 ENTERING A GOLDEN AGE OF FREE ENTERPRISE |
On January 7, 2001 President John Agyekum Kufuor took office as the new President of Ghana and also entered the history book as the first democratically elected government to succeed another in more than 40 years of the country's history, and also serving as a paradigm for democracy in Africa.
Having won the elections on a platform of ushering in a new era of prosperity for the 20 million citizens, the new government found itself confronted with how to strike a balance between government revenues and government expenditures and restructure the external debt. It therefore decided to access the Highly Indebted Poor Country (H.I.P.C.) initiative.
Also of concern to the Kufuor Administration is to build upon the country's image as a haven of peace in a troubled West African sub-region and re-assure the international community that the country will continue to enjoy the decades of civil peace as was aptly demonstrated during the democratic transition.
The new government is therefore committed to building on the program to position the country as the Gateway to West Africa where investors could locate and manufacture in Ghana using its abundant, cheap and reliable utilities and labor for export into the sub-regional market of about 250 million people.
Inflation was about 40 per cent at year's end but the projections for the year indicate that it could be halved to 25 % so says an optimistic Governor of the Bank of Ghana, (BoG), Dr. Kwabena Dufuor who attributed last year's inflation to the growth of money supply.
"It is achievable because there is beginning to be some stability in our currency. From January this year to date, the Cedi has depreciated marginally against the dollar, which means that the growth this year will be much smaller than last year, therefore its impact on the overall inflation will be quite small," says the Dr. Dufuor.
Inflation in 2000 was mainly the result of a significant depreciation in the local currency and unrestrained government spending. The marginal improvement in gold prices on world markets between 1999 and 2000 year ends was not sufficient to reverse the adverse impacts of the decline in cocoa prices and the sharp increase in the country's crude oil import bills.
Unable to pass on the increased oil prices to consumers in an attempt to stave off inflation, government borrowed directly from the banks and increasing the yield of treasury bills, which further crowded the private sector.
The aggregate effect of these measures on the economy was a decline in the growth rate, a rise in both inflation and high interests rates. In addition, the private sector was increasingly de-motivated as the cedi, the local currency, further depreciated against major foreign currencies leading to a huge government debt.
The new government therefore decided to access the Highly Indebted Poor Country, H.I.P.C., initiative to get a breather from scheduled debt repayments. This decision was based on the debt sustainability analysis and the inability of government to raise sufficient revenue both domestically and externally. HIPC was viewed as a means to reduce the pressure of the debt trap. Though technically only external debts up to the year 1983 are those to be affected, Ghana is negotiating to include all debts up to 1999. If an agreement with to donors is reached on this, 67 % of the external debt will be affected by H.I.P.C. in servicing external debts.
A number of initiatives to increase revenue by at least 45 % and hold government expenditure down at year 2000 level had been put in place. Under it there will be "no increase in government expenditure that meant spending 40 % less than the previous year in nominal terms" says Finance Minister Yaw Osafo-Marfo.
"We have a problem with the balance between government revenue and government expenditure and therefore hope to implement three policies at the same time: take a number of initiatives to increase revenue by a minimum 45% across board so that we have real growth of revenue; hold on to government expenditure in 2000 figures meaning that there will be no increase in expenditure of government. When I hold on to last year's figures, on which inflation is about 40%, I will literally spend 40% less than the previous year in nominal terms. This policy will not be applied to wages and salaries, which naturally we do not hold.
But even there I have to restrict myself to a certain maximum, to ensure that I do not trigger off inflation," says the minister.
Government's projected macro-economic targets for the year were therefore set at achieving a real GDP growth rate of 4 %, reduce inflation to 25% by year's end and also reduce budget deficit to the equivalent of 5.2 % of GDP and achieving an overall balance of payment of US$165.7 million.
Achieving the projected 4 % is however predicated on a 3.7 % growth in the agricultural sector, a 4 % growth in industry and a 4.3 % growth in services. The government also intends reducing borrowing from the domestic market and to monitor monetary growth by applying both monetary and fiscal measures as the need arises.
According to the Bank of Ghana Governor, "these targets are not too ambitious" and therefore could be achieved because measures taken by the government so far has stabilized the currency. From January this year to date, the Cedi has depreciated marginally against the dollar, which means that the growth this year will be much smaller than last year, therefore its impact on the overall inflation will be quite small.
