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Bottlenecks To Entrepreneurship. Some Concerns For The New Finance Minister

I have worked severally with the in-coming Minister of Ghana?s Finance and Economic Planning when he was Ghana?s Minster for Education. I was representing an international non-governmental organization that was a establishing computer-refurbishing centre in Ghana.

I can attest to his efficiency, sincerity and dedication to his job. More importantly, he has an unwavering penchant for cutting red tape. His nomination as Minister for Finance and Economic Planning therefore comes as no surprise. Perhaps the President now wants a more than mundane flaunt of his ?golden age of business? catchphrase.

True, the maxim has brought its own rewards. Inflation has been slashed from a commanding height of 40.5 percent in 2000 to 12.3 as of November 2004 and the country?s domestic debt managed to somewhat reasonable limits. In the end though, as they say all good economic management should reflect in the ordinary man?s pocket.

Nonetheless many of the things that hold back our progress still lurk around. Our per capita income hovers around US$350. Taxes are still high; the 26 per cent average cost of credit scares many would be entrepreneurs and formalizing a business could take more than 100 days if you are a virtuous businessman. Breaking the poverty chain means widespread opportunity that includes a relatively free entrepreneurial field where everybody would mind his or her own business. This ultimately should lay government off as the father for all from the toil of the field to the last morsel on the dinning table.

My friend the Finance Minster designate believes his job is well cut out. ?The focus would be to expand the tax net to be able to increase government revenue so there would be enough money to develop the country? he says. I do have reservations with government?s focus on taxation as the main panacea to develop the country. But I have bigger worries because this feat is not attainable not because I love taxes, but even in their minimal necessity, not much would be collected. Internal Revenue statistics estimates that only 1.6 million Ghanaians out of a total population of 20 million are on the books as taxpayers. Assuming a third of the population were taxpayers, there still would be a significant gap.

An interesting thought in global governance is that governments need taxes to help businesses to grow. The European, American and Japanese farmers rely extensively on government subsidies exacted from taxpayers, which in the end help them erect high tariffs against crops from developing countries. The situation can be tricky in the developing world. Subsidies will have thrice the effect it would in the aforementioned countries; subsidies means more taxes from the many famished workers; erecting tariffs means staying poorer hence your inability to compete and avail yourself of the latest technology.

In Ghana, the government has established a Venture Capital Trust Fund to support the activities of small-and medium-scale-enterprises (SMEs) in the country. SMEs are said to constitute 93.5 per cent of the country?s industrial sector. Ghana?s National Reconstruction Levy (mainly on businesses) is a major source for the Venture Capital Fund. 25 per cent of it was committed to the fund last year with the rest going into the Consolidated Fund. Exporters are propped up with a special fund, called the Export Development Fund also seeded from taxes.

My Uncle who is a sales manager for an oil company in Ghana tells me there are over twelve inbuilt local cost elements in the petroleum prices reflecting a 95 per cent increase in petroleum prices.

The National Health Insurance tax has increasingly become a social engineering project of many governments even though evidence abounds that many National Health Service in the West are failing. Last September, I attended a public lecture at the original Institute of Economic Affairs in London where the Special Adviser to the Secretary of State for Health was speaking on ?A Modern Case For A Modern NHS?. He surmised that the NHS is a command system but limited in control. When a participant challenged him that the NHS was taxation-based and old fashioned and very much controlled, he dwelt on the excellent nature of the British system as providing a unique patient pathway with some form of privatization that allowed choices without money. But another said to him ?Choice goes with knowledge and the NHS cannot provide that. Why not leave the whole sector to entrepreneurs? After all markets dwell on personal incentives for healthcare?. Remember centrally controlled systems have given rise to lapses in drug procurement and the British NHS is said to have supervised the purchase of albeit unknowingly fake drugs from peculiar places. Knowledge problem?

On a recent visit to Kenya, I heard of a vehement cabinet confusion over the way Kenya?s National Health Insurance Service Bill should go. The Health Minister and the Vice President were locked up in horns. Ghana?s transition to the NHIS did not reach such acrimonious levels, yet the 2.5 per cent tax surely steepens entrepreneurial costs, not to mention that with a wealthy citizenry, every one could take care of their aliments. And this is the conundrum I want to show case. These taxes are a mere recycling of regulations against entrepreneurship. In one vein, it is a big brother role of helping businesses. In another it is a means to whittle their start up capital and drive them into the informal economy.

