‘Resetting the economy’: No room for honeymoon

Weeks before the formal swearing in of Ghana’s new President, John Dramani Mahama, pressure has already started mounting from all quarters to fix the economic challenges the country was presently faced with.

While economic analysts are demanding of him to immediately hit the ground running in an attempt to change the economic fortunes of the masses and promptly restore investor confidence, the business community on the other hand is urging the new administration to prioritise resetting the country's struggling economy. 

Businesses, particularly from the private sector, expressed concerns about the ongoing economic challenges, including high inflation and interest rates, lack of access to market, access to capital, the depreciating currency, and rising cost of doing business.

Ghana's economy has faced significant pressures over the past few years, worsened by global factors such as the COVID-19 pandemic and the Russia-Ukraine war, which have led to price hikes in essential commodities. 

No honeymoon

“This is not the time for any honeymoon because the people are desperate for an immediate turnaround in the cost and standard of living and would not tolerate any funfair at the expense of their present economic situation. 

Businesses are also reeling under heavy taxes and a difficult economic environment and would want to see a speed up in policy implementation to reverse the trend,” the Director of the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey, told the Graphic Business in an exclusive interview on the expectations of the incoming government under John Dramani Mahama.

The biggest opposition party, the National Democratic Congress (NDC), just won the 2024 elections with an overwhelming victory that many have described as a verdict on the poor economic conditions, signalling a complete rejection of the policies of the ruling government under the New Patriotic Party (NPP), and a desperation to see a change in their economic fortunes.

 
Number crunch

Presently, the micro and macro-economic numbers point to unemployment at an all-time high of almost 15%, according to the Ghana Statistical Service (GSS); inflation at 23.0% as of November this year, on the back of rising food prices across the length and breadth of the country, average lending rates of banks at 30.45% according to the Bank of Ghana’s Monetary Policy Committee (MPC) report for last month and a weak cedi against the major foreign trading currencies.

Ghana's public debt stands at GH¢761 billion as of October 2024 and represents a whopping 74.6% of Gross Domestic Product (GDP).

Budget 2024

Professor Quartey said the prevailing conditions are not the best and proposed to the Mahama administration to use the 2024 budget statement to signal a restoration of hope, not only domestically but also to signal his clear intent to attract the international investor community.

“The 2024 budget gives him the opportunity to send the right signals based on his promises, and investors in Ghana and abroad will be watching that closely with high expectations,” he said.

For instance, Professor Quartey mentioned the issue of taxes and called for major reforms in the country’s tax system to relieve businesses to enable them to expand and create the needed employment opportunities for the people.

“I am, for instance, against the Electronic Levy (E-levy) and I would want to see that go immediately, as they have promised during their campaign,” he said.

On the betting tax, however, Professor Quartey disagreed with the NDC for wanting to abolish that tax, arguing that “taxes are sometimes imposed to reform and correct behaviours and, therefore, removing it will see our youth mostly spending productive time on betting.

We should be able to create jobs for them to work so that they do not rely on betting to provide them with income,” he argued.

The ISSER Director also indicated that while it will be prudent to remove taxes that are a nuisance and stagnate the growth of businesses and households, the Mahama government must also not lose sight of the impact on the overall domestic revenue generation.

He said while the government scraps some taxes, it must be reminded that the country is under the International Monetary Fund (IMF) programme, which has set out clear benchmarks of which domestic revenue mobilisation is key.

Optimism

President of the Ghana Chamber of Commerce and Industry (GNCCI), Stephane Miezan, expressed optimism, viewing it as a crucial moment to reset the nation's economy. 

"The victory tells us that the issues of the economy have been a major factor in the victory of the NDC. As we speak, when we import goods to Ghana, there are about 21 lined items of taxes. This is a unique opportunity for the new government to reset the economy," he said.

He explained that a clear economic recovery plan that includes measures to reduce taxes, increase productivity, and support small and medium enterprises (SMEs) will be crucial in steering Ghana's economy back on track.

