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“MINI SANE”? “WULA?” “AD3N”?
WHY ARE WE STILL IN FIRST GEAR AFTER FIVE YEARS OF
NDC GOVERNANCE?
Speech Delivered by:
Dr. Mahamudu Bawumia
At the:
NPP-USA CONGRESS
JANUARY 10-12, 2014
CHARLOTTE, NORTH CAROLINA
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Mr. Chairman,
NPP USA Executives
Executives of the various NPP USA chapters
Members of NPP-USA
Distinguished invited guests
Fellow Kukrudites
Good evening to you all. I know that we all agree that there is no free lunch but did not
realize that it applied to dinners as well. The price of having this dinner is for me to
share a few thoughts with you and your price is to listen to what it is I have to say.
Tonight I will deal with a topic that is on the minds of most Ghanaians today: “Mini
Sane?” “Wula?” “Ad3n?”. Why are we still in first gear after five years of NDC
governance? Let us make no mistake about it, the NDC is now in its 6th year of
government and let us not allow them to hoodwink us into thinking this is their first year.
Ghanaians are finding it difficult to understand why five years after voting for the better
Ghana agenda:
Parents are having a hard time with school fees. A large number cant pay
Workers salaries are in large arrears
The DACF, GETFUND and NHIS are in arrears
Hospital fees have just been increased by 200%
The cedi is falling like a brick against the major currencies
Families and firms are struggling with high utility bills
Borrowers (individuals and firms) are struggling with high interest rates. Very
recently someone obtained a one year loan backed by security at 38% from a
major financial institution,
Contractors are not being paid
Importers are facing high import tariffs
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Youth unemployment is high – most students people who have finished their
studies cannot find a job
Workers have been told to expect a wage freeze
The Free maternal care, school feeding and national health insurance programs
to protect the poor and vulnerable inherited by the NDC government are having
major challenges.
The cost of doing business has increased
Business confidence has declined
Teacher trainee allowances have been stopped
Allowances for Nursing and Midwifery trainees have been stopped
Dumsor Dumsor is apparently not over
Credit Rating Agencies such as Moodys and Standard snd Poors have
downgraded Ghana’s sovereign credit rating from B+ to B with a negative
outlook. How can Ghana’s credit outlook when it was a HIPC economy be better
than when it is now an oil producing middle income economy?
Mr. Chairman, quite simply, Ghanaians are suffering. What is baffling to me and most
Ghanaians is that this NDC government is the first government in the history of Ghana
to have access to oil revenues and has also had access to more financial resources in
terms of tax and non-tax revenues as well as borrowing more than any other
government in Ghana’s history. Yet, it is finding it difficult to pay its bills. This why
Ghanaians are asking “Mini Sane?” “Wula?” “Ad3n?”. What is worrying is that we are
being told that this is only first gear! If this is just first gear, then as they say in my neck
of the woods, “we don die finish!”
But what happened? Were we not told by the NDC government that they had chalked
unprecedented achievements just a few years ago? Why have those unprecedented
achievements suddenly vanished or gone up in smoke? In the case of this fire, we do
not need US fire experts to understand why after 5 years, the claim of unprecedented
achievements has gone up in smoke. It has gone up in smoke because it was never
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real in the first place. As I said a few years ago, propaganda and economic
management should be kept far apart. They don’t mix and if you mix them you will soon
be exposed.
Mr. Chairman, this five year old NDC government inherited an economy growing at
8.4% without the benefit of oil production. With crude oil coming on stream, the
economy grew by some 15% in 2011 as a result of oil production. The non-oil sectors of
the economy, in particular agriculture, industry and services are still growing slower than
they did in 2008. In 2012, real GDP growth was 7.9 percent (including oil). It is clear
therefore that notwithstanding the production of oil, the non-oil sectors are experiencing
declining growth. There is a noticeable slowdown in economic activity and both
business and consumer confidence have weakened.
At the end of 2012, Ghana’s budget deficit was a gargantuan GH¢8.7 billion, amounting
to 12.0% of GDP using the rebased GDP numbers. This is the highest recorded budget
deficit in Ghana’s history.
From Nkrumah through Acheampong, Rawlings and Kufuor, no government has
incurred this level of budget deficit. The crux of the problem is that government
spending in 2012 increased astronomically to 34.5% of GDP even though government
revenues amounted to 16.1% of GDP (a gap of over 100%) for the year. The
government abandoned all fiscal discipline in an attempt to win the 2012 elections. Gifts
of cars, 4x4 vehicles to chiefs and opinion leaders, laptops, tractors, money etc. were
extended to buy votes:
For the teachers and nursing trainees whose allowances have been stopped, we
now know that it was their allowances that were being chopped nyafu nyafu
during the election campaign.
