Business24 Newspaper - August 7, 2020

EDITION B24 | 83

THEBUSINESS24ONLINE.NET

FRIDAY AUGUST 7, 2020

Parliament approves suspension of fiscal rules Street light levy yields GH�273.8m in two years A total amount of GH¢273.8m was raised from the street light levy between 2018 and 2019, Energy Minister John Peter Amewu has told parliament.

BY EUGENE DAVIS

>>PAGE 3

Dr. Mark Assibey-Yeboah chairs Parliament’s Finance Committee, whose report backed the suspension of

BY EUGENE DAVIS

Parliament has approved the suspension of the fiscal responsibility rules for the 2020 financial year, in accordance with the Fiscal Responsibility Act (FRA) 2018.

It follows the presentation to parliament by the Finance Minister, Ken Ofori-Atta, of his justification for suspending the fiscal rules. The rules are an annual budget deficit ceiling of 5 percent of GDP and a requirement to maintain a positive primary balance each year.

The Minister’s presentation was in conformity with the FRA, which obliges the Minister, upon suspension of the fiscal rules, to within thirty

United Bank for Africa Provides US$200 million for Nigeria’s Petroleum Industry >> MORE ON PAGE 5

days present before parliament, for approval, facts and circumstances for the suspension of the rules and plans for restoring the public finances of the country with a reasonable period.

The government has decided to suspend the fiscal rules because of the severe economic impact of the Covid-19 outbreak, which is expected to result in the worst economic growth performance in nearly four decades.

Presenting Parliament’s Finance Committee’s report on the suspension of the fiscal rules, its chairman, Dr. Mark Assibey-Yeboah, stated that the Covid-19 pandemic has affected virtually all >> MORE ON PAGE 2

IFS urges gov’t to explore debt forgiveness The Institute for Fiscal Studies, a policy think tank, has urged government to seek debt forgiveness from its major creditors to contain the country’s debt service expenditure, as the COVID-19 pandemic worsens an already fragile fiscal position.

BY NII ANNERQUAYE ABBEY

Funds to restore nation’s lost vegetation poorly resourced

BY PATRICK PAINTSIL >> MORE ON PAGE 19

>> PAGE 3

ECONOMIC INDICATORS *EXCHANGE RATE (INT. RATE)

USD$1 =GHC 5.6734*

*POLICY RATE

14.5%*

GHANA REFERENCE RATE

15.12%

OVERALL FISCAL DEFICIT

11.4 % OF GDP

PROJECTED GDP GROWTH RATE AVERAGE PETROL & DIESEL PRICE:

0.9% GHc 5.13*

INTERNATIONAL MARKET BRENT CRUDE $/BARREL NATURAL GAS $/MILLION BTUS GOLD $/TROY OUNCE CORN $/BUSHEL

43.22 1.79 1,842.40 329.50

COCOA $/METRIC TON

1,562.00

COFFEE $/POUND:

$109.65

COPPER USD/T OZ.

220.15

SILVER $/TROY OUNCE:

17.07

Copyright @ 2020 Business24 Limited.

All Rights Reserved.

Tel: +233 030 296 5297 editor@thebsuiness24online.net

2

NEWS/EDITORIAL

Subsrcibe thebusiness24online.net/subscribe

FRIDAY AUGUST 7, 2020

EDITORIAL

1

Wash your hands 2

Cover your cough

Environment must be protected at all cost The two main funds specifically designed to help in the country’s forest restoration efforts-- the Forest Plantation Development Fund (FPDF) and Timber Industry Fund (TIF)--have been underfunded for years and threaten the country’s forest cover.

The Forest Plantation Development Fund established by the Forest Plantation Development Fund Board Act 2000 which has as one of its sources of funds being proceeds of timber export levies imposed under Trees and Timber Act 1974 (NRCD 273) . The 1.5 percent export levy imposed on all timber export is jointly managed by the Forestry Commission-Timber Industry Committee.

With regards to the Timber Industry Fund, although the existence of the

Fund was well known, the fund does not have statutory backing as it was established on the agreement of industry and the Forestry Commission in 2010.

A review and analysis of receipts and disbursements of two separate funds primarily established to address the impact of illegal mining on the nation’s plantation cover through forest restoration projects show that the funds have failed to live up to expectation.

A study by Nature Development Foundation (NDF), found that the funds’ contribution to the growth of the country’s plantation has been “minimal and unsatisfactory”.

Given the challenges with the funds, Business24 sides with the call

by Nature Development Foundation (NDF)-a non-profit organisationhas-

-for the development of a legal framework for the establishment and management of the TIF as well the regular audit of the two funds to enhance transparency in disbursements and receipts.

“We recommend the need to develop a legal framework for the regulation of plantation development in the country and the amendment of the law to reconstitute the membership of the FPDF to include representatives from the Forestry Commission, timber industry and civil society,” the NDF noted.

Given the importance of the environment, it is imperative for duty bearers to take decisive action to protect the country’s green economy.

3

Parliament approves suspension of fiscal rules CONTINUED FROM COVER

Wear a mask Brought to you by

LIMITED Copyright @ 2019 Business24 Limited. All Rights Reserved.

Editorial Team Dominic Andoh: Editor Eugene Kwabena Davis (Head of Parliamentary Business & Commodities) Benson Afful (Head of Energy & Education) Patrick Paintsil (Head of Maritime & Banking) Nii Annerquaye Abbey (Online Editor) Marketing Alexander Lartey Agyemang (Business Development Manager) Ruth Fosua Tetteh (Dept. Business Development Manager) Gifty Mensah (Marketing Manager) Irene Mottey (Sales Manager) Edna Eyram Swatson (Special Projects Manager ) Events Evelyn Kanyoke (Snr. Events Consultant) Finance/Administration Joseph Ackon Bissue (Accountant)

the countries of the world and every aspect of the Ghanaian economy.

