Ghana After John Atta Mills

The sudden death of John Atta Mills has set the cat among the pigeons in terms of his succession, the country’s power balance, investments and growth. Expect a few tense months leading to elections at the end of the year.

Perhaps the greatest legacy that Mills, the first Ghanaian head of state to die in office, has left his country is in the smooth transition of power after his death, with the swearing in within hours of his successor, Vice-President John Dramani Mahama. The institutions of democracy were in good shape and functioning well.

It underscored Ghana’s stability, unlike that of other countries in recent years where the death of a leader has led to a coup, or a power struggle by the next in line to take their rightful place.

The 2008 presidential election consolidated Ghana’s reputation as a stable democracy, though it was close-run.

Mills was finally elected with a narrow majority of 46,000 votes for the National Democratic Congress (NDC) in a nation of 24m, and 50.23% of the vote against the New Patriotic Party’s (NPP) 49.77%. In fact, since 1992, five successful elections have seen power changing hands between the country’s two leading parties.

President Mills died five months before the next elections, which he planned to contest for a second term in December 2012, and Mahama will serve as a caretaker president until then. At present, it seems most likely that he will be nominated as the NDC presidential candidate.

However, Mills’ death could harm his party’s chances of success at the next elections and opinions have been divided as to his successor and leader of the party: some think Mahama lacks the name recognition of his predecessor, others that introducing a new candidate could undermine the NDC’s prospects.

Normally, politicians from the south dominate the political class, but Mahama is a Christian from the north, a region that feels neglected. Members of the party’s executive committee now have backed Mahama as candidate but plan a congress before 1st September to make the selection official.

Divisions in the party became visible last year, and a challenge may come from Nana Konadu Agyeman Rawlings, the wife of former President Jerry Rawlings, who made an unsuccessful bid to become presidential candidate in the primaries, gaining only 3% of the vote.

Jerry Rawlings, via his proxies, had already formed a breakaway faction called the National Democratic Party before Mills’ death, but the party is yet to be registered and Rawlings himself has been quiet about it. He may abandon registering the party now that Mills has died. The opposition NPP, to be headed again at the elections by Nana Akufo-Addo, also has its divisions.

During his term of office, President Mills adopted tight fiscal and monetary policies to reverse the large twin deficits his government inherited. He oversaw the country’s 60% upward revision of GDP to $31bn, signalling its transition to a middle-income economy in 2009, the discovery of oil in 2007, followed by the start of oil production in late 2010, and he has been credited with other economic growth factors in the country.

Employment and economic growth have risen. Although Ghana is ranked at only 135 in the UN’s human development index, between 1991 and 2006 the proportion of the population living in poverty fell from 51.7% to 28.5% and Ghana is on track to become the first African country to achieve the UN millennium development goal of halving extreme poverty and hunger by 2015.

In 2010, oil became the mainstay of Ghana’s prosperity, overtaking gold, cocoa and timber exports, with the start of production from the offshore Jubilee oil field.

It is one of the fastest-growing economies in the continent: GDP grew by 14% last year and the oil industry is expected to be worth $1bn a year.

Although oil riches can accelerate economic progress, they bring the danger of the ‘resource curse’, fuelling inflation and dissipation of oil revenues, and these will need to be made transparent and accountable, which is something for Mills’ successor, whoever he or she may be, to take charge of.

Mills campaigned on a platform of change, and vowed to translate the wealth from the oil fields into something the people could feel. But in future will petro-dollars be used for the common good or disappear as in other newly oil-rich countries?

As a social democrat government, the NDC’s policies under Mills are likely to continue if the NDC is successful in the December polls, and his party have pledged to continue his “unfinished job”.

Subsidies are likely to continue, according to analysis by Renaissance Capital. It’s estimated that the government will spend GHC697.7m ($353m) on fuel, power and water subsidies this year in a move that rebuffs calls by the International Monetary Fund (IMF) for them to be eliminated.

Of that, GHC450m ($228m) is spent annually on fuel subsidies, and to withdraw them would lead to higher prices and undesirable effects economy-wide, according to Dennis Nchor, a policy analyst at Integrated Social Development Centre. Fertiliser subsidies for the coming year are to rise to GHC124.8m ($63m), up from 79m ($35m). GHC179.7m ($90m) will be spent on utility subsidies over the next six months.

Unbudgeted subsidies, together with top-ups on the public wage bill, extra debt-service outlays and commitments carried over from 2011, will require additional government spending of GH¢2.6bn ($1.3bn) in 2012.

According to Renaissance Capital, there is low risk of legislation and taxes for the extractive industries being changed or increased, first, because the NDC has already done so, and, second, the pro-enterprise NPP, if successful in December, is unlikely to do so. The NDC had already increased the tax on mining companies to 35% and imposed a 10% windfall tax on all mining companies.

However, if the NPP were to win the elections, there may be a slowdown in the planned infrastructure programme, since it believes the NDC government contracted loans from China of around $3bn, part of a possible $13bn package of credit lines, and commissioned new projects, without proper accountability, observers say.

China’s role in the economy may become a hot issue. Akufo-Addo has voiced concern that Ghanaian laws limiting foreign involvement in trading were not being enforced, allowing Chinese traders to edge out local competitors – a sore point in a growing number of African countries.

He said (before Mills’ death) that as president, he would harness raw materials – now exported – for manufacturing, and eliminate red tape to promote the private sector.

Any future political uncertainty, though seemingly unlikely at present, could in theory result in some foreign investors holding back, a slowdown in inflows of foreign exchange, Renaissance Capital observed.

If there was a decrease in Treasury securities, combined with a projected increase in domestic borrowings, it could imply higher yields, a negative for credit growth, as it would discourage lending.