'All I can say is that the target is achievable. In 1997 we made 40 % growth in money supply and in 1998 it dropped to 17.6 % so depending on the way the economy is managed this year, the 25 % target should be achievable,' says Duffuor.
One way of doing this, according to Finance Minister Yaw Osafo-Maafo, is to empower the central bank to make sure inflation is not only controlled but also kept low to ensure macroeconomic stability and help in private sector development. Interest rates would come down and the private sector will be able to go about their business with much more ease leading to a very stable macro environment in which anyone will feel secure to do business.
In addition, the targeted currency stabilization would be achieved without which in the long run will benefit the private sector that will enjoy lower interest rates.
The expected liberalization of the banking sector will deepen the financial intermediation in the country making available money for the private sector. Already banks have become more competitive than ever before, they are now open for longer hours on normal working days and even want to extend their working hours to Saturdays. Ultimately government's aim is to ensure that international standards are achieved in the country's banking sector.
To ensure that the reward of the new economic dispensation reaches the beneficiaries, a ministry for Private Sector Development has been set up to remove bottlenecks in the private sector so that it becomes the engine of growth, be able to things freely and speedily and also free to borrow from the banks.
This government believes will usher in the "Golden Age" of business as explained by the finance minister.
The overall effect will be the provision of an opportunity to lay the foundation for the re-launching of macro-economic stability to ultimately create a viable and sustainable environment that will signal to the business community that Ghana is ready to do business with the world. | Ultimately, the new government envisages an economy where the production and distribution of goods and services will be principally the business of the private sector.
The key area in which government expects the involvement of the private sector to be most significant is in the on-going divestiture of state-owned enterprises, (SOE), program. Despite it's obvious successes, the Divestiture Implementation Committee, (D.I.C.) has been finding it difficult to dispose of some of these SOE that include banks in which government still has shares.
Under the new dispensation, government intends to re-organize the divestiture process as it remains determined to continue with the privatization process.
The Acting Executive Secretary of the DIC, Benson Poku-Adjei, said with the change of government it was realized that some aspects of the original law were not that relevant as they were before most especially as the process began under a military government 'but we have optimized and updated the system and rules to suit the democratic system of government now in power,' he added.
As stated by Osafo-Maafo, government plans to set up a Privatization Fund, a new concept to that will enable every individual to participate in the biding process.
For now there are several options in place to divest a state-owned enterprise.
'The sale of assets is the most commonly used practice, also we have the partial ownership or joint venture and we have the total liquidation option. The sale of assets represent about 70 per cent of the divestiture so far. Under the joint venture scheme the government keeps about 30 per cent of the shares. The World Bank's criterion by which a company cannot be divested is that if government holds more shares than the private investor even in the case of the ratio being 51%, against 49% it cannot be divested. So far 40 per cent is the highest percentage of shares that the government has kept in some of the vital enterprises.
According to Poku-Adjei, 'It is our expectation that this government, which has spoken extensively and with a great deal of determination of the "golden age for private business", is going to accelerate the program.
I believe that as most of the governing NPP members came from the private sector they will use the private sector as the "main engine of growth". In addition to this his Excellency President Kufuor has made a commitment to the nation to do everything within his power to assist the development of the private sector.
'We have to recognize that for the first time in our history we have people in power who are interested in promoting private sector development in Ghana. What is fundamental and has been the government's political mission is the open society, free market, a society based on individual initiative, and enterprise.
Therefore when people like these talk about private sector initiative they mean it. I believe this government is truly going to make efforts to accelerate privatization, added Poku-Adjei.' Ghana's biggest institutional investor, the Social Security and National Insurance Trust, (SSNIT), the pension fund administrator is also in the forefront of those creating the enabling environment to make government's avowed aim of crating a 'Golden Age' for business a success.
Though SSNIT, as a matter of policy, does not invest externally, it has invested in the local economy. 'I believe that there is a lot we can do internally. We call ourselves a developing country and it takes money to develop. If we should mobilize funds and use it wisely, it will go a long way to help in the development of our country. We do not intend going into social investment as such, but for example, if I am able to put buildings up, these foreign companies that will come to set up businesses will need offices, factories and all kinds of infrastructures. At least to have the foothold, foreign investors may need an office where they can operate from and if these offices are available to them, that is a step ahead for them and for us. We might be able to look into other areas with time, especially with the Investment Committee in place, a good investment department backed by a good investment policy. I believe we can do a lot,' says its acting Director-General, E.N.A. Adjei.
