Two Economic Repositioning Strategies (BROT AND GSEP) To Transform The Economy.
‘Economic development and poverty alleviation are so complicated that I don’t think there’s a single background or a single discipline that is sufficient to tackle these great human problems,’’ quoting Jim Yong Kim.
The kind of economic development and transformation we want to see this new government delivered to us is not going to come on a silver platter or over night. It requires painstaking measures. We must also appreciate that change in itself, will not happen by mere wishing it except we all put in something extra ordinary before we can experience that level of change we crave for.
As responsible citizens, we have important roles to play to transform our country’s economic fortune. We should manage our high expectations of this government in their first year in the office in order not to stampede them to take hasty decision while waiting to see how they deliver on their electioneering promises. Confucius, the important Chinese philosopher, said: “The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools.” A very famous African adage says ‘A child who is carried on the back will not know how far the journey is’. We must support the new administration not only by being law abiding but with our excellent ideas that can change things in all direction.
This brings me to the issue of strategies for economic repositioning that this new Government led by President Nana Darkwa Akufo Addo must give consideration to ensure that the people have some good things to start looking forward to. This article is a value addition to whatever plans and programmes our new administration is targeting to bring out to change lives and economy well being of Ghanaians. The reason for this article is to assist this government to hit the ground running within the first year so that the people can feel the positive impact of change in their socio-economic situation.
We are proposing these two key economic repositioning strategies to the President Nana Ado led administration to help them turn the economy around within the shortest possible time. Both strategies focus on economic growth, creating employment opportunities and empowerment of the people of the country. This is also going to complement the new administration agenda of one district one factory which was well articulated during their campaign period.
What name can we give to this uncommon economic programme that has potential to turn the entire economic around within two to three years? Some people may want to call it nationalization of private industries; some may wish to refer to it as state grant or bailout programme for troubled local companies, others may look at it as Public Private Partnership (PPP) idea to jump start the economy. Unusual problems require unusual approach. Albert Einstein said ‘we cannot solve our problems with the same thinking we used when we created them.’ In accounting, they call it corporate reconstruction and reorganization. “Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational or other structures of a company for the purpose of making it more profitable, or better organized for its present needs.“
We want to term it Buy Restructure Operate and Transfer (BROT). It is a reverse of the widely known Built Operate and Transfer (BOT) in PPP arrangements. In this case, it is government that takes the initiative or the lead to turn things around in the economy. The focus is more on empowering the local businesses to be able to provide the needed stability and support for the economy in the face of dwindling foreign direct investment which was reported to have dropped by about 70 to 80% in the last few years.
This article focus on businesses that are struggling to raise needed capital, as a result of high lending rates in the country, the cost of electricity and other costs of doing business in the country which has affected their fortune and turned once viable businesses to struggling or dead business. The second category are those who ran into problem as a result of lack of expertise in running a growing business not having the required quality management to sustain the going concern of those businesses. We should remember that money plus brain is what guarantees growth and profitability of a business.
Why do we want to focus on Reconstruction and Reorganization of struggling business?
There are many companies in this category that needs this type of life line to bounce back. Secondly, there is willing sellers and government should as a matter of necessity play the role of a ready buyer.
The opportunity of empowering local businesses, make them competitive in the Ghanaian business space. Create more employment opportunities for the people and solve the lingering unemployment problem in the country; internally generated revenue of government will certainly improve within the shortest possible time from various taxes on staff and those restructured businesses, Stability of the local currency, less friction between foreign business owners and Ghanaians businesses in the retail space.
Finally, instead of spending so much effort and money in trying to start new businesses, overcoming tedious business registration bottlenecks. Building new structures from the scratch and setting up management teams and other requirements that may take some length of time with BROT approach, most of these challenges become somewhat less important.
What to do to revive the BROT company and how do we make it profitable within the shortest possible time.
Processes outlined for Buy Restructure Operate Transfer (BROT). The government should identify struggling businesses in any of the preferred sectors of the economy manufacturing, agriculture, oil and gas or service sector. This must be done with the help of selected consultants with proven track records.
