Kwesi Nduom Offers Financial Theory To Save The Cedi
It is time for us to focus our minds on solutions to the economic and currency problems we face. We must move from being experts at discussing problems to become excellent at identifying, agreeing and implementing sound solutions. There are no easy short term solutions and what we must do require sacrifice, efficient administration, a keen eye on corruption, courage and leadership that is unwavering in the face of domestic and international backlash.
I have taken into account the Governor of the Bank of Ghana, Dr. Henry Kofi Wampah’s , call to action. He said:
“The uncertainties in the outlook and weakened domestic fundamentals underscore the need for continued tight fiscal and monetary policies and measures that would reduce the country’s vulnerability to shocks, re-anchor inflation expectations and sustain macroeconomic stability,“ And also, “In the medium- to long-term, government must seek to broaden the tax base further, diversify and broaden the export base, reduce imports — especially of consumption goods that have local substitutes — and intensify efforts to block foreign exchange leakages such as transfer pricing.”
It is worthy to note that the Bank of Ghana directed its message most specifically, to government (administration). What we should take from the message is the need for specifics – what to do and how to do it – so we can make real progress in solving the economic and currency problems.
What NOT to do:
A. Our President must not repeat certain statements such as the following so that we can take the situation seriously and believe that we must all make sacrifices to help:
1. “Ghana is not in economic crisis to call for panic in the country and international circles…the challenges facing the economy are short-lived… government is competent enough to handle them”.
2. “At the recent World Economic Forum in Davos, I held dozens of bilateral meetings with investors who have heard the good news about Ghana and are very eager to come to invest there…Some of them have since come to take a look at the country, and the signs are good for us.”
3. “We must look at the basic structure of our economy which is heavily import dependent and also dependent on the export of a narrow band of primary products. Until we change the structure of our economy in order to address the trade imbalance that we have between exports and imports, we’ll continue to have the pressure on the economy”.
4. “Regarding the depreciation of the Ghana Cedi, I want you all to know two major things. First: this is not caused by our national decisions. We are part of the global financial system and so we share both its ups and downs. Since the beginning of this year, several countries, with stronger economies than ours, have seen their currencies depreciating due to the moves of international players on the stock market. In January, for instance, Argentina’s peso fell more than 20%, Turkish lira lost 6%, the South African rand fell 7% and so did the Russian ruble. The second thing I want you to be sure of is that the government is aware of the effect this depreciation has on your lives. We take all the proper measures to enable the Cedi to regain its strength against the US dollar and other major currencies. This is a short term challenge and we will fix it. Panic only worsens things in the financial market, so bear with the government, confident and fearless, because we will chart the path for recovery.”
B. To improve the situation and put Ghana on a more sustainable, positive economic performance, we must understand that we will not get anywhere if we look to donors/development partners and foreign investors for solutions. It will not happen. Support from donors help only when a country gets its priorities right and offers the right leadership to implement its plans. Foreign investors go where there is opportunity to make profit they cannot get elsewhere and consider treatment given to local investors seriously. Treating local entrepreneurs well and with respect is the best path to winning investment from else that will stay in the country for a long time. The solutions are us and must come from within.
C. A number of people have repeated as a solution: “Production, production, production”. But production has a pre-requisite: market, market, market. We must not treat the production matter as we have treated, “…the private sector is the engine of growth” mantra, talk but no meaningful action.
What we must do includes the following:
A. Implement a comprehensive public sector reform. Without a right-sized public sector, properly equipped with technology and appropriate supervision, we will continue to miss targets and fail to implement important public investments needed to support the type of economy we want. We have too many people in public sector as full time employees or part timers (including Advisors) and this must be reduced just as some organisations should not be relying on the Controller & Accountant-General for their salaries. Public sector reform is not a part time job nor is it a task for junior ministers of state. It must be led from the top as a long term initiative with direction from the President. Bad habits and poor attitude have several supporters in that sector. I have been there before so I know that it is a tough, thankless job. But I also know that we can do this if commitment is there at the top of the Administration. For example, the Single Spine Salary Scheme has been implemented when other reform items that require more effort but will deliver greater value such as productivity measures, subvented agencies’ law etc. are ignored.
B. National Identification System – implement this as a single national system (remove the duplicate schemes in use) and use it to bring the discipline we need. We cannot manage what we cannot count, identify, find or control. Indiscipline in the system due to the fact that people can get away with wrongdoing costs us a lot.
C. Use the state’s power to tax to discourage importation of what we can produce in Ghana and encourage those who produce manufactured goods in Ghana for export. WTO exists and yet we cannot walk Ghanaian products into international markets. Korea, Japan and many, many countries in the world have used this power to tax to encourage domestic industrialization and discourage the appetite to import everything. Our President must gather the courage to rise and say “enough” and rally us all to make sacrifices and contain any potential backlash from our trading partners.
D. Immediately start using the state’s purchasing power to buy Ghanaian goods and services including encouraging our entrepreneurs to produce what we need. The School Feeding Programme offers a wonderful opportunity to provide a market now for our farmers and food processors. Many of us will support a declaration from the President during the upcoming State of the Nation Address that with immediate effect, the state’s purchasing will be used to provide a market for our road and building contractors, lawyers, engineers, ICT experts etc. We are ready for an order to state-supported institutions not to buy imported rice, chicken, meat etc. with our tax money.
E. Provide special incentives to those who process and add value to our raw materials such as cocoa, timber, oil and gas, pineapple. Give a double bonus to those who invest in our towns and villages by putting together a fund to provide road, water, electricity, etc. and tax incentives as well. More importantly, find those who are doing this already (or a ready to do so) and give them technical and administrative push get going, do more, meet domestic needs and become exporters.
F. Implement the new pension law, seriously. Currently, what is happening is a half-hearted attempt to involve the private sector and so SSNIT is still managing what should be with the private sector. The National Pensions Regulatory Authority itself lacks the requisite resources – money, people and technology to do an aggressive complete job of encouraging the growth of pension funds. This must be fixed and will pay off when billions of cedis end up with pension advisors to be channeled as long term capital for the private sector. The pension law itself needs amendment to remove the current requirement to invest most pension funds in government-backed securities. Finally, our regulators such as the Bank of Ghana, Securities & Exchange a Commission, National Communications Authority, Insurance Commission and others must be directed to favour and strengthen Ghanaian entrepreneurs.
Above all our President needs to provide leadership that acts with a sense of urgency but recognizes that the problems will not go away immediately. Patient, purposeful, knowledgeable and courageous leadership is what we need now. Creating a market for the private sector to thrive also requires selflessness on the part of the President and his Administration. Which is also why corruption and “jobs for the boys and girls” must be carefully but seriously attacked. The Administration is there to serve not to serve itself.
Finally, the very structure of our governance must change from everything coming from Presidency to freely-elected district, municipal and metropolitan chief executives to give meaning to local initiatives and priorities.
I offer these as my humble suggestions to those who today find themselves in positions to lead.
We must all as individuals not just talk or suggest but give support when leaders take good steps. I will take this advice. But we must also speak up when our leaders choose the wrong path. I will take this advice also. Most importantly, I am moving my group of companies to grow; patronize and promote made in Ghana products and services; and create jobs in areas of the country others are not willing to go.
Papa Kwesi Nduom
February 17, 2014
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