Restoring Confidence in the Economy:

We Can't Do It through “Buying and Selling” Economics Anymore

In my opinion, over the last 40 or more years we have relied far too heavily upon the “consumer spending money on imported goods and services” to spur economic growth in Ghana and several parts of the Sub-Saharan African region. In Ghana, we call it the economics of “buying and selling.” It is a well established fact that economic growth essentially comes from growing the gross domestic product (GDP) in an economy. The GDP is a basic measure of on economy's economic performance; it is the market value of all final goods and services produced within the borders of a nation in a year (Pat Catania). Note the phrase "produced within the borders of a nation." If we were able to grow our economy through consumers spending money on goods and services produced within Ghana, I would have no problem with "consumer spending" fueling our economy for many years to come.

The problem is that far too many goods purchased by Ghanaian consumers are imported goods - goods produced primarily in US, Canada, China, Taiwan, Japan, Korea, India and the countries within Europe, and Latin America. For several years in a row, we imported several millions if not billions more goods in every year than we exported, and always running deficit. That means that for several years now we have never had a yearly surplus of exports over imports. The main points in respect of the nation’s current macro-economic situation were recently highlighted by The Economic Sub-Committee of the Government Transition Team as follows:

“In a word, the government of Ghana is “broke”.

- In 2008, government projected that it would spend GH¢168,127,900.00 (approximately GH¢168.1 million) more than it would take in as revenue. That was the projected deficit for the year. Instead, it spent GH¢1,340,196,800.00 (or GH¢1.34 billion) in excess of its revenue. In other words, the government overshot its projected budget deficit by 697.1% in 2008.

- - This translates into a deficit-GDP ratio of 13.42% - the highest in over 10 years. It also puts a severe strain on government’s finances in 2009, including its ability to provide essential developmental projects and social services. Whereas when the NDC left office in January 2001 the GDP deficit ration was 9%.

- - The dire financial situation means that it would be very difficult to implement the salary increases announced by President Kufuor on the eve of his departure as this would create severe challenges for the economy.

- - On the external front, the merchandise trade deficit has ballooned as imports continued to outstrip exports, thanks to increased donor inflows to pay for imports without corresponding increase in export earnings.

- - In 2008, merchandise imports were estimated at US$8.63 billion, compared to merchandise exports of US$4.97 billion.”

Recently, in the “State Of The Nation Address By His Excellency John Evans Atta Mills, President Of The Republic Of Ghana”, the President questioned previous assertion that Ghana is doing well in spite of the global economic crisis. Here is what His Excellency John Evans Atta Mills said and I quote (http://www.oop.gov.gh/site/download/RESCUE_PLAN_FOR_A_BETTER_GHANA.pdf): “Let me highlight the fundamentals of our current economic status and predicament.

- The fiscal deficit, meaning the excess of expenditure over revenue, was GH¢ 2.5 Billion in 2008. This figure is over 15% of Gross Domestic Product. In layman’s terms, we have spent a great deal more than what we earned.

- The external deficit or balance of payments for 2008 is estimated at GH¢3.42 Billion, or 18% of GDP. Here too, it means that we owe our foreign creditors far more than is fiscally prudent for an erstwhile HIPC country. - The rate of inflation accelerated from 12.7 percent at the end of 2007, to 18.1 percent at the end of December 2008.

- In the space of two years i.e. between 2006 and 2008, our stock of external debt increased from US$2.2 billion to US$3.9 billion. This contributed to an increase in the overall national debt to US$7.6 billion in 2008, from US$5.3 billion in 2006. This is in spite of the over US$5.0 billion debt write off enjoyed by the nation from 2001.

- Over the last few months the cedi has lost substantial value with respect to the US dollar which is attributed to the delayed effect of excessive spending and trade imbalances we have experienced since 2006. We have used up foreign exchange resources which have accrued from various debt relief arrangements to shore up the value of the cedi.”

Therefore, excessive government and consumer spending has fueled our economy only to the extent that retailers have provided jobs and benefits based on their sales of predominantly imported goods. We certainly have benefited very little from consumer purchases of gasoline and heating fuel refined from imported oil by our Tema Oil Refinery (TOR).

To restore confidence in the Ghanaian economy, we will need to either produce more of what we consume, or export more than we import. It is unlikely that our appetite for foreign autos, foreign oil and foreign household appliances is going to be suppressed anytime soon, so it is equally unlikely that we will export more than we import. However, if several of the initiatives being implemented through the John Evans Atta Mills NDC governments “A Better Ghana” agenda (the official name for the economic recovery and reinvestment rescue plan) take hold, we could increase our GDP through production of more goods and services domestically. This possibility lies primarily within the anticipated crude oil drilling, renewable energy and manufacturing realms, so any success in those efforts would be welcomed on several fronts. Drilling and refining of crude oil, development of solar, wind and other forms of renewable energy, and the manufacturing of local goods will provide jobs for the domestic economy and possibly new products and technologies for export. In the light of the forgoing I would like to see the government of Ghana under His Excellency John Evans Atta Mills to among other things

• support the private sector through various industrial funds and foreign grants available to it to develop the raw material base for industries

• provide the needed finance and technical support to promote the development and growth of local industries

At least such efforts would restore some confidence in the economy and help to reverse the effects of the current economic downturn. Source:

A. Kobla Dotse, Ph.D.

[email protected]