For workers whose wages are in arrears and are being threatened with a freeze,
we now know that it was their wages that this NDC government was chopping
nyafu nyafu during the election campaign.
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For contractors who are not being paid, we now know that it was their monies
that this NDC government was chopping nyafu nyafu during the election
campaign
I could go on but the point is clear. The NDC has basically taken Ghanaians for a rough
ride over the last five years. Like every government, they did not come into government
with any money of their own so we must always remember that it is our money that they
are chopping nyafu nyafu like that.
Mr. Chairman, the rate of growth of public debt after 5 years of this NDC government is
a matter of concern. Ghana’s total public debt has increased from GHC 9.5bn in 2008 to
GHC43.9 billion as at August 2013 (an increase of 357% in less than 5 years)! Mr.
Chairman, the NDC government has borrowed the equivalent of $20 billion in just the
last five years! When I stated this a few weeks ago, the government tried to deny it but
the facts speak for themselves. The increase in borrowing of GHC34.4 billion divided by
the average exchange rate for the period 2008-2012 will give you some $20 billion
borrowed during this period. This is more money borrowed than all governments put
together between 1957-2008.
If an additional $20 billion has been pumped into Ghana’s economy over the last five
years then why has the economy turned for the worse? Can you imagine the
transformational effect if every region were given $2 billion for development projects.
With such large scale borrowing, government is crowding out the private sector which is
unable to borrow to grow their business. A one year secured loan at one bank can be
obtained today at an interest rate of as high as 38%! What sort of businesses can
survive on interest rates of 38%?
With a high fiscal deficit, large current account deficit, large and rising debt stock, and
lower business confidence, it is not surprising that the cedi is losing value rapidly
against all the major currencies. At the end of 2008, the cedi exchange rate was
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GH¢1.19/$. By December 2013, the exchange rate was some GH¢2.30/$. The cedi has
lost some 50% of its value against the US dollar in the last five years in an era of NDC’s
supposed really “unprecedented” economic achievements. If you go to the forex bureau
in Ghana today to buy a dollar, the rate is GH¢2.5/$. At this rate of depreciation, the
cedi exchange rate could be at least GH¢3.0/$ by the end of 2014. This scale of
exchange rate depreciation can only be the result of bad economic management.
For a small open economy like Ghana, this trend is worrying and should be worrying.
Our economy is highly import dependent and these massive depreciations in the
currency end up piling more hardships on Ghanaians as the cost of living increases.
The record is clear that when it comes to the exchange rate the NPP knows how to
maintain relative exchange rate stability when compared to the NDC governments.
Mr. Chairman, what is clear is that the problem that Ghana’s economy is facing is not
due to lack of resources. Additional oil, tax and borrowed resources have been
significant. But as with individuals, it is not the amount of money you make that matters
but how you manage the money and the policy framework in place. If you are given a lot
of resources and you end up stealing or squandering the resources rather than
productively utilizing them, very little will be achieved. After 5 years of this NDC
government what is obvious is that they have become specialists in coming up with
corrupt schemes to steal money from the people. This is why we have had the creation
of schemes such as GYEEDA, SADA, SUBAH, WAYOME, WATERVILLE, ISOTOFON,
AAL, etc. where the state has been defrauded of billions of Ghana cedis which could
otherwise have been used for productive development expenditure. With this level of
corruption, the economy will not move and it is not surprising that after inheriting a
legacy of a much stronger economy, the government says it is still in first gear after five
years! The NDC government is apparently blaming the election petition for the problems
with the economy. This is actually laughable and a poor excuse. What is clear however,
is that the election petition did not slow down the pace of corruption with GYEEDA,
SUBAH, Akonfem, etc. which were in full gear as they have been over the last five
years. This means that when the government wanted to get something done they
actually did it without any hindrance from the election petition.
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What is even mindboggling is the impunity with which this corruption is being
perpetrated. It is as though the operators of these schemes have no regard and no fear
of the consequences of their actions. And this lack of fear is quite understandable since
unsurprisingly, we are seeing very little by way of prosecution of culprits. A few days
days ago, the NDC through its General Secretary noted that the the problem is not one
of corruption, but rather one of dishonesty! What really is the difference if I may ask?
