Bright Simons: The shadowy forces haunting Ghanaian industrialisation

On August 14, 2023, this author received an interesting message from the Fourth Estate, a brilliant project by the Media Foundation for West Africa aimed at enhancing the capacity of journalists in Ghana to undertake socially impactful investigative journalism. At inception, the Fourth Estate was helmed by an award-winning journalist currently on a Nieman Fellowship at Harvard.

Quite apart from the fact that the Fourth Estate is a media organisation one usually takes seriously, many of the causes taken up by activist think tanks like ACEP and IMANI, with which this author is affiliated, often begin as inquiries by journalists seeking research support or as leaks by unhappy insiders unable to go public for fear of retribution.

On this occasion, however, the Fourth Estate wasn’t really looking for research support. They just wanted a quote. They had been investigating a tax exemption package granted a hotel project under Ghana’s 1 District 1 Factory (1D1F) project, and were sure of their grounds but needed someone in the policy space to underscore a point or two in the classic mode of quality journalism.


This author thus faithfully recited the conventional wisdom against the practice of government officials and state institutions taking policies enacted with very noble objectives and bastardising them to suit narrow, parochial, interests. Why should a hotel be granted tax exemptions through a policy meant to industrialise a country? And a very high-end hotel in one of the poshest enclaves in Accra – the Airport Residential Area – saturated with high-end hotels at that?

Incoherent policy execution with wasteful implications is of course a pet subject of this author as any frequent reader of this blog knows. High-end hotels as a special case of this phenomenon pops up every now and then, like bad jokes in a dry tale. Not too long ago, there was a bit of confusion when it came out that the Ghana Infrastructure Investment Fund (GIIF) had pumped millions into a luxury hotel and apartment complex – under the Pullman brand – in the same Airport Residential Area and that the project had stalled with little prospect of recovery of funds within the expected timeframe.


Once again, why on Earth would a country with massive infrastructure deficits in essential areas like water treatment, affordable power provision, arterial road networks etc. spend funds from one of its modest Sovereign Wealth Funds on luxury hotels? Matters would have been left at lamenting policy incoherence with the usual dark undertones of cronyism had the Fourth Estate inquiry not carried an interesting twist: the journalists weren’t even sure that the beneficiary of the 1D1F-based tax exemption, 4-Mac Limited, existed. They couldn’t find any details in Ghana’s corporate register on the entity, nor of any entity bearing the name of the hotel it is building, for which reason it has been deemed worthy of ~$3.919 million (nearly 50 million GHS) in tax exemptions.

When the first part of the Fourth Estate’s piece came out, the shady identity element was so intriguing that this author considered digging into the affair but, alas, a full plate did not allow it. In the second part, however, there was a reference to his suggestion of the possibility of the name used in the Parliamentary proceedings being a “trading” rather than the legally incorporated name, a point disputed by another analyst. So, it was time to dig.

The digging continues, but the mound of dirt piling up is not pretty. First, to clear the issue of the non-existence of the entity. As suspected, it does exist. Just that the Parliamentary records misspelt the name with an extraneous hyphen guaranteeing the kind of results the Fourth Estate got.

4-Mac is actually just “4 Mac”. It is fully owned by a certain Jeffery Amponsah. The only other Director is Vida Amankwah. Mr Amponsah has worked closely on the hotel project with Prince Damptey, the sole shareholder of a kind of general-purpose consultancy called, Pridam Investments. Pridam also has only two Directors, Mr. Damptey and Ms. Yvonne Koufie. Messrs Damptey and Amponsah appear to be the driving minds behind the Le Meridien Hotel project, the beneficiary of the sweetheart ~$4 million tax exemption granted by the ever-beneficent Parliament of Ghana.

