The Impact of Globalisation on the Ghanaian Economy

Remittances, Brain Drain, Microfinance and SMEs – The Impact of Globalisation on the Ghanaian Economy -Part

By Kwesi Atta Sakyi 4th March 2013

The UNDP (2005) estimates that there are some 906,698 Ghanaian emigrants out there in the Diaspora, forming 4.1% of Ghana’s total population. Of these, the top ten destinations for Ghanaian émigrés are the UK, USA, Canada, Netherlands, Nigeria, Togo, Burkina Faso, Benin and Cote d’Ivoire. In that order. In the same year 2005, the UNDP and UNHCR reported that Ghana was hosting 1,669,267 foreign nationals who formed 7.6% of the total population, out of which 55.6% were female, and 2.5% were refugees.

Worldwide, international migrants are estimated to be 215 million. The World Bank states that worldwide remittances from these 215 million migrants totaled $372 billion dollars in 2011 and $399 billion dollars in 2012. Freund and Spatafora (2005), estimate that 35% to 75% of all remittances are unaccounted for through informal channels to the developing countries. It is a known fact that Indians, and those from Islamic countries, as well as those from countries such as Syria, Lebanon, Greece and Italy, do a lot of business through human couriers. This is obviously due to strict and sometimes cumbersome bank controls and limitations. Worldwide, many people traffic money around across borders through unofficial channels, in what is sometimes part of the money laundering phenomenon.

In the Islamic communities abroad, they are noted for cross-border illegal money transfers, sometimes to support terrorism, and in genuine cases, to support the less fortunate faithfuls to establish businesses. Eurostat reports that the 10 leading migrant countries with nationals in the EU are Turkey, Morocco, Albania, Russia, Algeria, Ukraine, India and China in that order. The 10 leading recipients of migrants are Germany (10 million), UK, Spain and France (7 million each), and Italy (4 million). Others are the Netherlands, Belgium and Portugal. Remittances from migrants in the EU to the developing countries totalled €31 billion in 2009. In 2009, of the worldwide total of $300 billion remittances, Africa received $40 billion.

Remittances to Ghana alone outstripped FDI and ODA put together, according to Dr Wampah of Bank of Ghana, when launching Ecobank’s Rapid Transfer product, which is meant for both its customers and non-customers. Remittances are a source of foreign exchange to governments as well as a shot in the arm for recipient countries’ SMEs (EU Remittances Report). As recently as 2012, it was reported that total remittances to Ghana through the banks for the first two months of 2013 had reached a record high of $2.9 billion dollars. In 2006, UNDP Development Prospects Group reported that Ghana received $4 billion dollars worth of remittances (www.worldbank.org/prospects/migration).

Samuel Dowuona of Adom FM wrote on 30th September 2010 that the Bank of Ghana, from January to May 2010, received $4.2 billion dollars remittances. Masahudu Aukilu Kunateh wrote on allAfrica.com website on 19th June 2012 that Ghana’s economy remained resilient from the global financial crunch and meltdown. Perhaps, due to the power of remittances! We may review the brain drain syndrome against the backdrop of the following statistics on Ghanaian doctors and nurses abroad. Docquier and Bhargava (2006) reported that in the year 2000, 450 Ghanaian doctors were outside, constituting 22.3%.

(Perhaps, my cousin, Paa Kwesi Mintah of ghanaweb fame is one of the culprits.) In 2006, Clemens and Petterson said that the figure of doctors outside was 1,639 or 55.9% of doctors trained in the country. Clemens and Petterson put the number of nurses outside at 4,766 or 24.1% of all nurses trained in Ghana. This factors out to a ratio of 1:3 doctor-nurse ratio for Ghanaian medical personnel emigres.

The EU observes that if the cost of money transfer or remittances were to drop from 10% to 5% of the amount sent, then considerable savings could be made to the tune of $17 billion dollars. This target is set for 2014 (EU Remittances Report). Even though banks transfer large amounts, they are not popular among remitters and remittees, because of their cumbersome and intimidating procedures, and sometimes impossible demands. Banks charge far larger transfer fees than say Western Union or MoneyGram.

There is, therefore, the need for banks to overhaul and streamline their operations to reduce their cost of doing business, and to lower their wrong perception of some of their potential customers. Remittances received are a lifeline for many beneficiaries, and they are potent interventions for mitigating poverty in the developing countries. It is hoped that when the global credit crunch improves in Europe and America, more inflows of remittances will be received in Africa in particular and the developing world in general.

