Ghana is losing ground in the race to spur growth and entrepreneurship. The Economic Freedom Index is an annual report using objective measurements to determine the level of economic freedom for all countries of the world for which there are sufficient records.
Ghana dropped one position on the 2016 ranking, to 72nd, though it maintained its score of 63.0 (over 100). Ranked 5th in Sub-Sahara Africa, it lies within the 3rd tier category of Moderately Free Countries. This reflects serious issues still impeding economic growth and development of entrepreneurs.
Introduced twenty two years ago by the Heritage Foundation and Wall Street Journal, the report, sometimes called the Entrepreneur’s Index by some experts, assesses countries in four comprehensive policy areas that affect economic freedom: rule of law; limited government; regulatory efficiency; and open markets. Throughout the years it continues to validate an empirical fact: The freer the economy, the more prosperous its inhabitants are. There is a statistical correlation between economic freedom index performance and the many measures of well-being and prosperity of a nation.
Ghana’s poor showing on the index again echoes rising public debt and inflation, with its negative effect on economic growth and the rising cost of living.
OPEN MARKETS
Investment freedom plummeted 5.0 points once again to make it the highest decay for the country in this year’s Index. The trend is alarming considering the 10.0 points deterioration in two years. The red tape and venality of bureaucracy is detrimental to business and growth for domestic investors, but also makes foreign direct investment much less attractive at a time when it matters so critically.
The discriminative policies that prevent non-Ghanaians from investing in certain sectors in the economy is hamstring. It brings to mind a succinct observation by my compatriot Dr. Sam Jona, a successful and insightful investor that “Capital is like a nomad. It goes to where it will find pastures.”
Financial Freedom for Ghana was stagnant at a low level once again. It is noteworthy that this is the second year running that it has maintained the score of 60.0. The government’s borrowing binge crowds out the private sector, robbing it of the needed liquidity for viable and judicious investments. Presently, the public debt stands at 60.8% of GDP.
On a positive note Trade Freedom grew slightly. It increased from 64.8 to 65.0, in spite of an increase in average tariff rate from 8.6% last year to 10%. Eradicating oppressive trade barriers should be a priority to facilitate international trade, which would help all Ghanaians. Protectionism in Ghana only hurts Ghanaians
LIMITED GOVERNMENT
State intrusion is a drag on the economy, putting up road blocks to productivity. This is one component of the index where all variables improved admirably, rebounding from the prior report. Scores of 77.6 & 84.9 in Government Spending & Fiscal Freedom, respectively, accompany an overall tax burden of 12.1% of domestic income.
Even with all these advances the index notes, “The top personal income and corporate tax rates are 25 percent. Other taxes include a value-added tax, a national health insurance levy, and a capital gains tax”. The total of all taxes, as well as the government expenditures at 39.8 percent of GDP and the nagging budget deficits are of more concern, and mitigate some of the improvement.
REGULATORY EFFICIENCY
All the variables under this component declined significantly for the year, in spite of reduction in business start-up procedures and costs.
Apart from acquiring a Tax Identification Number (TIN) before incorporation, there are 7 procedures for starting a business compare to OECD average of 4.7 which is more than four times the average annual income in Ghana, well above the OECD average of 3.2% However, respectably below the Sub-Sahara average rate of 53.4%.
Enhancing the Business Climate through prudent regulatory measures is indispensable if Ghana is to develop into a more prosperous society. New business is the lifeblood of a thriving economy.
RULE OF LAW
Regardless of the fact that Freedom from Corruption gained two points from its last year’s score, from 46.0 to 48.0, hints from the Index indicate that “Political corruption persists despite the existence of robust legal and institutional frameworks to combat it…” More so the court system without automation and a corrupt judicial service compromise that delays the adjudication process. There are more than 20,000 land cases pending before our courts, some as old as 30 years.
The lack of political willingness to reform land administration in Ghana is very worrisome and unacceptably stifles Economic Liberty and progress. The land of many Ghanaians is considered “Dead Capital,” thanks to a prolonged and murky process of gaining access to title deeds. This means that Ghanaians today are not able to access capital with their properties in order to start new businesses. Alas, the importance of property rights to development has eluded us. Our score of 50.0 remains the same as it has been for a couple of years now.
The report states unambiguously that “Maintaining momentum for reform will be critical to securing improvements in the entrepreneurial framework and achieving more broad-based economic development.” In the final analysis, the political environment has been stagnant if not more oppressive over recent years in Ghana, which hinders the ability of the people to make progress in their lives.
