The impact of COVID-19 on Ghana’s economy has been excruciating and the stack of fiscal symptoms leaves one wondering whether the government’s interventions will be decisive enough to allow its largely informal sector to leave monetary isolation without any need to undergo even more painful treatment.
Millions of Ghanaian employees and businesses in the so-called informal sector – including operators of shops, restaurants, hair salons, schools, hotels and factories – which accounts for 90% of the economy, have been among the hardest hit by the global maelstrom created by the virus.
Before Ghana registered its first two cases, President Akufo-Addo set aside the cedi equivalent of US$100 million for preparation and response plans against the spread. He showed decisive leadership and it was instantly appreciated by other leaders across the world, giving Ghanaians a sense of calm and assurance.
But now, the contagion is bad and it continues to spread, with debilitating economic ramifications. This has meant that West Africa’s second largest economy – already facing budgetary constraints and hard-pressed, following missed revenue targets in its last three annual budget cycles – has had to provide bailouts to revive its private sector, described as the engine of growth.
The government gave a 50% salary increase and tax breaks to frontline health workers and three months of free water plus a rebate on electricity bills to the entire nation. Then it offered a GHC600 million stimulus package, or rather soft loans scheme, to micro, small and medium-scale businesses. Terms of the loan: a one-year moratorium and two-year repayment period.
Good as these measures are, the amounts involved in the stimulus were far too meagre to engineer the kind of quick start Ghanaian businesses require. The estimated number of beneficiaries is in excess of 300,000. So, by a layman’s calculation, each company can only get up to GHC2,000 to revive business and possibly attempt to pay an allowance to its staff.
Much now hinges on the GHC100 billion Ghana Coronavirus Alleviation and Revitalisation of Enterprises Support (Ghana CARES) stimulus programme, announced by the Minister for Finance in his Mid-year Budget Review on 23 July, yet it sure to be far outweighed by the demand.
This is the most opportune moment for Ghana’s now resilient banking sector to lead the economic recovery agenda. But alas, in Ghana, the banks seem to exist primarily to lend to governments and a few already rich folk, leaving small and medium-sized businesses to their fate, at the mercy of Shylock moneylenders.
The financial sector has been through great turbulence in the recent past. Many “financially unlettered” people lost colossal sums of money to various Ponzi schemes. Then came the closing down or merging of nine Ghanaian-owned commercial banks, followed by 347 microfinance and savings and loans companies, and another 53 fund management companies. That seemed to complete the series of closures by the Bank of Ghana and Securities and Exchange Commission, all in the name of the “banking and financial sector clean-up”.
Consequently, hard-earned monies belonging to tens of thousands of citizens have been either lost or locked up in a reform which literally turned off all the financing taps that keep life and enterprise fuelled.
The government eventually promised to repay all the locked-up funds using various instruments – from government bonds to discounted back pay. But hardly had any meaningful payment been made than COVID-19 reared its ugly head.
Against such a backdrop, the timing of the pandemic could not be worse for Ghanaians. Meanwhile, the banks, with their minimum capitalisation levels increased from GHC120 million to GHC400 million, are very reluctant to lend to real business interests because they consider the private sector too risky.
Increase your confidence
Ghana may need a deliberate policy direction in this regard, including formalisation of a loan-to-deposit ratio.
The government could also give guarantees, so that banks will have the confidence to lend to strategic areas of the private sector which are catalysts for growth.
Until these and other realistic measures are implemented thoughtfully, the nation’s quest for growth, prosperity and transformation will be a mirage and the economy will remain perpetually quarantined in the intensive-care unit, bereft of fiscal health workers.
Paa Kow Manu