The Ghana Heritage Fund; Hurting the future with good intentions

It has been six years since Ghana started commercial production of crude oil, in the run-up to commencement of production a lot of preparations were made including the enactment of the relevant legislation to ensure prudent management of the resource. To avoid the pitfall that have befallen other countries that have found the “black gold”, the Petroleum Revenue Management Act 2011 (Act 815) was promulgated. Act 815 adopted the Norwegian model which splits petroleum revenues into pools with substantial parts invested offshore. In Ghana Act 815 established the petroleum holding fund into which all revenue from the resource are lodged. This funds are then allocated to three main accounts based on a formula to be determined by parliament, these accounts are the budget, heritage and stabilization funds. Act 815 was designed to remove those pitfalls associated with the commercial oil production in other countries. These pitfalls include the Dutch disease, inflation (overheating of the economy), increased risk of corruption and investment into projects with low economic returns. According to a Bank of Ghana (BoG) semiannual report for Jan-Jun 2016, the total revenue that have accrued to the country is US $3,285,248,838.84 out of which 43.22% (US$1,420,140,861.30) have been allocated to the Annual Budget Funding Amount (ABFA), 30.18% (US$991,575,834.69) have been allocated to GNPC the whiles 18.81%(US$617,816,104.68) was disbursed to the Ghana Stabilization fund (GSF) and a paltry 7.78% (US$255,716038.17) was disbursed to the heritage fund. The Heritage fund which is to ensure inter generational equity in the benefits of the finite resource and the GSF are supposed to be saved offshore. These are to ensure a steady flow of dollars into the economy to prevent the cedi from becoming too strong and hurting the country’s exports of other commodities. It will also allow the smoothing of expenditure across the business cycle. For all intent and purposes, this should have been a good law but in reality it is not and I will explain why. During the first half year of 2015 the yield on the heritage and the stabilization funds were -0.54% and 0.33% respectively and 0.74% and -0.01% for the second half year of 2015. This means that Ghana was paying the fund managers for keeping the heritage fund in the first half year of 2015 and the stabilization fund for the second half year of 2015. In 2016 the yield was somehow better it was 4.93% and 0.33% for the heritage fund and the stabilization fund respectively for the first half year https://www.bog.gov.gh/privatecontent/Public_Notices/Semi%20Annual%20Report%201st%20half%202016%20FinalV1.1.pdf What makes it bizarre is the fact that whiles we were paying the fund managers for keeping our fund in 2015, the very same government was borrowing by issuing sovereign bonds at a coupon rate of 10.75%. Does it really make sense to put the heritage and stabilization fund outside the economy knowing very well its potential impact on the local currency which is declining? Again in 2016 the government have issued another sovereign bond at a coupon rate of 9.25% for another 750 million USD. http://citifmonline.com/2016/09/08/ghana-issues-fifth-eurobond-at-9-25/ The rationale behind Act 815 was to prevent Politicians from pursuing their short term political interest at the expense of the long term development needs of the country by preventing disruptions in the business cycle and the economy as well as ensuring inter generational equity such that future generations after the resource have been depleted would also have their fair share of the resource. The question now is with the rate at which government is borrowing would these objective be achieved? The very generations we are paying fund managers to keep the money for are the same generations we are busily accruing loans for them to come and pay. To add salt to injury we are accruing more debt and at steep interest rate than we are saving for them. This defeat all forms of logic and common sense. Unless we are able to enact a law that puts a ceiling on government borrowings, the very mischief Act 815 was enacted to cure will be our lot.

