sector is booming and so is agriculture as well as inclusive insurance and all we need to do is to make sure companies are well capitalized so far as they want to operate in Ghana” Mr. Ofori stated.

According to the NIC’s annual report, Return on Equity (ROE) for insurance companies has consistently been less than the corresponding year’s prevailing treasury-bill rate with the overall picture worsening year on year especially for life insurance companies. Mr. Ofori attributes this to the tendency for investors to choose high-yielding financial instruments over insurance which is a relatively long-term investment option.

MR. JUSTICE YAW OFORI -Commissioner of Insurance

“I think it’s all because people get more returns when they invest their monies in T-Bills and other non-banking financial instruments.  For instance, there was a time people were promised 25% to 35% on their investment which was more attractive so they didn’t see why they should invest in other assets like insurance. So some insurance companies were consequently recording underwriting losses” he explained.

The insurance industry has been contributing significantly to Ghana’s economic growth– albeit constantly at less than 2% of GDP through the provision of long-term investment finance to the economy whilst influencing production and consumption, internal and international trade among others.

“Insurance is a vital pillar of every economy. In Ghana for instance, it contributes about GH¢ 5billion in terms of business generated annually. About 12, 500 people earn a living directly from the industry and many more indirectly such as lawyers, doctors, carpenters, masons, and mechanics. Without insurance you can’t get bank loans because they need some kind of guarantee that they can recoup their money in the event of default”.

 

Insurance recapitalization– the facts and figures

Following its engagement with stakeholders including brokers and shareholders alike, the NIC has proposed an increase in the Minimum Capital Requirement (MCR) for life and non-life insurance companies from the current GH¢ 15million (approximately US$ 3million) to GH¢ 50million approximately US$ 10million).

Re-insurance companies will also see their MCR reviewed upwards from GH¢ 40million (approximately US$ 8million) to GH¢ 125million (approximately US$ 25 million) while that of brokers will be increased from GH¢ 300,000 (approximately US$ 60,000) to GH¢ 500,000 (approximately US$ 100,000).

“We came about these figures by taking into consideration how much a company would need to break even and stay profitable. We realized it will take 4 to 6 years for a newly established insurance company to break even with GH¢ 50 to GH¢ 60 million capital” the Commissioner noted.

The last time the market underwent recapitalisation was in 2015 and this was pegged against the dollar with an initial plan of an annual increment which after a considered review, was implemented differently.

“On an annual basis, the minimum capital was supposed to be adjusted to reflect inflation but it has not been done for about 4 or 5 years. But even if we had those increments, the current minimum capital would have been around GH¢ 25million which is about half what we are proposing now because Ghana’s economy is not like it was about 10-15 years ago; it’s bigger now” he stated.

In 2017, about three (3) companies reportedly had challenges meeting the then minimum capital requirement of GH¢ 15million. Mr. Ofori confirmed this as a normal industry development.

“It’s always been so in every insurance industry. There are times that companies will have challenges meeting the minimum capital but that does not mean that it’s time to shut them down. We, as regulators, try as much as possible to encourage the shareholders to recapitalize because shutting down an insurance company is not an easy thing and it is the last thing a regulator wants to go through,” he disclosed.

 

The ultimate goal

The Insurance Commissioner reiterated that the purpose of the recapitalisation was to ultimately grow the industry to the benefit of the economy by protecting the interest of the policy holder.

“Following our stakeholder engagements, we’ve done our concept paper which has been reviewed by the board. We’ve explained to stakeholders, the rationale behind the calculation and of course not everybody is going to like it but at the end of the day, we want the best for the industry. The Commission is not interested in closing any entity but rather building a strong market that takes care of the interest of the policy holder,” Mr. Ofori stated.

“Our economy has also grown. The GH¢ 15million was implemented some years ago. Now we have the oil boom and the country is losing so much revenue, we are actually sending money out because our companies are not financially strong to take much of the risks,” he added.

“Over 90% of our risks have to be insured on the international market and these are some of the reasons our cedi is always affected by the dollar. There is more demand for the dollar than the cedi and this actually arises because we are sending these risks out which demands paying insurance premium in dollars. So, what we are trying to do is, we want everyone to increase their intake. The more absorption they can take, the less flight of insurance premium,” the Commissioner asserted.

