The Nov 2014 Budget Statement - Some Brief Thoughts

The budget after the dismal performance of the last eighteen months, was very different from the business-like approach to righting the Ghanaian economy I was expecting.

In my view, the statement missed several opportunities to identify and address a number of risk areas with cutting-edge policies and innovative solutions.  Ultimately, this budget leaves the transformative outcomes we seek for Ghana in the hands of good fortune because it:

a)      lacks focus on cost reduction and over concentrates on revenue generation                  

Whilst the budget had concrete strategies for marshalling revenue it was less specific and lacked any strategic focus with regards to stemming the inexorable rise in the costs of running the government that arise from a mix of Constitutional provisions, administrative decisions, systemic corruption and waste in the public sector.  I have shared some thoughts on the role Parliament can play to address this, however the speed with which approval was given to the Bill suggests a yawning gap between the possible and reality.

For example, I expected to hear about strategies to reduce the cost of borrowing for Government underpinned by a legal framework designed to increase hard currency remittances into the local banking sector by Ghanaians in the diaspora with ironclad guarantees of uninhibited access to their funds.  Such strategies could unplug a flood of relatively lower cost funds for projects directly related to boosting manufacturing and agriculture - which can sustainably transform and grow the economy.  And I wanted to hear strategies for moving people out of the public sector into private sector industries .  These could have been major boosts for reducing in the cost of running the government.

This budget missed an opportunity to signal a commitment at the highest levels to exorcise waste and corruption, and slash costs across all segments of government operations.  The signal rather is that Government will continue to dominate overall economic activity without concerted efforts to become efficient.

b)      kept silent on the scale of any impact on the real economy, growth and employment generation

The budget missed an opportunity to give quantitative evidence that businesses can expect to become more profitable and grow in scale and scope.  The negative impact on consumer spending and the cost of doing business through 2015 and beyond for private sector firms arising from the slew of new taxes and charges, revenue generating initiatives and policies are also not costed. 

The result of this is uncertainty for business owners, and local and foreign investors.  We can expect that the private sector will continue to execute business and investment plans on the basis of the worst-case scenario as the safest option to assure continuity of their businesses.  It is implicit then that the highest possible prices will be charged consumers; that growth will become a secondary priority after profit maximisation, and that profit extraction will trump re-investment.

A clear strategy to reduce business risk and interest rates would have been a first for the private sector and evidence of transformation.

Instead, an important opportunity to advertise as soon-to-come, well-paid private sector jobs to attract and absorb talent/labour from the public sector seed in the impending discussions on reducing the number of the public sector workers, any willingness by labour to take less entrenched positions to safeguard their current jobs was missed.

c)       was sketchy and lacked innovation in reviewing debt management methods   

Soberingly, debt management was more addressed in how to maximise it than in minimising it.  Unsustainably high public debt is not good reason or just explanation for development.  Clearly, the inefficiencies and lack of productivity in the public sector are exposed but went largely unaddressed. 

A bold strategy would have presented opportunities for Ghanaian private sector entities to take over the building of development infrastructure and limited any foreign participation to strategic management and/or partners with minority equity stakes.  This way, inflation-neutral, sustainable development could have happened in a fairly condensed period of time.   In the absence of Government policy to prioritise PPPs with local and foreign investors, debt management can at best only remain a colourful art in this and any other budget. 

The budget missed another opportunity to innovate in terms of how the Government would raise development dollars from 2015 without adding to the public debt stock, in such a manner that shores up the value of the Cedi, and raises overall productivity in the economy.  

d)      clearly not market and investor focused, largely IMF stabilisation focused                        

What Ghana needs is massive, sustained levels of growth, a stable economy, and stable currency.  The deafeningly silent address of the risk of inflation well beyond what was projected, and a much weaker Cedi than anticipated is worrying.  The policies planned to govern the economy from 2015 – 2017 are not perfect and the budget could have been used to initiate a transparent analysis of the year-by-year trade-offs between growth and stability; balancing IMF conditionalities and private sector confidence.  Again, an opportunity missed.

e)      Lacked imagination and ambition

For example, what the transformation would mean in terms of growth and success for individual businesses; or opportunities for households to have access to more disposable income.  And details for transformation in the efficiency of Government was muted.  Set against all the prior discussions on the scale of the recurrent budget for governing Ghana.  And so finally, we missed another opportunity to increase the share of private consumption in our GDP, and raise the impact of the economic multipliers from the private sector and households. 

