Posted: Saturday 22nd February 2014 at 23:00 pm

IMANI Alert: Outstanding Issues re President’s Mahama 2013 State of the Nation Address

Introduction

Ahead of President Mahama’s 2014 State of the Nation Address to be delivered next Tuesday, we take a look back at what he said in 2013 and how far his key messages and milestones have been realized.

A list of the expectations were:

· ‘putting the needs of the people first’ featured in President Mahama’s 2013 State of the Nation address which he planned to achieve by increasing access to healthcare, tackle HIV/AIDS, provide assistance in the development of sports among the youth, and launch a GHS 10 million Youth and Enterprise Development Fund to support entrepreneurship.

· he stated he would build a robust economy through the modernization of the agriculture sector, assist local manufacturers to become competitive on the global market by reviewing the tax structure, improve the yield of cocoa by introducing hi-tech systems and also assist the tourism sector by funding activities such as the creative arts.

· Infrastructural development also featured to be pursued through the expansion of roads, railways and housing among others.

The Economy

The excitement and prospect of further economic growth after Ghana‘s attainment of a lower middle income status seems to be waning due to certain non-favorable economic indicators the country is struggling to stabilize. The intermittent power supply, increase in the wage bill, flux of commodity prices, depreciation of the cedi among other indicators only send a cold reminder to the hopeful citizens that our country is yet to attain its projected economic prosperities.

In addressing the country in the annual State of the Nation speech, his Excellency the President, John Dramani Mahama highlighted certain plans to address the challenges facing the economy by;

· tackling the distorted prices and curtailing government expenditure on fuel,

· ensure efficient utilization of allocations to MDA’s,

· improve the tourism sector,

· strengthen the manufacturing sector,

· modernize the agricultural sector as well as sustain economic growth rates to a minimum of 8%.

These however have been quite challenging to attain. On a year-on-year basis, the GDP growth rate in the third quarter of 2013 was 0.3% compared to the second quarter of a 6.1% GDP growth. Concurrently, the service sector experienced a growth rate of 6.7%, the industry sector experienced a negative growth rate of 11.8% with the agriculture sector trailing behind with a negative growth rate of 3.8% in the third quarter. These figures are not encouraging as these sectors under study performed better in the previous year and quarter. In the third quarter of 2012, the agriculture sector had a positive growth rate of 2.5%, 3.1% for the industry sector and 11.2% for the service industry.

The rate of inflation kept rising and stood at 13.2 % in December 2013 coupled with an increase in the price of fuel and electricity. And while the total wage bill of GOG keeps ballooning less can be felt in the pockets of workers as wages remained the same.

Bank of Ghana (BOG)’s recent directives for the cedi furnish evidence to our struggling currency against other trading currencies. Though these decisions are in an effort to catch the free fall of the cedi, it has the potential threat of strengthening the black market which would only make these directives counterproductive as other factors such as our high dependency on imports, increased fiscal deficits and public expenditure impact the performance of the cedi. Some of the solutions to consider in stabilizing our economy will be to vigorously work towards adding more value to our commodities which we currently trade in their raw states so we can rake in more revenues for facilitating our developmental processes.

Infrastructure

A common theme throughout all the infrastructural initiatives was the introduction of Public Private Partnerships (PPP). With all the emphasis on PPPs, it is interesting to note that the framework for PPPs does not fully exist since the PPP bill, which has been drafted since June 2011 has not been passed. Despite that, the government has embarked on initiatives that have closely resembled PPPs. One of these projects was GYEEDA, SADA which resulted in embezzlement of millions of cedis.

In the area of roads expansions, his Excellency the president stated a number of roads would reach significant completion points in the year just ended (2013). The completion points of many of these roads which are part of the Eastern, Western and Central corridor have not been verified at the time of writing this report. In Accra however, the Tetteh Quarshie -Madina road for example remains more or less as it was at the start of the year 2013. The stretch in front of the University of Ghana-Legon has not changed much since 2008 and remains a traffic bottle neck when plying that road. Still on road construction, it is laudable that the construction works on the Kwame Nkrumah Circle has commenced.