He said the slowdown in economic activities has led to a drastic downward revision to the growth of real GDP from 6.8 percent to 0.9 percent, an estimated revenue shortfall of GHȼ13.41bn, and caused the Minister to suspend the fiscal rules and targets for the 2020 fiscal year.

According to him, the impact of the pandemic led to interventions such as the Covid-19 Preparedness and Response Plan, provision of health infrastructure, the Coronavirus Alleviation Programme (CAP), capitalisation of the national development bank to support economic recovery, and payment of outstanding claims on government.

To restore the public finances of the country, the plan presented to Parliament shows that the government will implement a number of fiscal consolidation measures to reduce the fiscal deficit from 11.4 percent of GDP in 2020 to 9.6 percent in 2021, 7.1 percent in 2022, 5.2 percent in 2023, and 3.8 percent in 2024.

The government also aims to improve the primary balance from a deficit of 4.6 percent of GDP in 2020 to a deficit of 3.4 percent in 2021, 1.9 percent in

2022, 1 percent in 2023, and a surplus of 0.1 percent in 2024.

As part of efforts to rebuild the economy, the government is implementing the Ghana Covid-19 Alleviation and Restoration of

Enterprises Support (Ghana CARES) Programme, which will continue over the next three and half years.

DIGITAL NEWSPAPER

EXPAND YOUR REACH ADVERTISE WITH US TEL: +233 024 212 2742

www.thebusiness24online.net

FRIDAY AUGUST 7, 2020

Subsrcibe thebusiness24online.net/subscribe

News

3

Street light levy yields GH�273.8m in two years

BY EUGENE DAVIS

A total amount of GH¢273.8m was raised from the street light levy between 2018 and 2019, Energy Minister John Peter Amewu has told parliament.

In line with the Energy Sector Levies (Amendment) Act 2017, 3% per price of kWh of electricity is charged on all categories of consumers as public lighting levy.

The purpose of the levy is to support payment for energy consumed by traffic lights, street lights, and public lights on highways, as well as to support investment and maintenance of traffic lights, street lights, and public lights on highways by Metropolitan, Municipal and District Assemblies.

The levy is required to be collected by the Electricity Company of Ghana, NEDCO, VRA and other suppliers of electricity.

In 2018, an amount of GH¢134m was collected by ECG, VRA and NEDCO. An amount of GH¢38m was transferred to the Ministry of Energy, out of which GH¢21m was utilised by the Ministry.

John Peter Amewu says renewable energyof is highUS$230m on government’s agenda Up Similarly, in 2019, an amount Scaling

GH¢139m was collected by ECG, VRA and NEDCO. An amount of GH¢44m was transferred to the Ministry of Energy, out of which GH¢42m was utilised by the Ministry.

US$230m renewable energy programme Touching on government’s agenda to drive renewable energy adoption, the Minister said the Ministry has advanced the development of the

Renewable Energy Programme, which is being funded by the Climate Investment Fund (CIF), the Swiss Government, African Development Bank, and the Government of Ghana.

“The project is in the CIF sealed pipeline and the full implementation will provide electricity access to over 700,000 un-electrified inhabitants in some of the most deprived communities in the country,” he said.

Additionally, he indicated that government intends to have public institutions such as Ministries, Departments, and Agencies integrate solar in their buildings to reduce their high electricity bills.

To this end, the Ministry of Energy in 2019 added another 60KWp of solar PV to its existing 50KWp. The Ministry has also awarded a contract for the construction of a 912KWp solar plant to supply about 60 percent of total electricity demand at the Jubilee House. The construction is being carried out by 3SIL/SPS, a wholly-owned Ghanaian company, and work is at 70 percent completion.

The project is expected to be fully completed by December 2020.

Government has also signed a bilateral agreement with Germany on reform partnership in the area of renewable energy and energy efficiency, to the tune of €100m.

This partnership will contribute to increasing the contribution of renewable energy in the generation mix through embedded generation and productive uses, the Minister stated.

IFS urges gov’t to explore debt forgiveness

BY NII ANNERQUAYE ABBEY

The Institute for Fiscal Policy, a policy think tank, has urged government to seek debt forgiveness from its major creditors to contain the country’s debt service expenditure, as the COVID-19 pandemic worsens an already fragile fiscal position.

A Senior Research Fellow at the policy think tank, Dr. Said Boakye, addressing a press conference on the IFS’ assessment of measures taken by government to tackle COVID-19, stated that the pandemic has worsened the country’s poor and fragile fiscal position.

Dr. Boakye argued that even before the pandemic struck, the sum of monies spent on compensation to public workers and expenditure on debt servicing bore semblance to the pre-HIPC era where these two practically consumed all of government’s domestic revenue.

Compensation to public workers and expenditure on debt servicing accounted for 99.7 of government’s

revenue in 2019.

According to the Bank of Ghana, the country’s debt as at June this year stood at GH¢258.4bn which represents about 67 percent of GDP while servicing this debt is expected to cost government in excess of GH¢31bn.

“Given the country’s poor and delicate fiscal position, which has dramatically worsened due to COVID-19 and some of the policy choices of the government, we recommend that the government should immediately seek debt reliefs, including debt forgiveness, from its major creditors so as to minimise the enormous size of the country’s debt service expenditure, which is consuming the biggest chunk of the country’s revenues (projected to be 71.6% of total revenue and grants in 2020),” the Senior Research Fellow at the fiscal policy think tank added.

Providing further justification on the need to reduce the debt burden, Dr. Boakye stated that there is the need to free up fiscal space to allow for spending on developmental projects.

“These two expenditure items box the government in, in the sense that they are extremely sticky downwards – they are very rigid or inflexible. What is more important is that they limit the ability of the government to spend on developmental projects, which are needed to help grow the economy and improve upon the socioeconomic wellbeing of the people,” he said.

