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How Ghana, Africa’s rising star, ended up in economic turmoil by Kent Mensah

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Doris Oduro sits at her small, almost-empty store in Odorkor, a suburb of Ghana’s capital, Accra. The single mother of two feels frustrated. After 15 years in business, she is now considering closing because she cannot restock her shop due to the high cost of living.

“I am running at a big loss,” Oduro, 38, told Al Jazeera. She sells imported items, including juices, biscuits, soft drinks, toiletries and sweets, but Ghana’s economic crisis is taking a huge toll on her business.

“Prices of goods keep soaring, and it is affecting my principal capital,” she said. “I want to close my store and find something else to do. Things are tough for me because I can’t sustain the business and I have a family to keep.”

Ghana, a country once described as Africa’s shining star by the World Bank, had the world’s fastest-growing economy in 2019 after it doubled its economic growth. But today, it is no longer the economic poster boy of West Africa. Despite being a major cocoa and gold exporter, it is currently battling its worst financial crisis in decades with inflation hovering at a record 50.3 percent, the highest in 21 years.

Ghana’s economic successes were in the limelight when the new government of President Nana Akufo-Addo took power in January 2017 and brought down inflation significantly. Under the previous government in 2016, it was 15.4 percent, and it fell to 7.9 percent by the end of 2019 and remained in single digits until the pandemic hit in March 2020.

Ghana’s budget deficit, which was about 6.5 percent of the nation’s gross domestic product before Akufo-Addo’s government came to power, was brought down to under 5 percent of GDP by the end of 2019.

“The growth that we experienced around 2017 to 2019 was actually coming from the oil sector,” Daniel Anim Amarteye, an economist with the Accra-based Policy Initiative for Economic Development, told Al Jazeera.

“We were so excited that the economy was growing, but we couldn’t devise strategies to ensure that the growth reflects in the other sectors of the economy,” he said. “For instance, we neglected the agriculture sector, and we couldn’t do any meaningful value-added investment in that sector. The government became complacent.”

According to the United Nations’ Food and Agriculture Organization, agriculture represents 21 percent of Ghana’s GDP and accounts for more than 40 percent of its export earnings. At the same time, it provides more than 90 percent of the food the country needs.

“Over the years, the government failed to invest in increasing output in the agricultural sector that will eventually lead to economic growth and transformation and food security. We are a major cocoa growing country, but we didn’t pay attention to increasing yields to translate into more foreign exchange earnings to drive economic growth and employment,” Amarteye said.

Ghanaian traders, who contribute significantly to the economy, mostly buy and sell products they import from Western countries and China, including home appliances, consumables, cars and second-hand clothes. Due to the nature of their businesses, there is a persistent strong demand for the US dollar to pay for imports. This led to the continuous depreciation of the local currency, the cedi, which was recently described as the worst-performing on world markets.

As inflation surges, rising prices keep the cost of living accelerating for Ghanaians.

“Things are not the same anymore,” said Francis Anim, a vehicle spare parts importer. “I used to spend $5 a day with my wife and child on food alone early this year. Now we spend close to $10 [for the same amount of food]. Why?”

“We are feeling the heat,” he said. “The import duties are very high at the ports, so we have to pass on that burden to retailers, and eventually the consumer suffers. This has resulted in a high cost of living in Ghana, and the economy is not helping us either.”

A nation in crisis

The president conceded in a recent address to the nation that the West African country is in crisis. He blamed the situation on external shocks – the pandemic and Russia-Ukraine war.

However, analysts say the government took certain political and economic decisions that would have eventually exposed the weaknesses in the system even without those external factors.

For instance, to fulfil one of Akufo-Addo’s most expensive campaign pledges, his government launched a free education programme in public high schools nine months after he took office. It also provided free meals to students at primary and secondary levels.

Also in 2017, the governing New Patriotic Party scrapped what it called 15 “nuisance taxes”. These included the 17.5 percent value added tax on financial services, real estate and selected imported medicines. They also reduced import duties on spare car parts, abolished the 1 percent special import levy and the 17.5 percent VAT on domestic airline tickets.

“This brought a massive reduction in government revenue,” Williams Kwasi Peprah, a Ghanaian associate professor of finance at Andrews University in Michigan, told Al Jazeera. “To make up for the revenue shortfall, the government adopted borrowing. This increased Ghana’s bond market activities domestically and externally and, as a result, a high debt-to-GDP exposure, leading to the current debt unsustainability levels.”

