Some economists are challenging traditional methods of inflation-targeting with a view to curtailing it from the monetary point of view by increasing the policy rate.
They argue that — viewing it from the long-term — inflation increases because once the rate has been increased, business and the cost of finance increases; and there is a tendency to pass on the costs to consumers so that the cycle continues.
The economists believe the opposite should happen: why not decrease the policy rate and observe its effect over time, they proffer.
Gideon Amissah, Head of Economic Research and Policy Analysis, Institute of Certified Economists (Ghana), believes that though theoretically the policy rate should be increased, he believes we should decrease the policy rate and observe its effect on interest rates.
Merely adopting economic models that have worked for other nations might not necessarily work for our situation, he notes.
A case in point is the model that dictates the manufacturing sector is the most important growth pole in any nation — which sees our policymakers adopting that model while in actual fact most students shy away from the physical sciences which are the basis for expanding the manufacturing sector, leaving it paralysed and underutilised.
Mr. Amissah suggests that the country adopts models that are useful to its peculiarities, since research data show that the services sector takes a significant percentage of growth in the economy.
He is of the opinion that Ghanaians are oriented toward the services even by virtue of the educational system since you will find more people in banking, accountancy, and micro-finance and consultancy services. Most offer business studies and general arts as compared to the sciences at school, showing a heavy bias toward services like banking and accountancy.
Government can leverage on this advantage by reducing taxes in the services sector to spur its growth. Businesses expand when revenue is over expenditure, and government keeps taxing their revenue. Hence, government can help these businesses by reducing taxes so that they can grow; and by so doing, they grow the overall economy, he argues.
Corroborating Mr. Amissah’s position, Daniel Anim-Prempeh believes government can focus on the finance and accountancy sectors and help build the capacity of these services.
He notes with regret that most consultancy services go out to foreigners, who charge us lot of money with the excuse that we lack the needed capacity.
For instance, when the Attorney-General contracts international lawyers to argue out cases on behalf of the State — charging US$50,000 and US$1million — this only goes to impact heavily on the economy; and this is because we lack specialized professionals to undertake such cases.
Thus, Anim-Prempeh believes government should focus on building the capacity of its locals to the level of international standards so that they can compete internationally and save the country should they be engaged for their services.
He also believes though the services sector can be propped up, it should not be done at the expense of manufacturing and agriculture; rather, we should adopt the hybrid system and give focus to the micro-economy as well.
Finance and accountancy can build capacity in the service sector.
Investing in the human capital. Mauritius invests in its human capital and does not depend on outside expertise to develop: if it contracts assistance from the international community it does not need to engage experts from outside to instruct how to utilise that assistance.
Anim-Prempeh believes the country should not focus on the ‘big manufacturing’ model. It should rather focus on the micro economy. For instance, supporting fruit-juice manufacturing in citrus or water-melon growing areas to boost activities of smallholder farmer’s in the process.
Similarly, starch manufacturing in cassava growing areas: “If we focus on the big manufacturing concerns alone, we then get confused,” he observed.
Agriculture is rain-fed, he notes, and this should see more investment in irrigation to encourage year-round farming.
Anim-Prempeh is currently President of the Institute of Certified Economists, and argues there is a need to change the economy’s fundamental structure. “It is a colonial inheritance and all we do is massage it,” he emphasises.
He argues that government must first identify winners in the economy, such as Kinapharma pharmaceuticals for instance, and support them to grow.
This can be done in several ways; for instance, loans are given at 30% interest rate or more and gov’t can grant Kinapharma let’s a say 5% interest rate to help it expand its operations and when Kinapharma grows, it will benefit the nation.
He notes that government business trips or investment-drives are usually are done without carrying along businessmen or entrepreneurs who can strike business deals to create jobs and grow the economy.
Mr. Anim-Prempeh says governments cannot create jobs and that fallacy is for an era of the past; today it is the small and medium-scale enterprises, the private sector, that creates the jobs — and a lot of energy must be directed in that direction.
Thus, we need to look into the micro-economy which holds the potential growth prospects and needs to be harnessed, instead of focusing on models that only complicate the country’s fortunes.