While Dr. Boakye noted that the structure of the country’s debt – made up of more commercial borrowing than non-concessional as it was in the late 90s -- makes it more difficult to achieve a forgiveness on the scale as witnessed during the HIPC era, he added the country must still try to explore whatever options there are.

Other measures In addition to seeking debt reliefs, he advised government to take steps to reduce the rate of growth in employee compensation in order to minimise its relative size over time.

Also, another solution to easing

the tight fiscal space will be to boost revenue generation – which has already been impacted heavily by the slowdown in businesses as a result of the pandemic.

In the short to medium term, the IFS urged government to look particularly from the extractive sector of the economy to increase its revenue generation.

COVID-19 fiscal response Dr. Boakye described some of the measures the government introduced to deal with the effects of the pandemic as “fiscal populism” as they are blanket and not considerate of those who are in genuine need to cope with the aftermath of the economic restrictions.

“Refrain from engaging in fiscal populism despite the looming 2020 elections, in order not to compound the country’s fiscal problems. Indeed, a critical analysis of the economic history of Ghana reveals that fiscal populism has been one of the main causes of the country’s recurring fiscal and economic distress since independence,” he said.

4

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Subsrcibe thebusiness24online.net/subscribe

News

5

United Bank for Africa Provides US$200 million for Nigeria’s Petroleum Industry The United Bank for Africa Plc (UBA), a leading pan-African financial services group, has acted as the lead arranger of a consortium of Nigerian commercial and international banks in a $1.5 Billion Pre-Export Finance Facility for the Nigerian National Petroleum Corporation (NNPC) and its upstream subsidiary, the Nigerian Petroleum Development Company (NPDC).

UBA is providing $200 million (Naira equivalent) to support investment growth and liquidity requirements. The facility will provide much needed capital for investment in NNPC’s production capacity, which is of strategic importance to the Nigerian economy and the country’s leading source of foreign exchange earnings. UBA’s position as Lead Arranger recognises the Group’s strength in structuring and deploying financing to the oil and gas sector, and the depth and liquidity of the Group’s balance sheet.

The US$1.5 billion facility is structured in two tranches. The first tranche of $1 billion, to be repaid over a period of five years, will be provided in dollars, with UBA acting as the Facility Agent Bank. The second tranche of

$500 million, will be provided in local currency, over seven years, with UBA acting as Lead Bank, providing $200 million in Naira equivalent.

Both facilities will be repaid from an allocation of 30,000 barrels per day of NPDC’s crude oil. UBA has a strong track record in the resources sector across Africa, having facilitated oil prepayment deals with the NNPC, including its 2013 $100 million participation in the PXF Funding Limited transaction, and a further $60 million in the 2015 Phoenix Export Funding Limited transaction. In Senegal, UBA was responsible for the EUR 240m revolving crude oil financing facility for the Société Africaine de Raffinage and in Congo Brazzaville co-funded the US$250m crude oil prepayment facility for Orion Oil Limited.

Other participants in the NNPC deal include Standard Chartered Bank, Afrexim Bank, Union Bank and two oil trading companies, Vitol and Matrix.

Speaking on this most recent support for the Nigeria’s petroleum industry, UBA Group Chairman, Tony O. Elumelu stated ‘This has been one of the most economically challenging years that Nigeria has

witnessed. With the sharp drop in the price of oil and the ensuing hardship that followed the onset of the Covid-19 pandemic, the private sector must come together and contribute meaningfully to the economy. This facility is clear evidence of this – UBA is providing investment that will significantly improve Nigeria’s production capacity and in doing so also demonstrating the strength, depth, and sophistication of our commercial banking capability.

I believe that together, working with governments, we can create more jobs and more wealth for

people, not only in Nigeria, but across Africa’.

The United Bank for Africa is one of the largest employers in the financial sector on the African continent, with over 20,000 employees and serving over 20 million customers. UBA operates in 20 African countries and globally in the United Kingdom, the United States of America and France, providing retail, commercial and institutional banking services, leading financial inclusion and implementing cutting edge technology.

ADB posts impressive half-year performance The Agricultural Development Bank (ADB) has posted impressive financial growth in its half year results, despite the impact of the COVID-19 pandemic on businesses.

The bank’s unaudited half year results published last week showed growth in all key performance indicators such as assets, deposits, loans, and net interest income.

The bank’s total asset grew by more than GH¢800million or 17.17% from GH¢4.04billion to GH¢4.88billion on the back of 26.6% growth in the loan book from GH¢1.22billion to GH¢1.66billion from June 2019 to June 2020. Despite the uncertainty of customers about how and what to save, deposits rose from GH¢2.95billion to GH¢3.68billion, representing a 19.76 percent growth.

Dr. John Kofi Mensah, the Bank’s Managing Director, noted that the bank stayed true to its core business of financing agriculture and agribusinesses and with the pandemic, the nation needed to secure its food production process.

“The pandemic has shown to

us that we are on the right path when it comes to sustaining Ghana’s food security. With our borders closed and other trading partners closing their borders, it meant that we are have to look inward to keep feeding ourselves and with strategic financing from us, our farmers and players along the agric value chain have not disappointed,” Dr. Mensah said.

He touched on some of the bank’s initiatives including the comprehensive financing scheme for the poultry value chain, which he believes could make Ghana become self-sufficient in poultry production by 2022.

The bank recently presented a GH¢23.2million loan facility to six players in the poultry value chain and this is to be replicated nationwide within the next two years.

The facility would finance a comprehensive GH¢500 million programme, that would reduce reliance on imported chicken, protect the local currency and promote sustainable jobs in the agriculture sector.