IS SADA SLIDING AGAIN

SADA the Savanna Accelerated development Authority was set up to help bridge the the economic gap between the South of Ghana and the North (Savanna région). Less than two years into its operation, it was riddled with corruption, ineptitude and recklessness all in gargantuan proportions. These were serialised by joyfm's Manesseh Awuni as the Sad SADA Saga. The huge embarassment led to the chief exécutive been fired and the Whole setup bein reorganised.
SADA is yet to demostrate to Ghanaians that valuable lessons have been learned from its chequred short history.
Some few months a go SADA was in The news again This time it is investing in energy sector. That in itself is not a bad idea, but is that the most pressing need at the Moment and how many people will be taking out of poverty with that Project.
It does appear to me that either the SADA authorities have no clue about what they are supposed to or they are deliberately being reckless with the tax payers money.
Common sense demands that they find out why there is an economic gap between the SADA Zone and the south in The first place before they think about what can be done to bridge that Gap.
There are several reasons for the widening economic gap between the two climatic zones.
the major ones are colonialism, resources endowment ans climate, yes climate. The colonial powers only wanted the north to ne source of cheap labour for extracting the resources in the south for Export. There was therefore no need to build infrastructure there or to educate the people. After independence attempts habe been made by some government to bridge the gap especially on The educational front secondary schools and Training colleges under Dr Nkrumah and The UDS under Flt Lt Rawlings. But economic structure of the country has not changed that much so the infrastructure gap is still glaring. For example there is no Single industry that employs More than 500 people in The SADA region.
Climate is a factor because as one moves from the Burkinafaso border towards the south, the level of poverty also reduces as the level of rainfall increases. This is so because the rainy months reduces from year round in western south to a little over four months in The upper east Region. How does any one expect farmers to survive the whole year on five months productivitie?
The number of people who are reliant on farming for their livelihood is also very high in The SADA Region. This is understandable becuase the Region has very little alternative livelihood opportunities outside farming.

With This background I was expecting that the first projects that SADA will be undertaking will be the construction of dams, which will enable farmers in The SADA region to be able to produce a little More into the year. This is an effective and quick Way of reducing poverty on a large scale sustainable Basis. Is not surprising that Ghana is importing tomatoes ans other vegetables from Burkinafaso which is even further north? What is that they are getting right that we are getting wrong? The answer is not far,Dams, yes dams,they recognised they have water Problem so they have build a lot of dams that are used dort irrigation during the dry season. I am surprised this common sense eluded the authorities at SADA.
The next expected area of intervention by SADA, would have been The construction of feeder roads to bring The little that is produced into The market. The area I building of factories for processing.

Asiedu Nketia is right, Let us take a second look at the heritage fund

Some days ago the General Secretary of the ruling National Democratic Congress (NDC) Mr Johnson Asiedu Nketia suggested that considering the hardships that Ghana’s economy is facing, we should consider using the money from our petroleum revenue that has been lodged in the heritage fund to solve our problems. As would be expected the rented press of the opposition descended rather heavily on him with headings such as “let’s blow heritage cash- Asiedu Nketia”, “let’s chop heritage money General Mosquito”.

The heritage fund, a creature of the petroleum management act 2010, is for all intent and purposes a good law as it is intended to ensure intergeneration equity and as a preventive measure against the Dutch disease. But a good law is just like a dangerous weapon, what it will be used for good or bad depends who is wielding it.

Ghana’s petroleum management Act 2010 is fashioned in a way that is supposed to conform to international best practices as is the case in Norway. Norway one of the most developed countries in Europe has a population of 5m and a GDP of 282 billion in 2012, the third largest exporter of natural gas. Norway was one of the few countries that recorded positive growth between 2010 and 2012 when most of Europe were in a recession, Norway has  one of the lowest unemployment rate in the world (3%), Literacy rate is 100%, GDP per capita is 56,000, ranked 9^th in the world.

Ghana has a GDP of 98 billion a population that is five times that of Norway, with literacy rate of 71%, and GDP per capita $3,700 (Each Norwegian earns 15 times more than what his counterpart in Ghana earns). Ghana’s economy is completely different from that of the Norwegian Economy. So right from the word go importing a law that has served the Norwegians well (international Best practise) might not be best practice for Ghana.

Again Norway discovered oil in the 60s when they already had a relatively developed infrastructure and a full blown industrial sector, these are non-existing in Ghana.  Also Norway owns about 60% of all their petroleum resources, how much does Ghana own? Here we are taking about 60% of a much bigger resource, this gives the Norwegians much space to do so many things that Ghana with our negligible petrol resource that is spread over a five times bigger population cannot do.

