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Budget Brief

ANALYSIS OF THE 2016 TRADE SECTOR BUDGET

John Abebrese Boateng Ph.D1

Major Highlights of the Ministry’s 2016 Budget Estimates

19% of the Ministry’s budget was released as at September, 2015 and coupled with the domestic

economic challenges, the achievement of policy outcomes became problematic;

0.56% of the total government expenditure was allocated to the Ministry;

Allocations to the Ministry increased by 41% from the 2015 allocations;

Contribution of Donor Funds increased from 34% in 2015 to 53% in 2016 with 51% going to Goods

and Services.

Management and Administration program received the largest allocation, increasing Goods and

Services under the Finance and Administration Sub-program by 1,786% with 47% of support from

Donor Funds.

The share of Industrial development program to the Ministry’s total allocation increased from 0.2%

in 2015 to 18.3% in 2016.

The share of Trade and Industry promotion program to the Ministry’s total allocation increased from

1% in 2015 to 5.2% in 2016.

The share of Business Development and promotion to the Ministry’s total allocation has increased

from 7.7% in 2015 to 13.4% in 2016.

The share of Trade development program to the Ministry’s total allocation decreased drastically from

54.6% in 2015 to 6.8% in 2016 as a result of the reduction in Donor Funds.

1 Research Officer, Finance and Economics Unit of the Parliamentary Research Department; Committee on Trade, Industry and Tourism; contact: johnboateng521@gmail.com, or john_abebrese@biari.brown.edu

Parliamentary Research Department

research@parliament.gh

Budget Brief No. 3, February, 2016

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1.0 Introduction

The goal of the trade ministry is to develop a vibrant, technology-driven, liberalized and competitive

trade and industrial sector that significantly contributes to inclusive and sustainable economic growth

and employment creation, particularly involving mass mobilization of rural communities and other

vulnerable groups including women. This brief presents the analysis of the 2016 trade sector budget. The

analysis revealed that inadequate budgetary allocation and release of funds to the sector affected the

performance of policy outcomes. Donor Funds contributed the largest of the total allocations to the sector.

This notwithstanding, there was a drastic shift in the allocation of Donor Funds from Trade Development

Programme to Management and Administration Program, with Goods and Services under the Finance and

Administration sub-program receiving a chunk of the allocation.

2.0 Financial and policy performance of the sector (2012-2015)

From 2012 to 2015, budget releases to the trade ministry have shown a downward trend from 61% to 19%

in the respective years. In the same vein, about 2% of the budgeted Donor Funds was actually accessed as

a result of challenges with the implementation of the Private Sector Development Strategy II in the year

20152. This coupled with the challenges that the sector faces which includes high cost of electricity,

inadequate power supply, unstable currency, multiplicity of taxes, access to credit and high inflation3 has

affected the achievements of policy outcomes (Table 2).

Table 1: Approved Budget and Releases (2012-2015) GH¢

Year Budget (A) Approved (B) Released (A-B) % Released

2012

157,520,459.00

157,520,459.00

96,542,836.32

61%

2013

124,868,440.00

86,271,062.30

44,614,817.82

52%

2014

256,532,193.00

211,156,162.00

58,433,830.00

28%

2015

183,831,356.00

183,831,356.00

34,445,373.30

19%

Source: Committee’s report on 2012, 2013, 2014, 2015 budget estimates, PBB estimates for 2016. Note: Releases were as at September.

2 2016 report of the Committee on Trade, Industry and Tourism 3 Business barometer report of the Association of Ghana Industries (2015) in which a total of 507 businesses from the manufacturing, services and construction sectors across the country were interviewed for the survey

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Table 2: Performance of some selected policy outcome indicators for 2014

Outcome indicator

2013 Baseline

2014

Target Achieved

2015 2017

Achieved Target

Manufacturing value added

share in GDP

6.3% 20% 30% -- 35%

Share of manufacturing in

total export

0.05% 40% 20% -- 40%

Percentage change in Non-

traditional Exports

$2,436

(3.04%)

$5,000 $2,558

(108%) (5%)

-- $4,363.32

(25%)

Total Merchandise Export US$13,752 $25000 $13,216 $18000*

Domestic Credit to the

Private sector as ratio of

GDP

15.2% 30% 18% 30%

Ease of doing business rank 67 out of 189

countries

-- 70 out of 189 -- ----

Business competitiveness

index

114 out of 144

countries

-- 114 out of 114

countries

-- ----

Source: MOTI’s PBB estimates for 2015, 2016. *Amount in billions.