Le Meridien’s entry into the posher rosters of high-end hotels in Ghana has been celebrated for a while now. Originally billed to open in 2021, the 160-room hotel is now two years over schedule, with substantial works still remaining, and more delays expected. It has become part of a raft of premium hotel properties, representing more than 2000 rooms in capacity, clustered around the same vicinity of Accra. The Hilton. The Protea. The Pullman. The Southern Sun etc. All are heavily delayed.

That there is an oversupply of high-end hotels in Accra already, and an even worse oversupply in the pipeline, is reflected in falling revenue per room numbers across the hotel industry in Accra by more than 50% in recent years even as everyone universally complains about high prices and underwhelming services.

Clearly, what is needed is additional capacity in more medium-range facilities to improve the country’s attractiveness to a wider range of tourists and to exert true competitive pressure on prices in order to boost volumes, which would in turn lift occupancy rates and thus shave off any adverse impact from competition on revenues. Ghana’s own strategic tourism plan sees things this way. And, yet, here is the government breezily dispensing additional incentives for the building of high-end hotels. And a pliant Parliament rubberstamping each such request brought before it. But back to 4 Mac/4-Mac.

The founder and owner of 4 Mac – the entity at the centre of the Fourth Estate investigation – is not one of the famous entrepreneurs hogging the limelight on tabloid pages in Ghana. But he is a wizened operator, a crawler in the dark underbelly of public sector contracting in Ghana. In addition to 4 Mac, he also owns Byes and Ways. Both 4 Mac and Byes and Ways are based in Ghana’s second city of Kumasi, away from the prying eyes and wagging tongues of Accra. Both entities are regularly in conflict with Ghana’s Auditor General.

In 2016, the Auditor General insisted that it could not find evidence by way of documentation, like waybills and invoices, to support liabilities purportedly owed to 4 Mac to the tune of 21.7 million GHS (local Ghanaian currency units) in connection with a 50.24 million GHS (~$13 million then) contract and was therefore rejecting them. The management of the Ministry of Energy, which had issued the said contract for 4 Mac to supply electricity poles, insisted that notwithstanding the lack of documentation, the liabilities were not only valid but were actually 10 million GHS higher.

In the same year, state auditors flagged a purported debt of ~822,000 GHS arising from what Byes & Ways, the sister company of 4 Mac, was said to be representing as exchange rate losses due to the time gap between contracting and execution. Except that the ~8.3 million GHS contract for wooden poles had been a Cedi (local currency) contract so any talk of forex losses was pure artifice. Having been caught out so glaringly, the Ministry’s mandarins backed down.

In 2018, things came to a head when state auditors once again flagged a 28.4 million GHS debt attributed to Byes & Ways by the Energy Ministry. The auditors had, after some sleuthing, discovered that about 90% of the supposedly outstanding amount was actually effected in December 2016 and, thus, the Energy Ministry’s demand for funds from the Finance Ministry in June 2017 to clear the said debt was pure contrivance. The issue having blown over into the press, the owner of Byes & Ways/4 Mac made a ballistic entry to deny his company’s awareness of these claims being made on their behalf. Like a martyr astride a cross, he demanded a judicial inquest. Needless to say, the matter died a quiet death.

Another fascinating episode involving the 4 Mac crew is the intriguing exchange of 1.1 acres of highly valuable land in the plush Roman Ridge area belonging to the Ghana Library Authority for 1.068 acres of land of far lower pedigree in the Oyarifa area belonging to Byes & Ways. Crude estimates of the difference in value placed the loss to the state in the region of more than 2 million dollars. After much huffing and puffing, that matter also lost steam.

All the above points to a worrisome intertwining of narrow private commercial interests and public sector contracting characterising deals involving the 4 Mac – Byes & Ways twin-entity.

Admittedly, seeing a long list of controversies around public money linked to a company that has been granted an incongruous benefit by Parliament at the expense of the state would bias even the most objective reviewer, but we were determined to examine the tax exemptions granted 4 Mac on their merits.

