Workers will find it tough to maintain good standard of living – Sam Ankrah

There have been various debates by some Ghanaians abroad, arguing on the basis that, fuel prices in Europe are higher than in Ghana, even though the finished products are imported from Europe.

Sam Ankrah: Economist, Investment Banker

Here is my analysis of this discussion:

One cannot make a straightforward or simplistic comparison, since they are: 1. Different products 2. Different levels of taxes: i.e more taxes paid in Europe than in Ghana 3. The ratio of the cost of fuel against the average Salary of the citizens. The ratio This is not an entirely useful comparison. Even the unemployed get an Unemployment benefit of around £75 (GHS750 per week or GHS3,000 per month).

A better comparison is to use the ratio of the cost of fuel against the average salary. https://uk.jobted.com/salary UK is £1,950 per month (GHS19,500).

https://myhealthbasics.site/average-monthly-salary-in-ghana/ Ghana's average salary is GHS5,070 per month (I don’t believe this but at least it’s from a reference source. Our unemployment rate is significantly higher too). Let’s for argument’s sake say that a person fills an average cat up twice a month, using 100litres of petrol. UK 100litres @ £1.64 is £164.00 (GHS1,640).

https://www.google.com/amp/s/www.independent.co.uk/news/uk/home-news/petrol-price-rise-uk-fuel-crisis-b2035215.html%3famp Ghana 100 litres @ GHS9.70 is GHS970.00 So we have UK monthly income of GHS19,500.00 and monthly fuel cost of GHS1,640 And a Ghana monthly income of GHS5,070 and a monthly fuel cost of GHS970. The percentage of burden of fuel versus income for a UK person is 8.4%.

The percentage of burden of fuel v income for a Ghanaian is 19%. So, the conclusion here is, price moves of fuel affect Ghanaians much more than those in UK and thus a simplistic statement that all prices have gone up is not useful.’ The key is that fuel price as a percentage of monthly expenditure for a Ghanaian is much higher than it is for a UK person. Taxes Also, they pay more taxes, and they know what they get for their taxes paid are good roads, clean streets, many others, etc.

It is a known fact that people in UK about 27% or more taxes on petroleum products in UK than in Ghana. Quality of products Also, our fuel quality is lower. What we call Super isn’t sold. What we call V Power (95Ron) is the standard petrol. Our petrol also has more additives for tropical climes. It has less calorific content, therefore less energy and therefore it’s cheaper. The products are not the same. We have Super which is 92 Ron – UK is 95 Ron, then the V Power type is 95 Ron in Ghana and 98 Ron in UK. Furthermore, our fuel has more additives in it. In essence, in order to make it evaporate less quickly, we have to have less actual petrol, and this makes cheaper.

So on a like for like basis, it’s not the same. But just for a comparative analysis we can use UK 95 Ron v Ghana’s 92 Ron. Analysis Therefore, it’s not just straightforward and accurate to try and defend fuel cost here against there. Yes, it’s gone up everywhere but, its effect is different order because of the spending parity. We don’t earn that much here in Ghana and fuel is relatively high, therefore, more expensive for us anyway. On the taxation aspects of fuel, tax as a percentage % of fuel in UK is 50%. In Ghana it’s at 38% (as at 2021). UK price average for 95 Ron in January was £1.45.7 (FX for Jan 1:8.49). Ghana average price for 92 Ron in January was GHS6.50. UK current price average is £1.65.4 (FX rate today is 11:1 so GHS18.19). Ghana current price average is GHS10.00. Increase in 2 months for UK is 1.45 – 1.65, for Ghana it’s 6.50 – 10.00. Percentage wise, the increase is *13.7%* against Ghana’s *54%* increase.

We already know that fuel as a percentage% component of average income is close to 20% for Ghanaians and less than 10% for UK. Let’s then also look at what taxation delivers for people in UK. Good roads, clean roads, working traffic lights, safe roads, cleaner running cars and so on. In Ghana the taxes don’t even get used to defray the existing energy sector debt. TOR is still not functioning despite TOR Levy, etc. So, yes, there is a World price for fuel. Taxation component varies. Yes, Ghana’s fuel is cheaper. However, it’s cheaper because there is less tax on it. Operating costs are less. Imagine running a fuel station in La Badi vs one in Ealing? The cost differential is huge. The most key cost issue though, is the slide of the Cedi. It’s been shown that the Cedi has depreciated by (Jan 2022 £1:GHS8.48 to Mar 2022 £1:GHS11.00) *30%*.

But, the real issue is spending parity. Our Cedi, in 2 months is worth 30% less. So not only are we dealing with increasing fuel costs, but you are also dealing with Cedi being in freefall. So, in UK, yes fuel has gone up. But as a component of average UK income, it’s manageable.

In Ghana, fuel was ~20% of average income. With a 30% loss in value of Cedi, that’s another 6% to add to the cost of fuel as a percentage of income, before you factor in the rise in the cost of fuel. Interesting figures whiles doing the numbers ● 30% loss in Cedi value in 2 months ● Rise in fuel cost is 50% in 2 months These 2 components alone are killer If we did the loss in Cedi value from Jan 2017 (4.16) to today, (8.45), that’s 200%+ So much for Cedi stability In my opinion, the only reason is taken so long to get to today’s exchange rate is the expenditure of international reserves to support the currency is Unsustainable. With the continuous currency depreciation, no matter how cheap fuel prices are, internationally, we will continue to have an increase in prices.

By: Dr Sam Ankrah (Economist and President of the African Investment Group (AIG))

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