After a very close election—at least in terms of the Parliamentary results—and amid a still-raging pandemic, the Government has its work pretty cut out for it. From IEA’s own research and interactions with a cross-section of stakeholders, the Institute is suggesting policies that it believes are key for moving Ghana along a path of sustainable growth and delivering tangible benefits to Ghanaians after the pandemic.
The Institute conducts this exercise after every election in pursuance of its objective of influencing public policy to serve the interest of Ghana and its citizens.
The policies suggested are under the following areas: resource mobilization for development; efficient and responsible resource utilization; economic transformation through industrialization; agricultural modernization and food security; employment generation; natural resource exploitation; policy inclusiveness; government transparency, accountability and responsiveness; and abatement of corruption.
1. Resource mobilization for development
Ghana has chronically lacked resources of its own to support its development. In the circumstance, it has had to rely heavily on loans to supplement its own resources, increasing its debt burden in the process. This has to change.
We currently collect only about 15% of GDP in domestic revenue. Our comparator middle-income countries collect on average twice as much, i.e. 30%. We know that Ghana’s tax rates are relatively high. Therefore, our low revenue effort is not due to low tax rates. It is rather due to the fact that we fail to collect a lot of taxes. Yearly, we lose substantial tax revenue through various loopholes. Having identified these loopholes, we suggest the following actions to plug them:
• We lose revenue in excess of tax GHc5 billion (or about US$1 billion) through tax exemptions annually. We know they are subject to considerable abuse. Government enacted a bill to streamline the exemptions, but it has been languishing in Parliament since 2019. The political will to pass the bill seems to be lacking, ostensibly due to entrenched interests. We urge Parliament to pass the bill with urgency to plug a big hole in the tax system.
• Significant amount of revenue is lost through tax evasion, which sometimes occur with the connivance of tax officials. We urge that a strict surveillance system backed by a strong sanctions regime be instituted to deter and minimize the incidence of tax evasion.
• The informal sector accounts for nearly 30% of GDP, but a large part remains outside the tax net. Most of the activities are small in scale, but cannot be completely ignored. We should be taxing businesses that employ at least a few people, like mechanics, hairdressers, tailors and other artisans, while leaving out small fishes like “kayayoos,” “kenkey,” “waakye,” and “ice-water” sellers, who have tiny incomes. Digitization and other new technologies should be leveraged in the collection of informal sector taxes.
• Property taxes constitute a potentially large pool of revenue, given the sprawling mansions in the urban areas, but are barely collected. We suggest that property tax collection be made the responsibility of MMDAs, who should be allowed to retain part as their internally- generated funds and used at their discretion.
This paper is a summary of a larger paper to be published by IEA and is tailored to the convenience of the media.
• Illicit financial flows, including trade mis-invoicing, transfer pricing and various forms of money laundering, constitute a major channel of revenue loss to the state. Studies put annual revenue loss from illicit financial flows at about US$3-4 billion. We need a strong investigative and surveillance system to detect and curb these practices. A strong sanctions regime is also needed to punish and deter culprits.
• Tax fraud and corruption perpetrated through connivance between tax payers and tax officials deprive the state of substantial revenue. We suggest that a strong multi-layered surveillance system supported by automation and digitization be instituted to deal with the problem in addition to a strong sanctions regime to deter and punish offenders.
• Inefficiencies persist in tax administration, including collection delays, inadequate taxpayer coverage and high collection costs, which result in revenue losses to the state. Expanding automation and digitization would go a long way to improve efficiency in tax administration and positively impact on tax revenue.
• Plugging these loopholes could add over 10% of GDP to our revenue collection. We need to do this as failure would constrain our economy to a low growth path, which will perpetuate our underdevelopment.
• We have also previously suggested that as a developing country we should from time to time call on the booming sectors of the economy to support our development. Barring the effects of Covid, in recent years, the mining, telecommunications and banking sectors have prospered and should, therefore, be candidates for additional taxation.
2. Efficient and responsible resource utilization
Spending our revenue prudently and efficiently is as equally important as its collection. Unfortunately, Ghana’s resource allocation is characterized by severe rigidities and inefficiencies. Revenue is rigidly tied to wages, interest and payments to statutory funds, while pro-growth capital expenditure (CAPEX) is squeezed out. We call for serious expenditure rationalization and rebalancing, entailing the following specific actions:
• The wage bill needs to be reined in by downsizing and improving efficiency and productivity of the public sector. Public sector reforms have been shelved for far too long and need to be carried out as a matter of urgency.
• Statutory funds should be reformed to improve their efficiency and make them more fit for purpose.
• A comprehensive debt management strategy, including debt restructuring and buybacks should be undertaken to rein in interest payments. But above all, curtailing the budget deficit is the way to avoid unsustainable debt accumulation.
• There is room to streamline and contain expenditure on goods and services, including relating to general administration, travels, entertainment, medical expenses and maintenance, so as to reduce the burden on the budget.