The project, expected to be replicated in six other regions of

the country is being coordinated in partnership with the Ministries of Finance, and food and agriculture; and the Outgrower and Value Chain Fund (OVCF) and Ghana Incentive-Based RiskSharing System for Agricultural Lending Project (GIRSAL).

According to Dr. Kofi Mensah, the Bank’s digital banking products kept it in business during the period since customers could still

do business without necessary being in the Banking halls.

“Being a caring bank we rolled out several digital channels and reduced the cost of using them to ensure our customers remained with us, he said.

Dr. Mensah said most of the loans were targeted at agribusiness so as to avoid any possibility of food shortage in the medium and long term.

6

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Feature

Subsrcibe thebusiness24online.net/subscribe

7

Thriving amid chaos: MFIS to focus on liquidity before profitability

BY SAMUEL KOJO DARKO

F

or most financial institutions globally, the 2020 Financial Year (FY2020) is likely to be described as a year of abysmal performance, an outlier which caste malignant spell on important financial indicators, especially liquidity and profitability. Unavoidably, Microfinance Institutions (MFIs) are spared by this imminent spell. This is because; MFIs predominantly serve the fragile Micro/SME segment of the market which has been massively hit by the COVID-19 pandemic, transmitting unprotected direct impact unto the MFIs as well.

You may recall that, MFIs have just emerged from the catharsis of the banking sector “clean up” by the Central Bank a year ago, which exercise saw some of them disappeared from the market completely. And here again is COVID19 pandemic, ravaging and eroding almost all their modest gains. What a double jeopardy it seems. In fact, had it not been COVID19 pandemic, most MFIs had projected FY2020 to consolidate gains, build trust and upgrade brand and reputation. Some had indeed intended to commence digital banking projects, which projects require massive capital injection.

The World Bank classifies MFIs to include; Non-Bank Deposittaking Financial Institutions (such as Savings & Loans Companies, Finance Houses etc), Rural Banks, Financial NGOs, and Cooperative Associations, all offering simplified financial services to Micro/SME clients with loans, savings, and insurance services.

The Bank of Ghana however, under the guidance of BSDTI Act 930, classifies these institutions as Specialized Deposit taking Institutions (SDIs). They have separate Regulatory Prudential Requirements from the universal banks, but of same significance.

MFIs play significant roles in an evolving economy like Ghana.

They provide jobs; promote financial inclusion and financial literacy for the Micro/SME clients (which otherwise have limited access to main commercial banks).

The World Bank estimates that, the global Micro/SME financing gap currently stands at $5.5trilion, a gap which provokes a call for MFIs to be well positioned and propelled to bridge. It is in this light that, efforts geared towards

salvaging and reviving the MFI subsector are crucial strides.

However, for them to survive the hostilities of FY2020, brought about by the combined effects of the vestiges of the “clean-up” and COVID19 pandemic, they must jealously watch and guard one financial indicator-liquidity, with curious attention.

The ease with which MFIs are able to meet their current and short term financial obligations as they fall due, defines their liquidity.

Meeting your current and short term financial obligations means everything for your survival.

They include payments to depositors on demand, suppliers of vital operational inputs (like IT software), staff salaries, utilities etc. In fact, not meeting these obligations promptly could mean your extinction from the market sooner than tomorrow. But unfortunately however, the COVID19 has brought untold hardship on MFIs as they struggle to recover loans granted to customers, and generate other financial income for liquidity purposes. Most MFIs have granted loan moratoriums to their customers spanning from 3-6months. This suggests postponement of immediate regular cash inflows to match current liabilities (obligations).

In fact, the Bank of Ghana’s Q1-2020 banking sector report reveals that, the MFI subsector “appear less resilient to liquidity and credit shocks”. This is due to “constrained liquidity conditions and capital shortfalls facing the subsector”. It further revealed that, liquidity stress-test conducted for the subsector shows minimal survival rate for most MFIs. This is a worrying revelation, and rightly so.

In this regard, MFIs are strongly

advised to pay curious attention to (maintain and) remain liquid, especially in these chaotic times.

They must desist from undertaking capital intensive projects likely to drain cash (liquidity) from them.

They must be liquidity-minded rather than profitability-minded, at least for now. In fact, liquidity precedes profitability at all times.

This is because, being profitable does not necessary mean being liquid for any given period. For example, an MFI could post good “bottom line” (profit), but could still be illiquid. This is attributable to non-cash items (such as depreciation, revaluation gains/ losses, etc) considered in the profit basket for a given period.

These items could misconstrue actual liquidity position for the same period. The non-cash items however, are subjective internal policies for the institution’s reporting style.

For MFIs to lessen liquidity constraints on them, they must undertake some draconian measures such as; negotiating for postponement of maturing debts (including supplier’s debt), temporary retrenchment for noncritical staff or slashing salaries, whilst putting operational cost under strict control. They may also convert other liquid assets into cash for temporary liquidity reliefs. When these measures are combined at appropriate intensities, even modest profitability is achievable.

As government gradually lessens lockdown restrictions on COVID, and business confidence showing signs of recovery, MFIs are strongly advised to exercise utmost credit and operational risk strategies, combined with sound corporate governance principles, in order not to exacerbate the current precarious liquidity plight.

To rescue the subsector from liquidity cleft, the Bank of Ghana has outlined temporary interventions, aiming at lessening liquidity stress on MFIs. These include: (i) Providing liquidity support to Savings and Loans, and Finance House companies facing temporary liquidity challenges. (ii) Strengthen the capacity of ARB Apex Bank to provide liquidity support to rural and community banks facing temporary liquidity challenges. (iii) Extension of the deadline for MFIs to meet new capital requirements to December 2021. (iv) Reduction of the primary reserve ratio from 8% to 6% for Savings & Loans, Finance houses and rural banks. And reduction of primary reserve ratio from 10% to 8% for other microfinance companies. (v) 30days loan repayment past due to be considered as current.

