Economic trouble for Ghana – Africa’s ‘rising star’

GHANA was seen as a role model for sub-Saharan Africa based on a rare combination of stability, successful democratic change and accelerated economic growth. But Africa`s ‘rising star’ - Ghana was the world fastest-growing economy in 2011 - needs an economic bailout. Its economic crisis could lead to political instability and social unrest, and underlines Ghana’s urgency for structural economic, political and social change, writes World Review expert Professor Jaime Pinto. Two decades of political stability have provided Ghana with steady economic growth. The discovery of offshore oil and gas was a turning point and commercial production started in 2010. But a global decline in commodity prices and government overspending has plunged Ghana into an economic and financial crisis. This has been made worse by previously high expectations from its oil revenues. Economic growth has slowed to below the African average, inflation is above 15 per cent and rising quickly and its currency, the cedi, was the world’s worst performer in 2014. The budget deficit was more than 9.6 per cent in 2014. Ghana now requires financial assistance. Ghana has felt the impact of the global financial and economic crisis with a drop in the flow of aid and remittances. Aid from the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) totalled US$605 million in 2011 but had dropped to US$155 million in 2013. Its trade balance has been compromised by a slowdown in global demand and falling commodity prices. Export earnings are still dominated by primary commodities such as gold, cocoa and oil which account for 85 per cent of export receipts. Ghana lost about US$1.3 billion in 2013 because of a combination of lower global cocoa and gold prices and production shortfalls. But government overspending is the decisive factor behind Ghana’s financial crisis and an oversized public sector takes 70 per cent of state income. Some crucial reforms including cutting the public sector wage bill, diversifying the economy to minimise excessive dependency on commodity exports and increasing taxes, have been delayed. Implementing austerity measures and delaying planned reforms seem to be the only way to avoid economic collapse. But these measures could have a strongly negative impact in the mid-term. A freeze in public salaries and hiring will affect a significant number of families, and contribute to increasing unemployment where 18 per cent of young people are out of work. People are already struggling financially following cuts to fuel subsidies and food prices which have increased by 70 per cent in 2014. Most Ghanaians spend more than half their income on food. Ghana has lost five places in a year in its ranking in the 2014 World Bank Doing Business report. It is now to 67th out of 189 countries for the ease of doing business. But there are reasons for optimism despite these challenges. The factors which made Ghana into Africa’s ‘rising star’ and an investment hotspot remain. Ghana is strategically located in Africa`s fastest-growing region. It has significant energy and mineral resources and considerable agricultural potential. It remains among Africa`s six top economies, and is West Africa`s second economy, after Nigeria. It has an expanding middle class and a well-developed financial sector. More importantly, it has had political stability for the past two decades, reinforced by a strong sense of national identity and a sound civil society, with no major ethnic or religious differences. Ghana`s future depends on the government`s capacity to implement deep structural reforms. But to achieve these, it needs the support of the IMF to secure people`s confidence and avoid major social unrest which could lead to political disintegration. Thousands flocked on to the streets in an orderly and well-coordinated protest on Ghana`s Republic day on July 1, 2014. Union members and the middle class group ‘Concerned Ghanaians for Responsible Governance’ took part in the gatherings after the group launched a major campaign on social networks under the banner ‘Occupy Flagstaff House’. This campaign was followed by ‘The Red Campaign’ which urged all Ghanaians to wear something red every Friday as a sign of protest against government policies. They reflect dissatisfaction with Ghana’s economic situation but also - and maybe mainly - dissatisfaction with a government they see as corrupt and plagued by the vices of political patronage. This wave of social protests is creating significant public pressure on the government for more accountability and transparency. But 2015 may lead to stronger social unrest and widespread violence. The financial and economic crisis could cost President John Mahama, elected in 2012, any chance of re-election in 2016. Additional research by Carlota Ahrens Teixeira

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