In 2014, with the exception of manufacturing value added share in GDP, the targets for all the other

indicators were not met. However, with 2015 industrial growth of -2%4, it is likely that the target for the

manufacturing value added share in GDP will not be met.

3.0 2016 Analysis of the 2016 budget estimates

3.1 Budget Allocation

Allocations to the Ministry as a percentage of total government expenditure have between 2013 and 2016

been below 0.8%. For the 2016 fiscal year, the Ministry was allocated an amount of GH¢259,360,238

representing 0.56% of the total government expenditure5 (Figure 1). The allocated funds to the Ministry for

the year increased by 41% from the year 2015.

Figure 1: Allocations to the Ministry as a % of Gov’t Expenditure (2013-2016)

Source: Committee’s reports on 2013, 2014, 2016 budget estimates & 2016 Budget Statement

4 Provisional from the 2016 Budget 5 GH¢46,445.7 billion including arrears clearance and tax refunds – 2016 budget statement, para 163, page 44.

2013 2014 2015 2016

Sector Allocations 124,868,44 256,532,19 183,831,35 259,360,23

0.41%

0.73%

0.44%

0.56%

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3.2 Allocation by economic classification

The allocations to the Ministry are economically classified into employees’ compensation, Goods and

Services and Assets (figure 2). The proportion of Employees’ compensation to the Ministry’s total

allocation increased from 8% in 2014 to 20% in 2015 basically as a result of the implementation of the

single-spine pay policy. However, it declined to 18% in 2016. Employees’ compensation for 2016 indicated

an increase of 31% from the 2015 figure.

The share of Goods and Services to the Ministry’s total allocation decreased from 65% in 2013 to 39% in

2015, however, it went up slightly to 41% in 2016. That of Assets also decreased from 62% in 2014 to 40%

in 2016.

Figure 2: Allocation by Economic Classification (2013-2016)

Source: Committee’s reports on 2013/2014, 2016 budget estimates & 2016 Budget Statement

3.3 Allocation by source of funding

Government of Ghana’s (GoG’s) contribution to the Ministry’s budget reduced from 22% in 2015 to 12%

in 2016. Contribution of Internally Generated Funds (IGF) also reduced from 45% in 2015 to 35% in 2016.

However, contribution of Development Partners increased from 34% in 2015 to 53% in 2016 (Figure 3).

Between 2013 and 2015, Donor Funds allocation to Assets has consistently been 80%. However, in 2016,

this reduced to 41% with 51% going to Goods and Services (Figure 4). In 2016, there was no GoG allocation

to Assets.

EmployeesCompensation

Goods and Services Assets

2013 10,009,139.00 80,707,054.00 34,152,246.00

2014 20,683,218.00 77,811,767.00 158,037,208.00

2015 36,302,697.00 72,395,366.00 75,133,293.00

2016 47,681,740.00 107,481,349.00 104,197,149.00

8%

65%

27% 8% 30%

62%

20%

39%

41% 18%

41% 40%

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Figure 3: Sources of Funding – Composition (2013-2016)

Source: Committee’s reports on 2013, 2014, 2016 budget estimates & 2016 Budget Statement

Figure 4: Allocation of Donor Funds by Economic Classification

Source: Committee’s reports on 2013, 2014, 2016 budget estimates & 2016 Budget Statement

3.4 Allocation by program

The Ministry’s programs have been structured under six thematic areas. These are Management and

Administration, Trade Development, Business Development and Promotion, Trade and Industry

Promotion, Standardization and Conformity Assessment and Industrial Development6. In 2016,

Management and Administration program received the largest share of the total allocation to the Ministry.