In the area of aviation, domestic air travel has increased tenfold while international travel increased three fold and that is indeed a high point for the nation as aptly noted by the president. This he said warranted the expansion of four local airports and construction of a new international airport. This however seems slow to materialize as the Kotoka International Airport (KIA), the sole international airport has been under renovations/expansions for approximately seven years. Earlier this year, pools of water collected at the arrival hall of the KIA due to a leaky roof and for most part of the year, the only escalator was not working.

The speech also touched on how he intended to address the housing deficit. As part of the social housing project to reduce the housing deficit, GoG borrowed 400million USD for the construction of 9120 housing units. The cost of units begins at 25000 USD. It’s not clear who the target markets for these units are and whether these units are government subsidized. In either case, GOG has a loan burden of 400million USD and this endeavor has to be economically viable. Ghanaians will be grateful to know where these houses are.

In the case of the water supply the president stated water supply is precarious despite “several efforts to improve supply of good drinking water”. If the past year is the picture of what working “hard work” looks like, then the present economic decline in the country should not come as a surprise. From Adenta, to East Legon to La, and throughout Accra and beyond, there are water rationing and water shortages.

As a result, there are numerous water tankers bringing water into residential neighborhoods on a regular basis. The effect on businesses is equally dire. A report issued by IMANI in August 2013, after a meeting with captains of industry reported that a company had to purchase 100 tankers of water DAILY to keep running (thechronicle.com). Thus if the president lauds the private sector in this year’s speech for their resilience and contribution to the economy, he should add that, this is despite the government’s inability to create an enabling environment.

The infrastructural sector can benefit a great deal from PPP if only more efforts are geared towards timely execution of projects, accountability and checks within a clear policy and legal framework in order to spare the nation another GYEEDA. Secondly, the projects need to be more concerted and linked to a big picture. They need to be a part of a whole with a goal of not only solving an imminent crisis, but rather anticipating the future and preparing for it.

Transparent and Accountable Governance.

In terms of making Parliament a more productive and accountable entity some things remain unfinished. Primarily, Job 600 which is already behind schedule took yet another loan of US$24.5m to complete. Secondly, the Broadcasting Bill has still not even been discussed, let alone passed. It is still on the drawing board.

Contrary to the spirit of transparency and accountability, the Media Development Fund has been fraught with ambiguities and uncertainties. The President of the Ghana Journalist Association (GJA) said no consensus on the disbursement criteria was reached and the Fund remained with the government but the organization had received 100-140 laptops (reports vary). Divergent from this the Minister for Information announced that GHS 1million worth of equipment had been distributed. The President has, this year, said that he would hold audience with Mahama Ayariga and the NMC to clarify the development of the MDF.

The review of the Criminal Offences Act, aimed at addressing the issue of corruption in Ghana, has still seen no movement. There is no indication as to how this will be achieved or how far we have to doing so. Alhaji A.B.A. Fuseini this week was echoing the President’s promise to propose to revise the Act, almost a whole year after the President first announced that action. Furthermore, Stephen B. Kendie, lecturer at the Institute for Development Studies of the University of Cape Coast has observed, this week, that despite the “unshakeable” fight against corruption, the country’s performance in the transparency index continues to decline.

Business Ideas for the President in 2014

1. Taxes and how to build ‘local champions’

Ghana’s primary funding sources have historically been taxes and multi-donor budgetary support or partner funding. Due to the emergence of oil revenue as a 3rd funding source however, partner funding has reduced dramatically. The windfall tax has been suspended in the interim, which is a good thing. The government may be compelled to take greater action if it is clear that multinational manufacturing firms based in Ghana are considering closing down and turning Ghana into a sales point instead of a manufacturing center.

Locally, 35% of sales revenue of a typical manufacturing company goes back to Government in the form of taxes. Foreign competition is undercutting local “giants” with lower prices. Government tax breaks can help local company to grow and then produce more taxes in the future. It is possible that a 5 % tax break will add 10% more jobs to the economy. The government’s objective should move from revenue generation to job creation.

