Leadership and economic development- A case study of Ghana for 2001 - 2020
In 2001, the growth of the economy of Ghana was 3.6 per cent without oil. Ghana found oil in 2007 which leap-frogged growth to 9.1 per cent in 2008. Heavy Foreign Direct Investment (FDI) inflows accelerated growth to a record 14.4 per cent in 2011.
Thereafter, the economy followed a declining trend from 14.4 per cent in 2011 to an estimated 3.6 per cent in 2016.
Since 2012, the economy has faced major challenges in the form of currency depreciation, deepening energy crisis, deteriorating macro-economic imbalances and rising inflation and interest rates. Falling primary commodity prices, including cocoa, gold and oil persisted to frustrate growth in recent years. These factors have caused falling economic growth from 7.3 per cent in 2013 to 4.2 per cent and 4.1 per cent in 2014 and 2015 respectively. The economy continued to face headwinds and unsustainable domestic and external debt burdens, as well as, deteriorated macroeconomic and financial imbalances. Ghana is currently implementing a three-year IMF fiscal consolidating programme covering a period of 2015-2017.
Notwithstanding the above conditions, the economy was projected by the 2016 Budget to improve to an estimated rate of 5.4 per cent in 2016. We all know that the growth rate has been compromised to an estimated 3.6 per cent for 2016.
an overview of the 2016 budget
The year 2016 was an election year in Ghana and had many repercussions on the economy. Government expenditure during the period exceeded budgetary estimates for the fiscal deficit (on commitment basis) was about 10.3 per cent of GDP (international standard is three per cent). Domestic financing became the most viable option for part of the deficit. The Bank of Ghana issued treasury bills and bonds to pay for part of the excess government expenditures.
A couple of targets in the 2016 budget became challenged. The inflation target of 10.1 per cent for 2016, was also missed to an actual of 15.4 per cent. The increases in utility tariffs and the prices of petroleum products generated upward inflationary pressures.
The sale of Treasure Bill (T-Bills) by the Bank of Ghana with high returns of 16.8 per cent (on 91-day T-Bills and higher rates for longer-term instruments) offered opportunity to the Banks to invest heavily in the T-Bills and bonds thereby crowding out loans to the private sector for promoting economic activity. Therefore, the forecast in the 2016 budget that real GDP growth for the year would exceed the rate for 2015 from 4.1 per cent to 5.4 per cent was just wishful thinking. The provisional estimated growth rate for 2016 was only 3.6 per cent.
The Government debt-GDP ratio worsened and negatively affected Ghana’s credit ranking by Credit Agencies such as Standards and Poor, which in turn adversely affected the cost of borrowing from international private capital markets such as the Eurobond market. Our last Eurobonds loan cost us 10.75 per cent in interests and payable over 15 years only because Ghana is considered as a risky country with respect to our ability to pay back loans. For that reason, the World Bank refused to guarantee our last Eurobonds loan in order to secure us lower interest payments.In contrast countries such as Zambia, Uganda, etc. which borrowed from the Eurobond market around the same time had interest rates about half Ghana’s because they had the World Bank guaranteeing them.
Estimated figures confirm worsened Government-debt-GDP ratio from 70 per cent to 73 per cent.
Total Public debt amounted to US$29.2billion at the end of 2016,comprising domestic and external components of US$12.8 billion and US$16.5 billion respectively. Total interest payments for 2016 amounted to GH¢10,770.4 million (6.4 per cent of GDP) and for 2017, projected at GHS13,940.5 million (6.9 per cent of GDP) most of which serviced domestic debts. Interest payment on domestic debt (5.0% of GDP) was slightly lower than wages and salaries (7.2 per cent of GDP).
The fall in world market prices of gold, cocoa and oil raised red flags that there would be shortfalls in Ghana’s international reserves. However, estimated figures reveal that gross foreign assets (import cover) amounted to 3.5 months imports cover. For 2017 it is projected at three months imports cover.
Increased government expenditure in 2016 increased the demand for imports and US dollars to finance the imports. These developments caused further depreciation of the Cedi to GH¢4.30 to the dollar by end- December 2016, and it continues to weaken in 2017 to GH¢ 4.50 to the dollar as at March 19, 2017.
Furthermore, with respect to the external sector, rumors of political instability had the tendency to stall inflows of Foreign Direct Investment (FDI). Dr Kwesi Aning of the Kofi Annan International Peace Training Centre, Accra expressed grave concern about the proliferation of arms and weapons in the country, with the tendency to undermining the relative stability of the country.
Fortunately, the elections were peaceful and had boosted the investment climate in the country. Even the World Bank has projected the economy to grow by 7.5 per cent in 2017 due to expected increased investor confidence.
The Asempa Budget of 2017
The Budget of 2017 gives hope that the economy could turn around in the medium to long-term for it is structured around production, not taxation. The following are the targets for some key macroeconomic variables in 2017:
• Overall GDP growth rate of
6.3 per cent
• end-year inflation rate of 11.2 per cent
• overall fiscal deficit of 6.5 per cent of GDP
• Gross Foreign Assets to cover at least three months of imports.
The budget introduces several policy initiatives to give tax incentives and other incentives to promote trade and boost production to increase employment and also reverse the rural-urban drift of the unemployed youths.
Taxes to be abolished include duty on the importation of spare parts, excise duty on petroleum products, reduction of special petroleum tax from 17.5 per cent to 15 per cent, etc.
Other policy initiatives include One village, one dam campaign, One District, One Factory initiative and 275 constituencies to be allocated US$1 million annually under the Infrastructure for Poverty Eradication Program (IPEP).
The way forward
Last year, the election campaign messages were rebranded to win the support of the electorate and the international community. Cocoa production topped the list of priorities. Measures were spelled out to increase cocoa production both in the short and long-run. Cocoa has been the bread and butter of the economy over the years and should be given top priority in the scheme of things.
Cocoa processing should be the next item to be given urgent attention. The cocoa processing factory in Tema should be diversified to expand its production lines in order to increase its output. It is painful that Ghana has produced premium cocoa beans for centuries yet all we do is to export the raw beans with no value addition to the beans which could create down-stream employment for our teeming youths. According to Greg Mills, by 2010, anywhere between one (such as in Nigeria) and more than three in every five (such as in Mozambique, Ghana and Liberia) young Africans have no job (Greg Mills: Why Africa Is Poor, And What Africans Can Do About It).
Gobal warming and energy sources
Global warming is real. The lesson here is that Ghana should take reforestation more seriously to restore our depleted forests and also offer employment to the teeming youths who are unemployed and are roaming our streets as sellers of dog chains, shoe shine boys, etc.
Currently, our energy sources are mainly hydro and thermal energy. Solar energy should be pursed more seriously to harness solar power to provide additional source of electricity for the rural sector and domestic users in our cities. South Africa, Kenya, Morocco, Germany among others, have comprehensive solar energy schemes to augment their supply of electricity.
To be continued…
