KEN OFORI-ATTA – THE MAN TO MAKE GHANA FLY
MAY 2017
The country’s new minister of finance has ambitions to build factories, cut taxes and combat corruption. His background as an entrepreneur and banker may mean his plans can get off the ground.
To get into Ghana’s ministry of finance, you only have to look official enough to walk right past reception and into the main building. To get into the minister’s personal office, however, is a more arduous process.
The two adjoining rooms that lead to the minister’s room on the fifth floor are full of people waiting to meet Ken Ofori-Atta, an investment banker-turned-politician and the new minister of finance for Ghana. But access to his office is strictly controlled by his staff. The door to his office is locked; the only way in is via a fingerprint recognition system. Guests must wait to be summoned.
Once in, Ofori-Atta is mild mannered and quietly spoken. And while he is very welcoming, he is visibly tired. It is no surprise. Since his appointment as minister of finance by his cousin, president Nana Akufo-Addo of the New Patriotic Party, in January of this year, Ofori-Atta has been busy.
Less than two months after his official appointment, he delivered a lengthy budget with ambitious plans to slash nuisance taxes, cut wasteful expenditure and build one factory in each of Ghana’s 216 districts.
“We called it the ‘Asempa’ budget, meaning a message of good hope,” he says. “It was a budget for the people, and the response has been resoundingly positive.”
It is a budget that hopes to undo many of the mistakes of the last administration. Under the National Democratic Congress (NDC), which governed from 2008 to 2016, Ghana borrowed irresponsibly, government expenditure consistently surpassed revenue and little was invested in productive industry.
Despite being lauded for democracy and its peaceful transition of power, corruption in Ghana has been a widely perceived and persistent problem. Transparency International gave the country a score of 43, ranking it 70th out of 176 countries for corruption in 2016, while Euromoney Country Risk has ranked the country as increasingly risky over the last four years.
The problems came to a head when, just two months after winning the election, and with a population anxious to see change, Akufo-Addo’s administration discovered a previously undisclosed hole in the government’s finances of C7 billion ($1.6 billion) – another blot on the NDC’s already muddy financial record.
Even the IMF failed to find the arrears, despite being in the middle of a three-year extended credit facility (ECF) programme and completing three in-depth reviews of the country’s progress.
“We knew that things weren’t exactly great, but we were surprised at the level [of the arrears],” says Ofori-Atta. He doubts the electorate were completely shocked though. Problems with the previous administration “were one of the reasons why [the electorate] voted the way they did,” he says. “It was a clear signal that they wanted change.
“But I don’t know how the undisclosed arrears bypassed [an IMF review], but we are taking the view that this was a period of madness. We have an audit process going which will give us much more clarity on where the money has gone, and we will look to plug the gap.
“In fact, something similar happened back in 2001 and around a third of those the government apparently owed didn’t follow up on the debt. It could end up being a similar situation this time around. In any case, we are not here to bemoan these issues but to fix them.”
Over the last four years, debt levels in Ghana have skyrocketed. The debt-to-GDP ratio in Ghana is one of the highest in sub-Saharan Africa at 73%. Taking into account the additional outstanding payments, Ghana’s fiscal deficit is now at 10.3% of GDP – nearly double the 5.3% target outlined by the IMF in the ECF for 2016.
The tax burden has been on an upwards trajectory, inflation rates have been in double digits since 2013 and consumers have found their day-to-day lives becoming increasingly expensive.
Entrepreneurship and empowering the private sector will be central to the new administration’s plans to fix Ghana’s economic weaknesses and boost growth. In fact, the private sector will be pivotal in Ghana’s bold ‘One-district-one-factory’ initiative that aims to bring capital and skills into some of Ghana’s more rural and often ignored areas. It also aims to curb rural-to-urban migration, which is taking its toll on many of Ghana’s overcrowded cities.
“If our One-district-one-factory initiative was going to be centrally controlled, then creating one factory in each of Ghana’s 216 districts will be difficult,” says Ofori-Atta. “But if you aim to engender a response from the field, then who knows? I suspect that people will step up to the plate.”
Some direct support to businesses will be made available, however. Ghana’s national venture capital organization will be given a funding boost, while support from the central bank will specifically nurture the agriculture sector through a C100 million fund.