From August 2017 to December 2018, Akufo-Addo’s government spent more than $2.1bn on what it called the “banking sector clean-up”.

The central bank said some banks were insolvent and were operating on life support, putting the interests of depositors at risk. The clean-up saw a reduction in the number of banks from 33 to 23 while more than 340 other financial institutions, such as savings and loans companies, had their licences revoked.

The government aimed to restore confidence and reposition the banking sector to support economic growth.

“The financial sector clean-up also cost the country more than anticipated in attaining a robust financial sector before 2022,” Peprah said.

He said the discovery of two more oilfields in 2019 led to the anticipation of more revenues. The government responded by issuing more domestic and external bonds, increasing its debt and raising spending on interest payments, social programmes and employment.

The government is Ghana’s largest employer, primarily in the fields of education, healthcare and security. It spends almost half of its budget on wages; this year, it raked in $8.2bn in estimated revenue and used about $4.2bn to pay salaries of public sector workers.

In 2017, the government also restored allowances for trainee nurses and teachers. President John Mahama lost to Akufo-Addo in the 2016 election partly for suspending those allowances two years earlier. They put a huge strain on the public purse. For the nurses’ allowances alone, the government paid more than $2.5 million annually.

“That was a poor political and economic decision the Akufo-Addo government made at that time because the country was faced with revenue challenges,” said Kwasi Yirenkyi, a financial analyst with Accra-based Data Crunchers. “The government was spending more than it was receiving, and at the same time, it failed to widen the tax net. We were slowly heading for disaster.”

The pandemic and debt load

There was a significant drop in revenue in 2020 coupled with a rise in government expenditures. They were mainly COVID-related as the government adopted a populist approach, provided free water and electricity to citizens and fed 470,000 households during a three-week lockdown that cost the nation $9.4m.

In August 2021 Akufo-Addo began what he later admitted was “an overly ambitious” construction project of 111 hospitals with an estimated price tag of more than $1bn. Pressure kept mounting on his government to fulfil a plethora of other electoral promises, such as the construction of roads, schools and markets, forcing the government to keep borrowing and leaving an economy dogged by high public debt. The most recent data released by the central bank put the country’s debt load at $48.9bn as of September. That represents 76 percent of GDP.

“Largely, the debt that we accrued were not actually prudently used to drive economic growth,” Amarteye said. “If that was done, we could have generated sufficient inflow to be able to meet repayment obligations. Borrowing is not a bad thing, but how you use it is critical. On our part, the managers of the economy failed to invest it in the critical sectors of the economy.”

The oil-exporting country produced 39.15 million barrels of crude oil from January to September, according to the 2023 budget statement read by Finance Minister Ken Ofori-Atta in Parliament in November. They brought in $873.25m in revenues for the eighth-largest oil producer in Africa. Although oil production declined between January and June, according to a report by the Public Interest and Accountability Committee, a surge in prices resulted in the government taking in more revenue than it had expected.

“Where did all the oil revenue go to?” opposition member of parliament Isaac Adongo asked. “The economy has been on life-support system because this government kept borrowing. We have now hit the ceiling, and there is no way out.”

In spite of the challenges, the government had been optimistic that the economy would bounce back after the pandemic. However, Russia’s war in Ukraine has derailed Ghana’s economic recovery. The cedi, its currency, lost more than 50 percent of its value between January and October 2022, causing Ghana’s debt burden to rise by $6bn.

“The war affected global economies and exposed fundamental weaknesses,” Peprah said. “Within a short period, prices in Ghana had increased, leading to hyperinflation and currency devaluation affecting both macro and micro levels of the economy. The Bank of Ghana did not have the needed dollars to pay for the country’s commitments. The balance of payment had deteriorated, leading Ghana to insolvency.”

Workers and traders protested from July to September over price hikes, which have increased the cost of electricity by 27 percent and water by 22 percent.

Activists and anti-corruption campaigners have also accused the government of mismanaging public finances.

“We have gold, oil and cocoa, yet we’re still foundering as a nation,” said Bernard Mornah, a leading member of the Arise Ghana pressure group. “The level of corruption under this government is unprecedented. There are so many revenue loopholes that must be blocked. Government officials are looting state funds and assets, so how do we develop?”

A 2021 Transparency International study on perceptions of corruption in Africa ranked Ghana ninth out of 49 Sub-Saharan African countries.

