Ghana Poverty Indicators

• Number of rural poor (million) (approximate) 6.5
• Poor as % of total rural population, 200-2001 49.9
• Population living below US$1 a day (%), 1998-99 44.8
• Population living below US$2 a day (%), 1998-99 78.5
• Population living below the national poverty line (%), 1998-99/2004 39.5 / 39.7
• Share of poorest 20% in national income or consumption (%), 1999 5.6

Source: UNDP

If you care about the rural poor, you often find yourself migrating between the following emotions: despair, sadness, determination, frustration and back to despair. Why won’t the banks finance any (decent sized sustainable) projects in the rural areas? Because there are not enough people left there with enough disposable income to provide a viable market- is the long winded answer you typically get. What about tax incentive given by the government for projects outside the district capitals? Well you first have to have strong cash flows before thinking about taxes. So are the rural folk doomed to poverty forever? Well we don’t have an answer for that, but we are in banking to create shareholder value. We will access viability of projects based mainly on returns and risk. But the quality of the investment and good marketing will drive the market there? Well why don’t you just put it in Accra – It makes everybody’s life easier.

Does anybody actually believe that there will come a time in Ghana (or Africa) where the average rural dweller will have a decent standard of living approaching that of the average city dweller? All poverty indicators show a marked difference between the villagers’ life and the city dweller – including: disposable income, health, access to good road, finance, schools, and even life expectancy!!! Check the World Bank statistics on rural poverty in Ghana over the last 5 years- and get a reality check. It is getting worse, and the gap between the rural poor and the cities are getting wider!

Why is that the case? Is it a natural consequence of life or is the situation created by the leaders of the Ghanaian (and African) society – those who control the public cash from taxes etc, and those who control investment cash at the banks?

Is there an equitable spend of the national budget on social facilities (hospitals, schools, roads, etc) to reach all the citizenry of the country? Maybe they are doing their best but it’s not making a big impact to the rural poor. In other words, does one have to move to Accra, Kumasi, Takoradi, or a regional capital in order to access good hospitals (and every other infrastructure you can think about)? Then why does one pay the same income tax irrespective of where you stay? If everybody decided one day – “enough of this rubbish, we also want good schools for our children, access to good health care, drive on good roads, etc, we’ll move to the cities and squat” , what would happen to the country as a whole?

The average Ghanaian has more common sense than that, fortunately, and let’s say one would want to stay in the rural area, but change his/her circumstance and not become a complaining victim, but rather an employer to change other people’s life. What are the practical obstacles?

Banks are not committed to rural development – period! Banks access projects based on financial viability and their criteria doesn’t give rural projects any advantages. If you don’t believe me, look at this statistics. Over 80% of all new projects (with FDI participation) in Ghana happen in Accra - Tema area. If you think rural folk don’t generate any business ideas and don’t approach the bank, think again. Many people are urged to simply change the location of the same original business plan to access the bigger city market, and the same banks finance them. This is in spite of the generous tax holidays granted by the Government for projects outside the district capitals. The overarching difference between Accra and other parts of Ghana is Market, buying power and disposable income. Is it a chicken and egg situation? You bet. Many qualified and competent people work in Accra and they provide a good market for almost any project you can think of. But they located in Accra because that’s where the jobs are. Which one starts first? At this rate the trend will continue and the gap will keep on getting wider.

Presently, the only businesses that start outside district capitals are mines (because God loves both city and village dwellers and therefore spreads the metals where He chooses), timber-based companies, and Agric (and even here all processing sadly still occurs mainly in the cities. Of course the usual answer is that it is economical to process fruits and vegetables close to the market, the Ports, airport etc).

So what choices do you have as a rural dweller? At the moment, I daresay over 80% of all rural born people with University degrees (or those who can afford it) move to cities and regional capitals in order to give their families a better life (health schools etc). Only the poor, mainly subsistence farmers are left behind. Of course the exception is the rich cocoa farmers, merchants etc who choose to stay in the villages – even though these account for less than 10 percent of rural folk. In some cases, over half of the spending budget of poor rural families (with rich relatives – mainly children) is remitted from big cities or abroad.

Why should nurses, teachers and self employed rural dwellers pay the same proportion of their salaries as income tax, as compared to city dwellers? The Ghana Investment Promotion Council has published a wide ranging incentive scheme for businesses outside the district capitals. But sadly, from their own compiled statistics of new businesses (many of which are substantially financed by the banks); the enticements are not attractive enough for the banks to finance rural projects. The market is simply not there, is one of the commonest excuses given for refusal to finance rural projects. Of course markets can be created, and don’t necessarily have to be where the goods or services are produced.

The only way to empower rural people, and break the cycle of poverty, is to make it easier to establish businesses there. Businesses, including properly invested farming with all the necessary systems and marketing. It is no coincidence that subsistence farmers account for the majority of the poorest of the poor in Ghana (www.Ruralpoverty.com). The current tax concessions are definitely not working and the statistics of new business start-ups outside district capitals are dismal. Any effort to spread the wealth across the length and breadth of the country is both smart and economically wise for Government, banks and all concerned citizens. My father used to say, it’s in your own interest as a rich man to help your poor next-door neighbours to become rich.

Laudable ideas like the recently inaugurated venture capital companies will go some way. But most of that money will end up in city businesses. We need funds (government or private) specifically for rural development. You could say that’s what rural banks were created for. Well, rural banks simply don’t have that kind of money.

This is what happens. Banks give special privileges to funding viable rural businesses (viable, but less cash flows than in the cities). Banks receive tax concessions from Government for every rural business funded. Rural business takes off and employs would-be city dwellers. Social infrastructure in cities is less exhausted. More of the vast natural resources in the rural areas are exploited by inhabitants, for more businesses. The whole country is working! In fact in some places, special funds and required expertise are proactively given to prospective rural investors to entice them invest there. I applaud the concessions and help given to Cocoa farmers.

I don’t pretend to have all the answers. But I know first hand, that banks look at rural projects with the same kind of prejudice with which some European and American investors look at African projects. Mainly because of ignorance of the kind of margins that could be made, if you are daring enough. And I also know that without deliberate measures (beyond tax concessions for investors), the growth in the economy will not necessarily be felt in the rural areas of the country.