He explained that the Trust's vision is to provide social security for workers so that if they know that the future is secured, they can improve productivity.
It can also reduce malfeasance because 'if the worker is not secure and he or she knows they are about to retire, they panic and then involve in all sorts of acts, which can create a lot of problems for themselves and the society. Therefore, strictly according to our mission of providing social security protection, we are trying to improve productivity, and in trying to do so we make sure that we properly manage our funds.
Another way SSNIT is positioned to help investors is via its reliability as an investment partner making their offices the first port of call for any investor in the country.
'When private companies come into this country, in a lot of cases they want to talk to us. They want to do so because they want partners they can rely on, and we happen to be a potential partner with quite a bit of resource.
'Another important reason is because of our building projects. If we had not put up such a building at such a location I don't know whether BOEING would have been attracted to this place at all. Generally, there are things that would attract one to a place. The first thing is normally to find office space. Once you have that, it is a big step forward. We have provided hotels, so that investors can have comfortable lodging places to do their businesses. This is how we are helping to support the inflow of private businesses into Ghana,' he added.
As pointed out by Jake Obetsebi-Lamptey, Former Chief of Staff and Minister of Information and for Presidential Affairs, if Ghana is going to have a 'Golden Age' of business and a private sector that will flourish, then there is the need to have a public sector that creates an environment for the private sector to flourish.
'You cannot have a Golden Age of business if you are paying the public sector so poorly. That is not the way to tell people that you have an environment that is friendly for business and that is going to encourage business to do well; you cannot have your people paid so poorly that you want to do something about poverty alleviation,' he contributed.
A highly successful farmer, Kwabena Darko of Darko Farms is enthused with government's initiative. He holds on firmly to government's promise to develop the private sector and has gone on to appoint a Minister for Private Sector Development. 'The new government has its roots in a political tradition that believes in promoting the interest of private ownership as opposed to state ownership. They are more willing to give practical effect to the notion of the private sector as the engine of economic growth.
DIC's acting executive secretary also feels that way.
He believes the new government is determined to help the private sector that is why the year 2002 has been set as the termination date of the divestiture process. 'That is the kind of political atmosphere that will truly help us in achieving our prerogatives.
I invite them to look at the opportunities of investment that we are offering here in Ghana through the divestiture of state-owned enterprises and to come and participate.
'We have to recognize that for the first time in our history we have people in power who are interested in promoting private sector development in Ghana. What is fundamental and has been the government's political mission is the open society, free market, a society based on individual initiative, and enterprise.
Therefore when people like these talk about private sector initiative they mean it. In conclusion, I believe this government is truly going to make efforts to accelerate privatization.
To Obetsebi-Lamptey, to move this country forward to become a middle-income country means achieving a growth rate of 8 per cent. 'Firstly, we have to get the agriculture sector right, because to stay in power and to be able to do all the things you want to do, the cost of food must be brought down to levels that people can afford to eat reasonably everyday. Once you have got agriculture right, the maximum growth is still about 5%. We need to do about 3% above what we can do with agriculture alone. There is IT. We are getting tremendous help from the UNDP with IT. I hope that by the end of next year we will have the first IT village developed. Already one American company has set up a data processing enterprise here, and we are looking to facilitate and bring other people in, as well.' The Governor of the Bank of Ghana does not see it differently. As he explained the Ghanaian economy is achieving stability, the sort of atmosphere inventors need to feel secure in their investments. So this is the time for them to come. Inflation is falling, the currency is stabilizing and there is political stability. All these factors contribute to an enviable investment climate. This is the time to come and invest.
Finance Minister, Osafo-Maafo concluding extended a hand of welcome: 'I believe that the business atmosphere here is very congenial especially with the coming in of the new government. We invite investors to come and taste a few things like the hospitality of our people and the freedom that exists in this country for business. One very important aspect is that, we have a team of highly qualified people in this country. An example of such people is the current Secretary General of the United Nations. He has colleagues and other equally qualified people in this country who are good and who can be partners for investors when they come.' |