He also defended the proposed 300% increase in the capital requirement as crucial in stimulating the desired growth.

 

Correlation with the banking crisis and recapitalisation

The NIC has already indicated the banking crisis and recapitalisation somewhat delayed its planned exercise in the insurance sector. This, according to the Commission is because banks were already looking for capital from the same market the insurance companies will be considering to recapitalize.

A recapitalisation directive in the insurance sector would have thus led to competition between banks and insurers in raising capital– making it a lot more difficult for both entities.

With the bank recapitalisation now over, analysts believe the way has now been paved for a similar exercise in the insurance sector. The Insurance Commissioner confirmed this assertion citing the banking crisis as a major factor affecting insurance recapitalisation efforts in 2017 which almost led to the collapse of about three (3) companies.

 “When we assess an insurance company, we don’t look at only the minimum capital but the totality of the risk that it carries. So GH¢ 15million is the minimum but we have companies worth over GH¢ 200million. So if you are worth over GH¢ 200million and you have risk of let’s say GH¢ 600million and you cannot pay your claims on time, it is a challenge despite meeting the minimum requirement. And most of the challenges some of our companies are facing are linked to the banking crisis because they have monies with these banks and they cannot access these monies,” he added.

The Insurance Commissioner also dismissed assertions that the insurance recapitalisation is a mere replication of that witnessed in the banking sector and states that the two exercises are mutually exclusive.

 

“No it’s not a replication for the fun of it. Everything is interconnected. Even some individuals have lost their monies because some of these banks have been consolidated. When such entities go under, it affects everybody. When insurance companies make their monies, these monies are kept in the bank for investment in the economy. Insurance companies go for those monies when there are claims or a need for it. Now we have an insurance company going to the bank and the bank has no money. Although on paper they have monies, once it’s inaccessible, it cannot be considered– affecting their Capital Adequacy Ratio,” he revealed.

This, according to the Commissioner, only makes a stronger case for the recapitalisation.

Meanwhile, banking and insurance operations are distinctly different with diverse inherent risks. Some analysts thus insist recapitalization may not necessarily be the way forward for addressing the woes of the insurance industry. Mr. Ofori however asserts, insurance companies even need more capital than banks.

 

Risk-Based Capital requirement

The NIC’s current regulatory approach is geared towards the global trend of Risk-Based Supervision framework and the Commission is still pursuing this approach by way of a Risk-Based Capital (RBC) requirement.

 

“The minimum capital requirement is also part of the risk-based framework because, that means, so much assets to absorb more risks. Risk-based means we’re looking at the totality of your portfolio to see the inherent risks and how we can manage them. It is a complex thing. Even though we asking for minimum capital, risk-based provisions will also come from it. When you suffer from malaria you don’t take only chloroquine. You add multivitamins and some pain killers to make you survive,” he illustrated.

 

Recapitalisation has always been used as a regulatory tool to check the financial soundness of the industry.  There is, however, an emerging school of thought that this is not as crucial as the regulator focusing on ensuring effective management of the capital of the companies by ensuring they maintain capital levels commensurate with their respective risks.

 

Mr. Ofori says all these complement each other in strengthening an industry.

“Even new companies entering the market are not allowed to start up with the GH¢ 15million which was the minimum but at least GH¢ 25million. We couldn’t ask for the GH¢ 50million and even with that, they are investing more.”

 

Local versus International standards

Internationally, capital is not necessarily used as the basis for assessing the strength of an insurance company as opposed to the company’s net worth– an assertion Mr. Ofori confirmed.

“In advanced countries, their capital requirement could be like that of Ghana or even less.      That doesn’t mean that the companies that applied for the license to operate insurance don’t have the capital backing. These companies know that insurance business is risky. So if the minimum capital required is US$ 3million, that company comes into the business with US$ 500million by way of net-worth.

