As we watch but don't learn: toothpick anyone?

E. Ablorh-Odjidja, Ghanadot

February 11, 2014

How interesting the times are in Ghana these days.  With the current foreign currency control in place, we can't help but remember earlier times in the 60s.

Currency valuation has been an everlasting problem.

When Third World nations attained independence in the 50s and 60s, they all quickly became vulnerable to a common problem: weak currencies.

 It used to be currency valuation of nations was based on the gold bullion.  But by clever deliberations from the West, the standard has shifted – to mostly on the amount of “flow of commerce” traded between nations.

Worst for Third World nations, the producers of mostly raw materials and natural goods on which this “flow of commerce” depended, the prices for the goods they bought or sold were set for them from overseas. 

The invisible hand of global commerce made sure that there was no equity in what Third Nations bought and what they produced and sold overseas.

Then came Dr. Kwame Nkrumah of Ghana.  He saw and understood how the control of the currency flow within the national economy had become a dilemma for the nation’s development plans.  His solution to the problem was to tackle first the pressures on the Ghana cedi generated by powers outside the nation.

To note those times and their woes, it should be remembered that Nkrumah brought attention to the miserable world of the Third World economies by first linking it to the influences of neo-colonialism. 

And no truer statement can be made on this subject than Nkrumah's observation because colonialism or neo-colonialism describes the fundamental power relationship between nations.

So for Ghana, Nkrumah came up with a policy of “Import Substitution.”  His aim was not to import anything that could be produced in Ghana and thereby slow down the outflow of the country’s hard-earned currencies.

In 1965, during the implementation of the “Import Substitution” policy, the price of Ghana’s precious cocoa, the lynchpin of the country’s economy, had a precipitous fall.   

Some may deem this precipitous fall in cocoa pricing as coincidental.  But others among us thought at the time that it was deliberate.  The answer soon became obvious in 1966.  A decerning few knew it when the coup happened.

For, on the lips of the coup makers and their enablers was one of the major reasons offered to justify the coup and a tie to the Nkrumah's policy of "Import Substitution."

The lack of “precious commodities” brought on by that policy's bite was it. 

For withholding hard-earned currencies that could be used for development and improvements in Ghanaian lives, this policy became the rope that was used to hang the Nkrumah regime.

Sadly, for Ghana and more appropriate for the coup makers and their handlers, the slogan “essential commodities” would point to their degraded thinking capacity for centuries to come.

The sale of cocoa, at a price that we did not control, became the handle to wreak havoc on Ghana just before the 1966 coup. 

It was estimated that 20% of cocoa revenue that should have come to Ghana went to Ivory Coast and Togo.  Ghana could have used the differential for the vital development plans, like the Seven Year Development plan.  But the neo-colonialist ventures, mostly French-inspired, began to hammer downward Ghana's developmental aspirations. 

The sad part was that the governments of Togo and Ivory Coast, free at the time but still under the French thumb, were unaware or didn’t care for the common destiny they shared with Ghana, the sister country next door.

And sadder still, the people of Ghana didn’t care either.  Little did they know then that by throwing away the policy of “Import Substitution” they were jettisoning overboard the key to future prosperity.

Nkrumah had written in 1963, of an "economic independence, without which our political independence would be valueless."   Therefore, a "constant, fundamental guide is the need for economic independence.... An important essential is to reduce our colonial-produced economic vulnerability....", Africa Must Unite.

In the above passage, Nkrumah was referencing the significance of the policy of “Import Substitution.” 

Nkrumah had freed Ghana from the British.  The hammering on the cocoa came from the French influential areas of Togo and Ivory.  And it was this that produced the fall in cocoa price. 

Whether the sabotage was coordinated or not, is not the issue here.  But that there was a price fall for the cocoa at this critical point in Ghana's history just pointed out how fragile the post-colonial economy was; at least, among the nations on the West coast of Africa.

Though few knew, Nkrumah was extremely aware of the neo-colonial predicaments and the necessity to respond with initiatives to blunt the unnecessary demands on the hard earned Ghanaian foreign currency reserves. 

The "Import Substitution" plan, simply stated, was for Ghana to produce more locally and import less from overseas.  He built a system within which the plan could be made possible.

The cocoa product, once shipped in jute bags brought from abroad, now were manufactured inland at a factory in Kumasi.  And when shipped abroad, they went by the ocean in Ghana-owned vessels – the Black Star Shipping Lines.

For this godly work, Nkrumah was removed.  Instead of the “Import Substitution” policy, the coup makers and their influencers were rather offended grievously by the lack of “precious commodities," the hunger pangs produced by shortages in imported milk and sardine that Ghanaian hard earned foreign reserves were not allowed to be used for under the "Import Substitution" plan.  