While it is imposing restrictive taxes on local industry, the government is not advocating for tax policies favorable to Ghanaian entrepreneurs on the international stage. For instance, there is a 40% duty on processed cocoa materials imported into Europe, but a government bureaucracy which employs only 1 trade lawyer is not sufficiently equipped to advocate for changes to this policy.

2. Prudent Spending

Crucially, the President must show the way to prudent budgeting of our strained national resources. In the 2014 budget, the Office of Government machinery’s allocation increased by 12% on its 2013 allocation, with no increase in its activities. There is also the allocation of GHC100 million to the Ministry of Information in a budget where only GHC 85 million was allocated to the Ministry of Roads and Transport, an institution which has far larger capital expenditure demands. Of particular interest is the Ministry of Foreign Affairs’ planned expenditure for 2014.

The Ministry of Foreign Affairs’ largest expenditure items are the transportation of the President to various meetings & the construction of 6 passport offices.

In the 2013 budget the Ministry spent GHC101 million on the construction of 6 passport offices, in the 2014 budget, the Ministry inexplicably allocated of GHC 153 million for the construction of 4 passport offices, an increased allocation of GHC 52 million for the construction of 2 less offices. As our economic fortunes seem to be taking a dive into the complex arena of getting a firm grip, the efforts of the Mahama administration to float bonds to ameliorate the volatility on the forex exchange market was commendable. However, a second Eurobond should not be contemplated.

These are increasingly becoming an important and potentially dangerous source of funding, due to the debt-servicing burden which they place on the country especially as the quality of investments for these loans are suspicious. It is also important that the oil revenues are prudently applied to the critical infrastructure gaps we have in the country. According to the Public Interest Accountability Committee, income from Ghana’s oil fields should have been spent on 4 agreed areas, however it is being spent in 13 areas and has become a cash cow, for organs such as the office of government machinery, which is receiving over GHC163 million. The President has a responsibility to stop these profligate expenses.

3. Sustaining Gains in the Cocoa Industry

The long-term sustainability of the cocoa industry must rest on indigenous acceptance of its multiple uses. The consumption of various cocoa food products such as chocolate drinks and chocolate paste could be encouraged by mandating the use of these products in meals served through the school feeding program. Increased local demand could drive increased production and profitability by the Cocoa Processing Company. This is crucial to sustain the livelihoods of farmhands. It is instructive to note that 57% of farmhands in the cocoa industry hail from the northern regions.

4. A solution to Energy Poverty

The only way to assure Ghanaians of all income levels of adequate power supply at affordable prices is to boost investment that can drive efficiency gains, economies of scale, availability of cheaper feedstock (such as liquefied natural gas) and smarter grid design. That is the bottom-line.

Given that at the core of our acute problem is peak-load management (no doubt exacerbated by the chronic under-investment in the power sector due to distorted tariffs and a dysfunctional subsidy recovery regime), demand-side management (the patterns of power consumption separate from power production) can be more creative through for instance broad master agreements with industry and mining associations to experiment with off-peak operating hours. Done at scale, this can alleviate some of the demand pressures present during peak hours.

Off-grid solutions have to date focused on micro-interventions in a half-hearted renewable energy experiment. Government may want to rather focus on experimenting with tax breaks and additional incentives to encourage industrial and mining concerns to invest even more aggressively in peri-grid thermal units, By ‘peri-grid’, we mean the implementation of systems to enable such companies sell power they generate 1-digit megawatt plants during off-peak hours at adjusted tariff levels to support the primary grid.

The time has also come for us to acknowledge that the energy market in the country is no longer uniform. Consumers in Accra, Kumasi and the Takoradi urban zones now constitute a different breed of consumer, and may require their own distribution regimes, with separate pricing and a devolved infrastructure, with different investment programs and timelines. The higher income and more aggressive consumption growth in these zones have now so diverged from the rest of the economy that a certain decentralisation of the electricity market may eventually be in order. Of course, we acknowledge that much work would need to be done to get the utilities to the point where such clever systems can be managed effectively, but the time to start confronting these stark realities is now. We wish the President Well in 2014.

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