Fiscal discipline is the key to economic stability


Fiscal discipline is the key to economic stability

President Nana Akufo-Addo seems to have acquired a fan club across Africa for his pronouncements. He inherited an economy in the doldrums that appears to have taken a turn for the better following an IMF programme as well as a rise in the price of commodities such as cocoa and oil. He is accused by his critics at home of having a bloated government, which he says he needs to get things done. Nana Akufo-Addo, it would appear, was always destined to become the head of state of his country. He comes from a prominent Ghanaian royal and political family, his father Edward Akufo-Addo being the President of Ghana in the 1970s. Nevertheless, it took him three attempts before he was able to win the Presidential elections. According to people close to him, this has made him humble and more in tune with common sentiments and people’s hopes and expectations. New African sat down with him while he was on a visit to London.

You have been very vocal about the necessity for Africa to take its destiny in its own hands and not depend on outsiders, but your Finance Minister Ken Ofori-Atta made a point of thanking the IMF when he spoke at the African Banker Awards (as winner of the African Finance Minister award). Is there a contradiction of attitudes here?

I’m not sure if you are suggesting there’s a contradiction between the Finance Minister’s position and mine, but if so it’s not intended. The IMF came to Ghana – as it has done elsewhere – at a time when the Ghanaian economy was going through very challenging times; when many of our macroeconomic indices were going wrong; they came in on a rescue mission. It was an emergency, stop-gap three-year stabilisation programme. The programme is due to come to an end at the end of this year; in fact it actually came to an end in April technically, but has continued because of the way the budget process was intertwined with it.

I believe the Finance Minister thanked them because, yes, they came, they provided nearly a billion dollars of relief for our economy and they tried as much as possible to hold the country to some important fundamentals. The 9.3% deficit that we inherited was cut down to 5.9% in the first year of our government, and we’re looking to bring it down further, to 4.5% this year. We want to pass a law setting a 5% ceiling for the deficit so that every government is held to managing the finances in such a way that we don’t get more than a 5% deficit in any one year.

At the end of the day, what all of us are saying in Ghana is that we don’t want to go back into another IMF plan, we want to be able to manage our own economy in such a way that there will be no need to have recourse to the IMF again. That is the basic learning: fiscal discipline, making sure that your economy is in balance and in equilibrium – and yes, we don’t need the IMF to be able to do those things. These are fiscally economically responsible initiatives that we can take on ourselves.

The big question concerns Chinese debt. The Western press in particular says it is less transparent and that such debt is being offered to create an economic world order in the image of China. Would you say these are fair comments?

Looking at the Ghanaian situation, we had no particular reason to fear the Chinese entanglement. Yes, it’s true today that China is our biggest trade partner and the balance of accounts is more in their favour because they have more things to sell to us then we have to them. But, with the assistance that we are getting from China, the $2bn swap agreement that I went to sign with the Chinese leader for instance essentially involves a barter arrangement.

They are providing us with money to enable us to deal with some very fundamental issues of our infrastructure, such as roads. We are going to use the period of repayments [for the $2bn sum] to develop an integrated bauxite industry in Ghana, which would allow us to export back to China finished aluminium products as our payback for it.

To me this is a good arrangement. It is about the exploitation of Ghana’s natural resources but the exploitation is not in the manner which we’ve seen before. We are insisting that the full value chain of our bauxite development takes place within Ghana and they have accepted this way of us doing it. For me, this is a progressive step, it is something that far from posing a threat, is in fact an assistance to the evolution we are looking for, which is as much as possible, to add value to our raw materials and add value to it sur place in Ghana.

In Africa, government still has an overbearing influence on business and on the economy. Would you say that now in Ghana, people can just go about their business because they know there is going to be a calm transition of power and it will be business as usual?

That is my hope. The institutions that drive our economy are dependent on governments to the extent that government policy is important; you are looking for responsible policies, appropriate policies which will have that catalytic impact. You want, as much as possible to have decisions about investments, employment, expansion being taking by private sector operatives but within the context of policies defined at the centre. I think that if we continue down that path, I don’t see so much as a decoupling between government and the economy but an enabling phenomenon on the part of government for the growth of the economy.

You’ve been in government for two years of your four-year term; it is a short period of time to get things done as many of the projects are long-term. There are different arguments about the best democratic model for Africa, including limited terms. What is your view?

Winston Churchill said that democracy was ‘the least worst form of government’ and that happens also to be my view. That it has many shortfalls but at the same time, authoritarian rule in Ghana has been tried and it failed. That is why there has been this consensus in Ghana that willy-nilly, the democratic path is the most effective one for us. And by and large, it has been proved true. When we look at statistics comparing military rule in Ghana and the era of democratic government, there is no doubt that the indices are better – in terms of life expectancy, greater growth of the economy, wider employment.

All of these have been more positive in the democratic era than they had been in the authoritarian period and this is why Ghanaians are very clear in their minds that this is what they want. I am hesitant to provide models or prescriptions for other countries of the continent because everybody has their own peculiar history and specificities that they have to deal with; but for Ghana, there is no doubt in my mind that it has been beneficial.

Let us look at the global economic environment. We’ve seen high volatility in emerging markets as well as a trade war between the US and China. We don’t yet know the ramifications in terms of collateral damage. So how do you view the current global economic environment?