These interventions extended by the regulator must meticulously be appropriated by the MFIs for intended purpose of survival (liquidity) only, rather than using same for presumptuous profiteering enterprises, which eventually jeopardize the subsector, and result in uncalculated loss of depositors’ funds. A word to the wise...

Samuel Kojo Darko (SME Banking Researcher) Email:sasdarko@gmail.com, Tel: 054 984 7220 / 020 686 6593.

8

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Feature

Subsrcibe thebusiness24online.net/subscribe

9

Reintegrating out-of-school children into Ghana’s formal education system

BY JESSICA LOPEZ, YOKO NAGASHIMA AND EUNICE YAA BRIMFAH ACKWERH

D

espite Ghana’s significant progress in reducing poverty over the years, regional and sub-regional disparities in income level and access to social services persist, particularly with regard to inequitable access to quality education. Though education enrollment rates are high compared to other countries in the region, the quality of education is still far from ideal. Per the Human Capital Index for Ghana, out of the average years of schooling in Ghana (11.6), the number of quality-adjusted learning years is just 5.7—meaning that children are in school but not learning for nearly six years.

Children from hard-to-reach and low-income households must make challenging daily commutes to get to school, and in some cases, children lack access to formal classroom settings (there are some schools under trees). Other issues include limited infrastructure for gender and disability needs, barriers preventing pregnant, parenting, and working students from continuing their education, limited access to media and technology, and the opportunity cost of schooling, especially if students help their parents in

generating income.

To tackle challenges like those faced in Ghana, and achieve the United Nations Sustainable Development Goals, developing countries must not only use existing resources more effectively, but also look to additional resources.

Results-based financing (RBF), an innovative funding approach focusing on the achievement of actual results can contribute to narrowing the funding gap, both by increasing the cost-effectiveness of existing funding and by unlocking additional financing from the private sector.

The World Bank’s Global Partnership for Results-Based Approaches (GPRBA) recently approved a $25.5 million grant to harness outcome-based financing—a form of RBF that ties payments to the achievement of measurable outcomes—to help out-of-school children (OOSC) reintegrate into Ghana’s formal education system and improve learning outcomes. The United Kingdom’s Department for International Development (DfID) is providing this grant through GPRBA’s recently launched Education Outcomes Fund (EOF). The government of Ghana will contribute an additional $4.5 million to the program. The primary focus will be to support marginalized OOSC, including girls, children with disabilities, and children from lower-income

households.

This GPRBA grant builds on the ongoing work of the IDAfunded Ghana Accountability for Learning Outcomes Project (GALOP) a results-based operation.

The GALOP aims to improve the quality of education by supporting teaching and learning. With greater focus on equity and efficiency, GALOP supports improved learning, improved accountability for learning, technology-based, in-service teacher training, and provision of learning materials.

GALOP’s additional financing is also supported by the Global Partnership for Education, which recently approved an additional $15 million for Ghana as part of its response to the education emergency triggered by the COVID-19 pandemic.

With GPRBA’s grant, the government will work with social investors and non-governmental organizations (NGOs) as service providers to implement the EOF program. Social investors will provide the upfront financing in cases where service providers are unable to do so. Payments will be made based on agreedupon outcomes, transferring the financial risk away from the government and onto the implementers. Technical assistance will help build government capacity to contract and manage outcomes.

The operation will target approximately 75,000 OOSC in

areas with the highest absentee and dropout rates, in districts historically deprived of a strong educational infrastructure, and in the Greater Accra and Kumasi Metropolitan districts. In addition, approximately 120,000 students already enrolled in selected GALOP-beneficiary schools will benefit from strengthened interventions supported by service providers.

Since its approval by the World Bank in 2019, GALOP has seen considerable progress, including the completion of a revised curriculum training for all basic education teachers in the country and the establishment of a pointbased sustainable professional development framework for teachers. Approximately 10,000 schools have been targeted to receive support, management, and resources. In addition, the process for strengthening the accountability systems for learning is underway.

The GPRBA grant is supporting Ghana’s commitment to reduce the number of OOSC in the country, bring more children to school, and increase sector resources by engaging social investors and NGOs. The first of its kind in Africa, this financing will help strengthen the ecosystem for outcomes-based funding in Ghana, spurring a shift from activity-based funding to outcomes-based financing. (blogs.worldbank.org)

10

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Feature

11

Subsrcibe thebusiness24online.net/subscribe

Minding the Perils of Progress

BY DARON ACEMOGLU

I

t is always worth remembering that in the grand sweep of history, we are the fortunate ones. Thomas Hobbes’s description of life as “solitary, poor, nasty, brutish, and short” was apt for most of human history.

Not anymore. Famines and hunger have become rarer, living standards for most people have risen, and extreme poverty has been reduced substantially over the past few decades. Average life expectancy at birth even in the least healthy parts of the world is above 60 years, whereas a British person born in the 1820s would have expected to live to around 40.

But, these fantastic improvements have been accompanied by catastrophic risks.

Even if COVID-19 has shaken us from our complacency, we have yet to grapple with the dangers still facing us.

The improvements of the past 200 years are the fruits of industrialization, made possible by our acquisition of knowledge and mastery of technology. But this process involved tradeoffs. Driven by the desire for wealth, firms and governments sought to reduce costs and boost productivity and profits, which led to disruptions that sometimes left hundreds of millions of people impoverished and unemployed.

For decades, workers in mines and factories were brutally coerced to eke out ever more output, until they managed to organize and secure some political power for themselves. And, of course, the early industrial age encouraged slavery and the quest for access to natural resources, which led to massive wars and brutal forms of imperialist rule.

