Urbanization, Economics and Politics: Lessons from the Talensi By-Elections

The Talensi by-election is over and political parties are counting their losses and gains. Despite the few skirmishes of attacks on some NPP and NDC members from unidentifiable persons (so far), it is reported that the actual voting exercise was successful. Despite the so-called economic hardships in Ghana, the ruling NDC-led government recaptured their old seat. To some social commentators and political analysts, the Talensi seat has always been an NDC seat, so it is not surprising they won. To some economists like Sydney Casely-Hayford, a win for the NDC provides no additionality to parliamentary checks and balances. All of these reasons are good and are context-specific. It appears that these reasons are traditional and do not draw implications for future elections. An alternative reason may therefore be additive.

In this brief note, I suggest that the dynamics between the level of urbanization and macroeconomics play a major role in influencing political decision-making. Very often, the free market philosophers like some NPP sympathizers and activists cite illiteracy and tribalism as the major reason why the rural areas usually vote for the NDC.  Timeously, just when I was looking for a reference, John Boadu, the National Organizer of the NPP availed himself opining as cited by Okoampah-Ahoofe (2015) that: “I was thinking that the people of Talensi would look at the maladministration, the incompetence and corruption of this government and vote against them. Impoverish the people, [and] if it is time for election, come and pretend as if you are bringing development to win their votes, which is a sad day for Ghana. My view is for the people of this country to get state institutions to do the right thing” Interesting!!!

I wish to state here that it is this entrenched notion of somehow wrong diagnosis of the factors that determine voting decisions that may cause the NPP the 2016 election. What is my point? A better understanding of the dynamics of the rural/urban divide vis-à-vis the macroeconomics can influence the political fortunes of the NPP and the NDC. The NDC has very often gotten this strategy right. No doubt that most NPP commentators are good at analysing the macroeconomic effects on national development in the media and they expect everyone to care about macroeconomic mismanagement and corruption etc. however, when it comes to winning elections, well-informed strategy is indispensable other than the parading of macroeconomic lessons. Therefore, as cited by Kades (2002) and recently by Arthur Kennedy of the NPP, Tip O’Neal’s adage that “all politics is local” may be true. “In Talensi, campaigning on “Dumsor” and the struggles of the Cedi against the dollar proved to be at best inappropriate” (Kennedy, 2015). However, from O'Neal's adage, the word local is vague and subject to different interpretations and questions like: what is the meaning of local? How do we define the geographical boundaries of local? Is it possible for external factors to influence local politics?

Based on these questions, I contend that it is rather the level of urbanization than just local politics that determine voting trends. This is because the level of urbanization in an area determines which external factors can influence local politics. In other words, if we define local to mean the geographical boundaries of Talensi, then local politics will determine voting trends in so far as Talensi is rural and cut-off from national trending issues like “Dumsor” and the cedi’s depreciation etc. This is where deductive reasoning is constrained because logically, the geographical boundaries of Accra or any of the other cities (urban areas) can also be considered as local, however, it is not only the local politics in Accra that determine voting trends in same. External factors  including international issues like the recent global financial crisis and broad macroeconomic issues like exchange rates fluctuations, high unemployment, high and volatile inflation and interest rates greatly influence the well-being of voters in the urban area (and to a lesser extent voters in the rural area), and thus will influence voting trends greatly. In effect, it rather the degree to which the local economy is integrated into the national economy (typically described as contagion in economics and finance) that determines which factors influence voting decisions. Further explanation to this phenomenon is what this article seeks to provide.

It is also fair to make a comment on Arthur Kennedy’s assertion that: “nearly 6 in 10 of the voters in Talensi rejected the NDC candidate. It means that translating this into Presidential terms, the NDC can be beaten in 2016 in Talensi. This should give a lot of encouragement to the NPP and worry the NDC quite a bit, particularly since this is in the north where they are supposed to be strong”. First, how this statistic was calculated and the inputs used are unknown. Even more important is the fact that this statistic tells us very little about future elections in Talensi just like the claims of the President and the NPP’s Presidential flagbearer: Talensi will predict how 2016 national elections go. From Arthur Kennedy’s article, the benchmark based on which this conclusion was made is also unknown. For this conclusion to hold, a trend analysis is required and it should satisfy the condition that, previous statistics of this nature should be that less than 6 in 10 of voters in Talensi rejected the NDC candidate. That means that the NDC performed better previously compared with the recent by-election. In summary, this conclusion is a complete statement that need justification to be valid and reliable.

