Ghana’s fiscal deficit according to the June 2013 IMF Country Report No. 13/187 “rose to almost 12 percent of GDP—nearly twice the level anticipated in the revised budget” and triple that of 2011. The 2014 Africa Economic Outlook which is jointly published by AfDB, OECD, UNDP confirmed that, “Ghana’s public-debt performance indicates a rising trend from 25% of GDP in 2006, following debt relief under the HIPC initiative, to 48% of GDP in 2012, and further to 52% in 2013″. The total debt level in 2013 was 57% of GDP driven by continued wide budget deficit. In an attempt to close the deficit, the government increased tariffs making life quite unbearable for both low and middle income earning Ghanaians.
Ghana government has enjoyed increasing revenues from the extractives sector since 2010 because of the discovery of Oil and so it is a wonder that with increased revenues has come wider budget deficits. One main cause for the large fiscal deterioration was higher spending according to the IMF. Question is what did they spend on that did not reflect in the human development of the people? All of the above led to the Occupy flagstaff house demonstration.
Occupy Flagstaff House
July 1, 2014 marked the 54th republic day in Ghana. On this day democracy found expression through a social media orchestrated demonstration/protest aimed at registering citizens’ dissatisfaction with government’s management of the economy. The demonstration marked a new chapter in Ghana’s citizen participatory component of democracy. While demonstrations in general are not new in Ghana, a demonstration triggered by social media activism where mostly middle class folk from different political parties pour on to the streets definitely is.
Present among demonstrators were professors, managing directors, bankers, doctors, students etc. They numbered in the hundreds and withstood both the rain and police intimidation who came out full force riot gear and armored vehicles. Fortunately, the demonstrations were by and large peaceful. After circumventing a number of obstacles such as roadblocks placed in their path by police, demonstrators made their way to the seat of government where the Deputy Chief of Staff received their petition.
The final trigger that set off the occupy flagstaff house protest was the national disgrace suffered by citizens accompanying the Ghana Black Stars football team at the 2014 world cup. The Ghana Football Association (GFA) President was allegedly accused of participating in match fixing according to investigations by the Telegraph and Channel Four’s Dispatches programme. Not long after, two of Ghana’s star football players were suspended indefinitely—one for fighting with an official of the Ghana Football Association and the other for hurling foul language at the national coach—both of which were reported internationally because of the connection to the world cup. Then the national team decided to blackmail government by stipulating that they would boycott their crucial World Cup group game against Portugal if the government did not send them their appearance fees in Brazil—somewhere in the region of $3 million. The President of Ghana in response then authorized the release of this hefty sum of money to be delivered via a chartered jet to the players in Brazil. This also garnered negative international media attention for Ghana—much to the displeasure of most Ghanaians.
One commentator commented thus:
Outrageously, Government was able to speedily mobilize 3.5 million dollars in less than twenty four hours, bundle the cash in bags, chatter a flight from Ghana to Brazil, hire 72 Military Police, 19 Municipal Guards, 26 Squadron Ground Force Military, 14 members of the Grupamento de Operacoes Especiais de Brasilia, One Aeronautical Policia (Air Force), 2 Highway Patrol Battalion and an Air Mobile Brasilia Group to send the $3.5 million through the streets of Brasilia to the players. Woow!!! Look at how brilliant and responsive the Managers of Ghana are!!!!!
What makes the action of government absurd was the fact that Ghana was and is still undergoing a financial crisis with a widening fiscal debt. Some salaries were unpaid, there was petrol shortage due to government’s so-called inability to pay Gh¢1.8 billion owed to Bulk Oil distribution Companies—a sum that has been accruing since 2011, and energy and utilities prices were at an all time high. How does government justify sending $3 million cash via a chartered jet to footballers while its main hospital the Korle Bu Teaching Hospital does not even have flowing water or stable electricity for its operation theaters?
Right about the same period, Moody’s Investors Service downgraded Ghana’s sovereign rating to B2. A consideration for the downgrade was Ghana’s deteriorating fiscal strength, as reflected in the rising debt level and worsening debt affordability amid persistently high fiscal deficits. Another consideration was the increase in Ghana’s vulnerability to shocks given its large debt-refinancing needs and wide external imbalances.
Current revenue mobilization model
Revenue mobilization has not been the strongest suit of any government administration that has had the opportunity to manage Ghana. Instead of coming up with homegrown sustainable solutions to local problems, they have often deferred to prescriptions from World Bank or IMF which historically have proven to be mostly unsustainable and ultimately detrimental to the public. The protests were due to what is in part perceived by citizens as the mismanagement of the economy which has led to high cost of living for even middle class Ghanaians. The question is why has government increased the cost of living by increasing fuel and electricity prices amongst a host of others—each with unfavorable knock-on effects within the economy? Answers can be gleaned from two reports.
