Four years of Ghana's 'new deal' economy
By a correspondent
Part I of this analysis of Ghana's Economic recovery programme, which was published last week, has been repeated here with Part II to enable our readers to appreciate the piece in its entirety and in view of the PNDC's recently announced devaluation and other financial measures.There is a well-authenticated story currently going round in authoritative circles in the West that Ghana is finally on the mend; and that give or take a couple of aberrations, the PNDC is the government that must be backed to solve Ghana's perennial problems.
The few voices of dissent which have urged caution in the mad rush to put money in the pockets of this murderous regime appear to be lost in the welter of the analysis that Ghana rules OK. According to figures released at the last Western donor conference in Paris, Ghana received 418 million dollars in 1985. Commitments for 1986 amount to 517 million dollars. For the period 1983-1986, economic assistance received and pledged will come to about 1.5 billion dollars. This increased support for Ghana is said to be on account of the bold and far- reaching economic measures the PNDC has instituted.
In a recent interview, Dr Kwesi Botch- way, Ghana's Secretary for Finance, stated that as a result of the government's econo- mic policies Gross Domestic product (GNP) has averaged 3.3% for the period 1983 to 1985 and 6.5% from 1984/1985 and that inflation has been brought down from a high of 75% in 1980/81 to a low of 15% in 1985. A fall of 60% since 1983!
No detailed figures were issued to accompany this report on the state of the economy by Dr Kwesi Botchway. For an analysis of Ghana's economy, we have to depend on the say-so of the Secretary. It is on this basis that the following critique of Ghana's economy is conducted after four years in office of the PNDC.
Cocoa Marketing Board (CMB), centre of PNDC's retrenchment exercise.
A CRITIQUE
There is a growing tendency among the experts in the West that whatever Ghana now puts out must be right. Therefore those of us who write to the Talking Drums to question these claims must be wrong. A regular charge laid at our doors now is that we are moaning unnecessarily at the economic success taking place in Ghana. Surely, these experts maintain, Ghana can not go wrong now that her economic policies are under the super- vision of the IMF.If the above is the case, then the IMF should have vetted Dr Botchway's figures. For it does seem as if the Ghanaian authorities use figures in such a fashion that they are in danger of losing all meaning. In 1982 and 1983, the rate of inflation was said to be 120%. The IMF itself extensively used this figure in its reports on Ghana.
In 1984 the Economist magazine mentioned this figure, quoting the IMF as its source, in one of its issues on its ECONOMIC AND FINANCIAL INDI- CATORS page dealing with Third World countries with hyper-inflationary rates. So how come this rate of 75%. Obviously the IMF used figures provided by Ghana. Therefore the IMF and Ghana's figures must tally if we are to be persuaded by the view of a close Ghana/IMF relationship. Unless of course the relationship is not what it seems.
Was the figure Kwesi Botchway used a mistake or was it made up on the assump- tion that in such arcane areas, no one will bother to check such data. My own im- pression was that it was used to impress Ghana's paymasters abroad, just like everything else the PNDC does these days. If the figures are fictitious, how can we then believe Dr Botchway's assertion that inflation has fallen or his other claims on the state of the economy?
Assuming inflation has fallen as sharply as Dr Botchway says it has, there may be reasons for this. If you devalue as massively as the PNDC has done and keep interest rates high, you can engineer a fall in the rate but this is not an effective method for implementing a successful counter-inflation strategy. Without a firm commitment to reducing public expendi- ture and keeping the targeted levels under firm control, you will have a situation where rising prices and costs will soon eat up any advantages you may have obtained by devaluation and high interest rates.
From the limited data that the Ghana government deems fit to release from time to time, there is no evidence that public expenditure is being kept under any form of control. Even then I do not trust the Doctor's figures, given the lack of realistic and adequate statistical information on trends in Ghana's economy.
If inflation is falling so sharply, there is no reason why GDP should show a fantastic jump, first from a negative rate of -8% (according to the IMF/World Bank) to an average of 3.3% for the period 1983-85 and then to 6.5% from 1984-85 There is supposed to be an austerity programme going on in Ghana, under IMF supervision. It is voodoo economics to claim that in the course of this programme, growth as measured by GDP can show such a rise. If anything, the deflationary effects of the austerity measures will sort out the negatives but not induce a positive rate of such proportions. You can not have a high growth rate and a dramatically falling rate of inflation. There has to be a trade-off between growth and inflation.
Given Ghana's case, Dr Botchway's comments must be treated with a very high degree of caution. It is significant that he made the statement on the eve of the donors conference in Paris. Was the statement then a public relations exercise to persuade the donor countries who have already been buffeted with press reports on the miracle being created in Ghana, to give more? If that was the case, then he succeeded admirably, judging by what happened at the meeting.