To proceed, the definition of macroeconomics is useful to enhancing our understanding of the arguments made in this note. Macroeconomics deal with aggregated indicators of economic growth, prices of goods and services and the factors that affect these parameters, such as inflation, interest rates, exchange rates, unemployment rates etc. These macroeconomic indicates have systematic effects, in that it affect a large portion of the national economy, depending on the degree on integration of the local economies. In well-integrated economies, the effects of macroeconomic indicators and hence contagion (the spreading of an effect) are higher. Just a look at these macroeconomic measures provides some explanation to why despite the profuse critique of the NDC-led government as bad managers of the economy, the party still won the Talensi by-election. So why is it that NDC-led governments are usually characterized for high inflation, astronomical interest rates, high unemployment rate and exchange depreciating, yet the party keeps winning seats in the rural areas? At least, barring all irrationalities such as the popular reference – illiteracy and ethnicity songs sung by the opposition – does bad macroeconomic management influence the political decisions made by the rural folks? Generally yes, but critically no and this is due to the level of urbanization in a country ― the degree to which the local economy is integrated into the broader national economy.

The modernization of space due to urbanization is implicitly linked with the urban economy and subtly to the rural economy. Thus, the rural/urban economy divide is an important consideration usually ignored by most of the social commentators, political analysts and economists. This is why it is important. Every economy must produce the goods and services it needs, and where the economy is unable to produce these goods and services, it must import them if the economy is open.  Within a country, there is a difference between the goods and services consumed by the rural economy and those consumed by the urban economy. When modernity requires the consumption of some goods and services that the local economy does not produce, and in the case of Ghana goods like cars, fashion, building materials like tiles, clinker for cement production and some finishes, amidst macroeconomic fluctuations, the urban economy suffers directly while the effect are slight on the rural economy. This is because the rural economy is largely delinked from the use of these goods and services. I will discuss these goods and services mainly in terms of basic necessities like food, shelter, transportation, education etc., which normally constitute the large proportion of expenditure in low-income countries.

First, most buildings like the “atakwame” buildings in the typical rural areas are built with unstandardized materials like mud for the walls with sticks for reinforcement and thatch for roofing, which are usually free. Very little foreign materials are used and so owners are quite insulated from the effects of building cost inflation. On the other hand, the urban economy must abide by planning standards and building codes that require the use of building materials whose prices are affected by macroeconomic fluctuations.

Second, in a business sense, the rural economy is usually agragrian and relies on unsophisticated farming tools. They barely borrow from financial institutions to buy sophisticated machines like harvesters and planters etc. and hence are rarely affected by the increases in interest rates, which most urban people talk about daily. Third, in terms of food, the agrarian nature of the rural economy - on a subsistence basis – means that people eat what they produce and sell or store the surplus. There are rarely modern food shops like restaurants and fast food joints where one can buy food that has foreign (imported) components and for that matter affected by effects of bad economic management like inflation or exchange rate depreciations. They don’t usually drink sachet water and bottled water, as is the case in urban centres, which are all affected by high inflation.

Fourth, in terms of education, most of the schools in these rural areas are public and usually free at least at the basic level. This is where most of the rural folks end their academic journey, and so they do not feel the pressures of high school fees and costly text books, high transportation cost to school etc., which is a major feature in urban areas. In fact, the major mode of transaction in the rural areas is usually by foot. Apart from walking long distances to the farm and back, fewer distances are covered should the rural folks visit their families and friends due to the compactness of rural settlements. Most often, family members lived in the same house and friends are just nearby, so there is very little need for modern transportation equipment like cars and their associated costs. The nature of rural settlements actually offers cost-saving opportunities. Fifth, on employment, it could be said that there is full employment in the rural settings. Almost everybody has a farm or work in a farm or some other informal job. The so-called high unemployment rate is just an urban phenomenon.

