A multi-pronged drive to formalise the Ghanaian economy took a major step forward recently with the nationwide introduction of a Digital Address System.
Officially launched in October by President Nana Afuko-Addo, the scheme employs Google mapping technology embedded in a mobile app, GhanaPostGPS. The app allocates a digital address to each property or piece of land, with accuracy to within 5 sq metres.
Anticipated economic benefits of the Digital Address System
A project for the Ministry of Communications, in partnership with Ghana Post, the initiative cost around $2.5m to develop and is expected to yield a range of benefits for the country – which, like many in the region, previously had no formal address system.
As is common throughout much of Africa, Ghanaians have traditionally used well-known landmarks, rather than house numbers, street names or postcodes, as locators. This practice has hindered revenue collection and service delivery across both the public and private spheres.
Among the potential advantages of the new system are improved delivery of public services, reduced poverty levels due to greater financial inclusion and increased efficiency for businesses.
The digital address initiative is closely tied to the National Identification System, which aims to improve governance via a centralised database containing biometric data on all of Ghana’s citizens.
Under the programme, Ghanaians applying for a new smart national ID, called the Ghana Card, will be required to have a digital address.
Database to streamline utility meter readings and payments
The central aim of the two programmes is to improve governance and formalise the economy, which means the systems are being set up to integrate with public utilities and local tax authorities.
“Overall, the implementation priority is the public sector, which will drive wider acceptance,” Nana Osei Afrifa, CEO of Vokacom, the local ICT firm engaged to develop the system’s software, told OBG. “The most immediate focus will be to add addresses to every utility bill.”
In addition to formalising the billing process, utilities companies will be able to streamline meter readings.
The Ghana Water Company, for example, currently carries out all readings manually, with bills then printed and distributed. This cumbersome process has led to delays in billing and payments, as well as lower collections.
The new address database will enable the Ghana Water Company to introduce its own e-billing system, with information obtained via the app helping to monitor water usage and assist in identifying key areas for network expansion.
Tax collection to benefit from formal address system
Access to a database of registered addresses – both business and residential – could also help fiscal authorities improve the collection of income and property tax.
Shortfalls in revenue collection are a longstanding problem in Ghana; last year the Ghana Revenue Authority recorded a gap of GHS1.2bn ($259.8m). Property tax presents particular challenges, due to the high number of undefined land boundaries.
The impact of persistent shortfalls on fiscal stability has been significant; in 2016 Ghana’s budget deficit widened from 6.7% to 7.8% of GDP on the back of lower-than-expected tax revenue.
As well as boosting collection, the new system could help the authorities widen the tax base by formalising a larger portion of the economy. In 2015 some 90% of the employed population aged 15 and above worked in the informal sector, according to the Ghana Statistical Service’s latest survey of the labour force.
Joe Tackie, CEO of the Private Sector Development Strategy II at the Ministry of Trade and Industry, told OBG last year, “There is potential revenue in the informal sector, but you must have the right approach so that these companies do not avoid tax.”
Businesses and banks to see improved access to credit
Significantly, the Digital Address System will also ensure that individuals and small businesses are able to meet the basic requirement for accessing credit.
Around a quarter of Ghanaians are excluded from any form of financial services, according to a 2015 financial inclusion survey carried out by the Consultative Group to Assist the Poor (CGAP), part of the World Bank Group. While some 67% of adults save, 40% invest and 10% take out loans, few of these transactions are channelled through banks, with many preferring to informally borrow from friends and family.
The ability to instantly verify the locations of businesses and their owners will enable banks to upgrade their credit ratings systems and better manage risk, allowing them to release funds more quickly and improve loan recovery. The cost of accessing credit could also fall, as banks will have the means to follow up on clients and easily locate property used as collateral.
At present, impaired assets are an important risk for the banking industry. The central bank reported a deterioration in the loan portfolio between June 2016 and June 2017, as total non-performing loans rose 25% to reach GHS8bn ($1.7bn).
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