I stand to be corrected, the heritage fund have been invested abroad and is earning us 1% interest per annum which is less the average inflation in Europe which is 2%, so technically were are paying for our heritage fund to be managed, while our government borrows at an average rate of 8%. This leaves one to wonder whether our decision makers have their heads properly screwed on. In one breath we are saving to secure the future of generations unborn and in another we are borrowing at 8 time’s higher interest rate for them to pay. Why can’t we invest these funds locally to create jobs for the youth like this writer whose future we are pretending to secure with this fund. It could also be another anchor to stabilise the cedi that seem about to summersault.  Why can’t we spend this fund on developing some selected sectors that we have comparative advantage in?

The main argument for the heritage fund I am told is that the politician is short sighted and might squander all the resources and future generations will then suffer. Which I agree but the fact is that future generations are even going to suffer more judging by the rate at which we are rushing for loans left right and centre.

Putting one set of money beyond the reach of politician while allowing him full access to another is a little bit foolish. As we say it in twi “Sika bi Nkyen sika bi” (money is money). After passing the Petroleum Management Act, parliament should have gone further to tie the hands of the politician (should I say his legs) by putting a ceiling on how much they can borrow over a period of time taking into account how much is accumulating in the Heritage fund. That is the only way we can really ensure intergenerational equity in the use of our natural resources.

The Norwegians did not invest abroad right from the word go as we are doing, they invested in infrastructure, health and education before venturing abroad. Today 2% of all investment in Europe is financed from the Norwegian petrol fund. Norway’s system of managing petroleum revenue has been adjudge the international best practice because they learned from what happened to the Netherlands and other countries that stroke oil before them and we have Norway and all the others to learn from

He who have eyes to see let him see, she who have ears to hear let her hear.

Yakubu Musah

Tamale

Single Spine is the Problem

Running an economy is a balancing act so any injection must ensure that the system have enough room to accommodate it or an outlet have been created for it. When salaries and wages rise faster than productivity, inflation is the natural consequence. As workers get more money than they are producing as happened in spain, italy, portugal etc. On the other hand when productivity rises faster than salaries and wages, stagflation is the result. As workers cannot buy what the produce as happened to germany. Except in they case of germany what cannot be bought was exported. Ghana and Germany are sitting on opposite ends of the economic spectrum. The Single Spine Salary Structure (SSS) in Ghana has doubled and in some cases tripled the salary of some public sector workers without commensurate increase in productivity. At The same time The government embarked on massive expenditures mostly for political reasons which pushed even more money into The economy. While the germans were exporting their surplus, Ghana was/is importing to make up for the rising demand occassioned by the steep rises in incomes(disposable income) Just at the same time that our imports surged the prices of our major exports mainly cocoa and gold went down. So More dollars (foreign currency) were flowing out than flowing in. As if that was not bad enough ghana's economy was rebased making us a middle income country overnight, therefore other grants from development partners that could have helped also dried up overnight. Also 8 months of litigation over presidency, The GEEDA and Woyome saga's have not given The donor Community the confidence they needed. With fewer and fewer dollars remaining in ghana the price of the dollar will also keep rising as a result of higher and higher demand and lower and lower supply. The turbulences that the ghanaian economy is facing is therefore to a larger extent self inflicted. From where I sit it is more political than economic. And both the NDC and NPP are guilty considering the fact that both sides used the SSS for political gains. Although some other factors have been mentioned here as contributing to the imbalance in the ghanaian economy namely other government expenditure, lower commodity prices, lower inflow of grants, the SSS is the most important straw the broke the camels back. Having diagnosed The Problem I will offer my treatment. Which is rollback of the SSS. I know This politically not feasible. But it is the only quick and fast remedy to the Problem. There are several ways of treating tumors, prayer, drugs etc but the most effective means is the surgical removal and it is also the most painful. A word to the wise is enough.