Reminds me of the argument in the Supreme Court during the election petition when the
NDC General Secretary claimed that extra ballots in the ballot box is not over-voting but
rather “foreign material” or “ballot stuffing”. Furthermore, the Government, contrary to its
own guidelines on ethics, and with impunity, has also found it very convenient to
redefine the meaning of conflict of interest in matters relating to the Merchant Bank
saga. Is there one definition for conflict of interest in the rest of the world and different
one for Ghana? How would we expect public officials to behave in similar situations?
Will the government have the guts to call them to order? Unfortunately we have
institutions like CHRAJ looking on while these fundamental principles of good
governance are being bastardized by this NDC government.
Mr. Chairman, while we point out the failure of this 5 year old NDC government in its
second term of office, we have to know that criticism of the NDC record alone would not
be sufficient to win us power. As we move towards 2016 our party must also put out our
ideas and set out the clear differences between the NDC and the NPP with regards to
our policies.
We have to remind Ghanaians that if the NPP were in power, free secondary school
education which was promised by our party would have been a reality by now. When
the NPP proposed the free secondary school education, the NDC opposed it in the
same way that they opposed the NHIS. They said it was too expensive and we as a
country did not have the money to finance the approximately GHC 1 billion annual cost.
Yet, this same economy that had no money was able to spend GHC8.7 billion above its
budget in 2012. This GHC 8.7 billion would have been sufficient to finance at least 7
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continuous years of free secondary school education. It is ultimately a matter of
priorities. If you prioritize the allocation of resources towards free quality secondary
school education, you will get free quality secondary school education. If however as a
government you choose to prioritize Akonfem, GYEEDA, SUBAH and judgement debts,
then the attention and monies will go into Akonfem, GYEEDA, SUBAH and judgement
debts. Our approach to education is therefore fundamentally different because of the
importance we attach to it.
The issue of the scrapping of teacher and nursing training allowances is a reflection of
the fact that the government does not attach the seriousness required to the health and
education sectors. We know that GETFUND and the NHIS are in arrears and struggling
under this government. The rationale for the scrapping of the teacher training
allowances according to the government is to save money to allow for an increase in the
number of trainees. If this is the logic, then why stop at teacher and nursing trainees,
Why not scrap the allowances of all government workers so that you can enable the
employment of more workers? Clearly, this rationale does not hold water, The
allowances were paid because of the specialized nature of the teaching and nursing
professions and the importance placed on the services of teachers and nurses
throughout the country. As a HIPC country, Ghana could afford to pay the allowances of
teachers and nurses. Why is it that as an oil producing country we are suddenly unable
to?
As expounded in our 2012 manifesto, we also have very significant differences with the
NDC with regards to the tax system. In response to the economic difficulties,
government has resorted to increasing taxes, including until recently, imposing taxes on
condoms and cutlasses. These higher taxes have served to increase the cost of doing
business in Ghana compared with neighboring countries. A Minister of State in
response to complaints from the business community about import duties is reported to
have said that if they are not happy, they can import through Togo or other countries!
This type of approach to dealing with the business environment is counterproductive
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and demonstrates a lack of appreciation of the private sector. The fact is import duties
in Ghana are too high and discourage production.
In the globally competitive world that we find ourselves today most countries that
manufacture goods for export also import a significant proportion of its raw materials.
These countries have come to understand that high import tariffs can increase their cost
of production and make them uncompetitive globally and therefore to support higher
production and exports, import tariffs are kept relatively low. Examples are:
COUNTRY AVERAGE IMPORT
TARIFF %
SWITZERLAND 0
Hong Kong 0
New Zealand 1
Australia 2
Japan 3
USA 5
UAE 5
Malaysia 5
EU 4
Canada 3
Singapore 0
Estonia 2
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There is another group of countries with high import tariffs. Examples are :
COUNTRY AVERAGE IMPORT TARIFF
%
Uganda 14
Kenya 14
Cameroon 19
Nigeria 12
South Africa 8
Zimbabwe 17
Sierra Leone 15
Congo 19
Chad 19
CAR 19
Djibouti 20
Ghana 15
The rationale for high import duties in Ghana is primarily to raise revenue and not to
support production. 22.5% of tax revenue in Ghana is from trade taxes. This compares
to 2.69% for Brazil, 4.44% for China, 3.96% for South Africa and 1.25% for the USA.
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COUNTRY TRADE TAX/TAX REVENUE %
Brazil 2.69
China 4.44
Japan 1.61
Mexico 4.05
South Africa 3.96
USA 1.25
Ghana 22.5
Cameroon 28.6
Kenya 10.4
Mauritius 2.09
Singapore 0.05
The high reliance on import duties for revenue by countries such as Ghana only serves
to increase the cost of doing business and discourage production. The NPP’s view as
reflected in our 2012 manifesto is that tariff policy should be guided by lowering the cost
of living and increasing production and productivity. Countries that have adopted this
approach such as the UAE, Hong Kong, Singapore, Mauritius, Malaysia, and Indonesia
(accompanied by other supporting policies) have seen increased manufactured exports.
