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In this guide we will consider Public Investment in which we will look at answers to questions like what is public investment, meaning of public investment, types of public investment etc.
MEANING OF PUBLIC INVESTMENT
Public investment is an expense or expenditure made by the central government, a local government unit, or public corporation to acquire financial or non-financial assets with the aim of deriving some future benefit, interest, dividend, growth or productivity in the national economy.
This definition is broad-based and meant to cover all public investments, the item 4 of the national estimates.
However, for purposes of preparing the national accounts of the consolidated Fund, a narrow-based definition of public investments is used, meant to cover only financial assets. This is because the final account of the consolidated fund is prepared on a modified cash basis.
Physical investment (tangible assets) is the most obvious, as involves constructing new buildings, roads and facilities. This is the type of investment included in the public capital budgets, and it is also the focal area of the Governments strategic investment programme.
However, this does not mean that operating expenditure on training, education and research is unimportant for the growth of a society. Expenditure in this areas is often, and rightly so, regarded as valuable investment for both individuals and society.
The financial Administration Regulation 2004 (L.I.1802); Sections 140 to 148 establish the rules for investment proposals:
- 1 Proposals for the establishment or purchase of stock or shares in any institution shall be submitted for approval to the Minister quoting the appropriate enactment.
- The proposals shall give such information as the Mister may require and shall include copies of any prospectus, accounts or investigation of the financial affairs of the institution concernment and must indicate the proportion of the equity to be acquired.
Approval of Investment
- If a proposal for investment is approved, the Minister shall inform the Controller and Accountant-General of the proposed purchase, designate the administering authority, and forward a copy of any agreement made in connection with the acquisition to the Controller and Accountant-General and to the Auditor –General.
Responsibility of the Administering Authority
- The authority administering an equity investment shall:
- subject to any direction of the government, act on its behalf in the exercise of ownership rights.
- protects the public interest in the operation of the institution concerned
- Receive the accounts of the institution concerned and draw the attention of the government to any matters arising;
- Lodge and keep stock and share certificates in safe custody; and
- ensures the due collection of dividends and their lodgments into Consolidated Fund.
Acquisition of Shares
- The administering authority of an equity investment shall be responsible for arranging for the payment of stocks or shares through the Controller and Accountant-General.
Certificates of Shareholding
- (1) as soon as the stock or share certificates have been received, the administering authority shall forward:
- the original Certificate of Holding to the Minister; and
- Copies to the Controller and Accountant-General, and the Auditor-General.
(2) The share held shall be checked on the last working day of each subsequent financial year by the administering authority and a new Certificate of Holding where applicable shall be forwarded to the Minister and Controller and Accountant-General and the Auditor-General.
Report to the Minister on Equity Investment
- The administering authority shall report to the Minister:
- A forecast of dividend to be included in the Consolidated Fund Revenue each year;
- Any failure of the institution to present annual audited accounts;
- information on distribution of profits;
- any delay in declaration and payment of dividends;
- any shortfall in profits and the reasons for it;
- any unsatisfactory features of the institutions operations likely to endanger Governments investment and
- any directions or representations made to the institutions in the capacity of owner.
- (1) the administering authority shall ensure that copies of the annual audited accounts are forwarded to the Controller and Accountant-General, and to the Auditor-General.
(2) The administering authority shall confirm to the Minister that Governments interest is correctly reflected in the accounts of the institutions concerned and in the public accounts, and shall report any unsatisfactory features reflected in the accounts.
- The administering authority shall include a report on the operation of equity interest in the annual report submitted in accordance with section 41 of the Financial Administration Act, 2003, (Act 654).
Statement of Equity Interests Annual Accounts
- (1) The Controller and Accountant-General shall include a statement of all Government Equity interests in the Annual Statement of Accounts submitted in accordance with Section 41 of the financial Administration Act 2003 (Act 654).
(2) The statement shall show in respect of each institution:
- The full title of the institution;
- The administering authority
- The form and value of Governments investment
- The proportion of the equity held and
- The date of the latest annual audited accounts received from that institution
REASONS FOR PUBLIC INVESTMENT
- Provision for social wants
- To influence future social, political, economic or financial environment for optimal growth of the economy
- To create jobs and reduce unemployment
- To invest in labor intensive industries
- To stimulate demand in the national economy
- To apply underutilized resources, plant, machinery and equipment to increased production in the national economy
- To create or improve public infrastructure
- To keep pace with trends in changes in technology and innovations and prevent obsolescence of plants, equipment, machinery etc.
- To develop new technologies
- To expend existing infrastructure
- To provide loans to the private sector of the economy
- To effect the distribution of national income among districts and regions
- To create and improve human capital in the national economy and
- To create and improve productivity.
To summarize, public investments have longer gestation periods far-ranging consequences because the returns of these investments can be seen only after a period of time.
Sustenance of the national economy can only happen if physical capital is high, physical capital includes roads, bridges, hospitals and similar infrastructure. The human capital can only be supported by outright physical capital.
Lock of physical capital can force large sections of the population to migrate to other countries, or to saturate specific regions of the country.
How does one effect change in the general productive capacity of a national economy? There must be sufficient outlay of public investments in early childhood needs and education.
Education should involve the whole chain from primary school to subsidies in the university.
TYPES OF PUBLIC INVESTMENT
Public investments include all financial a non-financial asset, which the central government, local government units, and public corporations hold or use over a period of time, to derive economic or financial benefits.
They comprise such assets as:
- Financial assets help for the purpose of public policy on liquidity management.
