The recent debate over the proposed e-levy tax has put the spotlight very intensely on the subject of taxpaying attitudes in Ghana.

Ghanaian politicians regularly chastise their fellow citizens for being entitled windbags who complain constantly about every minute failing of the government in providing services and amenities. Lamentably, in the view of the politicians, these same Ghanaians slink down their holes when asked to pay their fair share of tax for the government to obtain the resources needed to meet all their noisy demands.

One former Minister is categorical: Ghanaians just don’t like paying taxes. An activist of the ruling party implicates “dirty politicking” in this attitude of rampant tax dislike and evasion. According to the country’s serving Finance Minister, only 8.2% of working Ghanaians pay tax.

As far as some politicians would have it, a vast proportion of the population is literally made up of “tax thieves” blatantly stealing from the state that which morally and legally belongs to it.

Yet many Ghanaians disagree with the politicians about this alleged aversion to tax.

72% of the country’s residents tell AfroBarometer (2019) that they will gladly pay more tax to support the government to deliver on its mandate.

Source: AfroBarometer (2019)

Ghanaians express a far greater willingness to back Government’s tax-levying power than citizens of most other African countries according to AfroBarometer surveys. Even if 10 years of watching politicians pour money down the drain has dampened that enthusiasm a bit (from 90% down to 79%).

Source: AfroBarometer (2020). Image Credit: Isbell & Olan’g (2021)

Of course, there is no country on Earth where more vigilance and diligence in tax collection would not yield more government revenue.

Even in fabulously high-solidarity and egalitarian Scandinavia, Matthew Yglesias estimates that the top 1% of income earners (i.e. rich people) evade 30% of true tax due.

Source: Matthew Yglesias (2017)

Every government therefore can be expected to try to do more to prevent tax evasion and to minimise unethical tax avoidance. Where we have a problem is when attempts are made to suggest that the situation in Ghana with regard to taxation is particularly dire because Ghanaians are exceptionally unscrupulous and anti-tax. I disagree simply for the reason that the data simply doesn’t support the claims.

Seriously the Finance Minister ought to fire some of his research assistants. Throughout this e-levy debate, they have failed to furnish him with sound data and advice. The claim, made in the international press no less, that only 8.2% of working Ghanaians pay tax is extremely distressing. There is no grounding in fact for this belief.

According to the Ghana Revenue Authority, which reports to the Finance Ministry, 6.6 million Ghanaians file taxes. Based on the provisional results of the latest census in Ghana (2020, postponed to 2021), the true labour force (economically active citizens) of Ghana is just a little under ten million. Thus, depending on whom you believe, the number of tax paying individuals is either a high of 57% of the population (not adjusting for the “economically active but currently unemployed” to allow for easier subsequent comparisons across countries), according to the Tax Authorities. Even if we were to use the Finance Ministry’s own curious compliance data, the resulting figure would be 20.5%. Not 8.2%.

Source: Ghana Statistical Service (2021)

The Finance Ministry does have a point, however, when it complains that the amount of money made in the economy that goes to the government (approximated by the metric known as “tax revenue/GDP”) is smaller than in more developed countries around the world. I have addressed that issue more fully here.

There are many caveats to bear in mind when comparing how much other governments are able to squeeze out of their economy, compared to Ghana’s, however.

First, the historical evidence does not suggest that the government is able to squeeze more out of the economy when Ghanaians suddenly become upright and scrupulous in between epochs in history. It suggests, rather, that how much government takes in taxes reflects shifts in the relation between the state and business.

In the 1960s when the state run large parts of the economy, and the private sector was young, it was natural for the citizens to pay less tax. As Ghana liberalised, and private sector activity grew, more tax was paid. Then the Acheampong government came in and nationalised large swathes of the economy (for example, the government took 55% in major mines and factories hitherto majority owned by the private sector). State-control took the tax-to-GDP ratio to its lowest in 1981 – 1982, in the heat of the last attempt at a socialist revolution. Tax to GDP continued to climb as the emphasis shifted to private sector empowerment, until the discovery of Eurobonds in 2007, the onset of oil production in 2010, and the start of the gold and cocoa bull super-cycle (in both price and production terms) that is still underway.

Source: World Bank, as cited by Matthew Ocran (2018)

Second, as I have hinted elsewhere, the considerable boom in oil, gold and cocoa prices and production over the last decade, backed by copious quantities of eurobonds, have considerably shifted the momentum in the economy towards the government-controlled center, to the detriment somewhat of the private sector. Without considerable private sector productivity growth, it is hard for taxes, versus other forms of revenue like royalties, to grow in line with or faster than GDP.

Third, the structural issues in the economy are also reflected by the sheer number of persons in various sectors where income is highly irregular or is taxed in ways making personal and corporate/enterprise taxation completely incongruous. For instance, 75% of Ghanaians farm, fish, “buy and sell” or engage in low-level artisanship. Farmers sell food with high implied non-state subsidies created by a massive differential between farmgate and urban retail prices. Cash crop farmers must actually sell at the government-dictated price so that the state can take a margin. These are all implicit taxes.

Source: Ghana Statistical Service (2021)

Furthermore, due to high domestic borrowing, central government financing (money printing, among others), and other “money emission” factors, coupled with a tendency to inflate away the value of the money it has borrowed from citizens, the government of Ghana enjoys high rates of seigniorage and inflation tax. As noted by many commentators in this sub-discipline, inflation tax has a habit of flipping at an inflection point and yielding negative returns. The chickens may have simply come home to roost in Ghana.

Not surprising then that two West African countries whose governments consistently lament their low tax to GDP ratios, Ghana and Nigeria, have also historically benefited the most from inflation tax.

Source: George Anang (2020)

In short, letting the data do the talking reveals the startling truth, in deep contrast with the standard commentary in Ghanaian policy circles, that Ghana actually outperforms many peers and superiors when it comes to registering people to tax them.

Author’s calculations from public data.

A person holding brief for the Finance Ministry is likely at this juncture to push back. Mobilising people into the tax net does not by itself mean that people are still not cheating the treasury. True, but that is not a peculiar Ghanaian issue. At any rate, politicians have consistently been twisting the truth by making it look like the “tax net” in Ghana is not “capturing” millions of shady characters with sackfuls of cash under their mattresses. What the above clearly shows is that over the last decade or so we have brought millions into that tax net. At least, they are visible.

We can now tackle the question of whether beyond the structural reasons (inflation, natural resource dependency, debt-fueled-but-low-productivity-growth etc.) I have provided above and elsewhere, there is strong reason to believe that under-declaration is particularly rampant in Ghana.

Let me get this out of the way: there is no reason to doubt that there is considerable under-declaration. As a brilliant friend of mine at a top consultancy likes to remind me, the Ghana Revenue Authority meets more of their stretched targets than they miss. Somehow, in some years, they manage to find the money lurking somewhere in the economy regardless how aggressive the target is set. The question we need to ask though is: how widespread is this practice, really?

If it turns out that we have a few ultra-wealthy cabals doing most of the under-declaration, as opposed to the general masses of the long-suffering people of Ghana, then the key thesis of this essay holds: there is no evidence that Ghanaians generally don’t like taxes (anymore than the average human), aren’t paying taxes or are particularly unscrupulous about taxes. It is entirely up to the political class to rein in their cronies in the cabals, currently enjoying political protection, hoarding the wealth and refusing to chip into the national kitty.

