Ghana's Economic Reconstruction Efforts.........Are The Hardships Necessary?
by John Abugri
"Scarcity lies at the root of all Ghana's economic problems and hardships. Effort should be directed to fighting and eradicating it" John Abugri analyses the problem facing the reconstruction efforts of the PNDC.Ghana's economy is in shambles. It has been so far quite a long time now; and continues unbelievably to deteriorate day by day.
There is an acute shortage of almost everything. Food items, both local and imported, are so scarce that their prices are phenomenal: a pot of palm soup for the average family lunch costs more then five hundred cedis to prepare; meat has not been eaten in many homes for months because it is not available at prices within the means of the family bread-winners. Fuel for the few vehicles that are left road-worthy can only be obtained after literally days of queuing and even then only four or six gallons a week if not at black market prices of about 200 to 300 cedis a gallon.
The country's currency is not worth the paper it is printed on and there is rampant black exchange which is about forty times the official rate. These and many more factors make life a nightmare in Ghana. The non-availability of drugs gives rise constantly to premature and unnecessary deaths.
This state of affairs was largely in existence when the PNDC government took over power on New Year's eve of 1981, but only less so acute at that time. And when Flight Lt. Rawlings seized power on that day many Ghanaians breathed a sigh of relief. Even some who had voted the PNP into power two years earlier rejoiced at the change because they hoped the change would bring about an improvement in the economic situation. Many hoped that they would soon begin to live decently again or that a movement in that direction would be brought about. "It couldn't be worse" they were heard to say: "it can only improve!". But did it improve?
It is such a shame that today nearly two years after the seizure of power by the PNDC, Ghana's economic situation is far worse than in December 1981. Today there are hardly any jobs for Ghanaians in Ghana. All persons who are "in employment" in any undertaking in Ghana, be it in the public or private sector, are heavily underemployed.
The public sector continues to carry a whole host of redundant labour.
Every now and again numbers of public officers are dismissed and go to swell up the ranks of the unemployed for whom the government does not appear to have any concern. In every other country, governments show great concern for the unemployed and noticeable efforts are constantly being made to reduce unemployment.
In Ghana the government appears to glory in creating unemployment. Private sector undertakings are crushed constantly. Entrepreneurs are violently discouraged. Today the food situation is remarkably worse than it was two years ago. People are actually starving. There is hardly any transport on the roads. The drugs situation is a disgrace to the country.
What went wrong then? A noble aim has gone tragically wrong. Corruption is evil and must be stamped out. However, there is no excuse for throwing the baby out with the bath water. Under the guise of eradicating corruption from the system, thriving businesses have been destroyed by being seized and placed in the hands of incompetents; business men have been chased out or molested to the detriment of their businesses.
The result has been terrible deterioration of the economy. The economy itself has been the least of the government's worries. Every action of the government goes to cut down some enterprise or so-called "rich" man. Nothing is built up. All we see is cutting down. Consequently, in this attempt to create a corruption-free Ghana, what is being attained is nothing other than shattering the economy and bringing hardship to the people of Ghana.
The people of Ghana who gave such an enthusiastic welcome to Flight Lt. Rawlings in December 1981, the same people are now being afflicted with unnecessary hardships merely because the Flight Lt. has taken a course which, everywhere it has been practised, has led to nothing other than hardship and disaster.
Scarcity lies at the root of all Ghana's economic problems and hardships; and to avoid these hardships, effort should be directed to fighting scarcity and eradicating it. Human effort is naturally geared towards producing the supply of scarce goods to meet the effective demand thereof.
And it behoves managers of the economy to ensure that measures are taken to combat scarcity and short supplies. It is not good enough to merely preach production increases. What is important is to take effective steps which will achieve stated goals. In the Ghana context the following are some of the measures which are sine qua non to the improvement of the company:
1. Agricultural Output must be increased phenomenally. To achieve this, present as well as would-be farmers must be given INCENTIVES which would make farming profitable to them. These incentives may include attractive ex-farm prices of products as well as support and advisory services by the Department of Agriculture's Extension Services. Nobody is going to go farming unless it is going to be profitable for him to do so. Most people are going into trading now because it is profitable. Therefore, in order to succeed in luring people into farming and producing essential farm products, it is necessary to dangle the carrot of gain in their faces. Successful agricultural activity will be able to offer employment to agricultural labour and management thus simultaneously contributing to the solution of the unemployment problem.
2. Industrial Output must be increased appreciably. Ghana has a network of industrial installations all of which, without exception, are working miserably under capacity. With the lazy-man's excuse of "Ghana has no money" industries are starved of essential inputs, or closed down without adequate alternative arrangements being made for the substitution of their products and the redeployment of their personnel.
Foreign exchange, of course, is what is being referred to in this context. And anybody who has any notion of commerce and business is well aware that there is never ever an abundant or even adequate quantity of money available readily for the carrying out of commercial or business activity. Money must be found; proper arrangements must be made for the necessary quantum of money to be raised for use. in the effort to resuscitate our industrial installations, build new industries where and when necessary. Money must be found to restructure existing industry, break down improperly founded ones and put new ones in their place where necessary. This brings us to the next measure which must necessarily be taken in the scheme of efforts for the improvement of the economy.
