The collapse in crude prices has burst Ghana’s economic bubble. COVID-19 is eroding many of the economic gains of the past three years. And GDP could slow to the lowest in four decades, as inflation suddenly rises to the highest in two years and currency struggles loom.
After a decade of rapid economic growth buoyed by its emerging oil sector, a slump in global crude prices has left Ghana’s economy reeling and raised the stakes for President Nana Akufo-Addo’s re-election bid.
The leader of the governing New Patriotic Party will meet voters in six months after a sudden double jeopardy. The coronavirus outbreak and oil price decline have caused West Africa’s second largest economy to face its grimmest growth prospects in almost 40 years.
Like his predecessors, President Akufo-Addo surfed the oil tide and touted the credentials of his government to transform the economy in the three-year period during which the oil sector more than doubled to fuel annual growth of above 6%. The government was confident more oil would come from the Pecan field development, via the Norwegian firm Aker Energy, and from Springfield, a Ghanaian-owned company that also announced significant discoveries last year.
However, after a coronavirus-inspired collapse in crude prices to steep lows of $15 and $34 a barrel, the growth in Ghana’s gross domestic product for this year could decline to 1.5%, down from an initial target of 6.8%. That is the lowest since 1983.
The whole world is facing economic crisis as a result of the coronavirus pandemic. But not all governments are facing the electorate this year.
Early days
Ghana’s oil sector has been the single most significant driver of growth since the nation launched crude oil exports in December 2010. Ghana became one of the fastest-growing economies in the world as oil revenues brought in foreign exchange to shore up the local currency and offered substantial leverage, funding key development measures such as the Free Senior High School programme.
It is worth noting that oil changed the dynamics of Ghana’s economy and dwarfed the contribution of critical sectors that employ most citizens. It is not surprising that after a decade of crude exports Ghana does not have much to show by way of any other industry created or developed from the oil boom. This prompts the question: is Ghana suffering from a strain of the Dutch disease?
Efforts to get every Ghanaian child educated to at least secondary level, and encourage industrialisation through the One District, One Factory programme, are meant to change this. But these are early days yet.
The world’s second largest cocoa producer estimated crude prices of above $60 per a barrel and planned to ramp up spending by more than 20% this election year. Hence, the oil slump will hurt not only revenue, but the budgeted and projected programmes that the oil proceeds would have funded – and will do so severely.
Searching for a credible plan
No one can predict when prices will rebound to levels and thresholds where exploration and development of oilfields will resume. Meanwhile, inflation is above the central bank’s target band of 6% to 10% for the first time since March 2018 and threatens to stay high for most of the second half of 2020. The cedi is losing ground against the dollar and could probably get worse, with dire consequences.
The International Monetary Fund agreed to $1 billion in emergency funds to Ghana in April, while a debt standstill from the World Bank will free up $500 million in interest and principal payments. This should give some respite but doesn’t make the task any easier for the government.
Before Akufo-Addo and his New Patriotic Party face voters in the December election, they will have to save jobs and show that they indeed have a credible recovery plan to get the economy out of the present crisis with very limited oil revenue.
The government’s flagship programmes, including the Free SHS, nursing and teacher trainee allowances, must continue to be paid. Akufo-Addo must create jobs, build roads, keep the cedi strong. The list goes on.
Akufo-Addo will finish the final lap of his presidential race with COVID-19 triggered flat tyres and will have to navigate his wobbly economy to victory. His only saving grace may be that he will be standing against the same opponent he defeated in 2016 – largely because of how this opponent, running again today in 2020, mismanaged the economy at that time, when he was president.
Papa Kow Manu
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