From this brief discussion of the characteristics of the rural and urban economies, it is clear that there is a vast difference in the factors that influence political decisions. It is clear that in the urban areas, national macroeconomic variables like inflation, interest rate and exchange rate movements as well as unemployment may be significant and important. Conversely, in the rural areas, social factors like family ties, ethnicity etc. may be the major determinants of political decisions-making. It is not that the rural folks are irrational, as political activists tend to present to us; rather it is simply information asymmetry and the inefficient transmission of hardship resulting from economic mismanagement to the rural economy due to the disjoint between the rural economy and the urban economy.

Implications of Economy Characteristics for Political Strategy and Campaign

Simply, the rural economy is quite insulating from the macroeconomic effects of economic mismanagement. So, campaigning on economic hardship as a result of high inflation, high interest rates and exchange rates will not fly because the rural folks barely feel the effects of bad economic governance and management. Politicians must focus on the social issues like getting closer to the poor folks and showing them some respect – these are more important. This is where the elites and their parties like the NPP may have some challenges. They should stop talking about macroeconomic mismanagement when they campaign in the rural areas because the rural folks are not even likely to understand all the jargons they sometimes use.   For the government in power, focusing on small infrastructure development in the rural areas has a higher effect on the lives on the rural folks than on urban citizens. This is because; it may be a major solution to a protracted problem and will be novel in the eyes of the rural people. The effect of a small infrastructure project in the urban area is lower because the urban guys have a comparative measure from the developed world and so are not able to appreciate them unless they are equivalent to the infrastructure found in the West. 

The implications are that, if government wants to stay in power for long, it must focus on small infrastructure in the rural areas – build more toilets, provide bole holes, schools, provide basic agricultural tools like machetes, fertilizers etc. In the urban areas as places of modernity, the government must concentrate on building world-class infrastructure and focus on the macroeconomy; reduce inflation, interest rates, and exchange rates, provide jobs etc. This is a simple approach to winning and sustaining power in countries with low urbanization levels, like Ghana. 

In essence, there is a strong link between the level of urbanization in a country and economics as they affect political decision-making. The level of urbanization in a country determines the degree to which all the local economies in are integrated into the broader national economy and hence the speed with which macroeconomic effects affect the lives of the rural economy and people. These factors therefore influence how the ruling government is assessed by the rural folks and then determine the effect of macroeconomic performance on voting. Maybe, we should review the traditional view that illiteracy and tribalism determines voting patterns in some areas like the North!

Kenneth A. Donkor-Hyiaman

Diagnosing the "Dumsor" (Power/Energy) Crisis in Ghana: Who is to Blame - Urban Planning or Engineering? (PART I)

Power outages are not alien to the African continent. In a visit to Lagos in Nigeria, Africa’s most populous country I couldn’t hold back my shock in view of the frequent power outages. Arguably, Africa’s most advanced economy, South Africa is also having its own share of power rationing in recent times. Whiles there are many other African countries in similar quagmire of darkness and managerial inefficiencies, I would like to focus my intellectual energy on the energy/power problem in Ghana, which has gain notoriety as “DUMSOR”. In the abundance of definitions, dumsor has assumed similar and varying meanings. This in my opinion will depend on a person’s location in Ghana and one way to simplify and understand the locational dimension to dumsor is to adopt the Planners’ classification. Planners classify society mainly into two: rural and urban. For communities that have never had electricity (very typical rural areas), dumsor is in no dimension a problem. No one can take away what you do not have. Those in the mainland rural areas may have some consents because their lights are also taken occasionally, and I mean occasionally, at least according to media reportage of power rationing schedules and hearsay evidence. 

Despite my deficiency of knowledge in urban planning, I contend in this article that dumsor is more of an urban problem and for that matter a revelation of the weakness in urban planning systems in Ghana, not merely and engineering phenomenon. It is in fact also a sociological and management problem. However, if I assume that Planners are urban managers, then I dare say that dumsor is first and foremost an urban planning problem and engineering a derivative ― depends on the former. Thus, attempts to blame the engineers solely without throwing the mud at the planners and society may be a wrong attribution and an exercise in futility. In my candid opinion, whiles the energy/power generation function is mainly dependent on the engineers, the management function is multi-dimensional depending on themselves, the planners and the wider society. Thus, irrespective of generation capacity, if urban planning is not taking serious, we may never see the light of sustainable power supply. In this article, I will focus on the role of stakeholders in sustainable infrastructure development. I will start with some definitions and concepts, and facts about current energy/power supply projects in Africa and in Ghana in particular; and examine the role of some of the most important stakeholders.