Discuss the buy option with the owners if they are willing to offload the business to government for restructuring, repositioning and profitable management for a specified period of time before turning back the business to the original owners after government must have realized its investment in the business or with a new structured of ownership arrangement between both parties (Government and Original Owners) depending on the volume of investment of both parties when the agreement period runs out.
Target businesses for BROT initiative must be employing not less than 200 or more people before entering into recession or inactivity.
Target business must be in need of capital injection or fresh management to qualify for consideration.
There must be open invitation or publications for owners of such ‘dead or near dead’ business to apply or express interest to offload such business to government for a period. This must be done under a signed MoU between both parties where the state will demonstrate intention to acquire such companies with the aim of turning it around to a profitable venture.
A letter from two guarantors who should be a senior public servant with the EOS (End of Service) benefit or gratuity expectation from the government not less than GH 20,000.00. This must also be verified by the bank from the guarantor’s employer.
Those companies that meet terms and conditions of acquisition or buy out shall be contracted out to business or management consultants appointed by the government specifically for this purpose to turn things around within a defined period of time based on economic viability and technical feasibility reports initially submitted by the same consultant for each company government acquires. It must be emphasized that there is no financial acquisition burden on the government at the point of buy out. The financial commitment on the part of government is the capital ejection to turn the business around into a profit making venture. A minimum of Gh500m may be set aside for this programme in the budget or through Open Market Operations. All outstanding liabilities in the affected company’s books must be suspended pending full restructuring and the business returned back to the original owner.
Successful Consultant shall submit turn around requirements, programme and time frame to the government for approval through the supervising ministry. The consultant is expected to be engaged till the end of the MOU period, except where the consultant is deemed incapable of delivering expected result within the terms of reference.
The day to day management rest with the consultant and his team. While supervisory responsibilities should rest on the board of directors to be appointed by the government. The board composition should have representatives of government, minimum of two appointees to sit on the board, the lead management consultant, the original owner and a representative of the workers. The arrangement should subsist up till the time government recoups its investment which must be done within the period defined in the MoU.
The BROT Company is expected to be in a performing and profitable state by the end of consultant contract period. By this time, the BROT Company is ready to be transferred back to the original owners with an arrangement on how to compensate both the government and consultant either through shareholding or severance pay. This must be included in the MoU.
Benefits on the arrangement
On government’s part, there is massive opportunity to create employment for the teaming unemployed people in the country. A good prospect to jump starts the economy and increase economic activities in the country across various regions.
Increase in revenue generation for the government after the BROT Company becomes economically viable. Reduction in social vices and crime related issues as many people gets into gainful employment. The economy becomes competitive both in productivity side and labor market.
Benefits to the owner
The trauma of seeing their business dying or go into extinction will be relieved. Another opportunity of being part of the board of a restructured and better run organization provides learning opportunity for business owners.
Potentially, the fact that the ownership of the business would revert back after some years is an energizer to get the owners practically involved in the turn around process and see their businesses succeed again. This is also a motivation to many other would- be investors to venture into business. This automatically gives birth to entrepreneurship desire in a more aggressive manner for interested but fearful local investors.
The second strategy is an off shoot of the first one above. Our earlier article, how to solve graduate unemployment problem in Ghana is our reference point. I wish to draw some quick recommendations from the article which are still very relevant to today’s issue of turning the economy around within first year of this administration (for the full text of the article see www.mikensyconsulting.com/how to solve graduate unemployment problem in Ghana/)
This strategy as proposed in my earlier article on how to solve graduate unemployment in Ghana was partially implemented by the last government. They took the idea from this article but failed to involve the concept owners in the implementation of the Youth Entrepreneurship Support (YES) programme . This must have contributed in no small measure to the inability of the programme to fulfill the objective of creating mass employment in the country among teeming population of unemployed graduates that we had in mind when we wrote the article.
We are of the opinion that our recommendations should be revisited in the light of the challenges YES programme had by involving the owner of the idea to help see to the success of the programme. We are confident that this is the game changer and deal breaker between government and Ghanaian job seekers.