To make progress along that line of inquiry, it is important to unpack the recent decline of revenues-to-GDP from 22% in 2005 (per Matthew Ocran’s calculations) to roughly 14% today (beyond the structural factors I have hinted at above, that is). What really in the tax basket has been leaking out?

A 2021 report by the UK’s Institute of Fiscal Studies (IFS) reveals much. (As a side note, it is curious that the IFS in its home base of Britain is regularly counted on to produce independent revenue forecasts for proposed taxes, like our e-levy here; but in Ghana, the government routinely refuses to encourage such rigorous tax analysis and forecasts before introducing its tax measures.)

Let me quote the IFS:

Tax collections on imported goods have become far less important in the revenue mix, though they remain significant: 30% of overall tax revenues were collected on imported goods in 2019 (including VAT on imported products), compared with 54% in 2000. The contribution of import duties specifically to total tax revenue declined from 18% in 2000 to a low of 12% in 2019.


Much of the growth in Ghana’s GRA-collected tax revenues since 2000 has come from increased corporate and personal income tax and VAT and similar taxes, though revenue growth from the latter two has stagnated more recently. These taxes made up over 70% of total collections in 2019 – up from 57% in 2000.

Trends in tax revenue composition from 2000 to 2019. Source: IFS (2021)

In short, whilst Ghanaians have been paying lots more in income taxes on both their personal and business income, the ports have been leaking.

There are two main ways to account for those leakages. First, graft. The Vice President has described the corruption at the Port as “unbearable”. Second, tariff policy. The average tariff in Ghana is about 92.5% of the value of the item being imported. Essentially, on average, importers pay almost the equivalent of the price of the good being imported to the government as tax.

The high tariffs are a clear incentive to bribe one’s way through if one has the means, so the two main causes are interconnected. But given the implied import-substitution and infant-industry protection bent in current Ghanaian trade policy, a significant reduction in tariffs is unpalatable to almost everyone in the policy establishment today.

Source: World Trade Organisation

Below is a graph showing how Ghana compares with other countries its policymakers and other commentators like to compare the country to. Note the presence of both liberal and “developmental-statist” economies on the list. It is clear that imports have become so expensive over time that the growth in their volumes has been dropping, leading to a drop in revenue from import duties and other port-levied taxes. The trend is furthermore being exacerbated by bribery and corruption.

Data Source: World Trade Organisation

The truth is: when you look at the part of the revenue mix obtained purely through GRA collections (as opposed to the broader measures of “revenue” used elsewhere in this essay), what we have is a stagnation due to a declining trend in import tax collection, not fully offset by a growth in personal and corporate income tax collection!

Source: Institute of Fiscal Studies (2021)

The alarmism by politicians, targeted at the conduct of citizens, is completely unwarranted and the media must stop enabling it and start asking hard questions.

Of course, politicians will still push back. They will say things like: people are doing many side jobs and not declaring income so the rise in income tax revenue is purely as a result of the burden falling on a smaller and smaller subset of taxpayers.

Whilst there is no doubt about there being a skewed burden that must be corrected over time, this has become something of a universal burden brought about by a growing concentration of wealth.

In the US, for instance, the top 20% pay nearly 70% of the taxes.

US tax burden distribution. Credit: Tax Policy Center (2020); as cited by the Peter G. Peterson Foundation

In Singapore, the top 20% of tax payers account for 91% of total tax revenue. Only 7.8% of Malaysia’s 1.25 million registered enterprises pay any tax at all.

So, if a Finance Ministry Mandarin is tempted to argue that Ghana is yet to see any significant benefit from boosting registration of taxpayers, they should temper their sorrow by checking with India where aggressive taxpayer mobilisation saw filings grow to 57.8 million. Yet, those actually owing the Indian government dropped to 14.6 million (coupled with massive numbers of Indians now entitled to tax rebates/credits). To repeat: over a period of 8 years, the number of persons registered for tax but who don’t have enough income to pay any tax to the government increased by 300% in India.

Times of India (2020)

It is not a one-way street. The more government pries into people’s incomes, the more likely some of them are going to realise that they don’t actually get enough help from the government and therefore it is the government that in fact owes them money.

In 2019, 37% of even American taxpayers assessed as owing tax didn’t have the money to pay. In recent years, Indonesia has seen spells where less than 1 million citizens are able to pay tax out of a population of over 270 million.

The last rebuttal to any Finance Ministry Mandarin pressing the old charge of ruling a nation of tax delinquents is wastage.

I am not even talking about the incongruity of tax aggressiveness in a context of high tax burden in a country where many are struggling to make ends meet and therefore only a shrinking number of people shall increasingly be responsible for most of the tax paid, as is the case elsewhere, and how therefore any wastage of taxes may impact tax morale. I am talking specifically about why the government feels that Ghanaians pay far less tax than they can afford when the data says otherwise. And when Ghanaians are indeed subject to some of the highest tariffs and consumption taxes in the world. Just check out comparative VAT rates below.

Source: African Tax Administration Forum (2020)

Or compare aviation taxes in Ghana with what pertains in its rival “aviation hub” aspirants in the region. Ghana charges double the rate in Rwanda and Kenya, and nearly four times the Ethiopian amount. Yet, it insists that it is on course to eclipse them as a continental aviation nexus. Talk of hubris.

Airport Passenger Charges in selected African countries. Source: AirInsight (2021)

No I don’t mean any of that at all. What I mean by “waste” here is the sheer cost of doing government in Ghana. Ghanaian state-subsidised football administrators regularly requests, and often receives very close, to three times the amount their Nigerian and Kenyan counterparts get, and ten times what their Malawian and Gambian compatriots receive.

When Ghana builds bridges or airports, a careful examination of the costs (including borrowing costs) would inevitably show that, pound for pound, they tend to be twice or thrice more expensive. This is the case when you compare Kotoka Terminal 3 in Accra with the bigger 3rd terminal at Bole International in Ethiopia; or the planned Volta River Bridge in Ghana with the Makupa bridge in Kenya.

In short, the government of Ghana has been harbouring this mistaken notion of Ghanaians being inveterate, incorrigible, tax thieves because it feels that it is being squeezed. However the “squeezing” is entirely the doing of the state, and the victim is actually the people.

Ghana’s downstream petroleum regulator, the National Petroleum Authority, which is responsible for enforcing fuel quality standards on the market, issued the notice below last week but it is only now getting attention.

It is a curious edict. It says in simple language that fuels refined in Ghana can have as much as 1500 parts per million (1500 PPM or 1500mg/kg) content of sulphur. More than that, such dirty fuel can be mixed up with imported fuel, which, on the other hand, must still adhere to the ECOWAS standard of 50 parts per million (50 PPM or 50mg/kg). Worldwide, countries that take public health seriously are waking up to the frightening effects of air pollution and aggressively pushing for fuel sulphur content to go as low as 10mg/kg.

Limits on the sulphur content in fuel ECA [11]. | Download Scientific  Diagram
Steep falls in permissible sulphur content in fuels globally. Source: Rymaniak et al (2018)

Here in Ghana, Environmental Protection Agency (EPA) measurements show regularly that in large cities like Accra, the annual concentration of Particulate Matter (think soot, smoke, dust, all that nasty stuff) is often far above the World Health Organisation (WHO) standard of 10 micrograms per cubic meter of air. The Global Burden of Disease Study (GBD), the definitive global guide on epidemiology, advises countries to aim for 7.3 micrograms, plus/minus 1.5ug. The table below shows that concentrations in Ghana are routinely 10x what they should be.

