The Minister of Finance, Mr Seth Terkper, has challenged the private sector to do more to augment the government’s efforts at building a stronger economy.
He said for the government to depart from deficit financing, it needed a strong collaboration and participation of the private sector, particularly in the areas of infrastructure delivery, adding value to raw materials and exports before the perennial twin deficits could be eliminated.
“For the government to completely move away from traditionally resorting to short-term financing instruments such as treasury bills, the private sector has to come in strongly, supporting the public sector with long term-financing such as from insurance, a vibrant stock market, increased exports of value added products, an efficient warehousing infrastructure and partnerships with the public sector to develop infrastructure,” the finance minister said.
Mr Seth Terkper was contributing to a dialogue on the State of the Economy on March 11. The Graphic Communications Group Ltd organised the forum with the support of Fidelity Bank and GRAPHIC BUSINESS, the group’s business newspaper.
Role of government
The finance minister stressed that the role of government was often exaggerated, especially when it came to the provision of capital for the sector, saying the government basically used taxes for development but if: “we complain about tax increases then the government has to play a minimal role and a facilitating role in the economy.”
The Ghana Revenue Authority (GRA) collects between GH¢12 billion and GH¢13 billion from taxes. Out of this, about GH¢9 billion is used to pay wages and salaries and get the machinery of government and social interventions running.
This leaves very little income to support capital expenditure and investments.
“Given our output and desire to maintain a liberal tax regime, which has benefitted them (the private sector) with a corporate tax rate of 25 per cent and 22.5 per cent without the previous sales tax which could go up to 200 per cent, then I say that the private sector has to do more.”
The finance minister explained that the private sector had been on the short end of the market for financing for too long, much the same way as the public sector.
“This means the government itself should begin to look for a diversified source of funding for the budget, particularly for the capital expenditure.”
He proposed a development bank, not necessarily state-owned, which could go into long-term financing for various sectors of the economy, saying: “this should be a challenge for the financial services sector.”
He wants strong institutions from the private sector, especially the equivalent of COCOBOD which acts as an aggregator for smallholder farmers and an off-taker for the farmers.
Most significantly, the economy also needed to be serviced by a deep enough financial system to grow the real sector – industry, agriculture and services – which should come not only at the back of the government but the private sector as well.
“It is the financial services sector that will oil the real sector to achieve that stability that the country requires,” Mr Terkper said.
In agreement, Mr Kwame Pianim, the renowned economist who chaired the forum, said private sector associations needed quality staff that could conduct specialised research, use them to influence policy or partner the government with alternative solutions.
Where we are
That Ghana is lower middle income and that it can no more access concessionary loans and very soon would go for commercial loans from multilateral institutions, is a fact that should not be lost on anyone, the finance minister announced.
“Certain events happened; the rebasing and the population census that has placed Ghana as a lower middle income economy. This is the reality that is dawning on us. This means that Ghana is no longer eligible to borrow from the World Bank and the African Development Bank and repay over 40 years, but now 25 years,” Mr Terkper stressed.
He said the country had also become an oil producer. This means that if the oil production goes as planned, the country could leverage that to borrow from World Bank on commercial terms to support its development agenda.
“It is a mathematical division of our Gross Domestic Product over our population and the world would continue to judge us with this from now on and it’s up to us to get the policies right.”
Ghana has been associated with volatilities in the past and present. First, is the power crisis which stems from two sources: the Akosombo hydroelectric Dam and inadequate supply of gas to power thermal plants. These affect households and companies, shrinking productivity each time the crisis occurs.
Secondly, the country is a major exporter of primary commodities – gold, cocoa and bauxite and other minerals to a lesser extent. Changes in prices therefore impact the local economy directly.
This means global economic meltdowns have impact on the local economy from two fronts; through exports of non-traditional products, which nearly reached US$3 billion last year, and on the coupon rates of sovereign bonds as well as domestic instruments with the participation of non-residents.
These developments are part of the factors that have defined the country’s recent and past macroeconomic volatilities as it underpins the local economy’s exposure to the global economic system.
Minister Terkper wants the volatilities to be managed with superior instruments such as the swap and forwards: “else we will continue to experience the sort of shocks affecting the economy and I think we are getting better at it.”
First of all, he emphasised the need to continue with value addition, which had started with gas from the oil fields and agro-processing which has been envisaged in the plans of the government.
“Value addition in the areas of agriculture in the areas of cocoa and others is the way to go. This is the only way to maintain a diversified economy,” Mr Terkper stressed.
He agreed with a renowned economist, Mr Kwame Pianim, who chaired the dialogue; for making Ghana the hub for many industries such as transportation, financial services and anything for which international and domestic capital would play a role was important.
The country should also follow through with achieving the Millennium Development Goals (MDGs) else we could grow and leave the vulnerable behind, thus stressing that the country should go for shared growth.
Mr Pianim suggested the adoption and inclusion of technology in all aspects of governance in the country to make the public sector efficient and responsive to the needs of the private sector and the general public.
The economist believes that getting a stable and resilient macroeconomic environment was critical for growth in the economy.
“We should end the cyclical election-related macroeconomic misalignment; we should support and promote wealth creation and not wealth destruction.
A former finance Minister, Dr Akoto Osei, wants managers of the economy to be true to targets they set and achieve them in order to win the confidence of the international community, else credibility issues would deter foreign direct investments, saying, “we need the funds to come in from FDIs; if we lose touch with the confidence dimension, we will put pressure on the cedi.”
The Chief Executive of the National Petroleum Authority (NPA), Mr Moses Asaga, explained that deficits should be counted in terms of what they financed.
In the recent case, the deficits went into supporting the productive sector such as rural electrification; the construction of boreholes to provide potable water, infrastructure in education and road construction and others, Mr Asaga pointed out.
He said the financial services industry, the real estate sector, services, aviation, oil and gas and others had witnessed phenomenal growth with continuing interest from investors, amid a growing middle class which was important for the future of the economy.
Mr Pianim observed that the country was at the crossroads, and was required to take the hard decisions and make the economy the hub in the sub-region powered by a stable macroeconomic environment.
“We have to take hold of the difficulties head-on, and as citizens, when we are called upon to make sacrifices, such as paying a little more to enable the utilities borrow on their own balance sheets, we should be prepared to do it.”