Ghana: President Mahama turns to the power of prayer

Ghana’s power sector is limping badly but is only symptomatic of a general economic malaise that has gripped the West African country. The plunging price of crude, a weak currency, high interest rates and suspicion of large-scale fraud in the public sector are all crowding in on President Mahama. Report by Eric Kwame Amesimeku in Accra.

Ghana’s President John Dramani Mahama began 2015 with a promise that the power crisis that the nation has been facing for over two years would finally come to a conclusive end during the year.

Reminded by his critics that he had promised not to make any new promises about the power crisis, the President clarified that he was merely expressing a ‘prayer request’. Appropriately, the President had been speaking in a church. Not that his critics have been assuaged by his clarification.

The power crisis may be the most visible of the issues besetting the Ghanaian economy but it is by no means the only one. It is, however, a problem that will need to be resolved if the President’s other assurance – that 2015 will be the year in which the economy gets back on its feet – is to come to fruition. The first few weeks of the year, however, have seen a deepening of the power crisis. The Electricity Company of Ghana (ECG), the nation’s sole power distributor, has already announced that it will need to shed an extra 600 megawatts, further reducing the stock available to the West African nation.

The power company is also under severe financial strain. The newly appointed Minister of the newly created Ministry of Power, Kwabena Donkor, has announced that the indebtedness of users to the company is threatening the company’s financial viability. His response has been to launch an “Operation Pay Your Bill” to recoup some GHC 500m ($152,000) that is said to be owed to the company by consumers, large and small.

While the Minister seeks to resuscitate the company, there is growing expectation that the company itself may be sold. The second Millennium Challenge Compact agreed between Ghana and the US will, among other things, pursue a rationalisation of the power sector in the country. While the compact will make available in excess of $498m for the improvement of the sector, it also insists on deeper private participation of the sector, for which many read, the sale of the state-owned ECG.

For the wider problems in the company, further conditional assistance may be expected from the IMF. After much hesitation, the government announced late last year that it will be seeking the assistance of the IMF. This decision was not easily reached. Apprehensive of a negative reaction from the opposition, the press and the public, the government tried everything else before finally making that call.

Deep fiscal hole
In 2007, following some decent economic gains, the New Patriotic Party-led (NPP) administration took the country off the IMF programme, freeing its hand to spend money as it saw fit.

For many, this was a positive symbolic gesture, reinforcing notions of independence and self-sufficiency. In reality, the absence of external oversight was reflected in the near-immediate fiscal slippages. By the end of 2008, and the NPP’s term in office, a budgetary hole was opening.

The National Democratic Congress (NDC) administration that followed, led by John Atta Mills, made fiscal stability a cardinal objective and indeed, made some modest gains. Inflation was brought down to single digits, enjoying its longest stretch at that level since the 1970s. Import cover and current account balance would also improve. In 2011, the growth rate of 14% was among the highest in the world.

By the end of 2012, however, a much deeper fiscal hole had opened up, from which the country is yet to recover. 2013 and 2014 have seen the government try everything to restore stability and the confidence of the business community. This has not been entirely a success. Inflation has returned to the mid-teens, interest rates are heading north and growth has slowed.

While foreign direct investment is still quite robust, figures from the Ghana Investment Promotion Centre show that the number of new businesses being set up has dipped slightly.

The difficulties have exposed some of the deeper fundamental issues with the Ghanaian economy. The wage bill for example has come under scrutiny. In particular, the Single Spine Salary Structure, introduced in 2011 to rationalise public sector salaries, has nearly quadrupled the amount the state spends on its 600,000-odd workers.

Even the figures are in dispute. It’s widely acknowledged that there are ‘ghost workers’ on the payroll.

Again, the pressure that the currency has come under, posting some of the worst performances globally for both 2013 and 2014, have brought into focus the import-dependent nature of the Ghanaian economy.

Exporting only raw materials and importing nearly every finished product imaginable has had a considerable toll on the economy that has merely been compounded by other factors, further exposing the elementary weakness of the currency. One analyst has even suggested that the real value of the cedi would be 5 to 1 against the dollar, advising against the artificial measures that the Central Bank has been adopting to preserve the cedi’s value.

Borrowing binge
The result of these difficulties has been a borrowing binge as the government struggles to meet its obligations. Under its own fiscal rules, internally generated funds have been applied to wage demands while capital expenditure has been funded by external loans.

These have however not been normal times. Allegations of the improper use of funds persist, while government’s resort to local lenders has seen the private sector crowded out and starved of funds.

In the face of all this, the pledge that this year will see a turnaround must ring a little hollow. Many would question the measures that the President’s economic team intends to apply to remedy the situation.

There are sticking points with the IMF bailout which could possibly give the economy some much-needed respite. The wage bill and the suspected ghost names aside, there are also issues with the veracity of figures put out by the government’s negotiating team. A disagreement over the exact amount owed to local bulk oil distributing companies boiled over from a meeting and into the press, with each side issuing press statements to clarify their positions.

To make matters a little more complicated, the falling oil price will affect revenue projections for the oil-producing nation.

Since 2010 when Ghana begun commercial production, its budget has been supported significantly by proceeds from its oil. With falling prices, the country may find that support is no longer as dependable as it has become used to. Worse, the dip in prices threatens new exploration, which has also been a source of new investment into the country.

Of course, this also means that it has to spend less to import finished oil products, which it still does.

However, political pressure might mean that it reduces prices at the pump, thereby wiping off any gains that could be made.

At the moment, prices for consumers have gone down by only 10%, with government insisting that it needs to maintain prices to enable it to pay off debts that have arisen from under-recovery from when the prices were high.

This can only go on for so long. The economic challenges are apparent. Government needs to trim its spending while investing in infrastructure. It will need to stimulate economic growth in order to boost job creation and tax receipts.

Less apparent, however, are the solutions that could be applied to achieve those ends. While the President may really need for this year to be better than previous ones in his tenure, it is not obvious that he will get one.

In the end, he may find himself relying on providential events to deliver the turnaround that he sorely needs.

He will also be mindful that next year will be an election year, which would mean much less flexibility on the tough measures that the economy needs. Which would explain why he began the year in church.