Annual mean PM concentration in selected Accra Metros. Source: Emmanuel Appoh cited in WHO/Pierpaolo Mudu (2021)

Sulphur dioxide, the main output when sulphur in fuel is burnt in combustion engines, exacerbates particulate matter (PM) effects in very complex and dangerous ways. The correlation between sulphur content in fuel and PM emissions is so strong as to be literally linear (one major route being the formation of sulphate particles in the air).

High sulphur content in fuels contribute to PM emissions & worsens their health impact. Source: Adilakshmi et al (2013)

Sulphur dioxide itself causes serious respiratory and other health issues. From an environmental health perspective, acid rain and acidification of water bodies have all been traced to the noxious gas. Commentators tend to blame mining for Ghana’s increasing acid rain problem, with its catastrophic impacts on agriculture and biodiversity. But emissions from dirty fuel is as much a problem.

Dirty fuel indeed accounts for more than a third of all PM emissions in observations.

Results from monitoring Ashaiman Municipality.
Source: Ofosu et al (2012)

Not surprisingly, the number of people who experience strokes, cancers, heart disease, and other harms (including, for the very unlucky, death) as a result of the worsening air pollution in Ghana exceeds 500,000 every year.

Epidemiological statistics on air pollution related health problems in Ghana. Source: WHO/Pierpaolo Mudu (2021)

This was the context that informed the decision in 2013 to tighten regulations on sulphur content in fuel. At that time, due to concerns about transition issues, the maximum limit was pegged at 3000 PPM. Increasing evidence of the intensifying health damage being caused by air pollution led to an ECOWAS-wide resolution to limit sulphur content to 50 PPM. In November 2016, Ghana set a deadline of July 1st 2017 for all market participants to adhere to the guidelines, except local refineries. When ECOWAS set its timeline to 2020, Ghana reassured the environmental standards community that it intended by that year to be fully compliant, including in its local refineries.

The problem is that Ghana has never really been truly compliant. Importers of refined fuel have flouted the relevant regulatory directives for a long time. And the latest decision to push local refinery compliance to 2023 is merely another gimmick.

In 2020, Broni-Bediako and his research collaborators at the University of Mines & Technology in Tarkwa sampled fuel from several fuel retail outlets in the town. They found concentrations of sulphur as high as 5x the legal limit in some of them. More frighteningly, not a single sample picked up conformed with the regional standard. (Minor distinctions among gasoline, diesel, LPG etc. don’t matter for the ensuing analysis).

Results of tests conducted on fuel samples collected from fuel stations in Tarkwa. Sulphur content should be 0.005% to be compliant with national standards. Source: Broni-Bediako et al (2020)

Worse, the UMAT researchers found that semi-formal fuel resellers (locally called, “Gao Gao”) actually market product with lower sulphur content on average than the branded Oil Marketing Companies (OMCs).

Results of tests conducted on fuel samples collected from fuel stations in Tarkwa. Informal resellers, on average, sell lower-sulphur fuel than the average OMCs. Source: Broni-Bediako et al (2020)

What is sinister about findings such as the UMAT one is the way they reinforce longstanding concerns about poor and complicit regulation in the downstream petroleum sector. Observers have, for instance, persistently complained about rampant corruption.

In 2013, freelance investigative journalist, Sally Hayden, who has worked with the likes of Reuters and the Financial Times, pierced through the fog to gather clear evidence of serious abuses across the value chain. Inept regulators, rent-seeking politicians, corrupt intermediaries and a largely inert public have formed a combustible mixture literally fouling the air at every turn.

In its review of local capacity, the EPA lists a litany of gaps which raises serious questions about the actual air quality management being done in Ghana today. The claims by the NPA that it will ensure that, at least, imported fuels meet the 50 PPM standard (whilst allowing commingling with non-conforming fuel that will definitely complicate enforcement) are seriously contested by evidence of seriously weak ability to properly enforce the standards.

Extract from an Air Pollution Management/Enforcement Capacity Assessment by the EPA. Source: EPA Ghana (2018)

Nearly 5 years after local refineries, principally the Tema Oil Refinery (TOR), were given special treatment to get their act together and stop supplying dirty fuel to the market, the NPA is back with another lame excuse for continued pollution.

TOR’s reasons for why it cannot meet the higher regional standard (which is still 5x higher than the limit allowed in more health-conscious countries) remains the same: it cannot afford to do so. This is lame for two reasons.

Its former Chief Executive greatly exaggerated the cost of investments needed to acquire equipment to desulphurise the fuel it sells. The $300 million he quoted is nearly eight times what experts in the US typically estimate for refineries significantly bigger than the 45,000-barrel refinery operated by TOR. This is the case even when they opt for the more expensive standard catalytic hydrodesulfurization method.

For example, a benchmark study on hydrotreater installation/conversion to meet the American EPA’s much more stringent (and thus more expensive) sulphur content guidelines show that, adjusting for TOR’s technical and operational parameters, $500 per barrel per day is a viable cost estimate . In TOR’s terms, that is less than a $30 million investment (likely much lower because of the 5x laxness in standards). Another way of looking at it is the cost per gallon approach, where the experience from the US, adjusted to Ghana’s context, suggest about an extra 10 pesewas per gallon of fuel. Meanwhile, new adsorbent based technologies promise to radically lower desulfurization costs multifold.

Equally valuable to know is the fact that TOR can avoid a significant proportion of the cost by simple crude selection. Given prevailing prices in Ghana, no refiner has any business using anything other than light, sweet, grades of crude.

So, for example, using Bonny Light crudes from neighbouring Nigeria (say, under a revamped Government to Government supply deal) immediately reduces the sulphur content to 1300 PPM (considerably lower than the NPA’s 2013 3000 PPM and subsequent 1500 PPM standard) even before advanced techniques are applied to lower the content further.

How crude selection impacts sulphur content. Source: UNEP (2010)

If next door Ivory Coast can license American technology to meet tougher global (not just regional) sulfur content standards, it gets harder to convince rational people that Ghana cannot meet laxer regional standards. (SIR has in fact been producing gasoline at the 10 PPM global standard for many years now, so this investment was to lower cost and cover other fuel fractions).

Nor is the fact that TOR is an arthritic performer, constantly shutting down production whenever it runs out of funds, a reason to dismiss the dirty fuel matter. The government has no plans to permanently close it down. So long as it remains an epileptic supplier of fuel to the market, and to the extent that it engages in various logistics activities (including medium-term storage), its noncompliance with the standards shall continue to complicate the enforcement picture as a whole, especially because of the commingling loophole.

All the arguments canvassed in this brief essay would have been the same ones that most environmental and Civil Society extractive sector actors and commentators would have made to the NPA if it had consulted properly. But it didn’t. It does not seem to have consulted even the Ghana Standards Authority (the actual domestic custodian of the sulphur standards) and the Environmental Protection Agency for formal, written, opinions before issuing this kneejerk waiver. The EPA and the DVLA, for instance, are required, under current policy, to verify if vehicle filters and other emission controls can handle the tailpipe exhaust requirements in line with air quality standards. Decisions about fuel properties must thus be subjected to a scientific, multistakeholder, engagement test before being made and publicised.

