Ghana is fast becoming a Rentier State. It already derives a sizable and increasing share of government revenue (about 30%) through economic rents. Rents from oil, gold, manganese, diamonds, bauxite and other mining activities are mandated by law in the form of royalties and carried (unpaid for) interest[1]. Taxes as a percentage of GDP are very low (about 16% of GDP) and rapidly declining. The bulk of tax revenue is made up of (regressive) indirect taxes.[2] These hit the lower-income groups the hardest.
Accountability in the Collection and Use of Government Revenue
We contend that income taxes in Ghana are very low because most administrations are wary of waking the sleeping giants which are organized labor and public sector employees.
Tax revenues are collected primarily from the formal sector and are thus relatively more predictable. They are allocated almost exclusively and, it would appear, are exhausted by the cost of the functioning of government machinery[3].
Economic rents are paid mainly by large-scale mining and oil companies. The difficulties in the collection of rents emanate from the near-impossibility of extending the net to cover small-scale informal sector mining (termed “Galamsey” in Ghana). Another issue is the difficulty of establishing what constitutes “fair compensation” for the exploitation of an exhaustible natural resource.
Companies in the extractive industries prefer to pay the least amount of royalties as possible and they often have politically powerful local partners to champion their cause. In some instances, foreign companies in extractive industries even resist paying royalties and taxes on the spurious argument that the incomes from rent could fuel corruption, war, terrorism or bolster an illegitimate and undemocratic government!
Ghana has a democratically elected government. In theory, therefore, successive governments should be managing rents with the same diligence as they would the “tax payers’ money”. In practice it is difficult for a population to get very passionate about the use/misuse of rentier income and to demand accountability from government. Moreover, information on rental income is difficult for the public to come by and is likely to be inaccurate as it is volatile and highly dependent on commodity prices.
The Natural Resource Curse
The natural resource curse has two different manifestations. One such manifestation is the classic “Dutch Disease” where a rentier state, flush with massive inflows of foreign exchange, allows the exchange rate to significantly appreciate to the detriment of domestic production. The other manifestation is through massive corruption and waste of this income by an unrepresentative government.
The evidence does not support the contention that Ghana is tending towards classic Dutch Disease. Moreover, Ghanaians frown on outright corruption, bribery, and blatant misuse of state resources. Of course, such crude corruption exists but we contend that it is relegated to lower-level public officials (the traffic police, customs officials, etc.). These officials lack the political clout and/or influence to use methods other than theft, bribery, and extortion.
The Ghanaian Disease
However, Ghana is not spared from “the natural resource curse” or what we term the “Ghanaian disease”. The Ghanaian Disease, much like its Dutch equivalent, is characterized by the fact that income from rents in Ghana discourage domestic production and producers. This income is controlled by interest groups who are not rooted in production and have conspicuous consumption patterns that have heavy import content. These include luxurious real estate (in Ghana and abroad), expensive cars, and even private planes. Additionally, a sizable portion of this income is “sterilized” as many in this group prefer to save abroad to keep their assets away from prying eyes.
In essence, therefore, the “Ghanaian disease” describes a situation where inflows of foreign exchange provoke reverse outflows akin to the flight path of a boomerang. To the extent that future earnings are mortgaged to support “infrastructure loans”, the reverse flows are often larger than the initial inflows.
Ghana Inc.
The Ghanaian Disease occurs because economic rents accruing to Ghana are controlled and (successfully) diverted by an unrepresentative political class and their financiers who vie for the control of the apparatus of the state. The political parties (and by extension the administrations that emanate from them) do not draw their support or membership from any identifiable socio-economic group. Thus, they are accountable mainly to those who finance them to gain power.
To be sure, political parties have their platforms, constitutions, and manifestos. Members even contribute to political parties and (should normally) pay dues. In reality, party dues are a pittance and political parties rely overwhelmingly on campaign financing and contributions[4]from “party financiers”.
Party financiers exercise control over political parties and the state in a manner akin to shareholdings in a corporation. And the rewards for financing a campaign include access to outrageously overpriced sole-source contracts, oil block exploration licenses, unlimited “variations” once a contract is awarded, and more importantly, being the first in line for payments under government contract awards.[5] As a result, the political leadership is relegated to the role of “corporate management” accountable to the “shareholders” at the risk of removal from office for non-performance[6].
