Import Duties

Introduction

In 2008 the Kufuor administration scrapped certain duties on the importation of rice and other foodstuff to help consumers in Ghana amidst the world food crisis.

When the NDC Mills led administration announced the 2010 budget the 20 percent tariff was re-introduced. The motivation for this was given by the Finance Minister with the following words:

“The global conditions that necessitated the removal of those duties have abated and government finds it pertinent to restore the duties in order to encourage local production, create jobs and conserve foreign exchange. This development is not just welcome news and an incentive to our local farmers but also fits into the social democratic values of this government.” Statement from the Finance Ministry. Daily Graphic 23 December 2009

What are and will the implications be for the NDC government? We analyse the issue here and would like to hear your view.

Have the global conditions really abated?

We are not sure where the Honourable Minister got his information from. About one month prior to his announcement the World Bank issued a warning as follows:

Food Crisis May Repeat, Warn Leaders in Global Hunger Fight

In addition various reports were issued that despite the scrapping of duties in 2008 food prices were still escalating. Fuel prices might have come down and the availability of rice might have improved, but food prices did not come down. An analysis of certain imported rice stock shows that prices in fact increased since the scrapping of duties by between 10 and 33 percent!

Why then would the NDC government lie about this issue?

Has the duty reinstatement encouraged local production?

There are many theories about the protection of local production by means of either import duties or subsidies. The developed countries use subsidies extensively and many economists believe that that is distorting the world market. In Ghana’s case one has to look at the state of local rice production.

Demand and Supply

Although a lot of question marks are placed on the reliability of agricultural statistics in Ghana, it is estimated that local production only caters for about 30 percent of the consumption of approximately 500,000 metric ton of rice. The same figures were quoted in 2000. This means that local rice production has not improved despite high import duties. As will be shown, high import duties have in fact been part of the problem.

What does this tell us? Rice importation is an essential part of Ghana’s food security for now. If rice importation does not take place, Ghana will have serious imbalances in the availability of one of its staple foods. The problem is not legally imported rice, but rather smuggled rice due to high import duties (see separate analysis).

Inherent Rice Production Problems

The only real way to increase local rice production is for the government to address the factors that prohibits the growth of the industry. These include the following:

• Low quality of locally produced rice. If consumers are given the choice between low quality locally produced rice and high quality imported rice, they will choose the latter.
• Low yields. This is partly due to unprofessional farming practises and or the incorrect or insufficient application of fertilisers.
• Irrigation. Recent visits to the Afife rice project shows that through governmental neglect the production of rice from the project will be at its lowest level ever in 2010.
• Mechanisation. The capacity of rice production will never increase if the ground preparation, planting and harvesting is left to manual labour.

If these fundamental issues are not addressed, local production as percentage of consumption will in fact decrease.

Conclusion

It is very clear that high import duties will not promote or increase local production. The substantive issues need to be addressed.

Have New Jobs Been Created?

If the production of rice has not (and will not) be increased, logic says that new jobs will not be created. In fact, the Ministry of Food and Agriculture recently claimed that block farming initiatives have created 47,000 new jobs. Independent visits to block farms confirmed that these farms are being worked by existing farmers – not new farmers. The creation of new jobs will only take place if inherent agricultural problems can be resolved – higher import duties will not facilitate this.

Have Foreign Reserves Been Conserved?

It has indeed not been conserved. Indications are that more foreign reserves may be required due to the major problems farmers are experiencing. The block farmers are complaining bitterly that for two years the promised support in terms of fertilisers and mechanical support arrived too late and that it will in fact impact negatively on yields. This in turn indicates that a shortage may be experienced that will necessitate higher imports.

In Line With the Social Democratic Values of the NDC

This argument is probably the biggest flaw in the government’s argument. Higher import duties per se will not increase local production. Higher duties, however, have caused a further shock for millions of Ghanaians who are battling to make ends meet. They are not to be blamed for local production inefficiencies but are made to pay the price.

Conclusion

The NDC administration under Mills have flawed terribly with this bad policy decision in 2010. As Alex Bossman Baafi said:

“As a social democratic government, you need to have a second look at this particular intervention, for, it goes a long way to negate your promised social democratic governance agenda…”

It will be interesting to see if the NDC government will repeat this mistake in the 2011 budget and risk the wrath of Ghanaians in 2012. As the saying goes, it is not one big mistake that may result in the loss of power, but many small insensitive ones.