The Black star: Can it really get any worse?
****With some explanatory footnotes****
<<It does not only rain, it pours>> goes the adage. The sad events in Ghana this,
June 4 2015, morning could not have come at a worse time- just not now. All is
not well in <<Azonto land>>; the popular “it is well” Christian refrain cannot and
does not hold sway in Ghana at the moment. Inflation is close to 20%, annual
economic growth rate hovers around 4%(down from its 14% 2011 peak), external
public debt (as a % of GDP) stands at almost 34%, the fiscal deficit1(as a ratio of
GDP) is above 10%, the country faces an acute energy shortage, the Ghanaian
cedi has lost over 60% of its value in just one year2, total foreign reserves3 are less
than $5billion, commodity and oil/gas prices are at an all-time low. Could the
picture be any gloomier? And to worsen things, a filling station exploded in Accra
as a result of huge floods and storms, in the early hours of 4 June 2015, killing
over 100 people, with the toll expected to rise (may God forbid this). The staunch
Christians in Ghana may be forced to ask themselves why God will allow such a
predicament to happen in spite of the already huge problems (mostly economic)
that they are facing. The star has truly changed its color from the legendary
<<golden>> to black. It has not only rained but it has poured.
Despite being the first African country to achieve independence, on March 6
1957, Ghana was a relatively unstable country both economically and politically in
the 1970s and early 1980s; with repetitive coup d’états and a moribund economy;
an inflation rate of over 50% in 1980, a GDP growth rate of 0.47%, total foreign
reserves of $320million, net FDI inflows (as a % of GDP) of 0.35%, a GDP of about
1
The fiscal balance is the difference between a country’s revenues and its expenses. If the revenues exceed the
expenses, then this known as a fiscal surplus (almost impossible to achieve) and when a country’s expenses exceed
its revenues, then it is said to be running a deficit (this is more common). It is usually measured as a measure of
GDP (economic size) but it can only be measured in absolute terms, either in local currency or in US dollars. Ideally,
it is preferable to have a fiscal surplus but this is very difficult to achieve.
2
One of the worst things that can happen to any economy is the loss in value of its currency as this has terrible
effects on the entire economy. It makes imports more expensive and increases the value of all its international
payments, acquisitions, debt etc. It also depletes the country’s foreign reserves. However, the only positive
attribute of a low currency is the fact that it makes a country’s exports more competitive, i.e. they sell at a cheaper
price and thus could encourage trading partners to buy more of the goods.
3
Foreign reserves more or less represent a country’s savings. They are gotten from the earnings which the country
receives from the sale of its assets, and these could be agricultural commodities, mineral resources etc. They are
either held in US dollars or in gold deposits. Like regular savings, the more they are, the better. Therefore it is a
worrying trend if a country’s reserves keep decreasing, especially at an increasing rate.
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$4billion, amongst other statistics. As at 2014, total foreign reserves are over
$4billion (over 10 times their 1980 levels), the country’s economic size (GDP)
stands at about $40billion (again over 10 times its 1980 level), the consumer price
index (inflation)4 averages about 15%(less than a third of the rate in 1980), the
annual economic growth rate is about 4%(10 times the 1980 levels). By all
standards therefore, in spite of the present slew of problems, Ghana has done
well. If the economic and social progress made in Ghana in the last three decades
were a PhD defense/viva voce (souténance in French), the country will have
logically received a <<mention très honorable>> after the jury’s deliberations.
However, in spite of the <<mention très honorable>> for the past three decades,
a subtle look at the country key statistics over the past 5-7 years gives a slightly
different picture. Worthy of mention here is the fact that present opposition
party, the National Patriotic Party (the NPP), was in power with John Agyekum
Kuffuor as President from 2000-2008. Ghana was seen at this period as one of the
most democratic nations in Africa. The country received accolades from all over
the world because of its <<complete turnaround>> from the political instability in
the 1980s even though the economy was still picking up from its erstwhile reels.
The economy expanded from 2000 to 2008(from $4.9billion to $28.5billion) with
an annual growth rate increase from 3.7% to 8.4%, total reserves also increased
more than 6 times (from $308.9million in 2000 to $1.9billion in 2008), external
debt5 fell from $4.9billion to $3.9billion. This period also saw Ghana issue its first
$750million 10 year Eurobond6 on September 27 2007, one year after Seychelles
4
A country’s inflation rate, a sort of measure of the general price level of goods and services, is a gauge for its
overall macroeconomic stability. The lower the inflation rate the better. However, this rate is dependent on so
many other factors, such as i) the Central Bank’s monetary policy; whether they are increasing the amount of
money in the economy(expansionary policy) or they are rather reducing the supply(contractionary policy), ii)the
country’s level of industrialization, as this will determine whether it imports more than its exports or vice versa. A
country that imports more than its exports is likely to have very high prices for its goods and services, and this is
the case with most African nations, including Ghana. An expansionary monetary policy, all conditions held
constant, increases a country’s general price levels meanwhile a contractionary policy does the opposite, ceteris
paribus.