But other complex regulatory regimes against businesses exist. Co-sponsored by the World Bank and International Finance Corporation the private sector lending arm of the World Bank Group, the Doing Business in 2005 report focuses on removing obstacle to growth. The report which ?benchmarks regulatory performance and reforms in 145 nations, finds that poor nations, through administrative procedures, still make it two times harder than rich nations for entrepreneurs to start, operate, or close a business, and businesses in poor nations have less than half the property rights protections available to businesses in rich countries.? The report cites Ghana as one of the least investor protection destinations but specializes in baiting investors with packages that end up to be non-existent. This may be far fetched but my recent discussions with some Ghanaians residents abroad made it somewhat poignant that this fact may be true. One charged ? If I call the Ghanaian embassy in Washington DC today and ask what the price in kilowatt hours is per unit of electricity, the trade attach? would not know. Neither would he be able to tell me how soon I can get electricity, water, telephone service, register my business, get a VAT certificate or even the process to get these items and how much they cost. But I can call the Mexican embassy and get all these within I hour from each state in Mexico, including the number of skilled workers produced by technical schools in each state educational facility per year and the courses offered?

He went on. ? I can get a prototype of a product from a development partner overseas delivered to my desk without having to go to a customs office and stand in line for hours and waste my whole day. I can call the supplier and talk to the CEO of the company if I am not happy with my product and I will get the response the same day. In Ghana, the customer is abused and treated like dirt even though without customers no business can survive. We are jokers if we expect any one to invest in such a climate.?

Another Ghanaian asked me. ? How could you expect an individual making US$ 500 a month in Ghana to afford a duty of 35 per cent of 50 per cent of the original value (CIF) plus freight, shipping insurance before he could afford a 10 year old car do his or her business? For example a 1994 Toyota Corolla could be parked in any city in the USA for $ 2,500 sales price with local taxes not exceeding 8 per cent of the price. The Ghana custom officials would value the car at 50 per cent of the original prices of $ 20,000 which is $ 10,000 and they will stuck on to it arbitrarily $1000 shipping cost and $ 200 shipping insurance. Calculate the 35 per cent of $ 11,200 and add handling, use fees and ECOWAS taxes. This could cost me $ 7000 to drive out of the harbour and deal with driver licensing insanity in addition. I cloud buy and drive home that same car for $ 2,750 in the USA.?

My discussion with a Headmistress of a High School revealed fascinating insights into the rewards of removing bottlenecks to the business. She had been kept waiting for long in a Ministry whining over a civil servant?s aggressive passive behaviour in signing a pass. We calculated the cost of the man-hours lost and it was staggering.

Just what happens when commercial disputes arise? The answer lays in decades long 60,000 land cases in our snail-paced courts. These are the results of an absence of a credible property register! Modernized commercial courts are to become operational this year dealing with investment cases, insurance, taxation, contracts, intellectual property rights and insolvency cases. It is all right to have automated courts but what happens to the complexity of the rules? Ghana has been cited in last year?s World Bank report as one of the places where businesses regulations are complex and unpredictable.

Political entrepreneurs regulate for the sake of maintaining power. Economic entrepreneurs see outside the box and wish things could be better than they are. Some men can combine both and will work. I am not expecting the Finance Minister designate to solve all the problems mentioned here in a day. I only trust that he has the political will to relax rules that hurt entrepreneurs. His entrepreneurial vision will spur other government agents on. Israel Kirzner one of the famous authorities of the Austrian School of Economics believes everyone is an entrepreneur. Let me end by quoting his advice to us at a recent Summer University. ? Entrepreneurial talent is inborn and cannot be taught. Society needs the freedom to unleash this potential for the greater good. We need bold individuals.? Mr. Minister, would you be a bold individual?

Franklin Cudjoe is founder of Imani: The Centre for Humane Education in Ghana



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