Ghana�s Electricity Tariff Structure: Killing The Goose That Lays The Golden Egg

We are playing a very dangerous game in Ghana. According to sociologists and other experts who have studied the origins of the many violent extremist groups proliferating around the world nowadays, high youth unemployment, and lack of opportunities generally, are two of the main factors fueling the rise of such groups. Eliminating these factors has therefore become the top priority of governments in many countries.

Ghana, thankfully, has thus far not experienced the sorts of violent attacks that result in large numbers of mainly innocent people being killed or maimed after each occurrence. That is due to luck, and the country must not take things for granted. As everyone knows, once toothpaste is squeezed out of a tube, it is impossible to put it back in the tube; Ghana does not want to wait to find out what might happen if one of these groups takes root on its soil. There are enough problems in the country already.

Youth unemployment is reaching alarming levels in Ghana, and the government should focus on nurturing the type of environment that is required to enable the private sector to create well-paying jobs. Unfortunately, the government appears to be doing the exact opposite of what is required, looking at the way that electricity tariffs have been structured.

According to information provided at the Ministry of Power website, electricity tariffs in Ghana currently range from as low as 30p per kilowatt-hour for customers using 50 kilowatt-hours or less per month, to as high as 97p per kilowatt-hour for any usage above 600 kilowatt-hours in a given month. In one sense, this type of tiered pricing is good, because it will encourage customers to be judicious in their consumption of electricity. However, the over 600 kilowatt-hour users are predominantly commercial and industrial consumers. If we want lots and lots of jobs created in the country, the last thing that we want to do is adopt the kinds of measures that will force customers in this segment to limit their consumption of electricity. As it is, energy costs are going to be so high for businesses in Ghana that many owners will ultimately be forced to curtail production, or worse, shut down their operations altogether.

When corporate managers make decisions about where to locate their operations, the cost of energy is always one of the most critical factors that are considered. Examples abound around the world of businesses that choose to relocate from certain countries or regions, to take advantage of lower energy costs in their new locations. Ghana should be doing everything it can to attract businesses, not drive them away. That is why, in my view, this tariff design is misguided.

Compare Ghana’s approach to that of Indonesia. There, the government is cutting industrial energy tariffs to spur business activity, according to a special report on the country in the February 27, 2016 edition of The Economist. In fact, governments all over the world, both local and national, are finding ways to do what Indonesia is doing. If Ghana wants to be a part of the global economy, which is not a choice these days by the way, then it cannot afford to be doing the very opposite of what its competitors are doing, and putting itself at a disadvantage in the process.

The US government put in place the African Growth and Opportunity Act (AGOA) to provide duty-free access to the US market for a variety of products from a select group of sub-Saharan African countries, including Ghana. The primary purpose of the Act is to support the manufacturing and agricultural sectors within the beneficiary countries. Gaining access on such favorable terms to such a lucrative market is a tremendous opportunity that should not be wasted, but Ghana cannot take advantage of the opportunity if it does not have products that are cost competitive to sell.

At current exchange rates, the 97p per kilowatt-hour that businesses pay for electricity in Ghana translates to about 25 cents (US) a kilowatt-hour. Ghanaian exporters, bearing such high energy costs, simply cannot compete in the US market, at a time when many commercial and industrial customers in the US pay about 10 cents or less for electricity. The US market also happens to be where businesses from all parts of the world look to sell their products. So, if most of those countries are also lowering energy costs for their businesses, it is easy to see why Ghana, a country that does not yet have products with strong brand names and must therefore compete based on price, is shooting itself in the foot by structuring its electricity tariff the way it has.

It is a very competitive world out there, and countries are doing what they have to do simply to remain in the global trade race. Policymakers in Ghana have a duty to find ways in which the country can generate, very affordably, the enormous quantities of electricity that is required to sustain business activity. That is the only way to reduce the dangerously high level of unemployment in the country. 

Source: Daily Graphic