This is why we committed in 2012 to abolishing or significantly reducing import tariffs.
We do not see any reason why spare parts and other equipment used in production that
are imported into the country because they are not manufactured in the country should
attract any import duty. This should expand the productivity in places such as Suame
Magazine and other mechanic facilities across the country as well as reduce the cost of
maintaining and safety of vehicles. Ghana can become a manufacturing power house in
the sub-region if we go this route and along with other supportive policies.
In the area of ICT for example, the Government is imposing high import duties on
internet equipment imported into the country. The Ghana Internet Service Providers
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Association has recently appealed to the government to reduce the import duty to
increase the penetration of internet services in the country. Under the NPP’s policy this
equipment would attract zero duty because we want to increase productivity. In this
world of ICT domination, why would Ghana want to impose taxes such that access to
the internet is very expensive? In Rwanda on the other hand, the government is
providing free wireless internet service in Kigali. The rationale is clear. They are thinking
production and global competitiveness and not immediately about revenue. The
revenue will come later when the production takes place. I would also like to note that
as a matter of strategy, China, which produces most of the world’s computers allows
the import of computers into China duty free. They want to make sure they have access
to the latest technology embodied in the computers. In Ghana on the other hand we are
imposing duties on computers that makes computers very expensive for people. The
NPP policy as stated in our 2012 manifesto was to remove the duties on computers and
all ICT equipment. The revenue loss from trade taxes would be compensated by
increases in income, sales, and corporate taxes wth an increase in production.
It is my belief that we can become a Dubai or Singapore (who are pursuing these
policies) in terms of production and development so that other people will want to come
to spend Christmas in Ghana.
I must add that the issue of using taxes to incentivize production is not new. All
governments appear to understand it especially when it comes to dealing with foreign
investors. The recent STX housing agreement is very typical. Under this agreement
STX was provided duty free imports for all its imports. Ghanaian real estate providers
on the other hand do not get these concessions. How can it be that such concessions
are good for the foreign investor but not for the domestic operator? We need a level
playing field to enable domestic firms compete and grow. In this era of ICT, the
government has even imposed taxes on international telephone calls. This means that
while it would cost you 5 cents a minute to call Nigeria from the USA for example, a
similar call to Ghana will cost at least 17 cents per minute. This decreases the
competitiveness of Ghana globally as well as increases the cost of living in Ghana.
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In the same vein we would disagree with the decision of this NDC government to
impose taxes on private universities. University places are in short supply and we
should rather be encouraging the setting up of more private universities with tax
incentives to relieve the burden on government. It is not a coincidence that some 80%
of universities in Ghana are private universities. The tax incentives were a major factor
in facilitating the setting up of these universities.
Mr. Chairman, the reason why Ghana is relying so much on import duties for revenue is
because the tax base for the economy is very narrow. It is narrow because the economy
is highly informal. The informal nature of the economy is underpinned by :
The absence of a national identification system for all Ghanaians
The absence of a property address system
The predominance of the use of cash transactions rather than an
electronic payments with over 80% of Ghanaians without access to Bank
accounts
Addressing these issues is critical to formalizing Ghana’s economy and expanding the
tax base in the process and measures to deal with these problems have to be
implemented as a matter of urgency in terms of policy sequencing. As far back as 2008,
the National Identification Authority Act was passed into law. Unfortunately, after 5
years in government, not much is. How long does it take to issue a national ID card? It
is clear that the NIA has not been provided the resources needed to execute its
mandate as this exercise has not been a priority for this NDC government. For the NPP,
this is a major priority and would have been completed in a year. Note that the EC
issued biometric voter ID cards to some 15 million voters in just three months so why
can the NIA not issue 23 million cards after 5 years?
The importance and urgency of banking the unbanked is something that is clearly not
appreciated by the NDC government. As well as formalizing the economy and moving
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towards electronic payments, it holds the key to reducing interest rates sustainably with
the support of disciplined fiscal policy. This is because banking the unbanked increases
the supply of savings in the banking system.