By definition, the concept of Dumsor is basically an economic disequilibrium problem which result from power shortages – demand of power exceeds supply ― such that power is rationed between households and firms to maximize its use within the constrained framework of economic growth and development. Of the installed capacity of about 2,800 megawatts, we are running just about 1,200 megawatts (MW). According to African Centre for Energy Policy (ACEP), the four major power crises in Ghana occurred during the periods 1982/83, 1997/98, 2002/3, 2006/7 and the fifth one in currency. Our history has shown that from 1985 when the Ghana Generation Planning Study was completed, our country should have increased generation capacity by about 3000MW by the end of 2012; if we were adding about 300 MW of power every three years (ibid.). There are two main components of dumsor: planned power rationing and intermittent outages. It appears to me that the former is not so much a problem as the latter because it disorganises planning and productivity. Although we are made to believe that dumsor is being managed with planned schedules, intermittent outages seem to have made the whole idea useless and ineffective. Intermittent outages are uncontrolled and occur randomly. There are two sides to this: (1) uncertainties and (1) risk. Uncertainty is different from risk (calculated) basically because it cannot be predicted scientifically unless through so magic or prophesy mainly because of the lack of data on its occurrence.

With historical data, we are able to predict trends and any deviation from the expectation is called risk. Risk has direction (either positive or negative) and its magnitude simply measured as the difference between actual value and the expected value (usually the mean). Much of science is based on the availability of data, which facilitates the management of this expected deviation called risk. Consider this example, if you are blind-folded, taken to a dark room for the first time and asked to pick a cup, you are unlikely to locate the cup because you simply don’t know the relative position of the cup. However, if you have been to the same room a number of times and therefore know the relative position of the cup, your chances of picking it even if blind-folded is enhanced. And for many of us, this is what helps us to locate the lamb and candles when we experience dumsor. This is called risk whiles the first example is uncertainty; they are however interchanged loosely even by experts sometimes. In relation to energy/power supply, uncertainty is typified by arts of God including droughts, thunders and lightning. Elements of risk on the other hand include faulty infrastructure and machines, faulty wiring and shocks to supply due to too much pressure on the energy/power stock (what is available) beside others. Solving this particular problem will require huge investment in replacing old-inefficient infrastructure, which government tax revenue is too little to deal with. A reason to investigate proposals for private generation.

Whiles uncertainties are mostly out of the control of man, dumsor, resulting from those elements of risk listed above are due to mismanagement by man. This is where I believe the debate lies and the question of who is to manage begs asking? To some NDC commentators like Sam George, the incompetence of engineers working with the utilities providers including the Volta River Authority, Electricity Company of Ghana and Gridco are to blame. This view seems popular but very limited. I think that other stakeholders, particularly the Urban Planners and consumers including you and me must take the greater blame. We will come back to examine this question in detail after we have looked at investments in energy and power in Ghana.

Africa’s Infrastructure Deficit: Electricity Coverage and Generation Capacity

A critical look at Table 1 below reveal that Africa is substantially behind in the development race not only in relation to the advanced economies but also relative to other low income countries (LICS) outside Africa in terms of electricity coverage and generation capacity. For instance in terms of pave-road density, Africa’s low income countries (LICs) and middle income countries (MICs) fall short by approximately as much as four and two times respectively, compared with other LICs and MICs around the world. However, a striking feature is the total road density benchmark. Africa’s road density is higher and this could be attributed to two main factors – size and approach to development. Africa is relatively bigger – second largest continent - and the horizontal approach to development adopted by most Africa countries requires the construction of more roads to connect human settlements. This is however not an advantage, rather maybe a problem because most of these roads are unpaved and of poor quality. In fact, the horizontal development approach is associated with low population densities and appears inefficiency, expensive and could contribute to the increasing infrastructure deficit. Technically, this embodies the characteristics of what the Planners refer to as suburbanization and exurbanisation. Suburbanization is the increased movement of people/services and industries from the centres of inner urban areas outwards and onto the edges of the built-up area. Exurbanization is the growth of low-density, semi-rural settlements beyond the built-up urban periphery of cities. The most part the people who live in the settlements remain functionally linked to the city.