The transformation theme, in my view will not be fully or best implemented until our economy changes from one dominated by the public sector to one where the most important levers for expanding the scope and scale of our GDP and GDP growth are the private sector and households.

It will only be transformed when;
-          the cost of running government is low,
-          the private sector and private consumption are the most important drivers of growth
-          we shift from debt-financde growth to investment funded development and growth
-          private local and foreign investors have the right tools and incentives to operate, and
-          the budget signals and fuels ambition in all economic actors to succeed.

That said, it is still possible for Government in implementing the 2015 budget to highlight and focus on these themes.

All may not be lost.

AUTHOR

Michael Harry Yamson is the Chief Operating Officer of Ishmael Yamson & Associates; a strategy consulting and investor advisory firm that helps organizations improve their performance and profitability. He is a thought leader with interests in economics, governance and investment issues. To see more from Michael, visit Ishmael Yamson & Associates.

The MPC Press Release - Nov. 2014: What's the Bottom-Line?

I ran a business and after reading the latest MPC Press Release - Nov. 2014 I need more anwers and clarifications. 

 

Upbeat Consumers and Businesses ...:
The points made in point eight of the statement that “consumers were upbeat about the general economic conditions”  and that “business confidence rebounded in the third quarter” baffle me a bit since the outlook for the value of the incomes and household budgets and thus for real turnover for businesses are weak. Where can one access a copy of the Composite Index of Economic Activity which is referenced as the evidence for the confidence?  

... Who Cannot Afford to Borrow
Reading from point nine to fifteen I kept asking what the good news is for SMEs if the cost of credit for consumers and small business remains prohibitive, if prices are up and rising in line with the fact that money supply (M2+) grew at twice the prior year’s rate, and if though banks may lend more their lending will likely remain skewed to big businesses?  

Good News is Bad News for The Public Purse ...
I reflected on points three to five and seventeen to nineteen asking myself why the government's financing gap should expand further when the MPC Statement touted a brighter outlook for growth in Africa, rising commodity prices and lower crude oil prices and just felt baffled.  For an economy that imports more hydrocarbons than we export, lower prices should be a blessing.

... and The Economy Moves on Sluggishly
The net effect of the statement by the MPC suggests slower growth, as indicated, so it would have been useful information to be told in what the confidence of consumers and business reside.

Curious Conclusions
My take on the summary of the MPC is that it is schizophrenic, because I read:

- defeatism in points twenty-seven and thirty from the conclusions that we will not be able to sell more exports and felt uncomfortable with the unspoken hints that Cedi stability is the central focus.  This suggests that there is no plan for a sustained recovery in the value of the Cedi vis-a-vis major currencies at precisely the finest opportunity to restore confidence and investment across the economy by anchoring and building on a strengthening Cedi.

- 'irrational exuberance' in point twenty-eight that the completed infrastructure for gas production may have some near term impact in the energy sector when in fact the challenges going forward are more likely to persist in the short and medium term and income from higher oil output will be offset by falling crude oil prices unless Government continues to reign in growth by pricing gas expensively.
 
- denial in points twenty-eight and thirty that fiscal pressures are not described as important risks though the effects when the 3-year Cedi bond auctioned in 2012 and other the forex-denominated loans will start to come due in 2015.

- confusion that somehow the maintenance of a tight monetary policy stance will couple snugly with expected strong private sector credit when more money is made to borrowers available at a higher cost. 

There may be somethings to cheer going into 2015 but I am not clear about what they will be for consumers and SMEs.  Have a read and lets have a chat if you will. 

AUTHOR

Michael Harry Yamson is the Chief Operating Officer of Ishmael Yamson & Associates; a strategy consulting and investor advisory firm that helps organizations improve their performance and profitability. He is a thought leader with interests in economics, governance and investment issues. To see more from Michael, visit Ishmael Yamson & Associates.