Such steps, he believes, will not only benefit businesses but also provide the much-needed relief to Ghanaians who are feeling the pinch of economic hardship. 

"The hope is that the incoming administration will take swift action to address these concerns and create a more resilient and diversified economy," he said.

Industrialisation 

Mr Miezan further emphasised the need to focus on industrialisation, particularly through agriculture and agro-processing, to drive economic growth.

He explained that focusing on manufacturing and value addition in agriculture would be instrumental in tackling key issues such as unemployment and stabilising the local currency.

According to him, boosting production capacity would not only create jobs but also enhance the country's economic resilience. 

"If we shift towards industrialisation through agriculture, we can address some of the critical challenges facing the economy," he said.

He emphasised that the incoming government must also prioritise youth and women, whose strong voter turnout was crucial in securing the administration's victory. 

"In terms of demographics, the victory came from the angle of the youth and women, which means that there is a clarion call on the incoming government to look in the direction of women and youth especially who are looking for employment.

"It is essential for the new leadership to focus on employment opportunities for the youth and women, as they play a significant role in our economy," the Chamber President said.

Investor confidence 

He also highlighted the importance of improving access to markets, especially for small and medium enterprises (SMEs), noting that the incoming government must create an enabling environment for businesses to thrive.

He said implementing policies that can stabilise the macroeconomic environment would restore investor confidence and create an enabling environment for sustainable business growth.

Infrastructure Mr Miezan urged the incoming administration to complete ongoing infrastructure projects initiated by the outgoing government.

"Infrastructure is key, and it is in the best interest of Ghanaians that these projects be seen through to completion," he added. 

On tackling corruption, he stressed the need to intensify digitalization efforts to cut out middlemen and boost revenue mobilisation.

Assurance 

He congratulated the new administration and affirmed the Chamber's commitment to work closely with the government to promote long-term economic sustainability.

In a separate interview, the President of the Ghana Union of Traders Association (GUTA), Joseph Obeng, extended his congratulations to the newly elected government. 

He commended the administration for incorporating the concerns and recommendations of the business community into their manifesto. 

He expressed confidence that, drawing from the president's previous experience in office, he would provide the necessary support to enable businesses to thrive. 

He added that with the right policies and engagement, the new government could help traders and other key players in the business community to excel and contribute to the country's economic growth.
 

Tax performance

The Ministry of Finance (MoF), in October this year, published an updated survey of the Ghanaian tax system, produced jointly with TaxDev researchers from the Institute for Fiscal Studies (UK).

This survey, which provides information on Ghana’s tax system as of January 2024, is intended as a repository of key information for researchers, policymakers and the public, and updates a previous edition of the survey published in 2021.

The key findings of the report indicate that at 13.8% in 2022, Ghana’s tax-to-GDP ratio remains below the government’s target of 18-20% by 2027.

Though this ratio is almost six percentage points higher than in 2000, it continues to fluctuate and has made minimal gains since 2017.

It said much of the growth in Ghana’s tax revenues since 2000 has come from increased corporate and personal income tax takes, as well as VAT and similar taxes, though revenue growth from the PIT and VAT-type taxes has stagnated more recently.

These three types of tax made up nearly 70% of total collections in 2022 – up from 57% in 2000.

It also showed that tax collections from international trade have become far less important in the revenue mix, though they remain significant: 33% of overall tax revenues were collected on imported goods in 2022 (including VAT on imported products), compared with 54% in 2000. 

The contribution of import duties specifically to total tax revenue declined from 18% in 2000 to 13% in 2022.

Ghana’s tax-to-GDP ratio is fairly typical of countries in sub-Saharan Africa. However, considering countries of a similar income level across the world, Ghana’s tax revenue collections are slightly below average: out of 28 lower-middle-income countries with available data, Ghana ranked 16th in 2022.

Analysis of tax rates and revenues across countries suggests differences in relative revenue mobilisation by tax type in Ghana. 

While recent growth in corporate income tax revenues means that they exceed revenues in other countries using similar tax rates, personal income tax and general sales tax revenues are lower than would be expected, all else being equal.