Investor confidence dims

Investors began to lose confidence in the economy as the government grappled with liquidity challenges. They started moving their money out of Ghana. In May, Minister Ofori-Atta introduced an unpopular e-levy, which placed a 1.5 percent tax on all electronic and merchant payments, bank transfers and remittances as part of measures to increase revenue. It brought in a paltry 10 percent of its targeted amount in its first month.

In the middle of this economic storm, credit ratings firms such as Moody’s downgraded Ghana to junk status, pushing even more investors away. At this point, Ghana was forced in July to turn to the International Monetary Fund (IMF) for relief.

It was a difficult decision for Akufo-Addo to make after he had condemned his predecessor for mismanaging the economy and taking an IMF bailout.

In December, the government reached an agreement with the IMF for a $3bn loan. However, the West African country needs to carry out a comprehensive debt restructuring in order to receive the funds. This means that Ghana will have to renegotiate the terms of its debt with its creditors, including extending repayment period, lowering the interest rate, or reducing the overall balance owed.

Formerly regarded as an investor favourite, Ghana has also suspended payments on part of its foreign debt to preserve the fast-depleting international reserve of the central bank. There is also a freeze in hiring into the public sector among many other measures taken to cut expenditure.

“The story would have been different but for the pandemic and the Russia war in Ukraine,” Deputy Finance Minister Abena Osei-Asare said. “We have instituted clear policies to return to economic growth. We are very hopeful the economy will bounce back.”

The economy has made some gains since Ghana reached the agreement with the IMF. The cedi is recovering against the US dollar, appreciating by 63.7 percent in mid-December, according to the Bank of Ghana, after suffering a year-to-date depreciation of 54.2 percent at the end of November. But economists and scholars such as Peprah believe the long-term solution is for the government to live within its means.

“The solution to the current problem is for the government to reduce expenditure and increase revenue,” Peprah said. “It needs to ensure efficient and effective allocation of resources backed by accountability.”

For his part, Amarteye said the government must be downsized, and he called for stringent measures to check corruption.

“We have to ensure that every cedi that is extended to government agencies are accounted for,” Amarteye said. “The Office of the Special Prosecutor should be empowered to be able to deal with corruption in the system. There should be fiscal discipline, and also we have to add value to our produce by supporting the private sector to lead that particular space.”

“If that is done, jobs will be created and also the economy will bounce back,” he said.

In Odorkor, shop-owner Oduro, like many Ghanaians, wants to see a thriving economy again, one in which she can do business and feed her family.

“I have played my part as a voter,” she said. “The government must play its part too – fix the economy. This is not the Ghana we came to meet.”

Strictly Personal

Russia-Ukraine Conflict: A discussion from the African desert, By Isaac Mwanza

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Africa Is not for Sale. Africa is open for business not for sale or looting. We must defend what is ours and make sure that no one takes from us what is ours,” ~ Malawian President Lazarus Chakwera

INTRODUCTION

It was a bright summer Tuesday in the Khomas Highland plateau, Windhoek. As the cool breeze from the rising water levels in the Orange River swept across a city with extraordinarily rich fauna, leaders from the Southern African Development Community (SADC) organ on peace and security gathered on 31 January 2023 to deliberate the political and security situation in the region. While at it, they reiterate the earlier SADC position against the coercive behaviour of the United States of America to use its aid power to hold them at ransom over the ongoing conflict between Russia and Ukraine.

REACTION TO U.S. LAW ON AFRICA

On 27 April 2022, the U.S. House of Representatives enacted the “Countering Malign Russian Activities in Africa Act” which, once passed by the Senate, would effectively punish African governments and nationals who work with Russia amid the war in Ukraine.

The law specifically targets Africa in what the U.S. claims to be a law to counter “malign Russian influence and activities” and states its objectives as including “holding African governments and their officials accountable for aiding Russia’s malign influence and activities in Africa.”

The bigger question is why has America decided to enact a law targeting trade relations between Africa and Russia and not make the same law on trade relations between China and Russia. Is it because our African leaders are pawns in this game?

It can be inferred from the decision to enact this law that the Joe Biden administration intends to use its mighty power to force African nations to choose between the USA and the Russian Federation.

That is a glaring expression of the worst form of colonial and imperial arrogance as well as a jurisdictional overreach by the leader of the Western alliance.