When we say minimum like the GH¢ 50million, that money is not going to sit down doing nothing. It could be your businesses, assets and other investments. Insurance monies have to be working. So if you have an insurance company that owns apartments, it’s part of their total worth. When we assess your worth, we look at both your liquid cash and assets because an insurance company can have a chain of hotels which means it can take as much risks and when there is a problem, it can fall on them. The Aon’s, Allianz and CGI’s have big investments all over the world and when they have challenges, they know where to draw money from. So when we say minimum capital requirement, it is not only liquid cash but also investments in T-Bills and so on,” he further explained.

The MCR in the Pan-European Solvency RBC regime is only € 3.2million (approximately GH¢ 19million) for life and reinsurance companies and € 2.3million (approximately GH¢ 14million) for non-life insurance companies. Some analysts have in this light predicted Ghana may only end up being one of the over-capitalised industries in the world by end of the recapitalisation.

But Mr. Ofori is challenging such views insisting that the local insurance industry which is still a burgeoning one cannot be placed on a level pegging with such developed regimes when it comes to capital requirement.

The dollar equivalent of GH¢ 50million is about $ 10million or less depending on the exchange rate and other factors. Don’t forget the financial strength of those companies operating in those markets. One company is even worth more than all companies put together in Ghana. When we make reference to other places, Ghana is different. When you come to Ghana, the way people respond to work is different. Minimum capital has nothing to do with international best practices,” he emphasized.

Ghana is not the country with the highest minimum capital requirement in the world. There are African countries such as Kenya whose was higher than Ghana. We’ve done a lot of research. Kenya is about US$ 8million or so and in Ghana the GH¢ 50million which was supposed to be $10 million will probably come low depending on exchange rate and other things. Insurance is international and transnational and each company must be worth its weight in gold on the international risk market otherwise businesses coming from outside Ghana will not consider Ghanaians,” he elaborated.

 

Expected Outcomes

The Insurance Commissioner is confident the industry will respond positively to the exercise – citing special provisions to facilitate the process.

“If we should introduce the minimum capital, almost 50% of companies will meet it per our analysis. Looking at their portfolio, some of them qualify already, some with a little push will be there and a few may have challenges. But we will encourage them; that’s why we have transitional provisions.”

According to Mr. Ofori, the recapitalization is ultimately expected to reposition the insurance industry and the economy as whole on a stronger footing by addressing issues like low insurance penetration and undercutting.

“If you have a lot of companies on the market that are not financially strong, you will definitely have problems like undercutting because some of them are ready to sell for cheap. They take low premiums and when there is a loss, they are unable to pay. Strong companies have bad days but their account is so big and they are able to pay claims. So I think we’ll have a much disciplined market because minimum capital is not going to be easy. Recapitalisation will help eliminate undercutting because the more you undercut, the more it affects your minimum capital. So you’re going to do prudent underwriting”

In terms of the bigger picture by way of economic impact, he stated “I believe all in all, the industry can also retain much of their underwriting income and probably create more jobs. The more money we can create, more employment can be created, less monies leaving the country, our cedi might be more stable and the economic benefits are numerous”.

He also revealed a new bill is currently under consideration to complement the recapitalisation in addressing the longstanding challenge of low insurance penetration in Ghana.

“We’re working on a bill to make sure we can have more compulsory insurances. We are trying to make sure that these compulsory insurances will help boost the interest in insurance. We’re also increasing market conduct supervision to enable companies pay their claims on time. We’re providing a lot of insurance education to the industry and the general public. This year for example the Commission out of its own budget, through the Ghana Insurance College will train 10,000 Ghanaian youth as insurance agents nationwide for free so that there will be a pool of agents from which the industry can always fall on to recruit. We’re also doing much with respect to the compulsory fire insurance; creating awareness that it is compulsory to have these kinds of insurances. So we’re doing all we can.”

Even though the recapitalisation in the banking industry led to consolidation of several banks and lay-offs, Mr. Ofori believes the final narrative in the insurance sector may not necessarily be the same– allaying such concerns of concomitant job losses as a result of companies failing to meet the capital requirement.

With the banking recapitalisation, some banks were affected. We don’t want to have those challenges. We don’t want the companies to go under. Much as we want the minimum capital to go up, we want to do it in such a way that we move along with everybody,” he concluded.

 

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