Albeit, the World Bank has observed that remittances to Africa are below the global average. What is the import of such an assertion? Do we have less Africans abroad than say the Asians or East Europeans? Are they discriminated against and underpaid, compared to others? Are there many impediments put in their way when they want to remit? Are they less qualified on average than say their Asian counterparts or East Europeans? Are they less productive? Do they lack proper negotiation skills in negotiating their conditions of service? Are they supportive of one another as the Asians do? Are Africans in the Diaspora less patriotic or do they have more propensities to consume than to save? Do they have more responsibilities abroad towards their families than other emigres?

These questions need researching into for answers. Those countries planning to deport foreigners should think twice about the huge economic repercussions of such action, even for themselves because we have experience in Nigeria in 1981 and 1983 when the Federal Government of Nigeria cracked its whip by invoking the notorious Aliens Compliance Order, causing mass ejections and deportation of more than a million Ghanaians, which had a devastating and deleterious effect on their aggregate demand and GDP. Right now, the USA Government is in the process of granting amnesty to 20 million illegal immigrants who daily contribute to their GDP.

The critical questions we should ask ourselves as we move forward on this issue of remittances are:- 1. Since remittances to Ghana exceed Official Development Aid (ODA) plus Foreign Direct Investment (FDI), should we then stop receiving ODA and FDI? My personal answer to this is a capital no, because remittances are sent to private individuals while ODA and some percentage of FDI are geared towards public expenditure or public goods as well as merit goods. 2. Since Diasporeans are contributing immensely to Ghana’s economic growth, should they not be recognized in a big way by the Ghanaian Government, in a way such as creating a Ministry of Diasporean Affairs? 3. Can’t the Ghanaian Government influence the banks in Ghana to set up special incentives to entice many in the Diaspora to bank home, such as what obtains in India where inward deposits from Indian Diasporeans attract special high interest rates of up to 10%? I am aware that UnitTrust Bank in Ghana has a similar scheme in place as in 2003, one of my friends in South Africa benefitted from such a scheme. Interest rates in the UK and USA are abysmally low for depositors, some as negligible as a pitiable 1%. 4. When is the Ghanaian government going to waive useless and thieving taxes on goods which Diaporeans and returnees bring home on their return? There is a very serious and critical need for tax reform in Ghana, as most Diasporeans feel much embittered when they return home and the customs officials interpret the tax laws negatively and adversely to rob them of their hard-earned capital. Many Diasporeans are put off by such behaviour and they may redirect remittances somewhere else. 5. What is the Ghana Government, with her development partners, doing to ensure that measures are put in place to plug the leakages in the remittances conduit, whereby informal remittances through underground channels (informal money laundering) exceed the remittances through the formal channels such as the banks, MoneyGram and Western Union? 6. What educational and promotional activities are being mounted by our embassies and trade missions abroad to direct Diasporean remittances into viable ventures in Ghana, such as rejuvenating our dilapidated railway system and our under-capacity energy generation sector? 7. What measures are being taken to stabilize the cedi so that the value of remittances in the local currency does not depreciate against the dollar or other major currencies? 8. What concrete efforts are being made to stem the tide of the brain drain, by addressing the root causes, which are hinged on pull and push factors? What efforts are being made to contain inflation, improve the quality of working life and conditions of service for Ghanaian professionals, such as nurses, teachers, doctors, engineers, lecturers and the like? 9. What plans are being made by the Bank of Ghana (BOG) to support rural banks so that they can target microfinance and soft loans at the rural poor who are engaged in farming, retailing, rural crafts, among others? These ruralites often receive remittance notices on their cell-phones. 10. When will the Ghanaian Government set up an entrepreneurship mentorship scheme, which will be linked to financial support from identified Ghanaian Diasporeans and their overseas partners? Such a scheme will immensely help to reduce youth unemployment in the country. 11. When is the Ghanaian Government going to complete a comprehensive database of Ghanaians in the Diaspora, for purposes of tapping into their investment and remittances potential? 12. When is the Ghanaian Government going to carry out a research or survey into the problems which Diasporeans face when sending remittances to Ghana, such as the high cost involved in the transfer fees or the bureaucracy and rigmarole involved in receiving remittances through the banks in Ghana? What is the government doing to reduce the cost of cell phones, talk time and internet access, especially to rural people? 13. When are the Ghanaian authorities going to do comprehensive analysis of who send remittances, from where to where, why, how is the remittance utilized, why did an envisaged project fail, what mode do remittees use to receive messages of remittances sent? 14. What research is the Ghanaian Government undertaking to assess the impact of globalization on the Ghanaian economy, especially in the area of the use of information technology, Sakawa, internal fraud and identify fraud, 419, among others? 15. Are inward remittances to Ghana responsible for the high rate of economic growth, which is one of the highest in the world? Is this trend sustainable?