These excesses were neither an aberration nor inevitable. Many have since been corrected through the market economy, laborrelations reforms, state regulation, and new (often democratic) institutions. But other significant unintended consequences of industrialization have yet to be addressed, because no organized political constituency emerged to address them. The most pressing concern is catastrophic global risks, the most obvious being anthropogenic climate change – a prime example of how a process of enrichment can create an existential threat.

A second, somewhat related problem is biodiversity loss.

The estimated rate of species

extinction today is anywhere from 100 to 1,000 times that of the pre-industrial era, yet there is still very little recognition of the risks created by such a radical destabilization of nature.

The third global risk is nuclear war. Splitting the atom exemplifies both our mastery over nature and the potential for profound misuse of science and technology.

Though nuclear technology has many peaceful applications (and may have a short-term role to play in addressing climate change), its most important consequence has been to inaugurate an era of mutually assured destruction.

As with climate change and biodiversity loss, we still do not appreciate the risks that nuclear technology poses to humanity; in fact, countries that have nuclear arsenals are now rebuilding and expanding them.

A fourth major risk is artificial intelligence, which could lead to technologies that we cannot control. In addition to the risk that superintelligent algorithms wipe out humanity, AI also has the potential to be deployed as an instrument of surveillance and repression, paving the way to a new kind of serfdom.

And governments are already developing AI and autonomous weapons that could be put to all kinds of nefarious uses, especially if they end up in the wrong hands.

Though no one can deny these risks, most people’s first instinct is to discount steeply the likelihood of a catastrophic scenario. But this is misguided. During the twentieth century, the world came close to nuclear war on multiple occasions. Because we were lucky, we now assume retrospectively

that the risk was never as high as it seemed.

But consider the counterfactual scenario. Where would we be today if all-out nuclear war had not been averted by the actions of Vasili Alexandrovich Arkhipov, a lone Second Captain who, at the height of the Cuban Missile Crisis, urged restraint when the other commanders aboard his Soviet nuclear B-59 submarine mistakenly believed they were under attack by the United States?

We certainly wouldn’t be reading books about the supposed decline in violence over time.

On the other hand, those who do recognize the dangers posed by climate change and AI too often jump to the conclusion that economic growth itself is the problem. They argue that reducing emissions, preserving nature, and preventing the misuse of technology requires a deceleration or reversal of production, investment, and innovation.

But pulling back from growth and technological progress is neither realistic nor advisable.

The world is still a long way from ending poverty, and what people in both rich and poor countries need most right now are good jobs that leverage technology in the interest of workers themselves.

Without secure employment and income growth, US President Donald Trump and British Prime Minister Boris Johnson will not be the last right-wing demagogues to threaten established democracies.

The only responsible option is to forge a new growth strategy that emphasizes the kind of technological innovation needed to address global threats. The goal

should be to create a regulatory environment that encourages firms and entrepreneurs to develop the technologies we actually need, rather than those that merely increase profits and market share for a narrow few.

And, of course, we need a much greater focus on shared prosperity, so that we do not repeat the errors of the last four decades, when growth became decoupled from most people’s lived experience (at least in the Anglo-Saxon world).

Although our track record in combating climate change is poor, we can embrace the fact that once-costly forms of renewable energy are now competitive with fossil fuels. This did not happen because we turned our back on technology. Rather, it is the outcome of technological advances brought about by a regulated market economy in which firms responded to carbon pricing (especially in Europe), subsidies, and consumer demand.

The same recipe can work against other catastrophic risks. The first step is to acknowledge that these risks are real. Only then can we get on with the business of building better institutions and re-empowering the state to shape market outcomes with humanity’s shared interests in mind.

Daron Acemoglu, Professor of Economics at MIT, is co-author (with James A. Robinson) of The Narrow Corridor: States, Societies, and the Fate of Liberty.

Copyright: Project Syndicate, 2020. www.project-syndicate.org

12

FRIDAY AUGUST 7, 2020

13

Subsrcibe thebusiness24online.net/subscribe

FRIDAY AUGUST 7, 2020

COVID Coin?

By Kenneth Rogoff

A

s the COVID-19 crisis accelerates the long-term shift away from cash (at least in tax-compliant, legal transactions), official discussions about digital currencies are heating up. Between the impending launch of Facebook’s Libra and China’s proposed central-bank digital currency, events today could reshape global finance for a generation. A recent report from the G30 argues that if central banks want to shape the outcome, they need to start moving fast.

Much is at stake, including global financial stability and control of information. Financial innovation, if not carefully managed, is often at the root of a crisis, and the dollar gives the United States significant monitoring and sanctions capabilities. Dollar dominance is not just about what currency is used, but also about the systems that clear transactions, and, from China to Europe, there is a growing desire to challenge this. This is where a lot of the innovation is taking place.

Central banks can take three distinct approaches. One is to make significant improvements to the existing system: reduce fees for credit and debit cards, ensure universal financial inclusion, and upgrade systems so that digital payments can clear in an instant, not a day.

The US lags badly in all these

areas, mainly because the banking and financial lobby is so powerful.

To be fair, policymakers also need to worry about keeping the payments system secure: the next virus to hit the global economy could well be digital. Rapid reform could create unexpected risks.

At the same time, any effort to maintain the status quo should provide room for new entrants, whether “stable coins” pegged to a major currency, like Facebook’s Libra, or redeemable platform tokens that large retail tech companies such as Amazon and Alibaba might issue, backed by the ability to spend on goods the platform sells.

The most radical approach would be a dominant retail central-bank currency which allows consumers to hold accounts directly at the central bank. This could have some great advantages, such as guaranteeing financial inclusion and snuffing out bank runs.

But radical change also carries many risks. One is that the central bank is poorly positioned to provide quality service on small retail accounts. Perhaps this could be addressed over time, by using artificial intelligence or by expanding financial services offered by post office branches.