An Agenda for Political, Economic and Regulatory Reform
It is pure mystification to contend that it would be very difficult, if not impossible, to change the current political system. The Ghanaian does not need to be reinvented for democracy to work for all. Neither do we need a violent social revolution. Below are a few sensible political, economic, and regulatory reforms that, if implemented, would make the current system work better. Unfortunately, none of the existing political parties, and especially the two dominant ones, have an interest in changing the existing laws and practices that have so far served them well and guaranteed their hold on the state.
Campaign Financing
By law, only Ghanaians can contribute to political parties for campaign financing. However, there are no limits on how much Ghanaians (individuals or corporations) can contribute for such purposes. Campaign contributions are not monitored in any meaningful sense. Political parties do not report campaign finances, i.e. sources and amount of contributions and campaign expenditure. And there are no clear definitions of what constitutes campaign contributions, especially in-kind contributions.[7] Moreover, there are no constraints to foreign corporations using “party financiers”, including Ghanaian employees or agents of foreign firms, as conduits for contributions by foreign individuals and corporations.
Emolument Laws
By law, those who hold public offices cannot receive gifts in the performance of their public duties. There are no laws, however, for the reporting of gifts received by public officials. How, therefore, can an independent determination be made to determine whether a gift is personal or destined to the state, or is indeed unrelated to the performance of the duties of the public official?
Declaration of Assets
Public officials are supposed to declare their assets on assumption of office, although few do. There is no requirement for declaration of assets on exit from public office as far as the author is aware[8]. In any case payment, of ex-gratia allowances of public officials is not contingent on declaration of assets on exit from public office. Ghana’s constitution also stipulates that a sitting President cannot be prosecuted for any reason. Neither can he/she be prosecuted for three years after leaving office. That is an abomination that puts past presidents above the law.
Procurement Laws and Practice
Public procurement is another area where reforms are sorely needed. More and more, sole source contracting is the norm and tenders are often a sham. It is not uncommon for an individual or corporation to submit multiple bids for the same contract to “simulate” competitive bidding. No one would seriously believe that a large donor to a political party would be required to submit to a competitive tender should he express interest in a given contract.
Conclusion
In conclusion, we are convinced that reform of the campaign financing laws, the emoluments clause and procurement practice would go a long way to reduce the risk of state capture. More importantly, implementing these reforms would significantly reduce influence peddling (“the who you know” syndrome) and cronyism all of which are perfectly legal but contribute to economic inefficiencies, unemployment and the grotesque income distribution.
ENDNOTES
[1]The cases of cocoa and other produce are more complex. The government through produce boards (such as COCOBOD) monopolizes the marketing of produce and determines prices paid to farmers. The surplus of payments to farmers and earnings from the sale then becomes government revenue akin to royalties.
[2]The Minister characterizes the tax to GDP ratio as “alarmingly low”. Of this amount, direct taxes on income, profits and capital gains rarely exceed 25%. See https://stats.oecd.org/Index.aspx?DataSetCode=REVGHA . On average, therefore, VAT and duties on specific goods account for 75% of government tax revenue. https://www.ghanaweb.com/GhanaHomePage/business/Tax-to-GDP-ratio-alarming-Finance-Minister-597799
[3]These include the salaries and other emoluments of civil servants, health, education and judicial services, the military. Police, fire services, etc. See comments on the Ghanaian Paradox by “Nana”.
[4]The contributions can be massive. A recent donation of 275 busses by one donor to a political party attests to that.
[5]In Ghana, it is one thing to obtain a contract. It is all together another thing to receive payments for works performed under a government contract. As a result, a class of entrepreneurs/middlemen has emerged in Ghana whose only role is to chase contracts as well as payment under contracts for a fee.
[6]This is realized through withholding of campaign contributions and/or funding of rivals.
[7]Thus, for example, hiding under “their corporate social responsibilities”, foreign companies can and do contribute (through a candidate or a spouse) cutlasses, Wellington boots, all manner of agricultural implements, boreholes, outboard motors for fisheries, etc. to a poor community to boost the image of a political candidate.
[8]Not that it would make that much difference as public officials would simply exaggerate their assets on entry into office to make up for expected (primitive) accumulation during office. Nobody checks the accuracy of the declarations.