The tendency of those who wield power in Ghanaian and African society to act without regard for public and civic interests will literally suffocate all of us if we don’t keep speaking up. On this issue of sulphur pollution, it clearly starts with calling out the NPA loudly and clearly.

Tomorrow, the 25th of January 2022, the Finance Minister intends to return to Parliament to bulldoze through the controversial e-Levy bill.

Sentiment surveys show overwhelming dislike for e-Levy among Ghanaians. I have no doubt that scientific polling would corroborate the distaste of the general public.

Of the 66 swing constituencies in Ghana, NPP, the ruling party, won 17 in the last (2020) elections. In 2016, it won 49. In effect, the NPP’s popularity in its marginal seats declined by ~60% in just one electoral cycle. Whilst poor infrastructure and jobs tend to dominate voter concerns in Ghanaian elections, swing voters, as a subset, highly prioritize cost of living. Of a representative sample of 50 low and middle income countries, the World Population Review ranks Ghana highest in its Cost of Living Index.

Why then are the ruling party’s Members of Parliament (MPs) so relaxed about the widespread perception among people that e-Levy will worsen the already high cost of living? Is it not evident to them that failure to achieve consensus, even if it means spending more time convincing Opposition MPs and Civil Society activists and making some reasonable concessions, imply putting several marginal seats in urban Ghana at risk? Are there no NPP MPs in marginal/swing seats that worry about the impact of e-Levy on their electoral chances in 2024? Are there no NPP MPs with a difference of opinion about how e-Levy could be designed?

Given the many options available along several key dimensions, can any major political party really manifest the total degree of acquiescence being observed in the NPP right now? No squabbles at all about the rate (should the Finance Ministry stubbornly cling to 1.75%?) About the floor (should it stay at 100 GHS at all cost)? About the range of exemptions (should payments for social services be taxed? Should internet banking be covered?) Etc.? Can it really be the case that not one of the 137 NPP MPs, and the thousands of professional economists, accountants, policy practitioners and the like in the NPP, have any difference in opinion whatsoever about how e-Levy should be designed?

The evidence suggest, incomprehensible as it may seem, that the entire NPP really believe that no changes to the original blueprint suggested by the Finance Ministry is desirable or possible. Or they are much too concerned about being seen as trouble-causers that they are willing to participate in this hasty bulldozing even if it will also damage their relationship with the Minority and make conducting business in the house hell for the NPP parliamentary leadership.

Perhaps, the view in the NPP is that 2024 is far away. Ghanaians would have forgotten by then, especially if e-Levy proves to be a bitter but effective medicine. Furthermore, they probably reckon, that proving to investors and the public that NPP has what it takes to push whatever agenda it wants in Parliament is much too important in reducing the risk perception that has built up around the government’s ability to execute its policy in the face of a hung parliament. A calculated decision may thus have been taken to risk any chance of improving the cordial atmosphere in Parliament in order to assert political supremacy.

Beyond the realpolitik, the Finance Ministry (most definitely with the backing of the President) have also been at work on other tactics since they first broached the e-Levy and got some of us to share our views. They have made it clear that they intend to optimise the administration of the tax until they hit the $1.15 billion some of us felt was unattainable with the original design. By fiercely narrowing the exemptions, capturing internet banking transactions and refusing to shave even a basis point off the rate, they may yet defy initial scepticism and collect their intended booty, but there will be a price.

First, the resistance from the Opposition NDC in parliament shall be staunch, as would that of Civil Society. Neither has been consulted or engaged since the last raft of nasty scenes in parliament. In fact, some have been antagonised. The e-Levy shall become a major symbol of political intransigence in a period of inevitable increases in economic hardship due to the current headwinds. People will add it to petrol pricing and the upcoming increase in fees for public services (15% across the board) as some kind of towering beacon to the idea that the ruling party “doesn’t care if you suffer”. Such sentiments may not blow over as quickly as the government hopes.

Second, the government blew the chance to work in good faith with well-meaning critics who accept the fact that the increasing digitisation of economies around the world does call for updates to tax strategies to tackle potential losses of government revenue. It blew the chance for a robust debate about how to design a more sensitive and strategically sound digital taxation model. It has failed to engage genuinely on the data, the principles, the approach and the pitfalls. Its hardcore approach will make it harder to reverse course on some fronts when the situation demands it. A government should never allow itself to be boxed into losing flexibility.

Third, the government chose to preempt a plan by the Ghana Revenue Authority to sharpen its ability to collect digital taxes, in a broader sense. A plan that has received funding from the British government and support from elsewhere. A political fight is now guaranteed when those plans are finally unveiled.

Yet, the fact that more and more people are choosing to sell everything from waakye to earrings on Instagram rather than on more structured e-commerce sites or physical shops points to more worrying trends than anything e-levy is meant to solve. Because such “informal” operators can continue to accept “cash on delivery” and stay under the radar by avoiding taxable channels whilst still mobilising sales through digital means. By adding e-Levy into the mix, Ghana risks accelerating a trend where digitisation promotes informality rather than help fix it.

The government’s response to that concern is to narrow exemptions in order to prevent gaming of the e-Levy. Whilst acknowledging that this tact may well help it clock the $1.15 billion target it is so adamantly pursuing, we must also hasten to point out the new risks it has created.

Formal credit from banks to the private sector has been plunging for a while.

Ghana Bank credit to the private sector - data, chart |
Value of domestic credit from commercial banks to the private sector as a percentage of GDP. Source: World Bank (2021)

The hope on the horizon to sustain demand has been the rise of digital lending platforms and a resurgence of the microcredit sector following the devastating events in the financial sector in recent times. E-Levy will constrain that growth by adding an effective tax on repayments. Because of the Finance Ministry’s anti-gaming tactics, and because the new lending models prefer frequent servicing, the cumulative cost of credit will rise considerably. Everytime a borrower services a debt in the emerging fintech or traditional banking sector, the effect of the e-Levy would be to jack up the perceived interest rate. Whilst the microfinance companies will try to accommodate cash payments to lower servicing costs for their customers, the emerging digital players cannot, thereby stunting their growth.

The aggregate impact of similar transactional costs in the economy could be far more distortionary than can be predicted in advance. But their primary effect would be to contribute to already rising inflationary pressures as certain economic actors are forced to simply price in higher transactional costs. When that happens, demand contraction, and with it downward pressures on GDP growth, may result, contributing collectively to a sense of low economic well-being. Demand and growth pressures of this type can fuel their own cycle in a manner that defeats the government’s ability to rein them in ahead of the 2024 elections.

A clue that transactional costs can affect demand (eg. various economic actors lowering spending if they can’t avoid the tax) in the digital sector in just this manner can be found in how Communication Service Tax (CST) has generally performed after rate hikes and drops. An increase in CST rate by a whopping 50% (from 6% to 9%) in 2019 did little to substantially raise revenue. CST outturn actually dropped from about 420 million GHS to 414 million GHS. Despite a reduction in rates from 9% to 5% in 2020, the total take actually went up. The expected total take in 2021 is about 570 million GHS, despite the nearly 45% rate reduction since 2019. In short, the government’s adamant stance on the absolute rate of 1.75%, even at the risk of a damaging confrontation in parliament, is not backed by any serious modelling of digital tax behavior/performance. Sustaining higher demand for goods and services is more critical, and taxes should be designed in order not to suppress economic sentiment.

