A GHANA BEYOND AID: The quest for Economic Independence

A GHANA BEYOND AID: The quest for Economic Independence

Ghana’s freedom from colonial rule was sealed on 6th March 1957 when the country became the first in Sub Saharan Africa

to embark on self-rule and represented a model for the rest of the continent towards independence.

With her new status as a politically independent nation, Ghana commenced the journey to self-governance amidst pomp and pageantry albeit, with high expectations of improved economic and social well-being for the mass of its people.

Such was the level of optimism that Ghana’s first President, Osagyefo Dr. Kwame Nkrumah declared:

At long last, the battle has ended!  And thus, Ghana, your beloved country is free forever!

But realizing the enormity of the task in reshaping the destiny of an expectant nation and the length of the journey ahead, Dr. Nkrumah added a clarion call:

“From now on, today, we must change our attitudes and our minds…… that also entails hard work”.

Sixty-one years on with a population projected to reach 29.61 million people in 2018, Ghana’s fiscal policy choices remain significantly constrained by policy decisions in the advanced economies as well as difficult external market conditions for its narrow export base.

With the global economic structure seemingly built on raw materials from Africa for value-addition in the technologically advanced countries, Ghana’s economic fortunes remain largely limited by external forces, culminating in meagre returns on its raw material exports.

Subsistent agriculture remains prevalent and heavily dependent on rain-fed production, thereby resulting in low agriculture productivity and weak earnings potential.

In light of this harsh reality, the resource envelope remains woefully inadequate to support social spending and infrastructure development.

Consequently, the country has been fixated on donor inflows and development assistance which are conditionally disbursed and rarely meets its welfare aspirations.

The historical trend in donor support for Ghana

Donor inflows to Ghana have mainly been through the national budget and other government agencies in support of critical sectors such as health, education, agriculture, and local government development. Over the years, inflows from development partners have been erratic with a high degree of unpredictability which tends to exert unanticipated shocks to fiscal operations.

In many cases, the government’s fiscal agenda for the year would be derailed due to the withholding of budgetary support which was already planned for the year.

In a speech presented at the 3rd International Conference on the “Replenishment of the Funds of the Global Partnership for Education” in Dakar Senegal, Ghana’s President opined:

 “If we make our policy dependent on other people, when their policy changes, we will suffer. But, if we make the policy for ourselves, then it means that, at all times, we will be in control of our own destiny”.

The President’s comment emphasizes the need for Ghana to rise above aid dependence in the quest to attain its development objectives.

It is, in fact, a clarion call for economic independence! Achieving a Ghana beyond aid calls for a reconsideration of our financing strategy for public investment and a re-calibration of the policy regime to place the country on the path self-sufficiency.

The historical dynamics of aid and donor flows to Ghana remains a major setback for policy coherence and policy consistency.

As observed in the graphs below, donor support from development partners has been volatile over the years with indications of a real decline in recent years. The key indication from the graphs is that development assistance tends to increase in periods when Ghana implemented an IMF/World Bank adjustment program.

Development partners would typically channel their supports through the IMF and/or World Bank, supported by conditionality imposed for disbursement of funds.

Depending on the level of adherence to conditions imposed, the disbursement of these funds would be triggered and varied based on sentiments and perceptions of the donor community.

As a critical success factor, government policies and structured programs must include implementation timelines and measurable targets against benchmarks. If Ghana would credibly achieve an economy beyond aid, the following action points are necessary. Building a Ghana beyond aid requires moving beyond verbal commitments to embarking on conscious and concerted actions that are crucial for achieving the broad objective.

Minimizing and ultimately reversing illicit financial outflows:

Minimizing and reversing illicit financial outflows would save the country billions of US dollars and contribute significantly to realizing a Ghana that is independent of donor support.

Sub Saharan Africa (SSA) countries are the biggest losers of illicit financial flows as billions of US dollars are illegally transferred into offshore accounts annually and potentially borrowed at prohibitive costs through Eurobond issuances.

According to the Global Financial Integrity Report, fraudulent trade misinvoicing accounts for 87% of illicit financial flows. While SSA countries lose the highest amount in illicit financial outflows, they also receive the least illicit financial inflows.

In Ghana Cedi terms, this yearly amount of trade misinvoicing is equivalent to GH¢23.48 billion, which is equivalent to 69% of total domestic revenue mobilized by the government for the 2017 budgetary operations. In the case of Ghana, the data revealed that import under-invoicing accounted for $24.06 billion while export over-invoicing accounted for $28.11 billion from 2004 – 2013, representing an average trade misinvoicing of $5.2 billion per year.

The amount represents 46% of the total domestic revenue of GH¢50.45 billion projected to be mobilized for fiscal operations in 2018 but more significantly, the amount lost to trade misinvoicing is ~20x more than the GH¢1.2 billion received in Grants for the 2017 budget.

The historical analysis of illicit financial flows provides a strong basis to believe that Ghana is capable of attaining a self-sustaining economy that is independent of aid from development partners. If the government is able to enhance the capacity of the Ghana Revenue Authority (GRA) and other fiscal agencies to efficiently monitor business operations and effectively track transaction data, Ghana should be able to limit the revenue leakages.

It is against this backdrop that the ports-digitization policy (or paperless ports) which commenced on September 2017 is crucially important. Given that trade misinvoicing represents the main conduit for illicit financial flows, the government’s decision to implement the “paperless ports” policy is a positive one for the quest to attain a Ghana beyond aid.

Institutionalizing fiscal reforms:

The efficient utilization of public resources is a critical success factor in the quest to build budgets that are independent of donor supports. Fiscal excesses mainly through off-budget expenditure and revenue leakages have been the bane of fiscal sustainability in Ghana.

Tax exemptions beyond budget limits, wage bill exposure to “ghost names” and lack of controls on expenditure commitments tend to result in fiscal shocks and prevents efficient functioning of the public financial management system.

The passage of the Public Financial Management (PFM) Act, 2016 (Act 921) provides the framework to ensure efficient utilization of public resources. However, it requires political will and commitment on the part of public office holders, civil servants and the private sector to entrench these reforms and make the processes an integral part of daily function.

Institutionalizing the fiscal reforms may require sanctions and penalties that punitively punish the contravention of the PFM Act and makes the cost of contravening the Act greater than any potential benefits.

The punishment regime must also extend beyond political affiliation as this poses the greatest risk of fighting corruption. The stiffer punishment regime would be necessary to make the PFM Act sufficiently constraining and thereby institutionalizing the fiscal reforms to support the attainment of a Ghana beyond aid.

Seth Godin teaches The Best Strategy to Increase Sales in this B2B and B2C marketing session with Bryan Elliott Behind the Brand.