In fact, when it comes to retail central-bank digital currencies, economists worry about an even bigger problem: Who will make loans to consumers and small businesses if banks lose most of their retail depositors, who

comprise their best and cheapest source of borrowing?

In principle, the central bank could re-lend to the banking sector the funds it gets from digital currency deposits. This would, however, give the government an inordinate amount of power over the flow of credit, and ultimately the development of the economy.

Some may see this as a benefit, but most central bankers probably have deep reservations about assuming this role.

Security is another issue. The current system, in which private banks play a central role in payments and lending, has been in place around the world for more than a century. Sure, there have been problems; but for all the challenges banking crises have created, systemic breakdowns in security have not been the major issue.

Technology experts warn that for all the promise of new cryptographic systems (on which many new ideas are based), a new system can take 5-10 years to “harden.” What country would want to be a financial guinea pig?

China’s new digital currency offers a third, intermediate vision.

As the G30 report describes in greater detail than previously available, China’s approach involves eventually replacing most paper currency, but not replacing banks. In other words, consumers would still hold accounts at banks, which in turn would hold accounts with the central bank.

When consumers want cash, however, instead of getting paper currency (which is rapidly becoming passé in Chinese cities anyway), they would receive tokens in their digital wallet at the central bank. Like cash, the central-bank digital currency would pay zero interest, giving interest-bearing bank accounts a competitive edge.

Of course, the government can change its mind later and start offering interest; banks may also lose their edge if the general level of interest rates collapses. This framework does take away the anonymity of paper currency, but many monetary authorities, including the European Central Bank, have discussed ideas for introducing anonymous low-value payments.

Last, but not least, a shift to digital currencies would make it easier to implement deeply negative interest rates, which, as I have argued for many years, would go a long way toward restoring the potency of monetary policy in crises. One way or another, the post-pandemic world will move very fast in payments technologies.

Central banks cannot afford to play catch-up.

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

Copyright: Project Syndicate, 2020. www.project-syndicate.org

14

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Feature

Subsrcibe thebusiness24online.net/subscribe

15

Individual Bond Investments and Bond Mutual Funds: Separating the reality from illusion

ERIC SCHMIDT ANDÂ GRAHAM ALLISON

A

bond is a typical fixed income security that offers a fixed or guaranteed rate of return to the investor over a specified period of time.

Nevertheless, the risk and return characteristics of individual bond investments vis-a-vis bond mutual funds are not the same.

Depending on the peculiar investment objectives, some fixed income investors will benefit the most from individual bond investments while others benefit significantly from bond mutual funds. A thorough understanding of the two is essential to help fixed income investors to choose the right investment vehicle that meets their investment objectives.

This article compares some associated risks of individual bond investments and bond mutual funds.

Understanding Individual Bond Investments and Bond Mutual Funds A bond is a fixed income instrument that indicates debt obligation of the issuing entity usually governments and large corporate bodies. In simple terms, when an investor purchases an individual bond, he or she is

basically lending money to the issuing entity in return for the payment of specified interest over the tenor of the bond. On maturity, the issuing entity returns the initial invested principal to the lender. It is worth noting that, the prices of bond may fluctuate during its tenor. Nevertheless, an investor who intends to hold an individual bond investment to maturity does not lose anything provided the issuer of the security remains solvent over the tenor of the security. On the other hand, bond mutual funds involve investment in a portfolio or underlying collection of bonds.

Bond mutual funds managers invest in different portfolio of bonds ranging from government bonds to corporate bonds. Also, bond mutual funds may consist of portfolio of bonds with different maturity dates ranging from short term to long term. Typical examples of bond mutual funds in Ghana are EDC Fixed Income Fund, Fidelity Fixed Income Trust Fund, STANLIB Income Fund, and Omega Income Fund among others. As stated earlier, bond prices remain volatile over their tenor due to fluctuations in the prevailing market interest rates.

Unlike individual bond investment that pays periodic interest and returns the invested principal to the holder on maturity, the value

of bond mutual funds depends on the Net Asset Value (NAV) of the entire underlying bonds in the portfolio. The fluctuations in the bond prices therefore affect the NAV of bond mutual funds.

Thus, bond mutual fund investors are likely to lose portion of their invested principal especially during periods of rising interest rates.

Comparing the risks of individual bond investments vs. bond mutual funds The future cash flows of an individual bond from coupons and principal payments are predictable with the only caveat of insolvency. In the case of a bond mutual fund, because the underlying holdings are bought and sold, there are fluctuations in the NAV of the fund. This renders it practically impossible for an investor to accurately predict his or her stream of cash flows.

Though the past performance of the bond mutual fund can form a basis for investment decision, it is however not a sure guarantee of future performance.

Interest rate risk is one of the main risk of bond investment. It is the risk that arises as a result of changes in the prevailing market interest rates which ultimately affect the price of bonds. The price of a bond is inversely related to the interest rate. The higher

the interest rate, the lower the price and vice versa. Interest rate risk is therefore a major concern for fixed income securities that are bought with the intention to sell. Individual bond investment bought with the intention to hold to maturity is immune to interest rate risk. On the other hand, bond mutual funds are automatically affected by interest rate risk mainly due to the buying and selling pressures from the fund.

The NAV of the fund falls when interest rates are rising. Bond mutual funds investor lose money in this scenario while individual bond investors are protected in such instance. During periods of declining interest rates, the prices of the underlying portfolio of bonds in the mutual funds rise, causing the NAV of the fund to rise. Bond mutual funds investor make extra money which the individual bond investor cannot make until the bond is sold on the market which is the Ghana Fixed Income Market (GFIM) in the case of Ghana.

Also, with individual bonds, as long as the issuer does not default, the investor is assured to receive the bond’s par value when it matures. A bond mutual fund on the other hand does not have specified maturity date and CONTINUED ON PAGE 17

16

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Investment Update

CONTINUED FROM PAGE 15

its value is subject to fluctuations depending on the buying and selling pressures of the fund.