- Policy-related assets which may be acquired for a variety of reasons, such as fostering new industries, assisting ailing government corporations, or helping particular business suffering economic adversity. The categories are monetary gold and SDRs, currency and deposits, loans, securities other than shares, shares and other equity, insurance technical reserves, financial derivatives, and other accounts receivable.
For the purpose of the Consolidated Fund Accounts the following financial assets are recognized: Trust funds, International Agencies, Local Investment, General Revenue balance.
Investments in Trust Funds represent balances held by a crown Agent in General Account and Sir Alfred Jones and H.S. Newlands Bequest being managed by Crown Agents.
Investments in international Agencies represent Governments Investments in an International organization. These investments are denominated in cedi’s.
Local Investments represent Governments investment in Statutory Boards Corporations and Companies
General Revenue Balance
General Revenue Balance consists of accumulated deficit/surplus on revenue and expenditure, non-cash
Loan disbursements and the net effect of foreign exchange translation of debt balances and remittances
over the year and prior year adjustment.
Purchase or sales of non-financial assets (fixed assets, strategic stocks, valuables non-produced assets).
Non-finance assets are explained in detail in chapters one and fifteen.
Sales of Non-Financial Assets
The central government and a local government unit and public corporation may purchase fixed assets
such as b buildings or vehicles with the view of driving in come from these assets.
Such investments include construction of court houses accommodation facilities, and acquisition of
other fixed assets used by the government to provide services to the public, for example, fines penalties
and forfeits constitute income from such assets.
The government may construct a court house or acquire a building for the purpose of providing judicial
administration. However, the government will indirectly benefit or derive income through fines,
penalties, and forfeit’s.
Fines and penalties are compulsory current transfers imposed on people by courts of law or quasi-
judicial bodies for violations of laws or administrative rules. Out-of-court agreements are also included.
Forfeits are amounts that were deposited with a government unit pending a legal or administrative
proceeding and that have been transferred to the government unit as part of the resolution of that
proceeding by individuals, establishment or groups of people
This item includes fees for compulsory licenses and other administrative fees that are sales of services.
Examples are driver’s licenses, passports, court fees, and radio and television licenses. For these fees to
be considered as sales of a service, the government unit must exercise some regulatory function. If a
payment is clearly out of all proportion to the cost of providing the services, then the fee is classified as
taxes on the use of goods and on permission to use goods or perform activities.
Incidental Sales by non-market Establishments
This item covers sales of goods and services by non-market establishments of government unit’s other
than administrative fees; for example, the auction of goods by government department constitute an
Included are sales incidental to the usual social or community activities of government department and
agencies, such as sales of products made at vocational schools, seeds from experimental farms,
post-cards and art reproduction by museums, fees at government hospital and clinics, tuition fees at
government schools, and admission fees to government museums, parks, and cultural and recreational
facilities that are not organized as public corporations.
Property Income Attributed to Insurance Policyholders
Insurance enterprises hold technical reserves in the form of prepayments of premiums, reserves against
outstanding claims, and actuarial reserves against outstanding risks in respect of life insurance policies.
These reserves are considered to be assets of the policyholders or beneficiaries, including any
government units that are policyholders, and liabilities of the insurance enterprises. Any income
received from the investment of insurance technical reserves is also considered to be the property of
the policyholders or beneficiaries and is described as property income attributed to insurance
FINANCING PUBLIC INVESTMENT
Public investment in Ghana is financed in the following ways: namely, tax investment, investment by
user’s fees, loans, grants, donation, investment by public corporation, seizures of assets, and creation of
This is investment in key welfare areas such as health and training and education, as well as roads and
railways. The central government is responsible for a greater portion of tax-financed investment, while
local authorities account for the rest.
Investment Financed Through User Charges
This is investment made by public corporations such as energy and water-supply companies and
government unit in charge of providing toll booths.
Government may also engage in public investment by using loans, borrowing may need to be
constrained because of concerns about longer-term debt sustainability.
Gross public debt matters even when it is offset by public assets, both because of the signals high debt
levels send to markets, and because heavy debt service limits the governments room for maneuver in
the face of adverse economic shocks.
Spreading the costs of public investment over time promotes intergenerational equity. By financing
public investment through borrowing rather than through current savings, government can shift part
of the cost of investment to future beneficiaries by having them service the resulting debt.
Public investment may also be financed through grants. Grants are amounts paid to the government
either in cash or in kind. Of these amounts, neither capital nor interest may be repaid. For an example,
the Japanese gave a grant for the construction of the Yamoransa to Kasoa highway.
This category includes gifts and voluntary donations from individuals, private nonprofit institutions,
nongovernment foundations, corporations, and any other source other than governments and
international organizations. Current voluntary transfers other than grants include, for example,
contributions to government of food, blankets, and medical supplies for relief purposes.
Investment by Public Corporation
Not all long term capital is raised by the government through public offerings. Often public
corporations find it advantageous to raise long term capital on their own by using internally generated
funds and guarantees or collateral.
Seizures of Assets
Government units may take possession of the assets of other institutions without full compensation for
no reasons other than the failure to pay taxes, fines, or similar levies, such seizures of assets, legal, are
not capital transfers because they do not take place by mutual agreement of the units involved. The
excess of the value of the assets seized over the value of any compensation paid is recorded as another
Foreclosures and repossessions of assets by creditor are valid transactions because the contractual
agreement between debtor and creditors are valid transactions because the contractual agreement
between debtor and creditor provides this avenue of recourse.
Creation of Economic Assets
A government unit can create an economic asset by exerting ownership rights over a naturally occurring
asset, such as the electromagnetic spectrum or fish stocks in exclusive economic zones. When it does so
, the asset enters the balance sheets as another volume change.
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