Table 1: International and Interregional Infrastructure Deficits

Normalized Units	Africa LICs	Other LICs	Africa MICs	Other MICs
Generation capacity	39	326	293	648
Electricity coverage	14	41	37	88
Paved-road density	34	134	284	461
Total road density	150	29	381	106
Normalized Units	ECOWAS	EAC	SADC	CENTRAL
Generation capacity	31	16	176	47
Electricity coverage	18	6	24	21
Paved-road density	38	29	92	4
Total road density	144	362	193	44

Source: Yepes, Pierce and Foster (2008)

Note: Road density is measured in kilometers per 100 square kilometers of arable land; generation capacity in megawatts per million population; and electricity coverage in percentage of population.

LICs: Low Income Countries  

MICs: Middle Income Countries

EAC = East African Community; ECOWAS = Economic Community of West African States; SADC = Southern African Development Community.

Still on table 1, Within the African region, the SADC has proved to be a force and leader in infrastructure development, followed by ECOWAS, EAC and then Central Africa. South Africa, Namibia, Botswana and Lesotho remain the major powerhouses in the SADC region. Most of the countries in the SADC are middle-income countries which may explain their commensurate relatively high investment in infrastructure in the Africa region. Nigeria, Ghana, Liberia and Sierra Leone typify infrastructure investment in the ECOWAS region; while Kenya and Ethiopia account for most infrastructure investment in the EAC. The lag in infrastructure investment in the Central Africa could be attributed to its classification as a fragile region troubled by civil wars coupled with low-income levels.

Developing economies have substantial infrastructure gaps with a perennial estimate at US$31 billion per year^[1]. Underlying the deficit is the fluctuation of investment which dipped by US$50 billion in 2003 after a peak at US$131 billion in 1997, before rising again to $158 billion in 2007^[2]. A number of studies attribute the anomaly to project delays^[3]. The lags in project delivery could lead to significant construction cost escalations, prolonged duration and poor quality of workmanship. Notwithstanding, a report by Deloitte (2013) shows some of the major infrastructure investments in Africa. About 322 ground breaking construction projects each valued at not less than US$50 million each, totalling about US$222,767 million are underway. Energy/Power projects are the major focus of recent investments constituting about 36% of all projects. Ghana and Nigeria are the main infrastructure development hotspots in West Africa. Among Ghana’s energy projects include the Ghana National Gas Project (USD 850 million) and Sunon Asogli Power Plant. Other generation expansion programmes started in 2007 following the power crisis of 2006/2007 with the Bui Hydroelectricity Project, the Tema Thermal Plant 1 and 2, the Mine Reserve Plant, kpone Thermal Plant and the reactivation of the Osagyefo Barge. These projects were expected to add 1100MW of generation capacity to the grid. So far only 375MW has been added. Other emergency projects are expected to generate additional 1,000MW in the short term according to Dr. Kwabena Donkor (Minister of Power). The Volta River Authority, Ghana's main power generator had projected about US$1.5 billion is needed to improve the country's power generation, while President John Dramani Mahama indicated the country required to generate at least 220 megawatts every year to end the crisis.

Conclusion

It is obvious from this brief discussion on infrastructure deficits in Africa and in Ghana that there has been efforts to increase generation capacity since 2007 but insufficient compared with demand. Both supply and demand can be measured in real and nominal terms, but for the purpose of this article, we shall equate real supply to nominal supply and just refer to it as supply. It is important in economic analysis to hold supply constant to make it easier to examine the demand-side effects. The demand problem is best understood by distinguishing between ‘nominal demand’ and ‘real demand’. Given this difference, I contend that the urban planning system contributes immensely to the managerial inefficiencies of our energy/power stock. All other things equal, it could be our lack of understanding about the nature of demand that continues to create the impression that we need more energy. In other words, inefficient management of real demand increases nominal demand and for that matter the need to increase generation capacity to catch up. The equilibrium level of power should be when supply equates real demand, not nominal demand. Thus, the excess over real demand should be understood as a product of inefficiencies in managing demand. In part two of this article, I will focus on the demand-side problem to explain my reason for incriminating the urban planning system in Ghana as to blame for the energy and power crisis, if we are to find the culprits.

