Ghana: Is the Black Star losing its lustre?

Government has had to resort to the domestic market to finance its operations. Debt repayments have once again become a significant headache for the national exchequer and in some more pessimistic quarters, talk is already rife about HIPC (the Highly Indebted Poor Country status that the nation had to accept in 2001 to free itself from debt repayments that threatened to cripple it).

Inflation, which had a near 12-month run at single digits, is also creeping up again, reaching 15% in July. Troubles with the cedi are even more pronounced, with the national currency losing over 20% of its value against its major trading partners.

Umbrage at rating demotion

In the light of these, there have naturally been concerns about Ghana’s position as an investment destination. Ghana may be open for business; but can it still attract customers? The Minister of Finance, Seth Terkper, thinks the country is ripe for business. Together with the Vice President, Paa Kwesi Amissah Arthur, Terpker has mounted something of a campaign in response to the negative reviews from ratings agencies.

Amissah Arthur is an economist by profession and was formerly governor of the central bank and also number two at the Finance Ministry during the Economic Recovery Programme. Both have described the downgrades as unfair and pointed to what they describe as the country’s “sound economic fundamentals” as evidence that the difficulties are temporary and can be overcome.

A closer look will show that these sentiments may be on the sanguine side. The cause of the difficulties can be ascribed to these very fundamentals. The economy is heavily dependent on the export of raw materials, making it overly susceptible to price shocks in the commodities markets. Its cash flow problems currently are due in large part to the drop in commodity prices as a result of investors moving back to stocks as international markets have stabilised.

Aside from this, Ghanaian governments are notorious for election year splurges. Many a new government has started its term with little left in the kitty – most of it having been blown away on electioneering by the departing government.

Previously, newly installed governments have been able to count on the goodwill of donors and partners, which allowed them some leeway as they tried to clean up the mess left them. This time, it has been doubly hard to court sympathy as the mess was caused by the very administration that now faces the task of cleaning up.

Of course, all is not lost. The country still has the capacity to turn things around. It is still endowed with sufficient natural and human resources to enable it to weather the current difficulties.

Ironically, what it requires is a renewed and stronger will to deal with the fundamentals. The country must foster the growth of new industries that will balance the weight that it gives its commodity exports. As one of the more robust ICT nations in the sub-region, it could, for
example, profit by giving free rein to the burgeoning yet struggling software industry.

Above all, the nation can use the crisis to reinvent its huge government and notoriously lethargic bureaucracy, with the twin purpose of reducing costs and boosting efficiency. There would also be benefits for the private sector which could, as it says itself, do with a more responsive and dynamic public sector. Above all, it must find a way to curb the now-routine election year imprudences that casts a shadow over its largely positive democratic exercises.

After the reforms of the ’80s and the liberalisation of the 2000s, this could be an opportunity for the country to put a new sheen on its coat, revising the structure of both the economy and the state.

If you are still looking for fundamentals, you may be soothed by a report from US-based Frontier Strategy Group ranked Ghana as the fourth most-preferred FDI destination in Africa, after Angola, Kenya and Nigeria and ahead of South Africa. Clearly, that coat is only a little dirty; a good wash should see it ready to be shown off again.