3.4.1 Management and Administration

The program provides efficient and effective administrative and logistical support for promoting the

enabling environment to improve private sector productivity and competitiveness for the domestic and

6 2016 PBB estimates for the Ministry of Trade and Industry

GOG ABFA DP IGF

2013 19,623,399.00 5,000,000.00 22,368,281.00 77,876,760.00

2014 47,917,932.00 59,574,431.00 86,934,350.00 62,105,480.00

2015 39,746,660.00 0 61,888,087.00 82,196,609.00

2016 30,142,909.00 0 136,849,701.00 92,367,628.00

16% 4% 18% 62%

19% 23% 34%

24%22%

0%

34%45%

12% 0%

53%

35%

2013 2014 2015 2016

Goods and Services 4,473,656.00 17,386,870.00 12,377,617.00 81,398,799

Assets 17,894,625.00 69,547,480.00 49,510,470.00 55,450,902

20%

20% 20%

51%

80%

80%

80% 41%

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global market. This is achieved through investment in human resources, infrastructure development and

monitoring and evaluation of policies, programs and projects.

The sub-programs under management and administration program are finance and administration, human

resource management, policy planning monitoring and evaluation and statistics, research and

communication.

3.4.2 Trade and Industry Promotion

The program helps in identifying resource (trade) potential and opportunities for enhancing value addition

through the development of micro, small and medium enterprises, developing an up-to-date data on all

industrial and commercial enterprises and the monitoring of price trends of essential consumer goods to

inform policy. It does not only provide market intelligence information on trade and investment but also

provide support for exporters, importers and investors. Regional services and foreign services (trade

missions) are the sub-programs under trade and industry promotion.

3.4.3 Industrial development

The program seeks to improve local production and distribution of goods, cost-competitive and quality raw-

materials and other inputs. This is achieved through the promotion of science, technology and innovation

in industry and strengthening of firms’ competency and capacity to operate effectively and efficiently. In

this regard, distressed but viable industries are supported by identifying and providing assistance in the

areas of skills, technology, financial, and access to market. The program also enables the acquisition of

industrial lands for investments.

3.4.4 Standardization and conformity assessment

This program seeks to develop standards and quality systems to meet production requirements for local and

international markets and by so doing improve the private sector competiveness domestically and globally.

It also seeks to ensure the health, safety and economic interest of consumers. The Ghana Standards

Authority is the statutory body responsible for standardization, metrology and conformity assessment which

form the sub-programs for the standardization and conformity assessment program.

3.4.5 Business Development and Promotion

The program seeks to reduce post-harvest losses, increase production, create jobs and reduce poverty

through business development services, facilitating access to credit, research and development, design,

prototyping and testing of appropriate and marketable technologies for the agro-processing industry. The

technology developed is transferred through apprentice training and engineering skills development. Ghana

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Regional Appropriate Technology Industrial Services (GRATIS) Foundation, National Board for Small

Scale Industries (NBSSI) and Central Development Commission (CEDECOM).

3.4.6 Trade Development

This program seeks to create competitive advantage on a more diversified range of products with higher

levels of value-addition and ensure Ghana’s global competitiveness. It further seeks to explore bilateral and

multilateral protocols for the promotion of domestic industries and also improve regional and intra-regional

trade. This is achieved through domestic and international trade development including trade facilitation,

and export development promotions sub-programs.

Figure 5: Allocation by Programme (2014-2016)

Source: Committee’s reports on 2013/2014, 2016 budget estimates & 2016 Budget Statement

The share of Management and Administration program to the Ministry’s total allocation increased from 4%

in 2014, 17.8% in 2015 to 38.1% in 2016 (Figure 5). Allocation to Management and Administration for the

year 2016 increased by 202%, taking the largest share among the programs. Goods and Services under the

Finance and Administration sub-program attracted the largest share increasing by 1,786% (Table 3). All

the other Sub-program witnessed a decrease in allocations by 100% (HRM), 61% (PPME), and 98%

(Statistics, Research and Communication).

- 50,000,000.00 100,000,000.00 150,000,000.00

Trade Development

Business Development and Promotion

Standardization and ConformityAssessment

Industrial Development

Trade and Industry Promotion

Management and Administration

20%

36%

9%

30%

1%

4%

54.6%

7.7

18.8%

0.2%

1%

17.8%

6.8%

13.4%

18.3%

18.3%

5.2%

38.1%

TradeDevelopment

BusinessDevelopment

and Promotion

Standardizationand Conformity

Assessment

IndustrialDevelopment

Trade andIndustry

Promotion

Managementand

Administration

2016 17,517,243.00 34,654,040.00 47,431,972.00 47,479,869.00 13,460,364.00 98,816,752.00

2015 100,323,462.0 14,092,776.00 34,610,127.00 349,552.00 1,782,112.00 32,673,327.00

2014 50,531,058.00 92,830,030.00 23,053,591.00 77,440,960.00 3,458,408.00 9,218,146.00

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The increase in the allocation to Goods and Services is in anticipation of the establishment of the Ghana

International Trade Commission (GITC) which would be an independent, quasi-judicial government

agency that will settle disputes between importers and Customs Division of the Ghana Revenue Authority

in respect of classification and valuation of products that are imported, gather data and conduct

investigations in a number of areas; tariff investigations, escape clause (safeguard7) investigations, anti-

dumping8 investigations and countervailing duty9 investigations.