I sometimes wonder whether the IMF is not organising its own public relations campaign to justify the effectiveness of the solutions it has proposed for Ghana. Note how media reports on the economic situation in Ghana have nothing but praise for the effectiveness of the IMF solutions ever since the PNDC adopted that programme.
It is worthy to note at this stage that in Zambia the programme has not had the decisive impact that was trumpeted for it, several years after she sought the Fund's assistance. The reason? In my view, the structural weaknesses of the Zambian economy have stood in the way of satis- factory results. You can not hope to apply modern solutions and techniques and believe that they can work in what essen- tially remains a backward society with its colonial structures still in place. Without comprehensive reforms of the national institutional framework, you will fail to achieve your objectives. Ghana and IMF please note!
I have nothing against the IMF economic regimen. It is the only necessary option for countries living beyond their means. But I wish the IMF will stop making claims that its model can not achieve. Its set of measures is suitable for the immediate short-term efforts aimed at arresting a country's economic deterioration. It is not a model for medium and long-term economic development.
Despite the useful role of the World Bank in these areas, the success of Ghana's economic development rests on the combined efforts of her government and her people. But the people are not interested in playing their part. So whatever stories are being churned out of Ghana only makes sense to the PNDC and the donor countries who wish to believe that the programme is working.
The benefits of the success of the PNDC's economic policies should have been seen in such economic indicators as export growth, increased output, good employment prospects, lower prices, good real wages etc. Nothing has really changed much. Dr Botchway's silence on them goes to confirm the view that things are not what they seem.
In the export sector, the volume and value of our exports have declined. Despite the injection of some capital into areas of this sector, our exports will show a fall in volume and value in the future. Lack of adequate investment for over 20 years in the key areas of this sector has accounted for the deterioration. Massive investment outlays will be required for at least 5-10 years before any meaningful results can be achieved. No new products have been introduced to widen the export base of our economy and to increase our pickings. export earnings.
Four years of arbitrary decisions in the rural areas have left the cocoa farmer bewildered and forced him to shift from cocoa to such areas as maize production. Cocoa production has fallen. Ghana can certainly not meet the target of 300,000 tons set as a key objective in the pro- gramme plan of the Economic Recovery Programme. If this target has not been achieved, then we can say goodbye to the much-touted success of the recovery programme.
The real test of success in the "NEW DEAL" economy is not in the quantities of official aid flows. Private investment is the key.
If there has been success, as Dr Botch- way claims, how come the roads for ex- ample are still deplorable, even worse in many cases, the hospitals are without drugs, the schools without equipment, and many people not able to live on their wages. These are the sort of questions that many Ghanaians not interested in the esoteric world of economics will ask Dr Botchway when he reports good progress. And quite rightly too, for they make sense to the economist who is assessing the impact of his measures.
The question I therefore want to ask is this: Have some of these official capital inflows also gone to rehabilitate the roads, the hospitals, schools etc? If the economy is to take off, then they must be served since they play an important part in it. Which leaves me wondering where the substantial capital inflows from 1983-85 went to?
From what I gather, a substantial portion of the financial and economic support that Ghana has received may have been used to:
Settle short and medium term debts;
Transfer the dividends of foreign companies operating in Ghana;
Finance the purchase of capital goods and consumer items from countries providing assistance;
Pay for the services of consultants said to be analysing our problems and proposing solutions.
The latest trend in the bewildering saga of Ghana's economic recovery is the presence of consultants said to be identifying our problems and making suggestions for their eventual solution. One report talks of a 40 million dollar loan to reorganise the CMB and its associated agencies. Whether the cost/effect of this will be successful remains to be seen. On past evidence, this will be quietly for- gotten or talked up as if it had been a success. Some firms must be making rich
Given the cost and usage of these in- flows as outlined above, what benefits has Ghana secured from these transactions? What commitments for example, have we secured from those firms operating in Ghana, about their future investment intentions in Ghana, now that the bulk of their dividends are being transferred?
The real test of success in the "NEW DEAL" economy is not in the quantities of official aid flows. Private investment is the key and is a measure of confidence in the economy. On that basis, there is not much confidence since there have been no significant private flows into Ghana for the period under consideration, ie. 1983-85. He will be either the stupid investor or a thief who puts his money into the country, given the history of political uncertainties since Jan 1982.
