Despite record growth of the Ghanaian economy in recent times, the growth is still fragile in that it depends on primary commodities and external markets instead of being driven by a structural transformation of the economy. Ghanaians are looking for a transformation that puts local businesses on a higher pedestal and delivers jobs for the teeming youth.
Ahead of the December polls the need to transform the economy from raw materials-based to an industrial economy is accepted by all the political parties. This should have been a marked departure from the policies that governments have pursued over the years. Policies such as the unbridled liberalization pioneered by the International Monetary Fund and the World Bank and the worse of all is the current proposed free trade agreement, Economic Partnership Agreement (EPA) between ECOWAS/Ghana and the European Union.
Unfortunately, the testing of the candidates' understanding of this trade pact (EPA) and its devastating effect on domestic enterprise development, structural transformation among others, through questions posed to them at the Institute of Economic Affairs (IEA) evening encounters show that the candidates do not have in-depth understanding of trade and investment issues contained in the EPA and how they will paralyse their desire to transform the Ghanaian economy.
Two months ago when the Presidential Candidate of the NPP, Nana Akufo-Addo, availed himself at the IEA Platform, a question was posed to him about this trade pact, which was initialled by the NPP Administration, and how it will impact on the Party’s transformative agenda for this country. To the surprise of many, he indicated in a jovial manner, that he will call Alan Kyerematen, from Addis Ababa to come and help. He proceeded to say that the European partners understand and if there is the need to review the agreement it will be reviewed. In actual fact there is no a review clause in the initialled agreement. It is in perpetuity and so any review will not be possible if it is signed.
Also, on Thursday, 18 October, 2012, His Excellency, the President, John Dramani Mahama, also took his turn at IEA evening encounter. The President’s view was sought on how the challenges of the poultry sector could be reconciled with the proposed free trade agreement with the European Union. The President, indicated that Ghana was committed to the ECOWAS process but also Ghana and Ivory Coast stand ‘to lose’ if the EPAs are not concluded and hence the desire to break ranks with ECOWAS and sign an agreement with the European Union because of ‘export disruptions’. Specifically, according to the President, Ghana’s leading exports (cocoa beans) will suffer export restrictions from the European Union. This gave me sleepless nights because it is untrue.
With all respect to the candidates, the responses were ill-informed and anti-developmental. There are two different directions in which the EPA negotiations are proceeding-the ECOWAS stance with the logic of integrating the ECOWAS market, which squares with the drive by the African Union to boost intra-African trade. This hinges on the logic of structural transformation of ECOWAS countries, among others and securing the regional market for domestic firms. The other direction is where some member countries are threatening to break ranks with ECOWAS and go solo. This promotes the interest of the European Union of having unimpeded access to raw materials based on a divided ECOWAS and Africa. This, regrettably, is the path being contemplated by the Government of the day. The assertion that Ghana’s cocoa beans will suffer export restrictions is untrue. It is proper that all Ghanaians understand the motive behind the EU’s unrelenting push for the EPA and the vain arguments by the Ministry of Trade and Industry over the years.
Under the current regime, goods from Ghana, mostly raw materials, enter the EU market duty-free. By 2016, Ghana might trade with the EU under a new trade regime called the Generalized System of Preferences (GSP) if Ghana does not sign the EPA agreement.
Goods under such a trade regime will attract duties as low as 2% and as high as about 20% depending on the product as they enter the EU market. Specifically reverting to the standard GSP scheme, about 70% of exports would continue to face zero tariffs to the EU. Exports of cocoa beans, hardwood lumber, gold and diamonds would be unaffected by changes in tariffs. This is because they are in line with the EU’s desire for raw materials. However, leading exports of tuna would face tariff increases of between 18% and 20%, fruit and vegetables exports (2-8%), and cocoa butter and paste (4-6%) because they will compete with EU processed products.
It was in the light of this that ECOWAS adopted a regional mechanism in the form of a solidarity fund to compensate Ghana, Cote d’Ivoire and Cape Verde as a stop-gap measure and a strategy to counteract the intransigent, bullying and divisive position of the EU in the EPA negotiations. The ECOWAS solidarity fund is meant to absorb the trade adjustment costs so that ECOWAS will move as a community.
That is, the marginal export losses will be compensated. The wisdom of such a mechanism is to prevent the divide and rule tactics of the EU aimed at the destruction of the cohesion at the ECOWAS level. It will also help the countries avoid the destructive clauses in the interim EPAs. It was adopted after careful analysis of the gains and losses of member countries going solo in the EPA process.
Firstly, a most recent study (South Centre, November 2011), which updates the 2005 study undertaken by the UN Economic Commission for Africa (UNECA, April 2005) estimates that the cost, due to new duties under the EU Generalised System of Preferences (GSP) that Ghana will incur will be in the region of $52 million, whilst that of her current commensurate loss of tariff revenue from an EPA will be about $374 million. It means that failure to sign the EPA the companies will lose $52 million (paid as duties to EU) whereas signing it will mean that Ghana government will lose $374 million as tariff revenue. The costs of signing an EPA far outweigh the benefits even from this narrow and limited criterion of net fiscal balance.
Secondly, Ghana will have to say goodbye to any industrialisation efforts if the EPA was signed with the EU. The EU’s position, as indicated in the interim EPA, on the elimination of tariffs for 80% of trade; restrictions on the use of export taxes and quantitative restrictions; the provisions on the bilateral, and the standstill clause; will undermine Ghana’s efforts to industrialize and its ability to move up the industrial value chain. The agreement will also bar Ghana from having any better ambitious trade agreement with any other country. European goods and firms will be treated just as Ghanaian goods and firms. Government cannot discriminate in favour of local producers. As a result, Ghana will remain a perpetual supplier of raw materials, with all the adverse implications that this entails including worsening the unemployment situation in the country. For industrial development, Ghana needs to ensure that the policy space is maintained for those industrial sectors which are being developed. Binding most tariffs at zero level under the EPA will disable Ghana’s ability to protect the sectors that are being developed to move up the industrial value chain.
Furthermore, Ghana, as a country, needs to take into consideration the long-term threat to its development. The EPA envisages going beyond trade in goods to trade in services as well as trade rules in areas such as Investment, Procurement and Intellectual property. One of the main challenges of local industries is the indiscriminate trade liberalisation that Ghana and other African countries have autonomously pursued for the last 25 years. As of now, these autonomous measures can be reviewed and even strategically reversed. However, a binding free trade agreement like the EPA, complete with far-reaching sanctions regime, prohibits the positive interventions in support of domestic producers which are the tools of any meaningful industrial policy.
Finally, Ghana should learn from the global economic turmoil that has cast its shadow since 2008. This is the time to be diversifying trade away from over-reliance on EU markets. It is clear to all that the economic crisis within the Euro-zone will not end today or tomorrow and the prospect of long-term stagnation is becoming ever more real. The biggest market for manufactured products is the ECOWAS and the African Market, though Europe remains the largest for raw products. A sound agenda to transform any economy will opt for the growing market in terms of goods with value addition.
As the nation heads towards the December polls, candidates are expected to demonstrate how they will lead the industrial and structural transformation of this dear Nation of ours. EPAs are anti-developmental and neo-colonial tools and at best will condemn us to remain divided and disrupt the integration agenda of ECOWAS and stall the continental integration. It will also destroy our domestic firms, regional integration and de-link agriculture from industry and His Excellency, Mr. Mahama and Nana Akuffo Addo, will need better briefing from independent analysts other than the long-held ill-informed position always echoed by the Ministry of Trade and Industry.
By Sylvester W. Bagooro Email: email@example.com