The law has been opposed by Africa’s regional bodies such as SADC as it seeks to unduly influence foreign policies and trade relations by African countries who either support or refuse to denounce Russia in its conflict with Ukraine.

The African Union is taking a firm and conscientious position of non-alignment to the Russia-Ukraine conflict.

For close to a century now, African countries that had been freed from the bondage of European colonialism enjoy strong ties with both mega powers, namely, the USA and the Soviet Union which, after the monumental changes of 1989, reverted to its former status as the Russian Federation.

But America is now attempting to dictate to the developing world, Africa in particular, and to the rest of the world at large, that this must change.

Having failed to persuade the world of its noble intentions, the Biden administration is now resorting to economic and military coercion in an attempt to bring about the global political realignment that the U.S. seeks, and which it hopes, will allow it to remain the dominant economic power that it has been since the end of World War II and the resulting economic order.

The Biden administration has placed its hands on foreign aid and sanctions as weapons which they will use, together with its NATO allies, to beat Africa into submission and to crush Africa’s collective sovereign will.

But this pattern by America’s leaders – both Republicans and Democrats – is becoming predictable.

In an address to a joint session of Congress on 20 September 2001, former U.S. President George W. Bush, Jr., superciliously declared, “Every nation, in every region, now has the decision to make. Either you are with us, or you are with the terrorists.”

President Bush went on to brand the three countries opposed to U.S. foreign policy — North Korea, Iran, and Iraq — as rogue states, “the axis of evil” whom he alleged, had harboured, financed, and aided terrorists even though no citizen of these States had ever attacked the U.S.

None of these countries were involved in terrorist attacks on New York and Washington D.C. on 11 September 2001.

President Bush could be forgiven because Republicans are quite well known for bullying other nations and for war-mongering.

But the U.S. Democratic Party has always been seen as being more friendly towards Africa, especially during the term of its previous Democratic President, Barack Obama.

It is, therefore, a very surprising development, that the Democratic administration of President Biden, would single out Africa, which also shares longstanding ties to Russia, for punishment under this rather ridiculous law that ostensibly seeks to counter Russian malign influence in Africa.

The decision to enact the law on Africa is ridiculous as it defeats the very idea of national sovereignty which President Biden purports to be defending on behalf of Ukraine.

It can be inferred that this U.S. law on Africa will require African States to surrender their sovereignty in defending the sovereignty of Ukraine. Do Joe Biden and his colleagues in Congress think that African leaders and we in Africa’s sovereign States are subject to America’s will?

Unfortunately for President Biden, Africa, and its people may not share the goals which his administration, NATO, and western allies may have set for Ukraine.

Africa is aware that Russia has genuine security concerns about the adversarial NATO alliance establishing itself on Russia’s south-western border, just as Africa was concerned when the former Soviet Union and its Warsaw Pact allies, attempted to establish military bases on America’s south-eastern coast on the island of Cuba in the 1962 Cuba missile crisis.

Going by previous history of similar military adventurism, Africa has its own misgivings about the U.S. hegemony, as shown in previous articles, which showed that America had been on a similar path in Cuba, Grenada and more recently in Venezuela.

In the Middle East, the U.S. threatens and erodes the sovereignty of the Arab nations by providing billions of dollars in military and other aid to Israel which then acts as an enforcer of U.S. hegemonic policies, suppressing Arab states while ensuring that the Palestinian people do not and cannot achieve the sovereign status of a nation.

The U.S. has subtly blocked every attempt by the Palestinians to achieve sovereign nationhood and has used Israel to keep the Palestinian people under bondage while making a big show of its desire for all people to fully enjoy their human rights, self-determination, and sovereign status.

The U.S. and EU’s coercive, patronizing, and bullying behaviours regarding Africa’s position toward the war in Ukraine, show utter disrespect for our African countries as sovereign nations who have the capacity to make sovereign decisions.

It goes without saying, that sovereign nations get to decide who they are going to associate with or not; that is an issue of international law, state policies, and principles. America is wrong to use its domestic law as if somehow, the U.S. has universal legal jurisdiction.

It is also unacceptable that the U.S. should use its aid which, ostensibly, is intended to assist recipient poor countries in their development as a weapon of foreign policy, preying on the dependence our African leaders have on such aid in achieving their national development goals.

It is morally wrong for the U.S. to subvert African nations’ home-grown solutions by forcing them to take a position with the U.S. and its NATO allies, over Russia or gagging trade relations between sovereign States.