What then can be done?
We have large population of unemployed youth in the country. Graduate unemployment is almost 80% of yearly tertiary education pass out rate. It requires immense support and practical action on the part of the government, banks and the unemployed graduates to get out of the problem.
Government should be willing to commit itself to eradicating unemployment. This can be done by investing money on individual graduates who need it to startup businesses of their own in the country in form of ‘SEED CAPITAL’ or ‘START-UP LOAN ’to aid Graduate Self Employment Programme (GSEP).
Government should raise substantial amount of money from the market about GHC 500million at a rate not more than 15%. This amount would be deposited with some selected banks not government banks for obvious reasons at the same rate they were taken from the market.
The selected banks shall manage the funds which would serve as initial capital for the business startups for GSEP candidates to be loaned out to qualified applicants.
Graduate Applicant must be trained by Business Consultants on how to write professionally satisfactory business plan in any area of their interest. To qualify the business must be viable and sustainable on its own.
The maximum amount each applicant can access should not be more than GHC50, 000.00. It is a loan repayable over specified tenure period. Reason for this is to make it manageable for the applicant. Secondly, to ensure that good number of qualified applicants benefitted from the Guaranteed Loan Scheme or Seed Capital as earlier stated.
The business plan must pass through a rigorous review and certification process by a professional accountancy firm in the country to be selected by the partnering banks appointed to manage the fund.
A certified business plan is a prerequisite for application for the loan. Once an applicant get the certification of the audit firm, he or she is deemed qualify to apply for the loan through any of the selected banks for government support ‘SEED CAPITAL’ to start his or her business.
Requirements to access the loan
The following shall be required from each applicant whose business plan has been certified by the audit firm.
Application letter for the loan by the applicant to the bank. This must be accompanied by an acceptable means of identification in the form of International Passport, Voters’ ID or National ID to confirm the nationality of the applicant that he or she is a Ghanaian. The Loan is only accessible by Ghanaian citizens.
A professionally certified business plan by an auditor as stated above. The original Certificate of Graduation from the university or the polytechnic from where he she graduated from.
A letter from two guarantors who should be a senior public servant with the EOS (End of Service) benefit or gratuity expectation from the government not less than GHC 20,000.00. This must also be verified by the bank from the guarantor’s employer.
All these requirements must be submitted to the bank for proper vetting and due diligence. The bank would then release the Seed Capital to the applicant through his account opened for that purpose with the same bank.
The loan shall be granted with a 2 years Moratorium Period. The repayment starts at the end of the second year to enable the business gain strong footing. The repayment of the loan shall be done in the third year spread over a twelve month period.
The benefits of the scheme
We can look at the benefits of the scheme from the point of view of the unemployed graduate, Bank and Government.
To the graduate applicant this would enable him/her to be self-employed and at the same time provide employment opportunities for others.
The bank would benefit in form of improved balance sheets size and improve profitability performance. Additionally, more staff may be required to adequately handle the scheme which in itself will create more employment for people.
To the government, there is going to be significant reduction in the level of unemployment in the country by about 60% within the first two years of the programme couple with its multiplier effect on other sectors of the economy. The general productivity level of the country is expected to increase significantly; reduce the inflationary rate in the economy. Crime rate would reduce since more people are now gainfully employed.
Opportunity for increase in government revenue in the form of taxes is also apparent. It creates additional opportunity for better remuneration in the country. Employers of labor may have to raise salaries and wages to attract good hands to their employment. The reason for this is because cheap labor becomes scarce. Thus the country per capita income would increase.
Exiting the Scheme
In case any applicant wishes to exit the scheme before the loan is fully paid, the outstanding loan balance at the time of exiting plus the interest due will be paid off by the individual or any company who employs such loan beneficiary.
This would be required before all the necessary ‘security documents’ submitted such as the original certificate of graduation, guarantor’s letter of discharge would be released to the loan beneficiaries.
The writer: Mike Osikoya
CEO, Mikensy Consulting Limited
www.mikensyconsulting.com or +233248951379