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[1] Foster and Briceño-Garmendia (2009)

[2] Platz, 2009; UNECF (2008); Beck et. al. (2007); Martell and Guess (2006); Kehew et. al. (2005)

[3] Fugar and Agyarkwa-Baah (2010); Abd El-Razek, et al. (2008); Sambasivan and Soon (2007)

Growth in Africa: It Can Be Done

BY JEFFREY SACHS

ECONOMIST JEFFREY SACHS HAS BEEN A prominent adviser to governments seeking to reform their economies and raise economic growth. He has also been a critic of the World Bank and the International Monetary Fund (IMF), the international policy organizations that dispense advice and money to struggling countries. Here Sachs discusses how the countries of Africa can escape their continuing poverty.

In the old story, the peasant goes to the priest for advice on saving his dying chickens. The priest recommends prayer, but the chickens continue to die. The priest then recommends music for the chicken coop, but the deaths continue unabated. Pondering again, the priest recommends repainting the chicken coop in bright colors. Finally, all the chickens die. “What a shame,” the priest tells the peasant. “I had so many more good ideas.” Since independence, African countries have looked to donor nations— often their former colonial rulers—and to the international finance institutions for guidance on growth. Indeed, since the onset of the African debt crises of the 1980s, the guidance has become a kind of economic receivership, with the policies of many African nations decided in a seemingly endless cycle of meetings with the IMF, the World Bank, donors, and creditors.

What a shame. So many good ideas, so few results. Output per head fell 0.7 percent between 1978 and 1987, and 0.6 percent during 1987–1994. Some growth is estimated for 1995 but only at 0.6 percent—far below the fastergrowing developing countries. The IMF and World Bank would be absolved of shared responsibility for slow growth if Africa were structurally incapable of growth rates seen in other parts of the world or if the continent’s low growth were an impenetrable mystery. But Africa’s growth rates are not huge mysteries. The evidence on cross-country growth suggests that Africa’s chronically low growth can be explained by standard economic variables linked to identifiable (and remediable) policies. Studies of cross-country growth show that per capita growth is related to:

• the initial income level of the country, with poorer countries tending to grow faster than richer countries; the extent of overall market orientation, including openness to trade, domestic market liberalization, private rather than state ownership, protection of private property rights, and low marginal tax rates;
• the national saving rate, which in turn is strongly affected by the government’s own saving rate; and
•   the geographic and resource structure of the economy.

These four factors can account broadly for Africa’s long-term growth predicament. While it should have grown faster than other developing areas because of relatively low income per head (and hence larger opportunity for “catch-up” growth), Africa grew more slowly. This was mainly because of much higher trade barriers; excessive tax rates; lower saving rates; and adverse structural conditions, including an unusually high incidence of inaccessibility to the sea (15 of 53 countries are landlocked). If the policies are largely to blame, why, then, were they adopted? The historical origins of Africa’s anti market orientation are not hard to discern. After almost a century of colonial depredations, African nations understandably if erroneously viewed open trade and foreign capital as a threat to national sovereignty. As in Sukarno’s Indonesia, Nehru’s India, and Peron’s Argentina, “self sufficiency” and “state leadership,” including state ownership of much of industry, became the guideposts of the economy. As a result, most of Africa went into a largely self-imposed economic exile.

Adam Smith in 1755 famously remarked that “little else is requisite to carry a state to the highest degrees of opulence from the lowest barbarism, but peace, easy taxes, and tolerable administration of justice.” A growth agenda need not be long and complex. Take his points in turn. Peace, of course, is not so easily guaranteed, but the conditions for peace on the continent are better than today’s ghastly headlines would suggest. Several of the large-scale conflicts that have ravaged the continent are over or nearly so. The ongoing disasters, such as in Liberia, Rwanda and Somalia, would be better contained if the West were willing to provide modest support to African based peacekeeping efforts.