The Chinese economic growth model started with statism or the command economy, which led to huge infrastructural development. When the Soviet Union crumbled under Gorbachev’s Glasnost and Perestroika, the other communist and socialist democratic centralist countries also crumbled like a pack of cards in the early 90s. That led to the end of the Cold War and the beginning of the ascendancy of the USA as the only superpower in a unipolar world.

However, China’s economic discipline, combined with state capitalism, have led to stupendous economic gains, making her the second largest economy in the world, overtaking Japan and trailing behind the USA. In South Korea and Japan, they had economic and social revolutions. The South Koreans in the 50s and 60s had military Generals who practised Chaebol or a kind of capitalism based on power and nepotism. The Generals gave leeway to their friends to establish huge enterprises, which they funded. Companies such as Daewoo, Hyundai, Lucky Goldstar (LG), Samsung, among others sprung up. They also received Marshall Plan-like aid.

Massive capital inflows came from the USA and Japan, as Japan needed to invest its huge surpluses in a neighbouring country. South Korea emerged from the Korean War of the early 50s as a strong American ally, for stopping the spread of communism in South East Asia. South Korea therefore received massive Marshallian-type of aid inflows from America. That explains the South Korean economic miracle. South Koreans in the Diaspora returned home with huge capital remittances and a lot of acquired technological expertise. Like Japan, they sought an outward-oriented growth path as they doubled efforts to export massively their cheap products

. To create what Michael Porter calls international competitive advantage, they built huge competencies in quality education by offering heavily-subsidised high quality education. In Singapore, Lee Kuan Yew used high-handed tactics to chart a new growth path by exploiting Singapore’s exceptional geographical location, astride a busy international sea route. They invested hugely in human capital, eradication of bribery and corruption, built state -of –the- art oil refineries, airports, ports and world class manufacturing plants, involving light industries. They avoided heavy polluting industries and concentrated more on qualitative service industries. Above all, they had good work ethic.

They positioned themselves as a very attractive investment destination for the rich in neighbouring oil-rich Indonesia, Malaysia, Thailand and China. The Singapore growth model is classical. In Japan, the Meiji Restoration/Revolution in 1868 sought to restore the reign of the Emperor and the annihilation of the Tokugawa Shogunate. They undertook mass modernization, reforms in education, commerce, the military and local government (www.calvinlew.com/issuepapers/meiji-revolution.htm.lew1995).

The Meiji Restoration was a landmark and watershed, which marked a quantum leap for Japan, and a turnaround, as Japan emerged strongly on the international scene as a world power. Japan defeated China in the Sino-Japanese War (1904-1905). Japanese territorial ambitions culminated during the Second World War in its unholy alliance with Hitler, but they were stopped in their tracks by the dropping of the atomic bomb on Hiroshima and Nagasaki. Thereafter, Japan canalised its rude faculties into an aggressive outward-oriented economic policy of being the manufacturers for the world.

They worked hard and sent their students in large numbers to Europe and America to acquire specific skills to return to Japan to lead the economic revolution. After the War, they adopted Karioshi (work till you drop dead) as a culture of catching up with the advanced world. In Ghana, we need a new type of economic revolution from our Diasporean émigrés, who should return home to strategically position Ghana for a take- off, a kind of economic renaissance. The way politics is being organized in Ghana as business as usual, does not augur well for the future. Our politicians have become obsessed with grabbing power at any cost for self-aggrandizement, yet they have no vision or roadmap for the country.

We need visionary leaders, the likes of Dr Mahathir Muhammed of Malaysia, or the likes of Hu Jin Tao of China, or Lee Kuan Yew of Sngapore. We should create an enabling environment in Ghana so that the remittances from Diasporeans can be usefully channeled into viable investment projects. Diasporeans have to form coalitions through the use of the internet so that they come home as change agents and catalysts to drive the much needed economic revolution in Ghana. Our current politicians have failed us as they are parochial, self-centred and highly partisan.

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The author is a Senior Lecturer at the Zambia Centre for Accountancy Studies in Lusaka, Zambia. He holds a B.A. (Hons) degree from the University of Ghana and an MPA degree from the University of South Africa. He is a freelance writer and contributor to many online media websites.