If the U.S. and its NATO allies were genuine about allowing sovereign nations to decide for themselves who to associate with, they should have applauded our position of non-alignment than coercing African countries by threatening them, using a new law, with punishments for trading with Russia.

It is therefore noble that we must commend their Excellencies, Zambian President Hakainde Hichilema, South African President Cyril Ramaphosa, and Namibian President, Dr. Hage Geingob, leaders of Eswatini and Lesotho as well as ministers from the Democratic Republic of Congo and Mozambique for being loud and clear in endorsing the AU position of non-alignment in conflicts outside the continent and against the U.S. law on Africa.

But it is now important for President Hichilema and other individual African leaders to personally come out and defend their position on this questionable U.S. law than hide behind collective decisions made in boardrooms.

CONCLUSION

The U.S. is known for promoting people’s self-government, free will, and choices. It is a leader in that area. Many of us are attracted to the United States of America because of its founding ideals of life, liberty, and the pursuit of happiness it has espoused over two centuries.

It is therefore not in the best interest of America to dictate how Africa must make its decisions. Africa must trade with anyone it desires, including the U.S., Russia, and China – all of them having been Africa’s all-weather friends.

The coercive and bullying behaviour to stop Africa and its people from deciding on their own, whether to trade or even side with Russia, is an infringement on the sovereignty of individual States and a subversion of the collective will of the African peoples.

It is even more disturbing that the US House of Representatives would go so far as to threaten punishment for disobeying America’s foreign policy dictates. Probably, this is being done upon realisation by the West that African leaders cannot do without foreign aid, and they value aid as a panacea to their prolonged stay in power and developing Africa.

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Strictly Personal

We the people, not just media, should query leaders on taxes, By Elsie Eyakuze

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Former Comptroller and Auditor-General Prof Mussa Assad had some choice words for Tanzanian media recently in remarks about taxes, fees, levies, et cetera. Roughly translated, he said that if journalists took their jobs seriously they would put a lot of effort into querying elected politicians about their taxes instead of issuing a barrage of weak content.

Interesting. I wonder if he knows that Tanzania Revenue Authority’s tweet the other day about their new TikTok account. While he is out there perseverating about how to distribute the tax burden more justly, TRA has signed on to a popular social media platform that has some espionage and security issues.

Prof Assad is right, we should be asking about the taxes paid by our elected officials. To that I would add the entire public sector. I read a tweet from a Kenyan who alleged that big political families in Kenya are not paying taxes, and why don’t they get the kind of scrutiny that the Kenya Revenue Authority is trying to subject other Kenyans to. The KRA’s move to inhabit Kenyans’ phones and garnish taxes off their accounts and mobile money accounts is the stuff of technological dystopia nightmares.

Vote in their own favour

We’re not there yet, but we share the Who Pays Taxes question with our neighbours. I think Prof Assad is aware, as we all are, that legislators vote in their own favour all the time and they will not legislate to increase their tax burden and this is Tanzania. Journalists spend plenty of time with politicians, they tend to know what interviews can yield good information. Asking a secondary school student about their views on progressive taxation is interesting, asking a seasoned politician that question, especially if they know what you are up to, will yield a lot of hot air.

Investigating, documenting and then publicising their income streams and actual tax records, though? Bruh. Is he offering protection? When journalists go off to ask difficult questions of the powerful, they rarely come back. That is a strong disincentive for journalists.

This is Tanzania. We have an economic philosophy of hunger and big bellies. When a person succeeds enough to get a good position in government, the pressure to bend the rules will come from sponsors, sponsees, friends and family, who stand to benefit from patronage. Patronage is a very expensive political system for the patron, requiring access to vast amounts of money. This encourages behaviour that is corrupt, and it incentivises MPs to award themselves fat salaries and very low taxes, which they may avoid with no consequences.

What Prof Assad should really be asking is why the collective doesn’t rise up and ask their MPs about their tax records and tax policies, especially during election years. Why place the burden of inquiry on the media when everyone can be recruited?

We, the people, are the majority, and we have certainly been vocal as consumers about questioning and grappling with and even rejecting fees, levies and taxes before. And yet time and time again we vote for the very same Party and people who are apparently living off the sweat of our brows. A far more interesting story, that, and worthy of the time and effort.

Elsie Eyakuze is an independent consultant and blogger for The Mikocheni Report; Email elsieeyakuze@gmail.com 

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