“Easy taxes” are well within the ambit of the IMF and World Bank. But here, the IMF stands guilty of neglect, if not malfeasance. African nations need simple, low taxes, with modest revenue targets as a share of GDP. Easy taxes are most essential in international trade, since successful growth will depend, more than anything else, on economic integration with the rest of the world. Africa’s largely self-imposed exile from world markets can end quickly by cutting import tariffs and ending export taxes on agricultural exports. Corporate tax rates should be cut from rates of 40 percent and higher now prevalent in Africa, to rates between 20 percent and 30 percent, as in the outward-oriented East Asian economies. Adam Smith spoke of a “tolerable” administration of justice, not perfect justice. Market liberalization is the primary key to strengthening the rule of law. Free trade, currency convertibility and automatic incorporation of business vastly reduce the scope for official corruption and allow the government to focus on the real public goods—internal public order, the judicial system, basic public health and education, and monetary stability.

All of this is possible only if the government itself has held its own spending to the necessary minimum. The Asian economies show how to function with government spending of 20 percent of GDP or less (China gets by with just 13 percent). Education can usefully absorb around 5 percent of GDP; health, another 3 percent; public administration, 2 percent; the army and police, 3 percent. Government investment spending can be held to 5 percent of GDP but only if the private sector is invited to provide infrastructure in telecommunications, port facilities, and power. This fiscal agenda excludes many popular areas for government spending. There is little room for transfers or social spending beyond education and health (though on my proposals, these would get a hefty 8 percent of GDP). Subsidies to publicly owned companies or marketing boards should be scrapped. Food and housing subsidies for urban workers cannot be financed. And, notably, interest payments on foreign debt are not budgeted for. This is because most bankrupt African states need a fresh start based on deep debt-reduction, which should be implemented in conjunction with far-reaching domestic reforms.

Source: Economist, June 29, 1996, pp. 19–21.

Path Dependence on Colonial Extractions: A Perspective on the High Cost of Housing in Ghana (Part I)

Housing is undoubted more than one third of global wealth. All over the world, meeting the need for housing in adequate terms especially for low and middle-income households have been difficult due to the high cost of housing. In essence, the prices of the houses in the market are beyond the affordability levels of about 90% of households in Ghana, which translates into a housing deficit of about 1.6 million units for a population of about 25 million. The term affordability can be construed in two ways; first in terms of households’ ability to purchase outright with cash from savings and secondly, in terms of being able to service mortgage repayments if such housing finance facility is available. Affordability is mainly a demand-side factor linked to the level of income, which stems the housing financing debate.

This article only discusses the supply-side to housing provision and its possible linkages to colonial legacies. It is widely debated that the colonial history of most developing economies and the adoption of colonial legacies by these countries have had a devastating effect on how far they have reached on the development lather; thus, the concept of colonial extractions and path dependence respectively. So, we trace the colonial legacies of building standards and rent controls in Ghana and attempt to find meaning and linkages with the current high cost of housing in Ghana.

All cities need building standards: London has had them since the early Middle-Ages (1216), when thatched roofs were banned due to the hazard of fire[1]. The link between building standards, housing costs and housing affordability is quite simple. High building standards all things equal are expected to increase the cost of housing, which reduces affordability. In 1947, Britain suddenly and substantially raised its housing standards (the Parker-Morris standards) after the Second World War during the rebuilding process of the country as part of a much larger social reform programme introduced by the British government of 1945-50. These standards were implemented through the Town and Country Planning Act. This was during the “Golden Decades” of growth in Europe which experienced substantial increases in household incomes. In other words, housing affordability increased all things equal, since the rise in income suggested that most people could afford better housing than they had at a premium. Despite the income rise, these new standards were arguably too high as argued.

Subsequently, these new building standards were implemented in the British colonies at a time when the average income in Ghana was about one-twentieth (1/20) of Britain’s. This will undoubtedly increase the cost of housing especially in the urban areas, since the old “atakwame”- mud and thatch buildings were forbidden as the case was in London. Homebuilders were to use sandcrete and concrete blocks which had better resistance to fire and were more durable. The trade-off between using these new materials (in the wake of shortages) and the cost of housing was a compromise on affordability. It wasn’t obvious in the urban centres at the time because these areas were small and mainly occupied by the elite, who had incomes equable to their British counterparts and/or lived in houses provided by the colonial government. In essence, these elites may not have paid out of pocket to enjoy these new houses and hence, didn’t anticipate the impact on the cost of housing of implementing the British Town and Country Planning Act of 1947 in Ghana.