3. Ensuring a proper value of Ghana's currency vis-a-vis other currencies of the world. In other words, ensuring a proper exchange rate of the cedi. Years of economic misadventure, economic mismanagement, excessive and improper control of the market factors of the economy, exchange control inter-alia have resulted in the Ghana cedi getting into a fundamental state of disparity with other currencies of the world.
The cedi is held up at such a ridiculously high level officially i.e. by exchange control that all transactions - cedi versus other currencies invariably end up to the detriment of Ghana and Ghanaians. The holding up of the cedi artificially has gone on for years; every Government except the current Rawlings regime expressing fear of being thrown out if they should tamper with alterations in the exchange rate of the cedi. The effect of the persistent unreasonably high value of the cedi has been:
(a) On the Ghanaian exporter: - his export proceeds of foreign exchange are returned to him by the Bank of Ghana in cedis at the official rate thus giving him far fewer cedis than he needs to finance the operations necessary for a repeat export. Thus the exchange rate causes him to make losses especially in times of increasing costs. Nobody can remain in business making losses, hence almost all the export-orientated enterprises have folded up, their staff swelling up the ranks of the unemployed. These people then all tend to turn to kalabule and other black. market practices since such practices appear to offer easy gain. The governmental marketing agencies also suffer from the inadequate cedi receipts and hence they also incur real losses on their operations. More importantly these agencies are unable to pay the farmers such prices as would attract them to wish to continue to produce their commodities for export.
(b) On the Ghanaian importer: he pays too few cedis for the foreign exchange allotted to him for payment for his imports. He therefore has a primary advantage for making excessive profits where the goods he imports are not subject to price-control. But even when the goods are subject to price control, because they are not imported in large enough quantities to meet the overall demand, the tendency is for the goods to filter out of the price control system and eventually attain proper market prices determined by the interplay of demand and supply.
Thus lots of goods imported into Ghana, where supplies are already short, find their way into neighbouring countries. Even goods imported by and for Governmental agencies fall in this category. The fundamental reason for smuggling, kalabule and black market in currency is the disparity in the value of the cedi vis-a-vis other currencies with its attendant scarcity of goods, price control and exchange control. The remedy to smuggling, kalabule and black market in currency lies primarily in correcting the disparity in the value of the cedi thus making it possible for funds to be raised for total restructuring of the economy to enable the raising of agricultural output, industrial output and the eradication of scarcity.
What has been done to ensure a proper exchange rate of the cedi? What is being done to ensure that we can raise the necessary funds for the improvement of the economy? What is being done to attain the collosal increases in Agricultural Output? What is being done to attain phenomenal increases in Industrial Output? What is being done to eradicate want?
The Rawlings Government has had the courage to take some measures towards correcting the disparity in the exchange rate of the cedi, although it has not the guts to say so and to explain to the people why it is the only sensible thing to do. It has, through its import surcharges and export bonuses, effected a massive realignment of the cedi exchange rate.
The Cedi has been devalued as it ought to have been long before now. But devaluation per se or any re-align ment for that matter is not a magic wand that puts everything right the moment it is done.
It has to be managed and careered to have the desired effects. If it is done right, it will put adequate amounts of cedis in the hands of exporters when they export. Therefore reasonable directives and advice have to be given to exporters present and potential to lure them into taking advantage of the incentive of plentiful earnings of cedis when they export.
The operations leading to exports must be made attractive and relatively easy for them. Officialdom must accept the principle of extra gain accruing to the exporter. If therefore the exporter's gains are virtually all eroded by excessive and punitive taxes then no advantage is obtained from the re-align ment measure, and in time, nobody wants to deal in it. If it is done right, it will make all importers pay more cedis for their imports. These costs are usually passed on to the virtual end-user of the import. Costs including wages and salaries will rise and so will prices.
It may, however, be considered im prudent or unwise to allow the prices. of selected goods to rise proportionally with the change in the exchange rate. In the cases of those selected goods then, compensatory devices should be introduced to avoid socially undesirable effects of the realignment.
But most of all, the measure must be allowed to work, i.e. to take effect, if not there can be no change. An adjustment of the exchange rate must therefore necessarily be accompanied by some relaxation of the controls that hitherto buoyed up the exchange rate artificially. If £1 had been held as the equivalent of C5 and now it has been properly calculated that £1 must exchange for 50. Then anybody who has £1 must be able to obtain 50 for it. Likewise anybody who has 50 must be able within the bounds of legitimate transaction to obtain £1 for it. If, however, the controls persist such that the new exchange rate cannot be given effect, the result is bound to be, where there had been a black market, worsening of such a market. If after realignment, import licensing, price controls and exchange control are not appreciably relaxed, the realignment exercise is of no effect whatsoever. On the contrary, it worsens all the mal-effects hitherto known.
What is worrying is that the Rawlings Government does not manifest the inclination to doing the things without which economic recovery is unachievable. They have devalued the cedi, but they have not arranged the wherewithal to put supplies into the system. Massive inputs need to be arranged to enable the productive sectors agricultural and industrial to be resuscitated and improved upon.
When sound and workable plans have been drawn up for the revamping of the productive sectors it should not be too difficult to obtain short-term bridging facilities for the financing of essential consumables required during the reconstruction period.
The people of Ghana do not deserve the hardships they are now suffering. Nobody, who has not workable answers to our economic problems, has the right to govern the country.