It is obvious now though that the pliant NPP in parliament and the absence of any spirit of policy debate in the ruling party means that all of the above is academic. We are in the realm of pure power politics now. The government with all its strength and all the resources at its disposal is hellbent on prevailing. Whilst it may yet win the battle for political supremacy, that is no guarantee at all that it will win the war for economic popularity.

Well, “broke” is not a policy word, so it is hard to join the raging debate about the brokeness or otherwise of Ghana if one is more biased towards policy activism.

I will say this though, when Multimedia, a major Ghanaian media outlet, invited me to deliver a ten minute “statement” on an important national issue on the first edition of their primetime show, Newsfile, today, I knew I had to talk about Ghana’s finances.

Whereas “brokeness” is not rigorous enough a term for gauging the finances of a country, “creditworthiness” is. Like most businesses, most countries require debt to function. Globally, we have seen a surge of public debt for this very reason.

Global public debt as a share of GDP and in absolute terms has risen substantially over time. Source: IMF (2020)

Globalisation means that, more and more, governments borrow from investors and savers all over the world, not just in their own countries. 17 African countries (out of 55) are today able to borrow from private investors around the globe (not just from other governments and institutions like the World Bank and IMF). How these investors view the creditworthiness of the borrowing country/government offers one of the most objective metrics in gauging the finances of any country.

Such investor sentiment can be discerned from how much they are willing to charge in interest before they lend to a government. For a while now it has become clear that compared to its African peers, international investors prefer to lend to Ghana at a higher rate, clearly a sign that they are more worried about Ghana’s “credit risk”.

Note that this growing tendency among investors to price in higher risk for Ghanaian debt has been apparent well before COVID-19 struck. But in recent months things have come to a head and Ghana is now grouped globally with countries like Lebanon and war-troubled Ethiopia in terms of debt riskiness.

What accounts for this? Well, since the country became the first on the continent to borrow from the Eurobond market in 2007 (on the back of its first sovereign credit rating in 2003, 3 years after continental pioneer, Senegal), it has been more enthusiastic than most in frequenting the market for more. A combined oil and gold boom from 2010 onwards underwrote this appetite and increased awareness of the Ghana sovereign lending opportunity globally. Before long, all the gains from the HIPC debt relief it secured in the early 2000s had been whittled away. At the end of Ghana’s HIPC program, it owed just 1.18 times more than the revenue the government collects. Today, it owes nearly 5.4 times more.

Towards the completion point of the HIPC program in 2004, the country’s absolute spending on its debt had dropped to barely a little over $100 million. Today, the government requires a whopping $6 billion for the same purpose.

Spending in absolute, nominal, terms on debt servicing in the first decade of the 4th Republic. Source: Bank of Ghana (2005)

The reason is simple. Take 2021, for instance. The government needed to find $18 billion to make good on all its obligations. It could only raise $12 billion from investment, taxation and operations. An important nuance: these are “net” flows. To fully appreciate the hand-to-mouth nature of the situation, consider that in the same year it actually borrowed $5.2 billion from overseas sources, but promptly used $2.55 billion in paying back some of what it owed from previous rounds of borrowing.

In terms of the burden of debt on national finances, Ghana bears twice that of the average African country.

Ghana’s 83% effective debt to GDP ratio is more than double that of the average peer African country. Source: EIU
Ghana spends nearly half of all its revenues servicing its debt compared, way above what most of its peers spend. Source: S&P (2020)

The announcement yesterday by Fitch, one of three major global companies that assess the creditworthiness of countries, that it will downgrade Ghana’s sovereign credit rating to B-, with a negative outlook (meaning that it is more likely to downgrade further than to upgrade) should therefore not have come as a surprise. But it is very significant for a number of reasons.

First, it can be argued that Fitch has been a bit more lenient with Ghana than some of its peer rating agencies historically. Given investor sentiment on Ghana’s credit risk, its ratings could actually have been worse than it has recently been.

Ghana’s Fitch rating in recent times judged by its investor credit risk perception can be argued to be somewhat favourable compared to peers. Source: Aykut, Oppong & Awanzam (2016)

Fitch’s negative outlook is particularly concerning because the B- rating places the country at the border with countries on the verge of defaulting on their debt. Any further downgrade will therefore seriously prolong the country’s shutout from the international private capital markets.

Ghana cannot afford to slip into the C and D rating bands so Fitch’s negative outlook is worrying. Chart credit: Sasol PLC

To reinforce the point, this is Fitch’s worst rating since it began covering the Ghanaian economy nearly 20 years ago. The country now has the dubious honour of joining Tunisia and El Salvador as B- peers with a negative outlook.

Ghana enjoyed relatively good ratings from Fitch during its first decade on the international capital markets. The current rating marks a new low. Source: TradingEconomies

Ghana has already been in doldrums territory as far as Moody’s and S&P are concerned, so a negative outlook is expected across the board. That seems pretty bad, so how does the government explain things?

The general posture of the country’s economic managers has been to blame COVID for the short-term issues (though, as shown in previous sections, the malaise clearly predates COVID), and low tax compliance by the population for all the other, more chronic, problems.

The chart below summarises the government’s favourite point.

In sum, in the government’s view, Ghanaians pay too little tax compared to their compatriots elsewhere, even in other African countries. True? Maybe. But there are important nuances to note before one starts comparing apples and oranges.

Take a very good look at the countries clustered around Ghana in the chart above, i.e. Ghana’s peer tax laggards. You will notice something curious that is also borne out by the two charts below.

Even a cursory glance will tell you that high natural resource dependency and a strong extractives/commodity sector correlates roughly to lower tax-to-GDP ratios. This is intuitive. Even without the usual rigour of multivariate regression analysis, one can hint at the tendency of extractives to inflate output numbers without necessarily boosting state revenues. That this claim is not some fluke of overzealous correlationism is supported by similar findings beyond Africa.

An outsized extractives sector appear to suppress the tax to GDP ratio of countries. 2020 numbers. Chart credit: World Bank, Australian Parliament & OECD.

Commodity supermajor, Australia, has a tax to GDP ratio of about 24% whilst less commodity-dependent France reports a hefty 45%. An even better contrast can be got when one compares two economies similar in many respects except in relation to the scale of their commodity involvement. Norway hovers around 25% for our metric of interest, whilst Denmark has been known to breach the 48% mark.

Even close-enough peers like Denmark and Norway can exhibit considerable variation in tax-to-GDP metrics due to commodity effects. Chart credit: CEIC Data.

It is very unlikely that such large differences between Australia and France, Denmark and Norway, or Brazil and Uruguay, can be put down merely to tax collection efficiency or citizen compliance. Nor, clearly, is this strictly a matter of absolute diversification of the economy.

In light of the above, it is reasonable to argue that compared with its true peers on the African continent, Ghana’s tax take (which by the way has now converged with the Sub-Saharan average of about 15%) is pretty unremarkable. Exceptionally low tax revenue for the size of the economy cannot be the reason why the country’s creditworthiness is taking such a hit.

