GHANA: THEN & NOW – WHAT WENT WRONG?

Ghana has a diverse and growing economy that has undergone significant development in recent years. The country has a long history of producing and exporting natural resources, including cocoa, gold, and oil. However, in the past, Ghana’s economy was heavily dependent on the production and export of a single commodity, which made it vulnerable to changes in the global market price of that commodity.

In the 1980s and 1990s, Ghana experienced a series of economic crises, which were partly caused by mismanagement of the economy and external factors such as global economic downturns. However, since the late 1990s, the country has implemented a series of economic reforms and has made significant progress in reducing poverty and increasing economic growth.

Today, Ghana’s economy is diverse and includes a range of sectors, including agriculture, manufacturing, tourism, and services. The country has also made significant progress in areas such as education and healthcare and has a growing middle class. Despite these positive developments, challenges remain, including persistent poverty, inequality, and corruption.

How Did The Gateway To Africa Fall So Deeply?

Ghana has experienced several economic crises over the years. Some of the factors that have contributed to these crises include:

1. Dependence on exports of a single commodity (such as cocoa or gold): This makes the country’s economy vulnerable to changes in the global market price of that commodity.
2. Mismanagement of the economy: This can include things like overspending, corruption, and poor policy decisions that lead to economic instability.
3. External factors: Ghana’s economy can also be affected by events outside of the country, such as global economic downturns or natural disasters.

In the case of Ghana, it is likely that a combination of these and other factors have contributed to the economic crisis.

Is Ghana’s Government Partly To Blame?

In a speech to the nation, the president acknowledged that the nation of West Africa is in danger. He attributed the issue to outside shocks (the Covid pandemic and the Russia-Ukraine war).

Analysts contend that even without these outside influences, the government made some political and economic choices that would have eventually made the system’s flaws apparent.

For instance, nine months after Akufo-Addo assumed office, his administration began a free education program in public high schools to carry out one of his most expensive campaign promises. Additionally, it offered free meals to elementary and secondary school students.

Additionally, in 2017, the National Patriotic Party (NPP) eliminated 15 so-called “nuisance levies.” These included the value-added tax (VAT), which was 17.5%, on certain imported medications, real estate, and financial services. They also eliminated the 17.5% VAT on domestic airline tickets and the 1% special import charge in addition to reducing import levies on spare auto parts.

As a result, the government’s revenue significantly decreased, and in order to make up the difference, it started borrowing (like nobody’s business). Due to rising domestic and international bond market activity in Ghana, the debt-to-GDP ratio grew, further contributing to the current levels of unsustainable debt.

The Akufo-Addo administration spent more than $2.1 billion between August 2017 and December 2018 on what it referred to as the “clean-up of the banking system.”

The interests of depositors were at stake because of some banks’ insolvency and life support operations, according to the central bank. 33 banks were reduced to 23, while more than 340 additional financial organizations, including savings and loan businesses, had their licenses withdrawn as a result of the clean-up.

In order to foster economic growth, the government worked to regain public trust and reposition the banking industry.

The country spent more money than expected on the financial sector clean-up in order to build a strong financial sector before 2022.

He claimed that the expectation of higher revenues was sparked by the discovery of two additional oilfields in 2019. In response, the government increased its debt, issued additional domestic and foreign bonds, and increased spending on interest payments, social programs, and jobs.

The majority of jobs in Ghana are held by the government, mostly in the sectors of security, healthcare, and education. This year, it generated an estimated $8.2 billion in income and utilized around $4.2 billion to pay the salaries of public sector employees, spending about half of its budget on wages.

Additionally, the government reinstated allowances for aspiring teachers and nurses in 2017. Due (in part) to the suspension of such allowances two years prior, President Mahama fell to Akufo-Addo in the 2016 election. The public coffers were severely strained as a result.

Did The Government Admit To Being Careless?

Akufo-Addo started what he later called “an extremely ambitious” project in August 2021 to build 111 hospitals, with a projected cost of more than $1.5 billion. This government was under increasing pressure to fulfill a variety of other election pledges, such as building roads, schools, and marketplaces, which compelled it to continue borrowing and leave an economy plagued by excessive public debt. The country’s debt load, according to the most recent information provided by the central bank, was $48.9 billion as of September, or 76% of GDP.

Even worse, the country lost money since the money that was borrowed so quickly was not spent wisely.

From January to September, Ghana produced 39.15 million barrels of crude oil, according to the 2023 budget statement that the Finance Minister read. Despite a fall in oil output between January and June, these productions brought in a staggering $873.25 million in revenue, which meant that the government ended up with more money than it had anticipated.

The big question is, “Where did all that money go to?”

How Bad Was Ghana’s Situation?

The government was confident that the economy would recover after the pandemic despite the difficulties and poor management. However, Ghana’s rebound has been halted by Russia’s conflict in Ukraine. Between January and October 2022, the cedi’s value fell by more than 50%, leading to a $6 billion debt load.

Prices quickly rose in Ghana, causing hyperinflation and a dramatic decline in the value of the cedi, which had an impact on the macro and local levels of the economy. Ghana became insolvent because the Bank of Ghana lacked the funds necessary to meet its obligations.

Workers and business owners opposed price increases that increased the cost of water and energy by 22% and 27%, respectively, from July to September.

Investor scepticism about the economy grew as the government struggled with liquidity issues. They started to remove their funds from Ghana. To make matters worse, credit rating agencies like Moody’s, Fitch, and S&P downgraded Ghana as it was trying to manage the storm, driving away even more investors to the point where Ghana had to turn to the IMF for assistance in July.

The IMF and Ghana agreed to a $3 billion loan in December, but in order to receive the money, Ghana had to complete a thorough debt restructure.

This Is Where We Are Now

Since Ghana and the IMF came to a deal, the economy has seen modest growth. According to the Bank of Ghana, the cedi is strengthening versus the US dollar, having increased by 63.7% by mid-December.

However, economists caution that in order to avoid more trouble, the government must learn to live within its means. Among their many suggestions, economists advise that the government be scaled back and that the Special Prosecutor be given more authority to combat corruption. They also suggest budgetary restraint and public assistance for business.

What Is The Way Forward For Ghana?

There are several potential ways forward for Ghana’s economy. One option could be to continue to focus on developing the country’s natural resources, such as oil, gold, and cocoa. This could involve investing in infrastructure and improving the business climate to attract more foreign investment.

Another option could be to prioritize the development of new industries, such as technology or manufacturing, which could create new job opportunities and diversify the economy. This could involve investing in education and training programs to build a skilled workforce, as well as improving the regulatory environment to encourage entrepreneurship and innovation.

Finally, Ghana could also consider investing in sectors such as agriculture and tourism, which have the potential to create employment opportunities and drive economic growth. This could involve promoting the country’s unique cultural and natural attractions, as well as investing in infrastructure and support programs for small farmers and rural communities.