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Report on World Bank Stakeholder Consultative Meeting on Enhancing the Effectiveness of Private Sector Policy And Strategy In Ghana

The World Bank Group invited Imani to a consultative forum held at Cleaver House in Accra on 20th September 2016. The forum was to discuss the findings of a technical assistance project: Enhancing the Effectiveness of Private Sector Policy and Strategy in Ghana. IMANI’s Resident Economist and Deputy Head of the Center for Economic Governance and Polical Affairs was in that meeting.


By Hubert Nii-aponsah, IMANI’s Resident Economist

The meeting began at about 9:20 am with a welcome address by Henry Kerali Country Director for Ghana. Ade Freeman Lead Private Sector Specialist then introduced Gaiv Tata the Consultant to deliver a presentation of the technical assistance project.
 

 The presentation was in four main parts. The motivation of the project was discussed followed by PSDS II Program Evaluation, PPD Diagnostics and findings from Benchmark countries and recommendations.
On the motivation of the review, Mr Tata asserted that the review was because the private sector continues to report significant constraints. Also, indicators from international institutions such as the World Bank and the World Economic Forum show continual decline of Ghana’s global competitiveness. Also, vitally, the private sector is a key pillar of the Ghana Shared Growth and Development Agenda I&II.

 
Further, the evaluation of the PSDS II showed that the US$ 650 million program had implementation challenges. Detailed design stalled, there was confusion with regards to the functions of PSDS II Secretariat and the Ministry of Trade and Industry due to changes in administrative oversight and funding from development partners and Government did not materialize as expected.
 
Additionally, Mr Tata asserted that it was unlikely that the program would have been relevant or had an impact in long term impact although it could have been effective. Efficiency and sustainability issues were not reviewed due to the absence of implementation. The private sector was adversely affected as a result of implementation constraints of the program. Hence the sector resorted to actions such as cutting back production, reducing staff and lobbying government for import bans, tax breaks and others.
 
Despite the challenges associated with the design and implementation of PSDS II, some PSD programs as well as PPD continued. Development partners implemented at least $600 million worth of projects. Respectively, $250 million, $175 million and $100 million were spent on skills development, financial services and business environment reforms.
 
On PPD diagnostics, Mr Tata noted some vital issues in the evaluation. There was lack of trust between stakeholders, lack of awareness about issues, inadequate evidence-based decision making among others. However, there was a broad agreement on the way forward with regards to the need to move away from a government dependent PPD process, the need to take advantage of alleged strengths of identified champions and also the fact that Ministry of Trade and Industry as well as the PSDS Secretariat will have key roles to play, moving forward.
 
The review of benchmark countries including South Africa, Mauritius, Vietnam and Ethiopia showed vital lessons PPD and PSD programs. More particularly, the research showed that institutional development is critical to the success of PSD programs. There should be financial sector reforms, business environment reforms, incentive schemes and knowledge support.
 
In terms of recommendations, the evaluation proposed two focus areas and five action points. Mr Tata suggested that the PSD should be considered as a cross-cutting theme and not in bits and pieces. To do this, there should be a well-functioning PPD mechanism and also the implementation of programs addressing crucial private sector constraints should persist. Additionally, Mr. Tata proposed that focus should be given to improving PSDS II programs. Three action points required to achieve this milestone are: ensuring priority setting framework for PSD actions, improving the program design to go beyond “gap filling” and initiating the dialogue with development partners and with Government on funding.
 
Deputy Head-Center for Economic Governance and Political Affairs at IMANI Hubert Nii-Aponsah was among the selected discussants. The discussants reacted to the presentation on the research and evaluation undertaken after which the floor was opened to various participants for questions and comments. The other discussants were: Dr. Nii Moi Thompson Director General of National Development Planning Commission, Mr. Nana Osei-Bonsu of Private Enterprise Foundation, Mr. Emmanuel Kodwo Sackey from DANIDA and Hon. Murtala Mohammed Deputy Minister for Trade and Industry.
 
From Imani’s perspective, Hubert noted that it was disturbing that the $650 million program was largely not implemented. In fact, he emphasized that it is even more worrying that the evaluation pointed out that, even if the program had been implemented, it would not have had an impact or been relevant from a long term perspective. Hubert therefore suggested better objective analysis with more stakeholder involvement in order to gauge the commitment of development partner’s to counterpart funding for instance.
 
Secondly, he pointed out that it was instructive that Mr. Tata found that external factors to the program became major challenges to the private sector adding that this suggests the need to either make the program more comprehensive or the need to pay attention to other factors existing outside the program. More specifically, he noted that the nature of the political atmosphere in terms of the type of promises being made ahead of the elections by various political parties suggests prospective huge government expenditure and possibly crowding out of private sector as well as the debt overhang effect of underinvestment. Hubert mentioned an example of politically oriented fiscal dominance of monetary policy which has weakened the effectiveness of the Bank of Ghana in containing inflationary pressures. He therefore called on the private sector to support not only the entities that provide private sector advocacy such as BUSAC and AGI but also support entities in the civil society such as IMANI and other organisations that work to keep government on its toes. If we do not get the politics right, he warned, progress made by any private sector program would be eroded.
 
Moreover, Hubert explained that he strongly agreed with a recommendation made about gap-filling funds. He mentioned the need to fund SMEs through financial institutions instead of establishing independent funds merely intended to temporarily gap-fill pointing out that a previous project (specifically the MSME project implemented between 2006 and 2013) used the recommended approach and was largely successful according to the Implementation Committee Review report.
 
Finally, Hubert lamented that more often than not interventions pay attention to benefits and costs of implementation. He therefore emphasized the need to pay attention to both costs and benefits of interventions citing that the current tax regime which has increased capital gains tax from 15% to 25% intended to increase revenue without paying attention to the incentive costs with regards to the possible reduction of investment, economic growth and consequently demand for the goods and services produced by various businesses.
 
There were also various contributions from other panel discussants as well as the attendants. For instance, Vice President of AGI blamed the inflation targeting framework for increasing inflationary pressures but Dr. Nii Moi Thompson said that inflation targeting framework was not the issue but high government expenditure which has (arguably) been more contained under the IMF program. Hon. Murtala Mohammed also disagreed with the findings and asserted that the PSDS II was relevant and also that it would have had an impact if implemented. Another participant also explained that the MSME project experienced challenges because counterpart funding from Government of Ghana was not forthcoming but agreed that it was a successful intervention. He posed a rhetorical question that if government does not show commitment, how does it expect commitment from development partners?
 
After the discussions, Ade Freeman gave the closing remarks after which the formal part of the event ended followed by lunch at about 1:30 pm.
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