It would be erroneous to suggest that these building standards were forcefully handed over to us by the colonial government upon Independence. This is because, our leaders had the option to accept or reject. Options actually give us the right but not the obligation to enforce these standards, which were perhaps inappropriate for the low level of incomes in Ghana. Adam Smith’s classical invincible hands that worked against cutting our cloth according to our size was the fact that it would have been an act of extraordinary courage and insight for newly installed governments to lower building standards to suit income levels at the time. According to Collier and Venables (2013), “the new African political elite wanted to join modernity not to dilute it. And so Africa was stuck with building regulations which, had they applied to 19th century London, would most probably have frustrated formal housing for ordinary households”. In fact, they were too ambitious for Ghanaian household incomes and in my candid opinion remains so today.

Regulations cover building standards, such as wall thickness, room size, and depth of foundations, and also the minimum size of plot. Now, we have to build largely with foreign materials mainly because our industries cannot efficiently produce them locally. Given the ever macroeconomic instability, underpinned by the cedi’s depreciation in Ghana since the days of Adam, not Adam Smith, the cost of these materials keep increasing although income growth is as sluggish as a snail. Implied from the renowned economist Thomas Malthus, the economic progression of housing cost outpaces the arithmetic increases in income; thus, the reduction in housing affordability and increasing housing deficits in Ghana. So, we have gotten to where we are today because of decisions we made in the past (path dependence) and this limits the opportunities available to us today. Can the elites in government today opt to reduce building standards when such a decision in the minds of many could indicate “backwardness” instead of progress in this times of materialism?

The typical evidence of the impact of these standards in Ghana is our desire to build big houses on large tracts of land, which are expensive and unaffordable. Has it ever occurred to you the origins of these desires, which are typically not indigenous to Ghanaian rural folks? Deductively, most of these were inherited from the British building standards as determined by the Town and Country Planning Act of 1947; contained and shared by the colonial elites who worked for the British government. But shouldn’t we also abandon such desires even now that our teachers have long abandon such desires and adherence to such draconian building practices? In fact, the British along the line reduced those building standards in the UK because of this same housing affordability problems they perpetuated. In effect, these building standards have beyond the economic impacts, given us an insatiable social lifestyle which is only sustainable in luxury. However, housing is first and foremost a necessity, not an ostentatious good (Luxury). Can we choose to meet necessity rather than luxury and social status? Maybe not.

Since the adoption of capitalist principles, which required a total shift from government provision of housing to market provision, where governments are expected to play the role of facilitators and enablers, housing affordability has even become more of a problem than HIV/AIDS in Ghana. Going forward, we need to delink the connection between the luxury type of building materials we use and building styles we design as well as the building standards that specify and enforce them. Perhaps, utilizing the vertical space in the form of flats, terrace buildings and condominiums may be well suited as a cost-cutting tool; but this requires a lot of research and social engineering.

The direct impact of high cost of building materials resulting from these high building standards could be mitigated by finding or developing building materials whose prices do not correlate with foreign exchange fluctuations. And this reminds me of the many research works conducted by the College of Architecture and Planning of the KNUST that lie on dusty shelves unused. During an exhibition two years ago in the same institution, laterite blocks were developed but up to now has had little to no impact in the market. By this approaches, we would be able to reduce the compounding impact of an unstable macroeconomy on the cost of building materials, labour cost and the ultimate housing cost. Further, reducing our room sizes and plot sizes by reforming our Building Codes and Standards could be cost-cutting, which will lever affordability. After all, we still enjoy the small rooms in the UK; don’t we? Some may typically qualify as store rooms as per Ghanaian standards.

However, I am not suggesting this on the back of weak research and no evidence-based. I rather believe that the starting point is to commission a comprehensive research on the impact of Building standards on housing cost and affordability in Ghana. Such evidence would be instructive on where the latitude lies for reducing some of the luxury building standards to attune to “necessary” standards. In summary, our colonial legacies and extractions might have influenced housing cost and affordability; perhaps negatively and continues to do so today – path dependence.

Kenneth Donkor-Hyiaman

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[1] Collier and Venables (2013)