• Most importantly, CAPEX should be scaled up significantly from its current level of 3-4% of GDP to at least 10% over the medium term to support higher growth.
3. Economic transformation through industrialization
The Ghanaian economy has maintained virtually its “colonial structure” 64 years after independence, still dependent on exportation of extractives and other primary commodities. Ghana is less industrialised today than it was in 1970, with manufacturing output as a ratio of GDP dropping by about a third from 15% to 10%. We import lots of consumer, intermediate and capital goods with our scarce foreign exchange.
Transformation through industrialization should receive urgent attention for us to build a modern, resilient and self-sufficient economy. This is where the government’s policy of 1D1F is relevant. However, the policy should be reviewed to allow wider stakeholder participation, especially inputs from beneficiary communities.
• Our natural resources in the form of arable land, minerals, oil and gas, should be leveraged to spur our industrialization and economic transformation.
• We should refine our cocoa so that we can benefit from the over US$100 billion world chocolate market instead of depending on the meagre US$10 billion raw cocoa market.
• We need a comprehensive industrial policy to transform the economy systemically, learning from the successful experiences of China, South Korea, Malaysia, Thailand, etc.
• Like the above countries, Ghana should adopt state-led industrialization strategy at least in the initial stages. Allowing the free market and private enterprise to drive our industrialization at this time will be counterproductive.
• The private sector also has a role to play and government must provide it with the needed support, including a conducive regulatory framework, good infrastructure, affordable credit, affordable taxes, stable markets, favourable trade policies, R & D support and a stable macroeconomic environment.
• The successful countries also paid attention to important factors like industry type, size, location, supply chain, and management structure. Further, they experimented with large industrial conglomerates that benefit from economies of scale and compete with industrial giants around the world. Other countries have also been successful with the creation of industrial parks, such as the Silicon Valley in the US, where industries can benefit from contagion in terms of technology transfer, innovation and economies of scale.
4. Agricultural modernization and food security
While we stress the need for accelerated industrialization, we cannot forget that Ghana remains largely an agrarian country. The economy is predominantly rural-based and centered on the production, consumption and trade of agricultural commodities. Over 60% of the labour force is engaged in agricultural activities. In spite of this, we do not produce enough food to feed the country, we lack food security, and we import large quantities of food with our scarce foreign exchange.
• Agricultural productivity should be improved by: promoting modern, mechanized methods; providing functional and effective irrigation facilities (the One District-One Dam policy is an important initiative, however, the policy seems to lack broader stakeholder participation); providing improved seed varieties; providing fertilizer; and providing quality extension services.
• Facilities for food storage and preservation should be expanded to reduce post-harvest losses. The One District-One Warehouse policy and the National Food and Buffer Stock Company are important initiatives in this regard and should be reinforced.
• Agriculture should be supported with affordable credit facilities. Left to the dictates of the free market, the financing of agriculture would be ignored since agriculture is regarded as a risky activity. Government and the Central Bank should team up to provide subsidized credit facilities to agriculture through a designated agricultural finance institution.
• Adequate transportation infrastructure and marketing facilities should be made available to reduce the large mark-ups of retail prices over farm-gate prices.
• It is also important to ensure that the entire value chain from production to storage to processing to marketing is in place.
5. Employment generation
Unemployment, particularly among the youth, remains a major problem in the country. There is a huge opportunity cost associated with unemployment, being the foregone wealth that the unemployed could have created were they employed. The unemployment problem is due to a myriad of factors, including: inadequate and unbalanced growth; choked public sector; small and weak private sector; inadequate skills; and skills-jobs mis-match. These are lapses that need to be addressed:
• We should prioritize industrialization and agriculture, which have the potential to create more jobs.
• While using youth employment schemes to create at least temporary jobs, the private sector should be supported to create durable jobs by creating the enabling environment for it to grow, including by reducing the high rate and multiplicity of taxes, providing affordable credit, improving business-supporting infrastructure, ensuring stable and affordable energy and ensuring durable macroeconomic stability.
• Education curricular should be reviewed to focus more on practical and entrepreneurial pursuits, the commonly-called technical and vocational curricula, which better prepare graduates for the job market while also equipping some of them to create their own jobs.
• Closer links should be forged between industry and universities so that the former may fund fit-for-purpose disciplines as well as requisite technology and innovations.
6. Natural resource exploitation
We have stressed the need to mobilize revenue to support the budget and economic development. There is even a much larger pool of resources that can be tapped for development: our natural resource wealth Ghana has untapped natural resource wealth in the form of oil, gas, gold, manganese, bauxite and iron ore, among others, worth, according to figures we have gathered ourselves, over US$12 trillion. How do we explain the fact that we have such a large horde of wealth underground and yet remain impoverished above ground? It is the result of our failure to exploit our natural resource wealth prudently and use it to create wealth above ground. For decades, we have allowed our minerals to be mined by foreign companies who are offered generous concessions, including disproportionate shares of the minerals, liberal tax rates and export retention rights. We did not correct these mistakes when we discovered oil and gas and
offered them also under concession contracts, contrary to the Petroleum Exploration and Production Act (PEPA), 2016 (Act 919), which requires contracts to be signed on product-sharing basis.