Some of the certainties that were there a few years ago are now not there, and the situation is therefore not clear. For instance, it is by no means clear what the outcome of the US-China trade war is going to be, especially regarding its impact on small countries. But obviously it will have an impact and you can be sure that the impact will be negative. When the elephants fight, it’s the grass that suffers. So I have no doubt in my mind that we are in an era of very disturbing global developments.

But, for me, what it reinforces is that through it all, we have to keep a focus in Ghana to make sure that those fundamental things that we want to do – developing a base for our industry, enhancing our agricultural productivity, putting in the policies that will allow the Ghanaian people to have the education that is required for the 21st century – remain our focus. No matter what the difficulties, we have to focus on these because they are the fundamental roots, instruments that will enable us to pursue the rapid development of our country and of our economy. So, yes, the global environment is shaky, but the lesson that I draw from that is the need to be consistent and firm in the things that we are doing at home.

Is there no real way of mitigating against these risks, except for fiscal prudence, as you say?

Yes, managing the economy intelligently and responsibly becomes your hedge, if you like.

In terms of the youth bulge, unless you are globally competitive then your large young population can become a burden. What are your thoughts on this in general?

We have to intensify the skills acquisition, the training. Not just the formal education but the technical and artistic training as well – in addition to enhancing a full IT spectrum capability. I think that everything that we can do to give this young population the necessary skills, the information and the training on how to operate competitively in this 21st-century global economy, becomes the most effective way to activate this so-called demographic dividend. In Ghana, 60% of the population is under the age of 25. But the race against time is to give this population the requisite skills to operate with in the 21st-century.

Do you think we need to be a bit more deliberate, in terms of population control?

That debate is going on in Ghana, I wouldn’t want to pronounce on it now, because I want to see the balance of forces and you can understand, yes, there is clearly a need. One has seen the connection between population control, the policies on demographic expansion and economic growth over a period of time. The latest example is China. And it’s a compelling argument that is made there. But then there are also those who say that we in Africa, on this vast continent, are not nearly enough. I want to see how the debate that is going on evolves a little bit more.

How are your education reforms coming along? You have got two curriculum streams running concurrently. Is it working?

First of all, this is the first year of the policy; it came about just as necessity is the mother of invention. When the free senior high school policy kicked in last year, the 2017-18 academic year, 90,000 more people became available for secondary school education than the year before. This year, that number has doubled, it’s now 180,000-plus and unfortunately the expansion of the schools infrastructure has not kept pace with this expansion of secondary school students.

So, what do you do? You have a choice, either to scale back on the commitment or to find an intelligent solution and the solution we found was this double track. We’ve seen it employed in other parts of the world, for example in California. In fact, it has been helpful because what we noticed is that it’s going to permit us to have smaller classes, teachers that will have more time with pupils, the contact hours will also expand and there will be even more holidays. We are recruiting many more teachers and administratively so far it has gone very smoothly. We’ve had two streams; the green stream are the ones that have gone to school now and the gold stream will be going to school in November.

So far, it’s gone very, very smoothly, there have been no problems about it. It may even be a model that we extend, to make education compulsory until at least the end of secondary school. It is a system that allows you to handle large populations of school children, right from primary to secondary.

You come from the home of panAfricanism, the base of the African independence movement. How do you view pan-Africanism today? We don’t seem to see that strong, united voices behind continental issues like we did 20 years ago or even 10 years ago with Mbeki, Obasanjo and Wade.

It is because this has also been a time of some important challenges in the African economy and people have tended to look inwards for solutions. But I think that the reforms that have been led by the Rwandan leader, Paul Kagame, are going to make the continental organisation more effective in the way in which it handles both internal programmes and external relations. And at the same time too, I see the regional economic communities – ECOWAS, the EAC, the Southern African Community – growing in strength and coherence. And therefore, the integration there that we need to co-operate and work together, will take this new initiative – the Continental Free Trade Area – into a new space.

This is a strong indication that the pan-African thinking has now returned. When we went to Kigali to sign the Free Trade Agreement, the talk was that 30 countries had expressed commitments to signing up. But the atmosphere was such that 44, I think, in the end signed up and I think that now, virtually the entire continent has done so. What remains to be done is ratification and right now seven countries have ratified the agreement. Ghana and Kenya were the first to do so, and we need 22 to establish the common market. If we are able, within the next year to get the 22 to ratify, then the framework is then established for this common market. I think objections to the pan-African ideas are going to face immense hurdles. I don’t think you will be able to ask this question again in say, a couple of years’ time. I sense a positive consensus amongst the African leaders to drive the African agenda.

Even when you go to the Forum on China-Africa Cooperation (FOCAC) for example?

Yes because at FOCAC, there was an awareness that we need to think together, work together because this individualist approach to dealing with outside relations is not effective, it’s not efficient.

Lastly, what have been the highlights and the lowlights in the two years so far?

As far as highlights, the key has been the unveiling of the free senior high school policy and the fact that we’ve been able to do it, and find the money within the government revenues to be able to sustain it. The lowlight to some extent is the difficulty of getting this government machinery to respond in the way which you would like for the things that you want to do. That’s been for me the challenge, but all of it is a learning process and we’ll see how that plays out. NA

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