Business in Ghana

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Looking Forward to a Forward Looking Budget

Posted by Business in Ghana on November 14, 2011

By Sydney Casely-Hayford, Sydney@bizghana.com

This year’s budget must focus on generating enough revenue to meet our expenditures and more.  The 2011 budget targeted ghc10.6billion in revenue, adjusted in August with an supplementary ghc1.3billion to the end of the year.  On the flip side, expenditure was planned for ghc12.7billion and supplemented with ghc0.9million. This reduced the budget deficit gap by ghc0.5billion, leaving a financing gap of ghc1.5billion.  We plan for our friendly donors to help us finance the deficit.

This year must be different.  We have a lot more with which to plan.

Ghana is in the low middle-income bracket, though you cannot see it.  We have some oil wealth, not the planned 120,000 barrels a day, but closer to 85,000 barrels.  However, there are still more oil and gas discoveries on the way and it is looking up.  Cocoa and gold prices are still higher than expected and cocoa yield in particular is close to 1million Mt a year and improving.  Gold hit an all time high during the year and is still threatening to climb higher.  Gold Exports have increased substantially and the royalty rate was raised to 5% providing more revenue to Government and stool occupants.

All tax revenue is higher than previous year and we expect that once the Ghana Integrated Financial Management Information System (GIFMIS) is implemented, we will see more control of expenditures and program planning from the Districts and Municipalities.

We are also praying harder than before to the Almighty to bless us with success.  He heard us recently and postponed the end of the world so we could prove to the rest of the galaxy that we are capable of managing our own affairs.

In 2011 the budget theme was “Stimulating Growth for Development and Job Creation”, and last year Government promised to raise more revenue to meet its obligations.  Same time last year, the Finance Minister itemized at least 24 revenue raising measures (read paras 105 to 141 from the Minister’s speech to Parliament) to meet recurrent and capital expenditure.  Tracking the financial press, I have not seen more than 5 of these measures implemented throughout the year.  I remember distinctly that the Ghana Revenue Authority would present VAT changes to Parliament to legislate.  I also recall that there would be changes to the stamp tax for the informal sector.

All this notwithstanding, we can expect more of the same this year without a line-by-line accounting to the citizens of the targets met or not by the Government.  This piece is not meant for a line-by-line analysis of performance.

When Government goes to Parliament this year to present its budget for the country, the focus must be on how much revenue this economy can generate to meet at least ghc14billion of expenditure (my estimate).  Government has to raise this revenue from the existing taxable base but must also create new tax opportunities.

Government must bring millions of new workplaces in the rural and small towns into existence.  It is obvious that the kind of modern industry that exists in the developed countries has not worked for us.  Those countries are rich in capital and short on human resource, while we are extremely short on capital and very rich in human resource.  Obviously, our economic profile is the opposite.

To make this work we must have more imagination for small-scale, more decentralized, more labour-using forms of organization such as existed in Japan in the early days and what contributed to its vigorous growth.  We should not be exerting effort into large scale mechanized farming, which is the focus of the agriculture sector today.

Four propositions that I consider including in a forward thinking budget are these.

First, we must create workplaces where people are living now, but not primarily in metropolitan areas into which they tend to migrate.

Next, these workplaces must be cheap enough so that they can be created in large numbers without calling for unattainable levels of capital formation and imports.

Third, we should develop production methods that are simple, and will not demand high skills and also ensure simplicity in the production process, raw material supply, financial, marketing and other steps.

Fourth, production should focus mainly on local materials and should be mainly for local use.

This translates into a decentralized policy, which we have legislated but not completely implemented since 1993.  If the purposes of the budget is development and bring help to those who need it the most, each region and district in the country needs its own development.  This is nothing new, except this time Government must create incentives to actually move the process on.

Incentives can reward individuals and companies alike and promote a reverse migration.  Switzerland has six million people and is divided into twenty “cantons”, another name for development districts.  The result is a fairly even distribution of the population and industry and no tendency towards the formation of excessive concentrations.

If we continue to ignore implementing our decentralization plan, we will continue to impoverish the poor and there will be no hope for growth in the country.  We cannot create industry from Accra.

Obviously, the district approach will not succeed unless it is based on using suitable technology.  The choice of industry is one thing, and the choice of technology to be employed after the choice of industry is quite another.  Economic development in the poverty-stricken districts can be fruitful if we develop appropriate technology solutions to production.  Appropriate technology will be labour intensive and will lend itself to use in small-scale establishments.  The budget must have a strong leaning toward supporting appropriate technology solutions.

Finally, we must find a way to monetise our capital and assets.  The major stumbling block that keeps us from benefiting from capitalism is our inability to produce capital.  Capital is the force that raises the productivity of labour and creates the wealth we need as a nation and as individuals.  It is the lifeblood of business.  Until we perfect land ownership, home and personal identification and understand the process of how we can convert these assets into capital and finance, we will not be able to leapfrog our poverty goals.

In this budget, Government must demonstrate that it is capable of living outside its silo mentality and tunnel vision and take a swipe at bold initiatives to promote growth where it matters most; in the rural communities.

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