While bonds prices can fall which can affect the bond mutual fund, an individual bond investor has the option to wait until it matures to receive the par value or the full principal.

Bond mutual funds are generally diversified across multiple securities. This reduces the risk exposure compared to an individual holding bonds issued by a single entity. This can help lessen the downside impact from a credit event impacting any one of the issuers. Nevertheless, an individual bond investor can also enjoy a diversified portfolio by investing in bonds by different issuers or investing in different maturity tenors by the same issuer.

The issue of liquidity risk can be more aggravated with an individual bond investment than bond mutual funds. In some cases, there may not be an active 2-way market for a specific bond and the price discovery process could take several hours. With a bond mutual fund, the investor has access to either buy or sell from the investment at the end

of the day, easing liquidity for the investors.

Finally, all other things being equal, bond mutual funds benefit from the services of professional management team, skilled in assessing and analysing market conditions to make informed investment decision. They are therefore able to leverage their expertise to invest in bonds that are on the market to improve the NAV of the fund. This expertise comes at a cost such as management fees and transaction charges on purchases and sales from the fund. All mutual funds have expenses that are charged to the fund and passed on to investors through a fall in net asset value. The key expenses of a mutual fund are management fees (paid to the fund managers), custody fees, administrative costs (such as Annual General Meetings, directors’ fees, accounting and auditing fees). Typically, mutual funds have an expense ratio (expenses/net asset value of 1-2%).

Therefore, all other things being equal, the returns to investors in bond mutual funds appear lower than the return to direct investors in bonds. If that is the case, then why would anyone buy bond mutual funds? The reasons are diversification, professional

Subsrcibe thebusiness24online.net/subscribe

management and transaction size. Normally, a minimum of GHS50,000 is required for clients’ bids to submitted for the primary market bond auction in Ghana.

However, for a bank to sell bonds from their trading portfolio to individual investors, it depends on the bank’s minimum acceptance amount. Thus, it stands to reason that, small investors who have around GHS1000 cannot access the bond market directly but can easily invest in bond mutual funds. On the other hand, individual bond investment may not enjoy this expertise unless the investor himself is skilled in the financial market. In some cases, unskilled individual bond investor may engage the services of a professional in selecting the right investment at a fee. An individual bond investor who buys or sells bonds on the open market incurs transaction charges usually priced in the dealer’s quote.

Conclusion Though Individual bond investment and investment in bond mutual funds are both fixed income investment securities, they have different risk and return characteristics.

A thorough understanding of the two is essential to help fixed income investors choose the right

17

investment vehicle suitable for their investment objectives.

Daniel TAYLOR is a Chartered Accountant and financial market enthusiast with years of treasury experience in the banking sector. He holds certification from The Financial Markets Association (ACI) and Bachelor of Commerce Degree from University of Cape Coast. He is currently a final year Master student in International Audit, Economics and Finance at UCA in France Email: taylorkojodaniel@gmail.com LinkedIn: https://www.linkedin.com/in/danytaylor/

Bernard SARPONG is a young Economist with research focus on Development, Financial and Monetary policies for inclusive growth in Emerging and Frontier Economies. He has relevant years of treasury experience in the banking sector. He holds both Master of Philosophy and Bachelor of Arts degrees in Economics from the University of Ghana.

Email: bernardosarpong@gmail.com Telephone: +233247012355

Funds to restore nation’s lost vegetation poorly resourced

BY PATRICK PAINTSIL

A review and analysis of receipts and disbursements of two separate funds primarily established to address the impact of illegal mining on the nation’s plantation cover through forest restoration projects show that the funds have failed to live up to expectation.

The study conducted on the operations of the Forest Plantation Development Fund (FPDF) and Timber Industry Fund (TIF) by the non-profit organisation, Nature Development Foundation (NDF), found that the funds’ contribution to the growth of the country’s plantation has been “minimal and unsatisfactory”.

It also exposed the inadequacy of the funds to ensure sustainable plantations in the country as well as the seeming lack of information and transparency in how the two funds are managed.

The Forest Plantation Development Fund established by the Forest Plantation Development Fund Board Act 2000 which has as one of its sources of funds being proceeds of timber export levies imposed under Trees and Timber Act 1974 (NRCD 273) The 1.5 percent export levy imposed on all timber export is jointly managed by the Forestry Commission-Timber Industry Committee.

Fund was initiated to finance programmes aimed at restoring the country’s vegetation through forest fire prevention and reduction of greenhouse gas emissions within the broader context of creating jobs and improving livelihoods.

With regards to the Timber Industry Fund, the study found that although the existence of the Fund was well known, the fund does not have statutory backing as it was established on the agreement of industry and the Forestry Commission since 2010.

“Of the 1.5percent levy imposed on timber exports, one-third of it is retained for plantation development; the fund’s current balance stands at GHC139,895.48 as at 31st of May 2020,” the NDF said.

The foundation is therefore calling for the development of a legal framework for the establishment and management of the TIF as well the regular audit of the two funds to enhance transparency in disbursements and receipts.

“We recommend the need to develop a legal framework for the regulation of plantation development in the country and the amendment of the law to reconstitute the membership of the FPDF to include representatives from the Forestry Commission,

timber industry and civil society,” it said.

The study and meeting were part of implementing the project, “Building the Capacities of SmallMedium Scale Enterprises (SMEs) in Ghana and Liberia to supply and trade in legal timber” which is being funded by the UKAid under their forest Governance Market and Climate (FGMC) Programme.

18

FRIDAY AUGUST 7, 2020

FRIDAY AUGUST 7, 2020

Investment Update

Subsrcibe thebusiness24online.net/subscribe

19

20

FRIDAY AUGUST 7, 2020