“At the same time, we are increasingly engaging with new donors and potential partners to help us along the way,” says the minister. “We will soon see change.”
'Admirable plan'
How realistic is it to build 216 factories in 216 districts? For those who are more critical of the minister, this policy is just a gimmick – a tool used to attract voters. For others, the government’s policy is a good thing.
“Even if the government is only able to build half or even a third of these factories, I think it should still be considered a resounding success,” says Sionle Yeo, managing director of Société Générale in Accra. “It’s an admirable plan.” Sam Ankrah, Africa Investment Group
“We have so many natural resources here in Ghana, we shouldn’t have to import everything,” says Sam Ankrah, CEO of the Africa Investment Group based in Accra. “We have trees everywhere, but we still get our toothpicks from China. Any initiative that looks to add value to our products is well received.”
Projects and factories will have to be distinct and will vary depending on the needs and capabilities of the district, explains Ofori-Atta. “If one of our friends decides to make a plantain chip factory, then they are going to spend around $200,000 in one of the smaller districts. A $2 million project on the outskirts of Accra will of course look very different,” he says.
“In terms of fiscal consolidation, we are moving now from a primary balance deficit to a surplus, and so in effect we will not be borrowing to support our interest payments anymore. This should shrink our relationship with the banks a little and create more space for the private sector.”
Corruption will not be tolerated, he says.
“Our debt-to-GDP level is high and uncomfortable,” says Ofori-Atta. “So rather than issue more debt, we will begin to rationalize our debt portfolio to reduce our interest and debt servicing. One way in which we will do this is to be tough in the implementation of our public financial management.”
This comes with a warning: “Expect penalties for civil servants who misbehave. I think there will be tremendous savings for us there.”
Luckily for the country, entrepreneurship and efficiency is what the minister of finance is known for. In his previous life as a banker, Ofori-Atta set up investment bank Databank from scratch in 1990. Today, the firm is widely seen as one of Ghana’s most successful private institutions, with brokerage, asset management, private equity and research businesses.
Banking is in his blood. Before Databank, Ofori-Atta worked at Morgan Stanley and Salomon Brothers in the US and has been involved with a number of financial institutions, including Trust Bank Ltd in The Gambia, the International Bank of Liberia and Rwanda’s Bank of Kigali.
“A lot of the challenges we have as a country relate to how we can efficiently clean up our debt, how we can build a team that works together and has a sense of responsibility towards Ghana,” says a close associate of the minister. “This has been the spirit with which he built Databank, and he will no doubt bring these lessons with him as minister.”
Tax cuts
To nurture economic freedom, wide ranging tax cuts will help give Ghanaians more breathing space. VAT on domestic airline tickets, real estate, imported medication and financial services will be cut as will certain levies on petrol and electricity.
“The reduction of the nuisance taxes obviously means we lose money, but the plans we have for reducing [tax] exemptions will hopefully net this out,” says Ofori-Atta.
At the same time, the administration plans to widen the tax base through a national identification programme, which the government hopes to roll out at the end of the year. The programme aims to register each and every Ghanaian to create a database of citizens to help streamline access to public services and tax gathering.
Under the new administration, tax evasion and avoidance will be dealt with as swiftly as possible, says the minister. “My suspicion is that professionals – lawyers, doctors, architects and others – are generally not fully complying [with tax laws]. We will be trawling through court proceedings to confirm payments from clients to lawyers as well as checking on major contractors and architects, and we will also work with the Department of Motor Vehicles to identify owners of new vehicles and match it to their tax returns – if any.
“We have also noticed an impressive increase in the export of gold by small-scale gold mining firms and agents, nearing 20% of total gold exports, but very little in tax proceeds. We will collaborate with the [state-owned] Precious Minerals Marketing Company to solve these issues,” he continues.
Sticking to the new budget, the minister of finance expects growth to hit 6.3% in 2017, up from 3.6% in 2016, to cut the fiscal deficit to 3.5% in just one year and to steady inflation from highs of 19.2% in 2016 to a year-end rate of 11.2%. It is an ambitious plan, but one he believes is possible.
“We are at a junction and we have decided to take a path of growth through our belief in the Ghanaian entrepreneur,” says Ofori-Atta. “It’s a belief based in history. We were the first independent country in Africa. We are a country with a lot of heart. We want people to rediscover themselves and fly.”