The importance of increasing the supply of savings in the financial system through
making financial services available to the population has long been recognized by the
developed economies. For example, by 1772, Scotland (a country one-third the size of
Ghana) had established a nationwide banking system. By this time 31 banks were
operating in Scotland with branches and agencies covering most of the country making
Scotland the first country in the world to establish an almost nationwide system of
branch banking. The Friendly Society Act was enacted in England in 1793 to encourage
savings by the poor. The evolution of the banking system in many European countries
saw the rapid spread of banks including savings banks and rural banks targeted at the
poor. Today, in most developed economies, the at least 95% of the population has
access to bank accounts. Wide access to financial services in the developed economies
increased the supply of savings in their banking systems and reduced the cost of
borrowing.
Thankfully Ghana has in place the payment system infrastructure that can accomplish
the goal of getting at least 80% of our population (including those in rural areas without
electricity) banked. We have made the investment in the technology and it is working.
Experience from other countries like Malaysia and Singapore in this area shows that
unless the country is willing to wait at least another 200 years to get there, the
transformation from cash to predominantly electronic payments requires the active
support and participation of government, the central bank and the private sector. The
transition from cash to electronic payments is qualitatively similar to the transition from
driving on the left to driving on the right hand side of the road in the 1970s. It didn’t just
happen. It had to be made to happen. For Ghana, thanks to the efforts of the Bank of
Ghana and the banks, the infrastructure required for this transition is already in place
and no new money has to be spent on that to make it happen. The NDC government
has however adopted a very lukewarm attitude toward this project of transforming
Ghana’s payment system from a cash towards an electronic payments dominated
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system. After 5 years in office, Ghana is no closer to achieving this goal, something
that can be done in a couple of years with the necessary focus and support. No wonder
we are still in first gear.
With the availability of GPS technology, Ghana has the opportunity to implement a GPS
based addressing system where every property can be uniquely identified. This, along
with the street naming exercise, should take not more than a couple of years and would
make property taxation as well as locating places very easy.
Mr. Chairman, one of the most important issues that has to be dealt with to facilitate
rapid economic development in Ghana is the issue of the problem of land acquisition
the absence of land titles for many of the properties people are actually living in. I am
sure everyone here has their own nightmare story about trying to acquire land or build a
house in Ghana. This problem means that the mortgage and housing market is very
shallow and undeveloped. If you do not have title to a house or land then how do you
sell it or mortgage it? For Ghana this means that the effective supply of land or housing
to the market is limited relative to demand. Under these circumstances, you will find
houses in Ghana selling for ridiculous amounts of money relative to say houses in the
USA. You would probably be surprised to learn that %), from a survey of 103 countries,
a comparison of Mortgage payments as a percentage of average Incomes places
Ghana at the top with 577%, followed by Georgia (571%), Belarus (568%). And
Cambodia (445%) . The countries with the lowest mortgage as a percentage of income
include the United States (16.4%), Saudi Arabia (22.59%), South Africa (34.6%%),
Germany (34.7%) and Canada (36.6%). In terms of house price to income ratio, Ghana
is also in the top 10. Ghana also tops the list of 103 countries as the least affordable
when the affordability index is used.
These numbers are worrying because the property market plays a very important role in
the economy of any modern developed economy. From our Zongos like Nima, our inner
cities like James Town to our well developed neighborhoods like East Legon, so many
people do not have titles to land. Our people are sitting on very valuable property but
without title to them. Finding a solution to this problem would jump start the mortgage
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market in a big way. The Land Administration Project is underway and is crawling along.
We need some out of the box and innovative approaches to resolving this. In the current
circumstances, the investment in the housing markets is sub-optimal and therefore
house prices would remain high. Solving this problem would increase the supply of
houses by the private sector, empower the poor who would be able to borrow against
the collateral of their houses, and result in a housing sector led boom in the economy
and higher tax revenue for government.
Because of the constraint of time I will not go much further with policy differences
between the NPP and NDC but suffice it to say that the difference is like night and day
as were as the policies and ability to implement efficiently is concerned. The fact
remains however that no matter how many good ideas we may have, they would be
useless if we do not win power to be able to implement these ideas and policies for the
benefit of our people. This is why the theme of this Congress is so apt. We need to
stand united as a party if we are to secure victory in 2016. When Ghana’s ask Mini
Sane? Wula? And Ad3n? our answer is simple. This 5 year old NDC government :
Has no vision
Is mismanaging the economy
is engulfed in corruption
No wonder that we are still in first gear. If the NPP had been in government for the last
five years, following the solid foundation laid between 2001-2008, the economy would
have been flying by now because we would have implemented major transformational
policies and avoided the economic mismanagement and corruption that is going on
now. No doubt about that.
Thank you very much for your attention,
God Bless You
God Bless the NPP and