5
Like personal debt, the smaller the value of external debt the better, both in absolute terms and as a ratio of
another major variable (usually GDP but this could also be total government revenues). So it is good news if the
values of a country’s external debt are falling.
6
A Eurobond is a bond (debt obligation) issued by a country/company/institution in international financial markets
(London, New York, Tokyo, Hong Kong) in a currency other than its own local currency. For example in the case of
the government of Ghana whose local currency is the Ghanaian cedi, if it issues a bond in say Hong Kong in US
dollars, or in Japanese yen, this is a Eurobond. Also, a Mauritanian company could issue a bond in New York in US
dollars- this is also a Eurobond. The issue currency must not be in Euros. Issuing a Eurobond is referred to in
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became the first Sub-Saharan African country (ex-South Africa) to issue a
Eurobond. Then on 3 July 2008, the Government of Ghana sold its 70% stake in
Ghana Telecom for a whopping $900million. All was therefore set and <<ready>>
for Ghana to become a major player in Africa’s (socio-) economic landscape.
The December 2008 elections were narrowly won by John Evans Atta Mills (now
baetae memoriae) under the National Democratic Congress (NDC) ticket over
Nana Addo Dankwa Akufo-Addo, the NPP candidate. It is important to state that
whilst the NPP is right-wing in its policies, the NDC is more or less left-wing, at
least on paper… John Evans Atta Mills was inaugurated on 7 January 2009 but
died on 24 July 2012, just a few months to the end of his first term-in December
2012. He was replaced, according to the Constitution, by his Vice President, John
Dramani Mahama who was the NDC’s flagbearer in the Presidential elections and
again narrowly won Akufo-Addo. The country’s economic picture during Atta
Mills’ (first and only) term was mixed-total foreign reserves, net Foreign Direct
Investments (FDI) and GDP rose, the country became a <<small>> oil producer in
20107, the same year in which it rebased its economy (an exercise that made
Nigeria became Africa’s biggest economy in April 2014), and its economic output
increased by 62% to about $32billion. However, in spite of the <<stellar
statistics>>, the economy’s debt8(Central government, external, domestic, public,
private) exploded, both in absolute terms and as a ratio of GDP. Things were
heading <<South>>….
Every economic and perhaps social statistic has headed in the <<bad direction>>
since 2012; the cedi has lost more than half its value, inflation and debt have
gotten to an all-time high, reserves have dropped precipitously, budget and trade
deficits have widened, electricity supply has taken a dip, agricultural outputs have
reduced, the costs of imports have risen, commodity prices have dropped etc etc
etc etc. In short, all is not well. For the first time after so many years, the
finance as “original sin”. Countries/companies resort to issuing Eurobonds when they intend to raise considerable
amounts and this can only be done in the international capital markets, which are very liquid.
7
Becoming an oil producer in the era of >$100 a barrel was big news for any economy. Even if the country
produced just 100 000 barrels a day, this meant minimum revenue inflows of $10, 000 000 a day… almost “all of a
sudden”/”from nowhere”.
8
There are several variants of debt for a country- external, central government, private, domestic-whose names
are self-explanatory. For all and any of them, the smaller the values, both in absolute terms and as a ratio of GDP,
the better for any economy.
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Government of Ghana made a request for financial assistance from the
International Monetary Fund (IMF) and on April 3 2015, the Fund’s Board
approved a $918billion Emergency Credit Facility (ECF)9. And to add pain to injury,
an explosion at a petrol filling station killed 100people, most of whom were taking
shade from the heavy rain storms, in the early hours of 4 June 2015.
Whilst some of the economy’s woes are <<imported>>, i.e. are out of the
government’s control, as is the case with the prices of commodities and
agricultural products, the present NDC government cannot and should not be
exonerated. Most likely, if the economy was rather going <<North>> postKufuor’s presidency, the NDC would have claimed <<ownership>> of the success.
It is fair to assert, therefore, that the NPP is a/the better party to govern Ghana
than the left-wing NDC. But hey- these are just the thoughts and reflections of an
ordinary African fellow…
9
This is a credit facility/loan given by the IMF to countries that are in serious economic difficulties, as is Ghana at
the moment. Countries that are offered these loans are required to enact some somewhat stringent reforms to
bring their “economic house back in order”. These reforms will usually comprise reducing the size of the public
sector and wage bill, cutting or eliminating fuel subsidies, improving the business climate, improving the efficiency
of the tax system, amongst others. Portugal, Greece and Mali are examples of countries presently under such IMF
programs.
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