The June 2013 IMF Country Report No. 13/187 reveal that the IMF considering the cash deficit of Ghana too high advised government to re-establish cost-recovery pricing of energy products. The government obeyed and in the first two quarters of 2013 alone, electricity tariffs were increased by 78.2%, water tariffs by 59.8%, corporate taxes increased by 5% and VAT by 2.5% according to the 2014 Africa Economic Outlook . The consequence for the citizenry is shouldering the burden of higher tariffs with salaries that have not been increased.
By doing this, the benefit for government is their World Bank’s Doing Business rating for electricity supply improved by 24 points and that of paying taxes by 3 points. These ratings from the world bank has come under fire in recent times for destabilizing countries by encouraging them to make policies that are unfavorable to long term development yet the Bank still uses it as a criterion for lending to low-income countries. The Doing Business ranking also determines where foreign investors, lenders, and donors decide to spend their money.
Some thoughts on revenue generation
Its time Africa finds local solutions to its problems. That is not to say, she does need a lending hand from the international community. She does but ultimately only Africans can place the development of Africa first. The Bretton Woods institutions are financial institutions and their first priority is to recoup their money so they place debt servicing above the meeting of basic amenities within a state. It’s up to the state—in this case Ghana—to recognize this so that when taking advice from the aforementioned, balance the servicing obligations with meeting the basic needs of their peoples.
If increasing fuel prices by almost 80% is going to put untold burden on citizens, it’s up to government to look out for alternative solutions to revenue generation. This is because in a country where there is no state-owned efficient public transportation, the onus falls on the citizens so any disruption in fuel prices affects the entire economy.
It is estimated that 80% of the Ghanaian workforce is employed in the informal sector—meaning 80% of Ghana’s labor force do not pay tax. This grouping holds huge potential for revenue generation. Government should learn from other states how to mobilize revenue from this grouping—instead of leaving the burden on the 20% of employed folk in the formal sector. The process of going about this should be multi-stakeholder based and free from political party bias.
Secondly counters like Ghana are heavily dependent on the export of few primary products like cocoa, gold and oil. This makes them vulnerable to international price variations. What’s more, these exported primary products become inputs to industries in Europe and elsewhere. The finished product like Cadbury’s chocolate and wrist watches or petrol are sent back to Ghana and sold to Ghanaians at hefty prices. Why continue on such a trend? Why not rather add value to some of our primary products. This is what industrialization is all about. It will create industries that will provide jobs to loads of unemployed Ghanaians while at the same time generating revenue. UNECA and others have been practically screaming at African governments to consider industrialization. It is high time Ghana hears this call. It is not as if this is undoable.
For instance, There are industrious Ghanaians who have assembled vehicles, earth moving equipments and various other products like wheel chairs, automated WCs, bicycles etc for decades in Ghana on a small scale. Surprisingly they received no support from government.
Another Ghanaian came up with an ingenious way of producing clean diesel fuel from plants. This diesel is better for the environment—yet he too received no support from Ghana government or the international community. The list of potential runs long. Why will government not get behind some of these folks and drive Ghana’s own industrial revolution. Some complain that solar panels are expensive. Ok how about harnessing biogas. The Council for Scientific and Industrial Research of Ghana has come up with so many research and inventions—each a potential revenue generation avenue for Ghana—yet most of their research gathers dust on shelves. There seems to be a broken feedback loop between government and research and development in Ghana. This should be fixed.
Third, each year the nation of Ghana loses tax revenue from trade misinvoicing to the tune of an estimated $386 million per year. These are from under and over invoicing of export and imports among others. Plugging these leakages can save the nation so much money—enough to go around. Sadly, even when patriotic Ghanaian investigative journalist Anas Aremeyaw Anas provides government with video evidence of customs and police officials bankrupting the nation through illicit processes, no serious actions are taken to reprimand culprits or plug leakages. This leads to the assumption that there are entrenched positions in government—the present or former—who benefit from these leakages.
There has been much talk about the depreciating cedi which leads me to a fourth avenue of revenue generation that government can explore. All telecom companies in Ghana are owned by foreigners much like Ghana gold extracting industry. These transnational entities periodically transfer colossal sums of money out of the country. It is colossal because most Ghanaians use mobile telephony because landlines are not as easily accessible. Each time the transfers takes place, Ghana’s fragile economy reels. This is same for other transnational corporations in Ghana. Government must revisit and renegotiate agreements so that these transfers do not cause such instability to Ghana’s economy.
Finally its time Ghana’s government gives Ghanaians a stake in their national resource. It was surprising to learn that Ghana’s share in the gold mining corporations within its borders is currently 0%. This should change. Additionally Ghana should start working on Ghanaians owning some of the telecom companies within their borders. Why? Because this sector is enjoying enormous growth and the International Telecommunications Union (ITU) forecasts that this phenomenal penetration of mobile telephony and internet technologies will only grow further. It does not make sense to have most of the dividends from this sector transferred out of the country when an appreciable percentage of it could be kept within Ghana’s economy.