Kuffour is the Worst leader in Ghana’s History

Rev. Titi Offei once said “Leadership is cause all others is the effect”, Leadership has been described as “a process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task. Leadership is therefore very vital in any social sting because it mobilizes the energies of the people and channels them towards the desired impact. How successful a leader is, mostly depends on his charisma and ability to tap into the hopes, fears and aspirations of the people he/she is leading but most importantly timing. The issue of timing also comes with how lucky the leader is. Most wartime leaders become instant heroes just because of they happen to be in the positions at the most opportune time.

Ghana have had three main defining moments (times) when the hopes and aspirations were so high that the people were ready to endure just anything in the hope that the Ghanaian dream will be a reality. The first one was the period immediately after independence. I was not born but I could imagine how the people felt at that time, having your own people managing your own affairs for the first time under a nation state called Ghana and with a charismatic leader, there was no reason to believe the Ghana dream will not be realised. From all indications it seems Nkrumah was on track until his government was truncated, because everything that we can boast of as Ghanaians even up till today was done in his era. I must admit that on hind sight, he was leading us on a path of socialism, that have latter been found to be wrong, but with Soviet Union becoming a super power in just a few decades, there was no reason to believe it was the wrong path at that time.  Besides it would have laid a solid foundation for an economic take-off if his government was not truncated. Capitalism thrives on capital, where there are no capitalist or capital, that state needs to intervene to drive the economy in the desired direction and that was what Nkrumah sought to do. The import substitution industrialisation he adopted has been later used by all the emerging economies today at some point, South Korea, China, India and Brazil. Even the developed countries including the United States, Germany and France used that strategy at a point in their history. In short the 1966 coup destroyed the boat that would have taken Ghanaians to the Promised Land.

The second defining moment was the period after the 1979 revolution, after all the rots and decay that followed the decades after the overthrow of Dr Nkrumah, Ghanaians had another chance to break away from the past and to construct another boat that will take them to the promised land. The cooperation of the people surged to an unprecedented levels knowing that their destiny is back in their own hands. Unfortunately, the revolutionist had no plan on how to do that. All they had was their good intention which was woefully inadequate to deal with the dreams and aspirations of the people. By the time they were able to put up something they can call a plan the high hopes of the people had already fizzled out. The enthusiasm and cooperation of the people was no longer there, these are the events that led to the “kume preko” and other demonstrations.

The third defining moment was the period after the 2000 elections, I still remember the feelings back then, I was in KNUST. Fuel prices were doubled twice in less than a year and no single soul hit the streets, because we all believed that we needed to swallow bitter pills so that the ailment of the Ghanaian economy could be healed. We were taking through the painful surgery called HIPC with its harsh conditionality’s and we endured it hoping that the economy of Ghana will soon be back on track. Not only were the people of Ghana so enduring at that time, the international community particularly the western countries saw so much hope in Ghana after a smooth transition from ruling government to the opposition. They were ready and willing to support us to make a case that democracy is indeed the only way to go. The timing was just what any leader will wish for to be a hero, there could possibly be no better opportunity for a leader than that time.

All these expectations, dream and aspirations fell on one man J. A. Kuffour to manage and to direct them towards the desired results, guess what? He screwed it. During his era the few state owned enterprises that were not sold under that structural adjustment programme were sold including Ghana telecom, Ghana airways and all prime government lands in Accra and Kumasi. Corruption was state managed and directed from the castle. To add salt to injury, he declared in Cape Coast the any Ghanaian who is not rich under his government is lazy and proceeded to award himself with expensive medals.

These attitudes have created so much distrust of the people for government culminating in our lackadaisical attitude towards anything belonging to the state. Not only did he fail to deliver as a leader, he has also succeeded in making it more difficult for others that will follow in the near future.  It is based on these that I will rate him as the worst leader in Ghana’s history. Because he failed woefully to use the opportunity presented to him by time.  I don’t blame him when he keeps blowing his own trumpet, because if he doesn’t no one will. He probably thinks that he had done a great job, in that case he is alone in his thinking.