The major economies of the world plus the BRIC countries (ie Brazil, Russia, India and China) and the emerging economies of Asia and South America rushed to implement so called stimulus packages. Central banks reduced bench mark interest rates sharply. The primary objective was to boost demand and get factories back at work and unemployed back into jobs. This is the classic Keynesian approach to a downturn. The early signs point to a strong possibility of success.
We in Ghana are neither developed nor a BRIC country. We are not even an emerging market. At best we are in the ranks of the pre-emerging group. Thus the solution being used in the countries mentioned above may or may not be suitable for us. The more fundamental issue, however, is to consider what the effect of the Global recession has been on our economy and our businesses. We need to establish this effect clearly before we can talk about business re-engineering.
In 2008 our economy grew over 7%, a rate unmatched in the history of Ghana since the commodity booms of the second world war and the period following. Detailed industrial statistics are hard to find but unconfirmed evidence suggests that some of the large companies such as Unilever, PZ, Ghacem the Gold Mines etc had near record performances. The provisional figures from the budget statement indicate growth rates of 4.9% for agriculture, 8.3% for industry and 6.9% for services.
However this is only part of the story. The SME sector had several near collapse cases caused by unfair competition, high interest rates and the other challenges outlined in the AGI business climate survey. In addition some exports such as bauxite, exports under AGOA, and manufactured exports were severely affected.
In addition the index of the Ghana Stock Exchange, a very good indication of overall corporate performance has declined by about 50%. The clear conclusion from all this is that in areas where our economy is linked to the global market, the effects of the recession are impacting directly on Ghana. However as a country Ghana is not in recession. The logical questions are: should Ghana also introduce a stimulus package similar to what is being done elsewhere. Do we need business re-engineering? Before attempting a direct answer, let us compare a developing country with a developed country in recession.
In both cases there is relatively high unemployment, which results in an absence of demand and thus no incentive to produce or manufacture or offer services, and thus the unemployment remains high. Seen in this manner, it is obvious that even without a local recession, a developing country could benefit from some of the measures that a developed country in recession uses. In that sense a developing country is similar to a developed country in recession.
A stimulus package restores or boosts demand which producers rush to meet. Idle factories quickly return to work. In the process they employ more and in paying them continue to boost demand. A growth cycle is thus restored.
The vital difference in a developing country like Ghana, is the fact that boosting demand may not necessarily result in increased local production. This is because idle factories are few and experience in organizing production is severely limited. Imports may then easily come in. Increased employment will not be generated and production (and growth) cannot be sustained. The design of a stimulus package is therefore of critical importance if it is to succeed.
My first suggestion is for policy makers to aim at stimulating production through deliberate policy interventions.
Such stimulation of production can be done through a variety of measures but there is an important rider to this: The stimulus of production must be designed to minimize market distortion. The biggest business in Ghana is agriculture. Let me therefore illustrate with an example from the fishing industry.
The supply of subsidized pre-mixed fuel has over the years become an important part of the production stimulus for fishing. The question policy makers must ask is whether it has succeeded in stimulating the fishing industry in Ghana. The honest answer is that it has not helped much. On the contrary it has become an avenue for corruption as the subsidized fuel gets sold on the open market at the higher price. The market is distorted as anyone obtaining pre-mixed fuel at the subsidized price can make easy money selling it on the open market, and many do this. Even as a poverty alleviation measure, subsidized pre-mixed fuel is not efficient as the administrative cost of ensuring that the poor fisherman who deserves it, obtains it is cumbersome.
It is about time we stopped subsidizing pre-mixed fuel.
Instead of the inefficient, cumbersome, corruption prone measure, a less market distorting measure would be to build and offer subsidized or free cold storage facilities for fishermen. This would ensure that they actually work and catch fish to benefit. It would remove the incentive to just sell the subsidized fuel on the open market and pocket the difference. It would also release those who do not have the skills or inclination to fish from the temptation of passing themselves off as fisher folk just to obtain the subsidized product for resale.
There are many more examples of such market distorting incentives which do not work as expected. These incentives do not increase production.
A global recession offers an opportunity to review and redesign all these incentives in order to achieve the original objectives. It is a time when conventional economic thinking is challenged and new approaches to the structural transformation in a developing country economy is likely to be allowed to happen. Kofi Annan has called the global financial crisis an opportunity not to be wasted by developing countries.
My point is that business re-engineering in a global recession requires a partnership between the public sector and the private sector as a start. All around the world, governments are looking into the detailed operations of business concerns and discussing ways in which their competitive advantages can be restored. (In the United States $70billion of stimulus money went to into a business lending initiative for SMEs and in China, the government selected ten industries for technology advancement programme).
At the individual corporate level, this recession is an opportunity to restructure and review operating costs. Whether the full effect of the recession is being felt locally now or merely delayed, this is a good reason for companies to take a critical look at their cost structures with a view to eliminate waste and improve efficiency. As demand falls and markets vanish, the company should aim at consolidating and preserving market share by passing on cost savings to customers.
It is also a time to seek corporate amalgamations, mergers, takeovers and acquisitions in order to improve efficiency. Synergies must be sought and harnessed. Sentimental pseudo nationalist, emotional arguments should be replaced with prudent cost benefit analysis.
A global recession is an opportunity to rethink conventional wisdom at all levels. It is time for the public and private sectors to come together in a true partnership for national prosperity. In the major economies governments are bailing out financial institution and manufacturers. This is a time to bring the best brains of the nation forward in evolving and executing strategies.
Business re-engineering in a recession is as dependent on government policy as on the management skills of corporate. Indeed with the right approach and partnership, the re-engineering will ensure not just business survival but a new paradigm for faster growth than before.
"Our mission is to make a courageous, imaginative and constructive contribution to nation-building and development, with the purpose of enhancing the life of every individual citizen" - J.B Danquah
