Wednesday, February 4, 2015

Could Behavioural Economics Help Ghana Overcome Its FTT?

Ghana's political governance has never been the most sophisticated in the world. Granted. That said, a few years ago, the country was considered one of Africa's most promising, fertile entrepreneurial fields. That was, until its nascent oil industry became a showstopper. Rampant suboptimal decision-making, caused by behavioural and judgement biases,  lies at the root of Ghana's economic mismanagement and underperformance. To understand current economic problems, looking back to the 1960s and 1970s for lessons on Ghana's Failure To Thrive (FTT) syndrome is instructive. 

Then, Ghana was newly minted as the first independent country on the continent and a vanguard of the anti-colonial struggle across Africa. Kwame Nkrumah's triumphalism atop the explosive mix of nationalistic optimism and the euphoria of independence morphed into a fetish cult of personality and hero worshiping. Ultimately, this paved the way for dictatorship, unquestioned wasteful expenditure, corruption, and... finally, when government expenditure could no longer be covered by government revenue, a catastrophic fiscal disequilibrium brought the party to an abrupt end.   

According to Vito Tanzi (1982), the causes of disequilibrium are classifiable into five categories: export boom; price-inelastic tax system; public enterprise performance; increased expenditure produced by political exigencies or administrative weaknesses; and worsening terms of trade. In Ghana's case, one of the most serious problems encountered by Nkrumah government was rising government expenditure caused by inadequate control mechanisms and certainly Nkrumah's hubris that he could create heaven right here in Ghana within a generations. 

And now? 
Ghana is newly minted as an oil producer and the same cancerous atmosphere of leadership hubris, euphoria and unquestioned optimism of the masses (herd mentality) has resurfaced. In the current dispensation, the twin evil of ethnocentric political exigencies and severe administrative incompetence has skewed political governance along a path of least resistance toward a catastrophic feeding frenzy. The ongoing wasteful expenditure, wanton patronage and spiteful corruption, to an absolute certainty, have led to a very severe fiscal disequilibrium. Thus, instead of a strategic and judicious management of the temporary windfalls to establish a foundation for a long-term economic prosperity for the country, the inordinate serial blunders by the corrupt ruling class have squandered a unique opportunity for an economic quantum leap. Ghana, essentially, is once again a heavily indebted poor country (HIPC). By most conservative analyses of the current economic and political landscape, Ghana is bound for a very austere IMF-prescribed path of economic reforms. 

Because of fiscal indiscipline across the board, the hand of the prodigal government has been forced to turn to the IMF for help to deal with the debilitating self-inflicted wounds. As the denouement of Mahamanomics plays out, Ghanaians would have to buckle up for what is set to be a very difficult economic environment up to 2017, at the earliest.  Given that IMF assistance is conditional on the government of Ghana meeting a range of economic management and performance targets, Ghanaians will have to condition themselves to bear the indignities of the IMF's undesirable pressures. The truth of the matter is that in the next few years, Ghana will be leashed and led along a path of austerity to an unfamiliar territory of extreme frugality. For a nation that has just barely tasted oil wealth, the prescribed medicine would be particularly bitter. 

The behavioural economics lessons at stake here border on causal ambiguity among Ghanaians in general. And that is: what a little bit of economic discipline on the part of the government could have accomplished with much less pain for everybody, will now be imposed on Ghanaians with amplified pain by a bunch of youthful number crunchers at the IMF; all because when it mattered the most our leaders made reckless decisions with our money. The sad truth is that while our sovereignty is tossed over to the IMF, the architects of the mess will have the time of their lives, counting their looted stash. Shame.  

What Ghanaians hope for, and expect, is for the pathological binge borrowing under the current administration to be brought under some form of rational sanctity and control, and that the disparate, and often conflicting, policies currently in vogue will be given some strategic alignment to propel the economy forward. It is my cherished hope that the state will emerge out of the current crisis with a more streamlined and disciplined governance framework, including a much stronger checks-and balances element, and that the IMF will resist all forms of political pressures arising from the 2016 general elections to deviate from the much needed reforms.  Is that too much to ask?