A very important contribution to achieving faster monetisation of mining and other natural resource revenues can be made by cogent transformation – using flexible, higher quality institutions and change agents – into domestic physical assets such as infrastructure, diversified manufacturing capacity, or service provision, or into human capacity and capital (e.g. by improving skills and technology and expanding education) or into social capital (e.g. by social programmes that reduce social tensions or contribute to the creation of an efficient institutional systems, for example by removing thick bureaucratic layers, ensuring fluid collaborations of institutions and public change agents and allowing seamless flow of information among public systems and between policy innovators and the private sector).
The conversions will only thrive on flexible and quality institutions that structure creative policies, ensure innovative and efficient manufacturing financing, social inclusions and creative societies. This package of institutional innovativeness can go a long way in ensuring mineral resource revenues settle more into optimal industrial, human and social investments than into consumption.
Ghana can only accrue and achieve net savings from her natural resources through active investments on the premise of prudent industrial value chain development, lift into higher entrepreneurial energies, industrial diversification and international trade expansion.
Diversifying royalties into anchor industries through fiscal linkages could push the country to make positive genuine savings with increased capital stock when the finite, non-renewable natural resources are exploited and gone and even leaving the environment seriously depleted. Diversification is documented in most well-managed resource rich countries to be more superior to industry concentration in converting mineral and other natural resources into built capital and other forms of wealth.
If Agyapa is reintroduced in any form, it must come with an advanced intention to have very strong development and diversification agenda that mostly seek to support and expand efficient, high impact anchor industries to edge up resource savings into more sustainable non-resource capital.
What is needed, in a drive to raise entrepreneurs, support burgeoning young firms and pursue industrialisation, is to avoid thick regulatory barriers that allow inefficient reallocation of capital or weak enforcement of competition policy which often permits unproductive firms to keep operating with generous stimulus packages.
There has to be well designed institutional capital with interventions on industrial chains instead of Government stimulus support programmes structured around individual unproductive incumbent firms or other quasi-fiscal support for inefficient incumbents which may keep them as large players in the market, staving off budding and more efficient firms from joining the space.
Ensuring raised institutional quality holds the key in addressing challenges that come with pursuing fiscal, production, consumption and market linkages. There are several development difficulties that are naturally associated with macroeconomic swings arising out of resource revenue volatility, potential misallocation of resources, concerns about Dutch disease, fiscal and external sustainability issues as well as resource and environmental depletion. Natural resource revenue volatility raises market risks and thereby damages investment and growth.
It’s for this reason that policy innovation must ensure the structuring of high optimal and resilient institutional capital necessary for the private sector to flourish and for resource diversification strategies to accrue net savings for the country.
This depends primarily on how well fiscal policy is insulated from commodity price volatility. Implemented well, properly designed industrial diversification strategy, using natural resource revenue as catalyst, will improve economic performance—stabilizing the economy, boosting employment, and increasing productivity. It might lead to greater economic diversification and— more importantly, bring about a more diversified development.
Building evenhanded institutional capital effective for efficient investments of resource revenues and designing short-run countercyclical fiscal policies ensure equitable net national savings with minimal leakages. Strong institutions that encourage entrepreneurs to take risks but disrupts collusive behaviours or the “capture” that is linked to powerful vested interests must spring up to push the country up the scale of accumulating improved human skills and built (non-resource) capital.
These institutions must have the capability to prudently convert resource rents into monetised economic assets akin to trends in Botswana, UAE, Norway, Alberta-Canada, Chile, and Malaysia which are reaping the benefits of early efforts to diversify through improvements in income structures and economic outcomes. These countries have complemented diversification with stronger institutions, strategic resource governance mechanisms, entrepreneurial upscale, cogent extractives and industrial value chain development, smart local content programmes, more flexible laws, and strategic FDI promotion designed to scale up industrial competitiveness, export development, economic management and strategic governance.
By Dr Samuel Frimpong Boateng
CEO, Afrideg Ghana Limited
President, Centre for Investments, Trade and Industry