Table 3: Allocation by Sub-program under Management and Administration

Source: MOTI’s PBB, 2015/2016

USAID is supporting the establishment of the GITC and that explains why about 47% of Donor Funds are

going to be used to finance Management and Administration program (Table 4).

7 This allows a country to respond to unexpected and unforeseen increased imports which have caused or threatens to cause serious material

injury. Imports must be recent, sudden, sharp and significant. 8 Dumping entails selling goods to a foreign country at less than the home market cost of production. 9 A countervailing duty is a fee imposed on imports to counter subsidization that take place in a foreign market.

Allocation by Sub-program under Management and Administration 2015 2016 %Change

Management and Administration 32,673,327.00

98,816,752.00 202%

Finance and Administration 26,110,464.00

98,592,238.00 278%

Compensation of employees 14,859,353.00

4,148,239.00 -72%

Goods and Services 2,950,879.00

55,646,078.00 1786%

Fixed Assets 8,300,232.00

38,797,921.00 367%

Human Resource Management (HRM) 5,749,544.00

13,025.00 -100%

Compensation of employees 3,620,845.00 - -100%

Goods and Services 2,128,699.00

13,025.00 -99%

Policy Planning, Monitoring and Evaluation (PPME)

528,879.00

206,753.00 -61%

Compensation of employees - 197,574.00 -

Goods and Services 528,879.00

9,179.00 -98%

Statistics, Research and Communication 284,440.00

4,736.00 -98%

Goods and Services 284,440.00

4,736.00 -98%

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The share of Trade and Industry promotion programme to the Ministry’s total allocation has increased

from 1% in 2015 to 5.2% in 2016. A major source of funding is the Government of Ghana (16.4%) with

donor funding contributing about 6% (Table 4).

The share of Industrial development program to the Ministry’s total allocation has increased from 0.2%

in 2015 to 18.3% in 2016. The focus of the program for the year 2016 was the “update of the regulation,

legislation and the policies of the salt sector and also the training of salt producers on best practices of salt

production for enhanced quality” (page 94 of the 2016 budget statement).

Ghana currently produces 10% of the salt industry’s potential that has been estimated at 2-3 million tonnes

per annum10. This has been partly attributed to lack of access to land, rain water dilution, salt pan leakage,

refining losses and salt transfer handling losses.

It is believed that this policy focus would not only help in alleviating the perennial land acquisition problems

but also other challenges that confront the sector. This, if it is effectively done can increase salt production

to earn the much needed foreign exchange, generate employment and feed the petrochemical industry.

It is also worthy to mention that under this program, the Government of Ghana intends to secure a credit

facility for irrigation and sugarcane plantation for the Komenda Sugar Factory. Given Ghana’s debt

situation, there is the need for government to look for alternative sources of funding, probably the Annual

Budget Funding Amount (ABFA) could be considered since it falls within the remit of Section 21(5) of the

Petroleum Revenue Management Act, 2011 (Act 815) in order not to burden the country with additional

debt.

The share of Business Development and promotion to the Ministry’s total allocation also increased from

7.7% in 2015 to 13.4% in 2016. This program has lost its position as the largest recipient of budgetary

allocation to the Ministry since 2014. For instance, budgetary allocation to GRATIS Foundation has been

woefully inadequate given the important role it plays in technology transfer, research and development. In

the face of the current unemployment challenges, there is the need to increase allocation to the program to

generate the needed employment and help reduce poverty.

The share of Trade development program to the Ministry’s total allocation has decreased drastically from

54.6% in 2015 to 6.8% in 2016. Donor funds had been a major source of funding for Trade Development

10 Affam, M. and Asamoah, D.N. (2011) Economic Potential of Salt Mining in Ghana Towards the Oil Find. Research Journal of Environmental and Earth Sciences 3(5): 448-456. ISSN: 2041-0492

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Program for the years 2014 and 2015. However, in 2016, Donor Funds reduced drastically contributing

only 11%, thus, affecting the total allocations to the Trade Development Program (6.8%, figure 4).