Unfortunately, it is hard. The justifications provided by the Parliamentary Committee for the ~$4 million were just plain ridiculous. Their sheer incongruity makes it impossible, however much one tries, to grant the decision any merit at all. For the reader’s benefit, the entire text is reproduced below.


In short, Parliament has decided to grant a massive tax exemption because the hotel is a “strategic investment”. But why? What makes it strategic? Absolutely nothing was said to validate the claim, except some half-hearted comments about employment generation in another part of the record of proceedings. By the job creation measure, literally every kiosk, okro farm, washing bay and petrol station set up anywhere in Ghana is a “strategic investment” on some defensible scale.

Of the list of 1297 items to be imported by 4 Mac in financial year 2022/2023, for which duty and taxes have been waived by Parliament, our analysis suggest that more than 70% probably shouldn’t be imported by any entity truly desiring to strategically create jobs in Ghana. They include pantry mops, fly killers, kitchen cabinets, glass doors, wall shelves, hand basins, sinks, Mosaic tiles, porcelain wares, etc. etc.


Think about it. The Parliament of Ghana grants tax waivers of ~$4 million to a company under the country’s flagship industrialisation policy (1D1F) so that they can import sliding aluminium doors, handrails, tiles, wallpaper and speciality flooring.

Not to forget toilet roll holders and soap dispensers!


What is even more bizarre about the entire spectacle is the timing. The request for tax waiver was presented to Parliament in July 2022. Throughout the period it was traversing the bureaucracy there, the country was in the throes of a debilitating balance of payments crisis partly occasioned by the scarcity of dollars. The government, furthermore, was in tough negotiations with the IMF, during which, for the umpteenth time, tax exemptions and other anti-revenue practices were under discussion. Yet, here was the national Parliament, at the instigation of the Ministry of Finance, granting tax waivers so that an aspiring hotelier could import “back of house shower enclosures” with scarce dollars without paying duty.

Meanwhile, the government was promising things like the below to the IMF.


What is the point, seriously, of all this report-publishing and tap-dancing around the issue in successive IMF programs if no one really intends to stop abusing the use of tax waiver provisions to enrich favoured business people?

This is what the IMF said on June 30th, 2015, when its team visited Ghana to review the country’s previous program:

The team notes, however, that more needs to be done to further enhance tax administration and eliminate tax exemptions to improve the revenue performance over the medium term.

This is what it said on 10th February 2017 during another mission:

The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.

This is what it said on 19th July 2021:

Measures that could be implemented relatively quickly include rationalizing VAT and import duty
exemptions

And:

In the meantime, the authorities could proceed to remove non-standard statutory VAT and import duty exemptions, particularly those that disproportionately benefit higher-income groups

The reader would no doubt have guessed that this is a song that has been played from the remotest antiquity. Here is the IMF again on 14th April 1999:

Revenue is projected to rise to almost 19 per cent of GDP, driven by the curtailment of tax exemptions and improvements in administration, including the introduction of the VAT and the taxpayer identification system.

The reader must be getting the picture by now. But even assuming that politicians in Accra never really take these commitments seriously, it is still valid to ask if the IMF itself does.

Well, there is something even more pernicious at work. The government has indeed been removing tax exemptions. Just not from favoured business people. For ordinary entrepreneurs and other business actors, however, the IMF commitments are indeed relied upon to deny tax incentives critical to their ability to grow, all the better to create room for favourites and cronies to benefit.

For example, the Ghanaian Chamber of Agribusiness blames the refusal of the authorities to grant tax-based incentives for critical imported inputs and machinery for declining productivity in the agro-processing arena, notwithstanding agro-processing being a clear 1 District 1 Factory priority.

Farm mechanisation inputs and industrial juicing equipment are stuck at the ports even as rich wannabe hoteliers get millions of dollars in tax exemptions to cart in their precious porcelain massage beds from Milano.

Such genius moves! Such impeccable style!

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Source: myjoyonline.com