Current improvements in the consumer situation have been financed from the operations of the currency black market and the inflows from bi- and multilateral sources. But consumption of the nature evident now in Ghana and which have given the authorities the feeling that things are getting better, cannot be sustained forever. Without appreciable investment in key economic sectors over a determined period, the economy will deteriorate further than it has been in the past; once the level of foreign aid is reduced or stopped at the end of the current medium term programme. The future can then be grim.
THE FUTURE
Repayment of some of the loans con- tracted from the IMF sources is expected to commence in April 1986. The value of our exports may not have improved significantly to add to our foreign currency position to enable us finance repayment easily. We will then join the long list of African countries finding it difficult to service their liabilities to the Fund, after accepting assistance from the IMF. The PNDC may be forced to reschedule the loans or fall on Ghana's drawing rights in the Fund to meet its liabilities.To offset this problem, the preferred strategy of the PNDC appears to be to borrow more from bi- and multilateral sources for sometime to come., This is what the Secretary for Finance appeared to be saying when he commented on the economy recently; and when he insisted that Ghana's annual flow of loan capital per capita is low, at 17 dollars against an average of 45 dollars. There may be an attempt to borrow to finance consump- tion, and generally to maintain the present favourable consumer situation, and pay off older loans.
Given the history of loan usage in Ghana, there is no guarantee that what- ever is obtained will be used to create further wealth to finance development and service debt repayments. Thus rather than secure the future, the increasing recourse to borrowing by the PNDC to finance non-essentials may saddle future generations with hardship.
What is frightening in this tale-telling and figure-fiddling is that no one, least of all Dr Kwesi Botchway, knows what is really happening to the economy and believes the medium-term programme will succeed. What we are now seeing is a move by which figures are issued to:
encourage institutions to believe the programme objectives are on target;
to persuade donor countries to give more support.
A programme that sets its store by dependence on official bi- and multi- lateral assistance, without spreading the risks of dependence through relying on internal resources and private investment, will experience difficulties once political considerations force the donors to cut back.
There is nothing in Ghana now to per- suade me to believe that the quality of management is so high that the objectives of the medium-term programme so loudly trumpeted can be successfully implemented, unless substantial intakes of foreign technical experts are brought in to man key sectors. Whether this will be politically acceptable remains to be seen.
So how come the donor countries keep on giving support? There are several reasons for this. One is that they believe that once an IMF programme is in place, things must of necessity work, especially since the IMF/World Bank does not seem to be contradicting the PNDC. Second is that the aid package approved for Ghana enables them to export more to Ghana. Thirdly, some of the donor countries do not really know what is happening and use every scrap of information from public sources in Ghana as evidence of success. Fourthly, once you are hooked on the loan/aid circus in any significant way, you can obtain more assistance if you can show that you need
more to carry on. It must be emphasised that economic reforms of the nature being advocated now, cannot succeed without accompany- ing political reforms. The economy is still subject to command decisions from the Castle and the Ministries. There is still the tendency to interfere in every aspect of economic activity, however minor. Bold reforms and imaginative productive activity can not take place in such a re- strictive political environment. The problem will come when the market economy which the PNDC has implied it is opting for, gets into full swing.
The question is whether the small group of decision takers in Ghana will like to see a diminution of their powers once they are confronted with the impli- cations of their economic reforms. Will they have the courage to match their claims of economic reforms with comprehensive political reforms which restore the free democratic process? The most effective strategy is the one which com- bines economic freedoms with a free political system. Otherwise the PNDC will learn what others before it found out that pious hopes of economic success will not be achieved in an environment that has no permanency about it.
Presently the money that has gone to the PNDC only strengthens its anti- democratic leanings and makes it believe that its politics have official Western approval.
There are risks for the donor countries in this enthusiastic support for a strategy of economic development whose chances of success can only be rated fair. It is evident that this support is based upon the fact that Ghana has accepted to work the IMF model but acceptance and imple- mentation of an IMF programme is not a guarantee that the present course of action will work. If it does not there is every indication that the PNDC will blame the donor countries for the failure of a strategy which Ghana and not they had control of. They will learn what many Ghanaians know already: that there are serious dangers in supping with this devil of a regime.
After four years of relentless belt- tightening, the time may soon come when Ghanaians may decide that the belt should be loosened. If the expected results have not been achieved, then the country may be in for a serious economic crisis.
Sometime ago the chairman of the PNDC asked for time to enable his government to solve Ghana's economic problems. In four years the foundations of the new model economy should have been laid. This is not evident to the observer. Nor is it to the Ghanaian himself. There is nothing to show for the four years of PNDC rule.
Somebody will have a lot of explaining to do one of these days; especially when it becomes clear, as it surely must, that the recovery programme is not working.