Misdiagnosing the problem however leads to half-baked ideas such as the e-levy, which we have discussed at length here and here. I will sum up our previous conclusions as follows:

  • The Government’s estimate of making $1.15 billion from the e-levy is overly rosy. Countries like Kenya have been using similar taxes for more than 10 years. Uganda went the same route more than 3 years ago. None of them have been able to rake in fantastical sums. MTN, responsible for 92% thereabouts of transactions in the Ghanaian mobile money space makes about $216 million from unit fees. Adjusting for the facts that Uganda has a fifth of Ghana’s mobile money transactional scale and that it applies less than one-third of Ghana’s proposed rate, Uganda’s $27 million per annum take may translate to about $350 million in Ghana’s case. Far from making a dent in a $6.5 billion fiscal hole. In sum, e-levy is not a major part of the answer.
  • The current design of the e-levy lacks any backing in serious modelling. Its elements are purely arbitrary. If that remains the case, the tax could seriously distort behaviour and drive the emerging digital economy and its players more into the informal rather than the formal bracket. This will undermine larger digital taxation strategies currently being designed by the Ghana Revenue Authority with the help of the British Government. As more business shifts to currently informal digital channels like Instagram, WhatsApp and TikTok, careful thinking is required to figure out how to craft policies for e-commerce that don’t end up burdening the few formal operators.
Formalising the emerging digital economy will require a far more cleverer, dynamic, and responsive strategy than what has been tried in the traditional sector. Source: Amolo & Porteous, CGD (2018)
  • Presently, digital money is mostly used to drive off-line transactions. To truly deepen the country’s digitisation drive, smarter strategies are needed to boost in-app purchases and online transactions. A cleverer digital taxation strategy can achieve that. A blunt instrument will only deepen the cash-like use of digital money, thus forgoing the true benefits of digitisation.

Moreover, overconcentrating on tax compliance and collection can distract from other important features, especially when misdiagnosis leads to drawing the wrong lessons from other jurisdictions. For example, one major compositional difference between the rich world and places like Ghana, as far as tax structure goes, is the former’s strong reliance on social security taxes, which reflect demographic and industrial factors that don’t apply in Africa.

Another design blind spot created by excessive focus on collection alone is the tendency not to look at categories of taxation that already constitute major sources of revenue, like VAT. Yet, research shows that Ghana’s VAT structure is rather inefficient.

Add to the above the issue of “exemptions” that has never really benefitted from broader stakeholder consultation and the scale of neglect becomes even clearer.

Indeed, poor stakeholder engagement accounts for the inability of the government to take on public spending, by far the most critical gap to be filled if Ghana is to climb out of its current revenue crisis. Because the government never genuinely invites stakeholders to contribute to policy formulation and merely pretends to listen and then goes ahead to do what it always intended to do anyway, cross-elite buy-in tends to be weak. When painful sacrifices are required, it suddenly becomes obvious to everyone that the government simply does not have the necessary credibility to rally the population.

Furthermore, the government and bureaucratic classes are themselves not genuinely interested in tackling waste in public spending head on. Genuine cooption of independent-minded stakeholders in the academic, civil society and opposition benches in Parliament would lead to hard questions the government has no appetite for.

For example, Civil Society Organisations would insist on truly independent evaluation of a whole raft of government programs that have become mere troughs of patronage for the politically connected. They will ask for a thorough, rigorous, non-partisan review of the more than 40 so-called youth employment programs in Ghana, and demand evidence that they are indeed adding value.

A bewildering mishmash of government interventions in the youth employment sector is sowing more confusion than solving any clear problem. Source: World Bank (2020)

The last time a government slipped and allowed such an independent review, it was discovered that as much as $317 million may have been wasted in one program – GYEEDA – alone.

Whilst the government spends tens of millions of dollars on so called entrepreneurship and employment schemes that it refuses to subject to a truly multistakeholder review, the one area that serious research has established could make a genuine dent in youth unemployment – technical & vocational education (TVET) – continues to suffer neglect.

For decades, TVET has received less than 2% of the total education budget. Whilst the government was busy pouring millions of dollars into evident scams like the so-called “venture capital trust fund” (where officers invented fictitious companies and used them to pocket the cash), purportedly to resource entrepreneurship as a solution to unemployment, it was also sashaying around Accra, cap in hand, begging the likes of DANIDA for $14 million to invest in youth technical skills.

Clearly, the issue is not that Ghana is broke but that it is broken. To mend its broken policymaking and restore the country to creditworthiness, the government and its enabling political class must admit the brokenness of the current public finance model and solicit genuine multistakeholder support to cut another path.

Ghanaian social media activists were relieved after Ghana’s food safety regulator (the FDA) broke months of silence on consumer complaints about curdling canned evaporated milk made by Swiss food giant, Nestle. 

FDA recalls batches of coagulated evaporated milk products from Nestle  after consumer complaints -
Coagulated Ideal Milk has drawn the ire of Ghanaian social media activists. Image source: MyJoyOnline

As discussed in my previous post, the FDA’s silence despite having been intimately involved in Nestle’s investigation into the milk “coagulation” problem exasperated activists who kept the pressure on until today’s regulatory notice recalling 24 batches of the popular Ideal and Carnation evaporated milk brands.

FDA Recalls Batches Of Coagulated Evaporated Milk Products From Nestle -  Ghana's News Portal
FDA Regulatory Notice dated 10th January

In my own, quite belated, comment on the subject, I reduced the crux of the issue to whether a biological agent was the cause, in which case a safety issue was highly likely, or if instead a quality deviation that only impacted presentation might be the situation. 

The FDA says its investigation has revealed the culprit as a batch or batches of milk powder, the key ingredient in the recalled products, sold to Nestle by a supplier or group of suppliers. Somehow, when “reconstituted” and “recombined” to prepare the evaporated milk product, the end result fails expected heat stability performance. This is a well known hurdle to cross when using milk powder to make evaporated milk.

The inference here is that some supplier vetting and quality assurance processes failed, batch control was faulty, and remediation has struggled to fix this for at least 6 months now judging by the recency of some of the batch dates. Still, no safety issues were found and no contamination has been established in laboratory tests for any microbial candidates.

 So, for now, activists can breathe a bit easy. But, for me, the whole episode raises intriguing policy issues that transcend this specific health & safety scare. Why is Nestle using milk powder rather than fresh milk as it does elsewhere? Before we discuss that, bear with me as I meander on a detour of industrial policy with a geopolitical twist.

In the year that Britain broke Asante power in the then Gold Coast (now Ghana), the two halves of what became Nestle had their seminal moments. The British controlled half, Anglo-Swiss company, commenced their UK expansion from Cham by buying the Condensed Milk Company. On the continent, meanwhile, Henri Nestle sold out to more energetic investors in Vevey. Anglo-Swiss and the renamed Farine Lactee Henri Nestle would, after decades of bruising rivalry, merge 31 years later (in 1905, that is) to create what would become the world’s largest and most formidable food giant.

In the same vein of momentous dates, Nestle entered the Ghanaian market in 1957, the year of Ghana’s independence from Britain, to market products made in Europe. It will take 11 years before local manufacturing started, and by 1971 the famous ideal milk was rolling off manufacturing lines in Tema.

For many years, the Government of Ghana owned a quarter of Nestle stock through the state-owned industrialisation-focused bank, the National Investment Bank (NIB). When the joint venture between Nestle and NIB started in 1971, NIB actually owned 49% of the company. Subsequently, the socialist military government of General Acheampong took over and increased state shareholding to 55%.

