- The last time a mining company asked for a similar exemption was in 2016; their argument? To enable them retain employees. Come 2018, and that same company was downsizing and laying off the workers...
It is no secret that Ghana’s economy has faced a serious downturn, after something gave in on our 2010/2011 rally of unprecedented economic growth. The reversion of speculation of capital inflows into markets like Ghana, when the global financial crisis stabilized, led to a normalization of our economic position; save for retained oil and gas investments. As such, it was expected that the then NDC government would have taken the required prudent measures to steady our growth rate then. But what actually pertained was a nightmare, which was curtailed on December 7, 2016.
Upon assuming office, it was expected that the NPP government would take immediate and firm steps to turn the tide. I must say there was no lack of action on their part; regarding efforts to reorganize the economy and get it afoot once more. For the first time in years, I have had GRA officers visit my office twice in six months. The corporate tax rate was slashed significantly. Various forms of bonds were issued to stimulate the economy. There was a halt of government construction projects for a proper audit in order to curtail overcharges; efforts at consolidation of our banking sector were activated; various forms of tax exemptions, and other fiscal measures were set in motion.
Despite all the measures above, there was no growth (non-oil) realized after a year of implementation, in fact, non- oil growth depressed further; thus non-oil growth at the end of 2017 was 4.9%, as opposed to 5.0% at the end of 2016. This output then raises curiosity; especially when in the face of all the measures cited above, we have indicators such as the non-oil GDP for Industry recording a growth rate of 0.4 percent, compared with 4.9 percent in 2016.
Apart from the traditional explanation of failure to significantly seal all the leakages in our revenue and expenditure setup, this undesirable economic outcome can also be attributable to a phenomenon I have observed about how we mostly develop sector or organizational strategies in this country. Most of our strategic approaches are essentially a collection of individually desirable goals and objectives. However, we often fail to assess whether these goals, though desirable in themselves, are collectively compatible. It’s my observation that it is the lack of collective compatibility, upon permutation and combination of these interventions that led to an overall depressive outturn, as opposed to the intended boast to the economy.
A classic illustration of this is what I see as the incompatibility of the timing which characterized these two individually appropriate interventions. That is, the halting and auditing of government construction projects, and measures to consolidate our banking sector; which were carried out in just about the same time. Though many may not see the connection immediately, the concurrence of these two measures could only work for a regressive outcome, for an economy structured as ours.
It is clear that for a non-industrial economy like Ghana, construction remains a major backbone of the system. As such, when construction is booming, it sustains an extensive economic chain; spanning from quite menial jobs like day laborers and food venders, to providing business to sophisticated enterprises such as engineering, planning and architecture; and the many others that fall between these extremes. As such, any measure or combination of measures that work to almost completely stall construction in our sort of country will only grind the economy to a halt.
With government being the biggest spender, halting government contracts, most of which were in the construction sector, meant a huge slowdown on the economy. Nonetheless, apart from government projects, several private real estate and other forms of construction have come to provide another significant economic lifeline for the people. But most of these private projects rely on Bank loans. As such, when the minimum capitalization of the banks was increased, it only meant that the banks will want to hold onto deposits, in order to meet such capital requirements. Again, the temporary suspension of payment for public sector projects means the contractors on such projects could not make payments on their loans to the banks; further making the banks more bearish towards giving out new loans, if any, to construction portfolios. Immediately, the impact will be felt by the private construction sector as well. Hence, the twin event of slowing, if not effectively halting, both public and private construction could only have the net effect of a negative economic outcome.
The combined effect of the two measures; that is halting government projects, as well as banking consolidation immediately drained out the contribution of the construction sector to the economy, with the banking measure going further to affect other industries; with a net depressive effect of negative industrial growth. As such, though those two measures were necessary, the timing and their collective effect should have weighed more on the decision to implement; particularly when substitute initiatives like 1D1F didn't look likely to take off soon enough to fill the economic voids created.
Another example of lacking Complementarity in policy that we were about seeing was the purported attempt of government to increase VAT, even after we are yet to see the returns on their corporate tax cuts. This also would have only resulted in stifling the growth intended for businesses, despite the tax remedies they were granted, because production is essentially consumption driven.
Also, in granting exemptions, government seemed to have failed in discriminating its major revenue sources of tax with no direct bearing on the larger population, from those which impacted consumers more directly. For instance, any growth contributed by the mining sector is generally removed from the direct economic impacts on the larger populace, apart from the tax revenues gained from this sector. So why would government grant huge exemptions to such mining concerns, and hence lose the revenue that it would have obtained thereof to provide the goods for the commons?
The last time a mining company asked for a similar exemption was in 2016; their argument? To enable them retain employees. Clock in to 2018, and that same company was downsizing and laying off the workers that it was supposed to protect with the said exemption. So it then becomes curious that this government will also be granting similar exemptions; and seeks to impose the burden of any net deficit in revenue on ordinary consumers.
While we see government efforts at play, it is important that these efforts are given a collective strategic outlook, so that we don’t have a cocktail of interventions which may only end up working at cross purposes.