 

Raising the Quality Bar in Ghana's Government - Separating Presidential and Parliamentary Election Cycles

My Take

The Constitution must afford the electorate, separate performance evaluations for the Executive and the Parliament that will be more dispassionate and objective.

Prohibition - The Cost Argument

The longstanding argument against holding separate Presidential and Parliamentary elections, and particularly against doing so in different years, has always been that organising elections are expensive and so purely from a cost management perspective, having both simultaneously cuts down cost and doing otherwise would be too expensive.  

My push back has always that a more effective Parliament using its Power of the Purse to cut out waste and corruption from Government can easily resolve the question of resources to pay for separate elections.  All the global reports about waste and corruption would suggest that there is money to be saved than would cost to mount all these elections. 

Looking at the course of our democratic experience and the future, we need a new Constitutional framework that would enable Ghanaians to discretely tell the Executive and Parliament what we think of their work in formulating policy and implementing laws, and in approving laws to aid the work of the Executive and Judiciary, respectively. 

My Take

In an enterprise such as this, money buys quality. 

Introduce a Quality Test - Each for Himself

‪If today, we lament mediocre governance and bad governance across all arms of Government, it is the price we are paying for not investing in our democracy to give the electorate more power to Whip our politicians vis-à-vis the Party political Whips and Leaderships.

Ghanaians must be able to pass a vote of confidence in our leaders but not en-masse.  Each electaed politician must stand on the record of their personal performance in their given roles as President and Parliamentarian in independent election cycles.

That would require a change in the current law so that  we the Eectors can know how each Member of Parliament votes on every Motion they should vote on so that we can evaluate their record, values and contribution to good governance.  

My Take 

The recorded vote system will allow electors to read, know and judge the choices and positions taken by their MPs.  In this construct, the personal ability, and the objective, individual record in Government for each Candidate will be a real reason for what we have termed locally as 'voting skirt and blouse for one party' where midterm elections become the norm.

Hold Separate Elections – Let the People Wield the Whip

Generally, Ghanaians tend to vote first for Party followed by the Presidential candidate, before considering the Parliamentary candidate.  

Mostly, therefore, our Parliamentary candidates do not stand or win stand on their own record as Local Representatives or Parliamentarians but rather, are covered by the halo of a party and its Presidential candidate. Coupled with the meshing of Parliamentary and Executive leadership, and the unavoidable loss of Parliamentary independence, this leads increasingly to a belief that the greatest problem with our democracy is the quality and independence of those we elect to Parliament.

The benefits of separating the Parliamentary and Presidential election cycles are so great that cost should not be a problem.  Good democracy costs money but if they must face the electorate separately, President and Parliament will be on their toes and  waste will be reduced so we can fund the cost.  

Information - Letting MPs Make their Stances Clear

Importantly, the electorate must have access to the voting record of their Member of Parliament.  Secret voting as we now commonly have must give way to recorded voting to give meaning to the trumpeted "independence of Parliament".  

The Framework - It's all about constitutional amendments

The government review of the proposed Constitutional amendments, the work of pressure groups and citizen marches must focus on the fundamentals of peaceful, radical change that will secure the "accountability" of the President and the Parliamentarian for our economy, and for our nation's future. 

Instead of looking at it in the usual way, and focusing all our thoughts on cost per se, we can find a way to elect great MPs and build an effective Parliament able to check the Executive, the Judiciary and all other institutions of state.

My Take

Bringing in and sustaining quality people is far more important than the focus on costs.

Recruitment A New Breed  - How do you bring quality people in?

The political parties will remain essential vehicles for finding capable politicians who can augment the attractiveness of their party as a team capable to doing the business of national leadership in the Executive and Legislature. 

That's me thinking aloud!

Ekow

AUTHOR

Michael Harry Yamson is the Chief Operating Officer of Ishmael Yamson & Associates; a strategy consulting and investor advisory firm that helps organizations improve their performance and profitability. He is a thought leader with interests in economics, governance and investment issues. To see more from Michael, visit Ishmael Yamson & Associates.