For nearly 20 years, therefore, the Ghanaian government was the principal shareholder in Nestle. The privatisation wave of the 90s did see the shareholding structure revert to 51% in favour of Nestle in 1993. But Ghana still had plenty of shots to call. Throughout this period also, the Tema plant was Nestle’s only milk processing factory in West Africa (by the way, Nestle’s West & Central African operations have been run from Accra since 2005). Unsurprisingly, production of processed dairy in Ghana increased from about 3 million litres in 1984 to over 30 million liters in the mid-nineties.

It is mind-boggling that despite the influence of the Ghanaian political and policy elite on Nestle’s operations in the region, in the boardroom and elsewhere, the long mulled “integrated dairy value chain” to supply fresh milk has never taken off in Ghana.

In Northern Nigeria, Nestle has invested substantially in developing fresh milk value chains based on Fulani cattle breeds. Nestle’s first zero-emissions dairy farm is in Southern Africa. Nestle Zimbabwe has been investing directly in cows. After concerted business ecosystem efforts, Nestle committed to local dairy value chains in Kenya and Uganda. Some observers have already noted a surge of investor interest in Africa’s dairy prospects because of such growing engagement by the likes of Nestle, Arla and Danone.

Yet, Ghana has mysteriously failed to capitalise on its pioneering dairy industry, exemplified by Nestle’s and Fan Milk’s presence in the country long before regional neighbours got their mojo. Despite Ghana’s head start, countries like Senegal, which is positioning for 70% self-sufficiency in milk, are steadily leaving the country in the dust.

When Erik Emborg introduced the Fan Milk brand in Ghana in 1960, the momentous year of the country’s republican status, the plan, backed by the Government, was very much to embed the operation in the planned integrated dairy complex, complete with local farms. The idea went nowhere and Erik just went on importing milk powder from Scandinavia.

According to dairy researchers, Bonodong Guri, Godwin Ameleke and their collaborators, Ghana’s production of milk, 90%+ of which comes from free ranging cattle, has stayed stagnant at between 36,000 and 43,000 tonnes for over two decades. Compared to 420,000 tonnes of production in next door Burkina Faso (a ten-fold difference). Benin, much smaller and situated in a similar tropical terrain as Ghana, clocks roughly 150,000 tonnes per year. This is no tsetse fly matter.

That there is something spectacularly off about appreciation of the dairy opportunity in official circles is borne out by the failure to capture any significant interventions targeted at boosting fresh milk production in the 5-year initiative known as Rearing for Food & Jobs, the government’s flagship livestock development program, launched in 2019. Indeed, the biggest intervention seen in Ghana’s dairy sector to date may have been the importation of the White Fulani breed of milk cattle from Nigeria by the Colonialists in 1930.

Yet, there is no shortage of critical needs in the beleaguered industry. Water scarcity; a dilapidated veterinary service; lack of genetic breeding technologies; zero cold chain infrastructure across most of the value chain; and a severe absence of commercial scale pasture are a couple of the most prominent.

In 1999, in response to these age old challenges, donor funds made possible a decade-spanning attempt to revive Ghana’s abandoned cattle stations in Nungua, Amrahia and elsewhere. Cross-breeds that can increase milk output per cow by 600% were developed. Supply of tens of thousands of litres of milk to Fan Milk, Ghana’s main ice cream producer, and other processors became possible. Over a ten year period, the performance of the Friesen x Sanga cross-breeds (initially introduced into Ghana in the 1960s from the Netherlands and the UK) were celebrated at various conferences. Then it fizzled out slowly.

These days, the government of Ghana spends about $120,000 a year paying workers at the Amrahia Station. It does not budget for operational or capital expenses. Rather, it expects handouts of less than $20,000 a year from donors for that. The biggest investment into the vaunted national integrated dairy complex vision launched in 1965 in the last three years have been some purchases of artificial insemination kits and bovine semen from the Netherlands capable of adding about 300 calves to Ghana’s herd of about 2 million cattle.

When in 2019, Government took over the 24% stake held in Nestle by NIB as part of a cash swap to save the latter from insolvency and help it meet minimum capital requirements, there was a brief period of hope that something strategic may be done. Instead, the transaction has today become clouded in opacity as stakeholders are kept in the dark about plans to offload the shares to private interests.

Meanwhile, imports of milk powder continue to surge.

Import volumes of dairy products into Ghana. Source: International Trade Center (2020)

Self-sufficiency remains stubbornly stagnant.

Local production has stagnated whilst consumption rises. Source: Food & Agriculture Organisation (2018)

And talks with Nestle to procure locally, especially from Amrahia, have still not been backed by any serious policy coordination. But given the multiple ecosystemic issues involved, pure private action, in the face of a highly disabling environment, would falter. Not surprising then that the other 10 major dairy processing companies in the country also resort to imports for virtually all their needs, despite episodic domestic sourcing drives.

Beyond the safety, branding and trust issues that surfaced during this whole Nestle Milk saga, what may endure is the opportunity it has provided for the public to move beyond the political PR flourish of projects like 1D1F and Rearing for Food & Jobs. Because, by so doing, the people of Ghana may then be able to take a hard look at how policy on critical matters like “integrated value chains” is actually executed by the modern State of Ghana.

Yesterday, I saw this intriguing clipping of a press release-like ad by Nestle in Ghana about its mega-brand, Ideal Milk.

Nestle Ad in Ghanaian Newspaper

The primary message in the ad can be distilled into three lines:

  • Some liquid Ideal Milk cans on the market have coagulated contents (the fluid has become viscous/thick).
  • The product will not harm anyone who consumes it.
  • Customers who are nevertheless worried about the product should reach out to Nestle directly.

I was fascinated by the ad because:

  • I like Ideal Milk;
  • I have spent two decades of my life in product safety, consumer protection and supply chain; and
  • I have recently developed a fascination for the history of food canning;

The value proposition of Ideal Milk, in the wider universe of “evaporated milk”, is “creaminess”. As far back as the 1920s, Nestle was packaging the goodness of ideal milk as being about the cream. Normal cow milk doesn’t always have the frothy cream when you want it and in the amount you need. But Ideal Milk does. It is always creamy. Of course, creaminess must taper off at a point, hence the recent outcry.

A Nestle ad from the 1920s. Courtesy of Mary Evans Prints.

Like much of the rest of the food canning industry, it was war that dramatically catapulted canned evaporated milk onto supermarket shelves. The need to send soldiers around the world and keep them for months on the battlefront called for a modern food logistics system that greatly favoured canning. The balance of necessity and accessible luxury has long been a key brand positioning factor for the canned evaporated milk industry even as a host of health concerns, ranging from lactose intolerance to concerns about weight gain and cholesterol, have chipped away at the product’s place in shoppers’ hearts.

Nestle banks on wartime patriotism to brand evaporated milk as essential. Courtesy of the Imperial War Museum.

How then does one achieve “consistent creaminess” (luxury) and long shelf life (necessity) together? By adding vegetable fat to fresh cow milk and then applying heat treatment and other techniques, such as homogenisation.

The first person to try and commercialise evaporated milk production was Nicholas Appert, in response to a challenge by Napoleon Bonaparte to French chemists to come up with ways for the Emperor to feed his conquering armies in far-flung battlefields. But it would take about a hundred years more for the likes of Borden, Joseph House, and John Meyenberg to perfect and patent the necessary processes. Mass consumer acceptance was not assured until critical steps like homogenisation, sterilisation, and standardisation could be mastered, balancing creaminess, long shelf-life and taste. In 1923, the Evaporated Milk Association emerged to codify what had been learnt on the way to this point.