Nkrumah was to respond later, in a radio broadcast from exile, Conakry Guinea, that if he knew that "all we wanted were milk and sardines" he could have flooded the whole country with those items.

Many coups and changes in governance later and we are still struggling to strengthen our overall currency situation.  To be candid, the situation has grown worse from year to year.

Successive regimes have tried many approaches to prop up the Ghanaian cedi. 

The Busia anti-Nkrumah regime devalued the cedi by as much as 44% in 1971.  The ridiculous reason given was that the devaluation would provide a discount on goods sold – the same goods the price of which we never had control!

The most significant prop up to save the cedi and probably one that could have been sustainable, with the help of inflow of the new oil revenue and lately extraordinary rises in gold prices, was the one made under President Kufuor in 2007.  

Kufuor’s effort came at a great financial cost to start. But immediately with that act came the reality and later, the perception of a strong cedi.  Unfortunately, this feat is slowly being unraveled.

A country's currency falls for several reasons.  But key among these is the inability to produce what you consume.  In this sense, an import substitution policy becomes hugely significant.  Toothpick anyone? 

Fact is, for Ghana, we still import far more than we export. Even items like toothpicks are imported from China these days.  Produce more and export less like Nkrumah wanted and you could have strengthened the cedi.  

Manufacture the toothpicks, door locks, hinges, and other small industrial items at home, rather than import them from China and the cedi will be worth more automatically.

The "Import Substitution" plan advocated under Nkrumah underlined the idea that individuals, like nations, should pursue their self-interest. 

"Import Substitution" industries were brought on the scene.  But the narrative from abroad and among key opposition members was that Nkrumah was attempting to nationalize all industries in the country.

Writing about Ghana in the book "Political Independence and Economic Decolonization, the case of Ghana under Nkrumah" John D. Esseks of Northern Illinois University, said state-sponsored industries were created, which "amounted to essentially a strategy of competitive co-existence" with alien firms in the country.

According to Esseks, these state enterprises competed with foreign firms in "banking, shipping, insurance, timber extraction, construction, and manufacturing."

And that "actual nationalization occurred in only two, relatively minor fields: the internal marketing of cocoa and the foreign sale of timber." 

This policy hasn’t changed today.  Yet, no one has accused any regime since Nkrumah of trying to “nationalize” industries in Ghana.

Just to make sure that Ghana saved money on imports, enterprises that competed with imports were established. New jute bag factories for bagging cocoa, canning for tomatoes, fruits, meat, and fish products, and strike match box industries among many were created.

Logistics links to the world, that could have brought in additional clawbacks on foreign currency were created - the Black Star Lines and Ghana Airways - went belly up.

Along the way, the State Farms and their complimentary canneries went under fire sales or were closed.  And by the 80s, many of these fledgling state enterprises created under the “Import Substitution” policy were all gone. 

The country went back to its over-dependency on foreign manufactured goods.

The foreign currency drain continued, not because the concept behind the “Import Substitution” policy was flawed, but because of the shortsightedness of our ensuing politicians and the clueless managers of the country’s economy who came in after the Nkrumah regime.

Elsewhere, other countries had a better grasp of the "Import Substitution" concept.

For, right in the wake of Nkrumah’s plan of the 60s was South Korea’s "Import Substitution" policy in 1970.  Since then, the South Korean currency has grown in leaps and bounds, eclipsing the wealth parity between the two nations at Ghana’s independence in 1957.

For those who wonder why South Korea left Ghana behind, consider analyzing the merits of the “Import Substitution” policy first.

 As Ghana was devaluing her Cedi after 1966, in the 70s South Korea was busy strengthening the Won. 

The same "import substitution" idea that Ghana jettisoned overboard saw South Korea's exports grow "40% times as large as they were in the 50s," said Jongho Yoo of KDI School of Public Management.

This is not to say that because South Korea did it, Ghana could have done it also.  But it is necessary to point out now that the awareness and the ingredient ideas to make the growth happen in Ghana in the 60s were already in place, even before South Korea put her own into practice. 

Except, we dropped the ball!

It can be argued that the failure to pursue “Import Substitution” was deliberate and in many instances a product of political befuddlement, the penchant for policy reversals, and mere spite for the personality of Nkrumah. 

Above all was also the need to keep Africa messed up and always primed for foreign dominance.  All these prevented Ghana from attaining the goal of a strong currency.

And now we are back to another foreign currency control action, without first tackling the major cause of the drain on our hard currency:  the unnecessary importation of non-essential products that can be produced at home.  Meanwhile, our markets are still flooded with foreign canned tomatoes, while ours rot on family farms inland.  

Patriotic reasons must push us today to accept the idea of “Import Substitution.”  But some 50 years later, it is time to wonder whether it may now not be too late.

E. Ablorh-Odjidja, Publisher www.ghanadot.com, Washington, DC, February 11, 2014.

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