Table 4: Programme by source of funds (2014-2016)

Program Source of Funds

GoG (%)

IGF (%) ABFA (%) Donor Funds (%)

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

Trade Development

5 6 9.4 0.48 44 0.1 -- -- -- 55 99.7 11

Business Development and Promotion

65 33 38.4 3.38 1 0.5 100 -- -- -- -- 17

Industrial Development

- - 2.3 61.76 - 21.8 -- -- -- 45 -- 19

Trade and Industry Promotion

2 1 16.4 3.92 2 -- -- -- -- -- -- 6

Management and Administration

12 47 14.6 5.93 17 32.5 -- -- -- -- -- 47

Standardization and Conformity Assessment

16 13 18.9 24.52 36 45.2 -- -- -- -- 0.3 --

Total 100 100 100 100 100 100 100 -- -- 100 100 100

Source: MOTI’s PBB, 2014/2015/2016

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4.0 Other issues

A review of the Committee’s reports on the Ministry’s budget estimates for the years 2013, 2014 and

2015 engenders the need to discuss the following issues:

Table 5: Outstanding issues from Committee’s report (2013/2014/2015)

2013 2014 2015

1. Status of the Keta Industrial

Salt Estates in the Keta Lagoon

Basin, Volta Region

Status of revamping the

operations of the following

through Public Private

Partnership/Joint Venture:

a. Volta Star Textiles Co. LTD11.

b. Northern Star Tomato Factory

LTD.

c. Ayensu Starch Company

Status of indebtedness GH¢

(12,757,710.66) of CEDECOM in

respect of its social intervention projects.

In 2013, the indebtedness stood at GH¢

5,800,000.

2. Status of the Banana

Accompanying Measures in

which the EU is supporting

with €7.2million

3. Status of review of the Ghana

Standards Authority Act, 2004

4. Status of Indebtedness

(US$92,000) of Gratis

Foundation to Messrs. of

Cromwell Int. of England for

the supply of workshop

Equipment

5. Status of Indebtedness

(GH¢120,252.46) of Ghana

Industrial Skills Dev’t Centre to

K9 Security Services.

Source: Committee’s reports on 2013, 2014, 2015.

5.0 Policy issues and recommendations

The importance of trade to development and growth has been well-established. However, the fact that

trade presents an opportunity for growth, increased foreign direct investments, job creation and poverty

reduction among others does not guarantee these potential benefits. As result of this, the responsibility lies

with government to create the necessary environment that will ensure the positive benefits from trade. In

this regard, there is the need for increased budgetary allocation to the Ministry of trade from its current

level of less than 0.8% of total government expenditure to about 1%. In addition, budget releases should

not only be timely and adequate but the percentage of the allocation released/utilized should be at least

80% as pertains in other developing countries such as Namibia12 and South Africa13. Furthermore, prudent

macroeconomic management is required to ensure that the Cedi is stabilized and inflation brought under

11 What is the status of Employees’ unpaid salaries? 12 87% utilized budget, 2014/2015 Annual report of the Ministry of Trade and Industry 13 99% utilised budget, 2013/2014 Annual report of the Department of Trade and Indusrty

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control for businesses to properly plan. The current investments14 in the power sector are more of short

term measures to end the load shedding, however, more long term measures are needed not only to ensure

that we do not experience the power crisis that the nation is currently facing but also that the cost of

providing this power is minimal in order not to affect businesses. Besides, efforts should be made by the

managers of the Ministry to ensure that conditions or targets that are precedent to the disbursement of

donor funds are met so that the funds can be accessed on time. There is also the need for Cabinet to

facilitate the presentation of the Public Private Partnership Bill to Parliament for passage as it would

provide the needed infrastructure in terms of legal, finance, management, among others for the revamping

of State Owned Enterprises.

6.0 Acknowledgement

This paper was prepared with the support of the World Bank under the Ghana Public Financial

Management Reform Project Support to the Parliament of Ghana.

14 225 MW powership 250MW Amery-Energy Power Project 370MW AKSA Project 300MW General Electric Power Project