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The Akufo-Addo administration started off on the wrong foot in terms of economic strategy. The President failed to capitalise on the massive goodwill he enjoyed at the start of his tenure to push through decisive policies during his honey moon period. Initiatives like removal of certain taxes, hasty implementation of some campaign promises were overlooked in favor of nothing. Instead of focusing on effective management of the economy, the Vice President paid millions of media houses to project a failed government courtesy his “Ask Bawumia” concept.
The President and his Vice who assured Ghanaians were going to solve the country’s economic problems within the first year of their administration, started blaming the previous administration for their failures. The government’s foreign exchange control policy, reckless introduction of some taxes and economic policies with the tacit approval of the President, further weakened the Cedi and put increased strain on local and foreign businesses and collapsed many businesses.
Near unanimous calls for the implementation of a more effective market based exchange rate and retention of the tax regime it inherited and reduction in expenditure which at the time could have aided a smooth economic rebound, were vehemently rejected, with the Central Bank doubling down and suffocating the foreign exchange market and the wider economy in the process. The Vice President told us the Cedi was locked up in prison and got some journalists to propagate his propaganda. The effects of the foreign exchange crisis have been far reaching. In the banking sector, cedi depreciation led to a significant increase in dollar dominated non performing loans. Industry Non Performing loans increased threatening financial stability. Meanwhile, manufacturing and services struggled with many shutting down including businesses of people who financed the President and his party in opposition.
These businesses struggled because they were unable to access the regular stream of foreign exchange needed for their operations. Some resorted to the more expensive parallel market and as a result, forced through price increase to protect their margins. Instead of finding real solutions to these problems, government resorted to use of protectionist measures which exacerbated and still exacerbating the situation as domestic prices surged in response.
If the President Akufo-Addo could be excused for micromanaging complex economic issues, his handling tax issues was a more political blunder.
In all, President Akufo-Addo’s initial sluggishness and incompetence, the Central Bank’s damaging foreign exchange controls, and decimating of other sectors of the economy contributed to the nation’s abysmal economic performance in the past 18 months in turn, the average Ghanaian is worse off than in pre-Akufo-Addo times, an observation that is hard to deny. The sharp economic deterioration in the last eighteen months points to an uncomfortable truth that President Akufo-Addo has fallen well short of economic expectations.
The Mahama Administration dedicated a greater portion of its budget to capital expenditure, in line with its infrastructure development drive. This increase in spending on infrastructure pressured Ghana’s debt position. Though public debt remained within acceptable thresholds, debt rose which is normal. The administration started servicing debts it inherited and those it contracted. To reduce pressure on government, the administration initiated a policy which gave certain state agencies to contract loans on their own strength and service them accordingly.
More positively, in tandem with the economic management team, the Trade Ministry and other agencies introduced several initiatives aimed at easing the process of doing business in the country culminating in Ghana being rated the best place for doing business in the sub Region.
Investors confidence according to the world bank and other reputable global financial institutions is at its lowest ebb because of the President’s perceived naivety when it comes to the economy and his government’s outmoded economic policies. Simply put, Akufo-Addo scores poor marks in the big areas. In spite of the few positives told us by the government, the President and his government still run an outdated command and control system. Privatisation which is the core economic philosophy of his tradition, is in abeyance.
Corruption and reckless spending are adding to the pressure on the national purse. How can you record positive results if you increase expenditure with the implementation of consumptive policies such as free Secondary education, remove taxes, appoint more people into your administration and remove strategic taxes, supervise a very weak tax generating system with high wage bill etc. But investors will not wait for eternity and Akufo-Addo has already spent close to half of his four year tenure. He should implement policies that will drive local manufacturing and boost export. South Africa exported cars worth $7.53 billion in 2015. Estimates calculated by American NGO, the Economic Complexity Index value United States export in 2014 at $1.45 trillion. With our benchmark interest rate businesses are struggling to secure favourable loans. Instruction of multiple taxation is going to sink the economy deeper. Job loss the last 14 months has increased jumping the country’s unemployment figure. The truth is that the country is in a major crisis, we are in a state worse than civil war.
Bawumia preached economic theories in opposition and some Ghanaians fell flat for his sermons. He thinks economic theory as an instruction sheet for running the economy was all a government needed to solve practical challenges. The theories he was espousing on his various platforms are less relevant over time as the the dynamics change while those theories stay the same. Economic theory, for better or worse, provide us with the blueprint for the rules and institutions that we build to run the economy.
It behooves on handlers of the economy to study the economy and the general situation to enable them design very practical measures relying on the blueprints. So Bawumia will rant from morning till evening and some took every thing he said as sacred. Compare what he said in opposition to what Ghanaians are going through under his government. Economic theories are partial and rival insofar as different economic ideas contain within them justification for different distribution of resources.
Source: Ohenenana Obonti Krow