This “codification” was given the force of law by the United States government in the same year of 1923. The US continued to be a pacesetter in setting standards, with major updates in 1939 and 1940. Today, its Department of Agriculture frames the standard in terms of minimum solid fat content as follows:

Evaporated milk is the liquid food obtained by partial removal of water only from milk. It contains not less than 6.5 percent by weight of milkfat, not less than 16.5 percent by weight of milk solids not fat, and not less than 23 percent by weight of total milk solids (21 CFR §131.130(a)).

In the course of time, however, global standards have emerged. The Food & Agriculture Organisation, a UN agency, now maintains the Codex Alimentarius, the most authoritative handbook of food standards in the world. The specification for evaporated milk in this code is captured by standards, such as: CODEX STAN 281-1971 and CODEX STAN 250-2006.

Here is the Codex definition:

A blend of evaporated skimmed milk and vegetable fat is a product prepared by recombining milk constituents and potable water, or by the partial removal of water and the addition of edible vegetable oil, edible vegetable fat or a mixture thereof, to meet the compositional requirements in Section 3 of this Standard.

The minimum solid fats content is specified as:

  • Minimum total fat: 7.5% m/m
  • Minimum milk protein in milk solids-not-fat(a): 34%

It is natural when confronted with a situation, as we have it now, where a product meant to be sold in liquid form presents as a thick pasty, semi-solid, sludge, to focus on the part of the standards that seem most applicable to the physical state of the product. But as should be clear from the above, the standards seem silent on the upper bound of solids in evaporated milk. What this clarifies is the fact that, generally, standards are minimalist when it comes to presentation. But not when it comes to safety.

Which brings us to the heart of the matter (sorry for the longwinding detour, I could not resist throwing in some hobbyist tropes). Nestle admits “coagulation” in some packs of ideal milk in response to widespread reports.

Man in Ghana Opens Ideal Milk & Finds Tom Brown Porridge Inside
Ghanaian Social Media is rife with reports of “coagulated Ideal Milk”. Image Credit: Ebenezer Quist, 23/09/2020

They do not specify which batches. On the basis of “collaboration” with the Ghanaian food regulator, the FDA, they are confident that the coagulated milk is safe.

Interestingly enough, there is a very long history of evaporated milk coagulation, dating back to the very early days of the product’s commercialisation. In 1915, a large “outbreak” of incidents involving consumers complaining about coagulated evaporated milk was reported in the US State of Iowa. William Sarles and Bernard Hammer investigated this incident thoroughly and identified a particular bacterium, Bacillus coagulans, as the microorganism responsible.

Extract from William Sarles’ account on their investigations into Bacillus coagulans.

The primary discovery here was that notwithstanding effective pasteurisation and sterilisation, there exist some bacteria that can evade the controls, infect the can and, during storage, coagulate the liquid milk.

Since these pioneering studies, our understanding of the impact of thermophilic and thermoduric bacteria on evaporated milk has improved greatly. We now know that spores of Bacillus stearothermophilus, for instance, will lie dormant in the can until storage temperature exceeds 40 degrees celsius at which point they will activate and start to attack the milk.

Virtually all the reports of Ideal Milk coagulation I have seen so far do not mention odour, putridity, colour changes or blotches. Curdling and thickening are the only features mentioned. This more or less rules out the worst kinds of fermenting bacteria. But it does not rule out thermophiles like B. coagulans and Bacillus cereus.

Now, for a bit of relief. Bacillus coagulans are today widely believed to act as a probiotic, which means they are generally safe in the human gut.

Bacillus Coagulans - 60 Capsules — — Seeking Health
B. coagulans marketed as a food supplement.

Same, unfortunately, cannot be said for B. cereus, whose proclivity for contaminating ultra high treated milk is now a growing focus of research.

Incidence of Bacillus cereus, Bacillus sporothermodurans and Geobacillus  stearothermophilus in ultra-high temperature milk and biofilm formation  capacity of isolates - ScienceDirect
How B. cereus attacks pasteurised milk. Credit: Alonso, Morais & Kabuki (2021)

B. cereus is now routinely implicated in some forms of food poisoning.

Foodborne Illness Caused by Bacteria - ppt video online download
B. cereus disease causing profile. Credit: Myla Argente, 2016

In short, so far, no reports have come in to suggest that people are getting sick from consuming Ideal Milk. The most worrying form of coagulation would be that caused by microorganisms. But, as explained above, some microorganisms that cause coagulation are completely harmless. Non-biological causes of coagulation, on the other hand, are mostly related to the persistent challenge of fat separation. Ineffective homogenisation is the most widely cited culprit for this situation. Generally, the process of sterilising milk to increase its shelf-life would itself cause coagulation. To maintain the liquid state of the product, as well as ensure heat stability, delicate calibration of multiple factors is required. Casein content measurement, precise heat regulation, homogenisation, and even salt use must all be carefully modulated.

Understanding the impact of key production steps on in-storage coagulation of evaporated milk. Credit: Maxcy & Sommer (1954)

Thus, the coagulation being witnessed could be the effect of a homogenization failure or related fat regulation issue, such as lecithin use and concentration. Whilst this may raise Good Manufacturing Practice (GMP) questions, not all quality variability issues are automatic GMP breaches, and not all GMP breaches are automatic health and safety issues. There are varied thresholds and caveats, and everything depends on how exactly the variability occurred.

That is why a matter such as this cannot be left to the brand communications strategy of the manufacturing entity involved. The ambiguity and multiplicity of potential causes and effects require that someone other than the manufacturer be involved in communicating with the public. Whilst Nestle has involved the FDA in its investigations, and appropriately so, the press release does not rise to the appropriate level of public assurance. It does not explain why this is not a health and safety issue. There is no independent corroboration that the remedial measures taken to address the root cause are adequate. This is not about protecting the brand of a giant multinational; it is about safeguarding the health of millions, or at least securing their peace of mind.

Talking to people affected by this incident, however, I get the sense that there is a fundamental philosophical conundrum at play here. Some people say that they trust Nestle more than they trust the Ghanaian FDA. It is hard to blame such people. Senior officials of the Ghanaian FDA have in recent times been caught taking bribes in connection with similar GMP, health and safety matters. Some argue that Nestle, despite its occasional run-ins with activists, and not fully atoned for history with baby milk formula, has additional oversight at a global level that may be more stringent than what the local regulator has in place.

So, it is a brand issue after all: it all boils down to the level of trust among the general public. One cannot milk a brand one has not built.

Nonetheless, my personal view is that the regulator has more to do to earn and hold the trust of the general public than Nestle. The latter after all is, first and foremost, in business to make money. If it genuinely believes that its products are not contaminated, it is not difficult to see why it will be reluctant to take steps, like a mass recall, that will not only cost it lots of money but potentially also damage one of its most lucrative brands. A regulator, on the other hand, must balance multiple considerations and strive to be candid and transparent in all its dealings regardless of financial considerations.

The fact that the FDA has so far refused to share its own findings for nearly six months is a serious abdication of its duty to the public. Even if public cynicism and distrust of such vital institutions are sometimes unfair, the FDA has every opportunity to redeem its own brand.