• Our oil mining contracts should be based on the PEPA and must ensure that Ghana receive maximum benefits under the contracts.
• We should take full ownership of our mining sector and ensure that our mineral wealth deliver maximum benefits to Ghanaians.
• We should ensure that we add value to our minerals to the extent possible before exportation in order to maximize returns from them.
• We should protect our mining communities against environmental degradation and deterioration in their livelihoods.
• We should use our natural resource wealth to power our industrialization drive, such as the 1D1F policy.
7. Policy inclusiveness
The impact of our best policies would be limited if the people who are the beneficiaries of the policies are excluded from the decision-making process. The Constitution gives the President enormous power to appoint over 3,000 public servants. This power is exercised capriciously and in an exclusive” rather than “inclusive” manner as appointments go to party members, friends and relatives. This “Winner-Takes-All” (WTA) syndrome is detrimental to national development since half of the human capital in the country is invariably excluded from economic and political governance. At another level, decisions that impact local communities, such as the choice of local projects, are invariably taken in Accra to the exclusion of those communities. This is an affront to grassroots democracy. Meanwhile, the effects of government policies do not trickle down to the broad masses and large income disparities prevail. Promoting inclusiveness requires urgent actions in the following areas:
• The recommendation of the Constitutional Review Commission (CRC) to streamline presidential powers should be implemented to reduce WTA and promote consensus building and inclusiveness.
• The best Ghanaian human capacity should always be tapped to support the country’s development.
• Grassroots involvement in decision making should be promoted. In particular, local communities should be made part of project decisions as well as in monitoring implementation of those projects.
• The potential of women and youth should be fully harnessed for development.
• We should ensure that Ghana’s economic growth trickles down to the broad masses through policies that promote income equity.
• Measures should be taken to reduce disparities by bridging the urban-rural and north-south social divides through income redistribution and provision of social incentives and economic and social facilities.
• The opportunities provided by our natural resources should be leveraged to promote income equity and inclusiveness.
8. Government transparency, accountability and responsiveness
Voting trends in Ghana are a clear signal that the electorate want more recognition and attention and that they cannot be taken for granted by politicians. The electorate is demanding a government that is patently seen to be for the people. Importantly, they are demanding a transparent, accountable and responsive government.
• Government must be transparent by opening up on its policies to the people.
• Government should continually keep the public in the loop, sharing information and welcoming honest and constructive feedback.
• The Right to Information (RTI) Act should be respected as a vehicle for the public to demand and receive unrestricted public information.
• Government should forge an environment of openness with the people in order to create the necessary mutual trust between the two sides.
• Government must show strong accountability to the people by doing what it is mandated to do and accounting for its stewardship.
• Government must be answerable and liable and must always be ready to be called to account for its actions; and public officials should always be accessible for public scrutiny.
• Government must be responsive by acting on the needs and demands of the people, who should be considered as part of government.
• Government must promote an enabling environment for interacting with CSOs and the citizenry generally.
9. Abating corruption
The perception and incidence of corruption remain high in Ghana. Amnesty International’s Corruption Perception Index (CPI) scores for Ghana buttress this fact. The CPI scores are corroborated by internal surveys by CSO institutions that indicate high public perception of the existence of corruption. Unarguably, corruption is a pervasive canker in the country. We encounter corruption in one form or another at virtually every public institution on a daily basis. We tolerate corruption as a people. And public officials and institutions perpetrate corruption with impunity. We need to do something about corruption since it perpetuates private benefit at the expense of the state and the people.
• The Constitution should be amended to reduce WTA, which is a source of corruption.
• Government should spearhead the passage of more stringent anti-corruption legislation.
• The courts should be adequately resourced to deal effectively and expeditiously with corruption cases.
• The Special Prosecutor Office (SPO) should be reformed and strengthened. The SP must be selected through a competitive process by the Public Services Commission (PSC) and approved by Parliament. The SPO must be financed directly from the Consolidated Fund (CF).
• Other oversight bodies should be equally insulated from the executive, including in terms of appointments and funding.
• The US Inspector General (IG) system should be adopted in our MDAs to nip institutional corruption in the bud before it surfaces. IGs must be selected through a competitive process by the PSC and approved by Parliament. IGs must be financed directly from the CF.
• An independent Fiscal Council should be established to aid Parliament in scrutinizing government budgets, contracts and procurements, which tend to be a major source of corruption.
• Government must be accommodating to CSOs’ advocacy and other forms of activism against corruption.
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Source: Ghana Web