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The Coffers Are Empty

Ghana’s economy has grown rapidly in recent years but poor governance and increased costs threaten stagnation.

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Accra’s central business district, located at Ring Road, is popular with start-ups because everyone walks past it, from tourists to townsfolk. This doesn’t count for much if Ghana’s economy continues to stumble.

Felix Oppong runs a small printing business in this bustling area. He has a staff of five who serve around 10 companies, mainly from the telecommunications and financial sectors.

The company prints posters, fliers, banners and office documents. In the past year, Oppong has lost two of his biggest clients, telecoms giant, MTN, and Fidelity Bank, due to power cuts, known here as dumsor. He has also had to increase his prices to break even.

“Our business has really taken a hit, the dumsor situation right now means we cannot service a lot of the orders we get from clients. We are relying on the generator every day to make sure we can meet demands and the cost of petrol is very high as well,” says Oppong.

“We cannot continue running the business like this. Our clients are complaining about the increase in prices and I had to sack three staff, there have been at least two petrol shortages last year which meant we had to close our business for a week and that is when we lost MTN.”

Ahead of elections on November 7, the Ghanaian economy is facing several challenges. Once a shining light of economic prosperity, the country, according to the International Monetary Fund (IMF), is now experiencing a decline in growth from 8% in 2012 to 3.5% in 2015. The current woes are largely due to the protracted energy dilemma and what many industry experts believe to be poor macro-economic management.

With elections coming, a restrictive IMF program has been implemented to prevent previous bouts of excessive spending. The organization has disbursed a third installment of $116 million, which amount to a total of $900 million over three years, to aid economic recovery in the West African country. Consequently, Consumer Price Index (CPI) inflation is forecast to rise to 8.7% in 2016, up from 8.3% in 2015.

Franklin Cudjoe, the Founder and CEO of IMANI Center for Policy and Education, a leading think-tank in Ghana, says the plight of the Ghanaian economy is not specific to one sector.

“I would say all the industries in the country are having some challenges, all emanating from production costs that have gone high over the last couple of years. One of the sources of the high production cost for almost all the industries is because of the energy challenge that we have,” he says.

“If you take it on a per capita basis, the cost of energy, for instance, has tripled over the past few years alone and that significantly affects the budget for food. The disposable income for the household has significantly been reduced. The Ghanaian economy has also suffered from the global shocks because most of our products depend on them and there has been plummeting oil prices. Cocoa production also hasn’t quite matched this, not to mention a decline in gold as well.”

Cudjoe says the country’s woes are also self-inflicted. Ghana is borrowing more money but, according to some experts, these funds are not utilized well. The currency, according to Reuters estimates, has plummeted by around 20%, with a corresponding total external debt of $24.3 billion in 2015.

“Austerity measures being used at the moment are all fiscal and based on levying tax on everything. The government has incurred so much debt and the only way it can service those debts is to increase taxes. There is no sensible government that will be seen introducing taxes in an election year, but it seems the only way the economy can sustain itself… because, quite frankly, the coffers are empty,” says Cudjoe.

Nigeria’s fiscal challenges have also led to the country banning some imports, which significantly affected Ghana’s agricultural sector. Farming contributes around 19.9% to the economy, according to the Ghana Statistical Service (GSS).

“This also has a way of affecting our balances. It is similar to 2005 where Nigeria banned close to 93 products from Ghana and I think we are seeing echoes of that sentiment again. I don’t think it is right to erect barriers, especially with both countries belonging to the Economic Community of West African States (ECOWAS) which is supposed to lead to deeper economic integration,” says Cudjoe.

He, however, believes that the services sector, together with technology, will drive growth in Ghana. According to GSS figures, the sector contributes a whopping 50.2% to the economy.

“Ghana at the moment is doing $900 million a month, that is 24 million transactions, in mobile money. Ninety nine percent of these transactions are peer to peer, which simply means one takes and transfers money to the other. We are so far away from creating a cash-lite economy in Ghana, which is what mobile money is supposed to do. So we sat down and looked at how to create a platform that enables us to use the mobile money for retail payments. Zeepay’s idea is to be able to move from predominantly peer-to-peer transactions into retail payments as well,” says Andrew Takyi-Appiah, Co-founder of Zeepay, a mobile payments company.

He has, so far, invested just over $500,000 in his new venture and is hoping the growth in the Ghanaian services sector will help boost his mobile app service. Takyi-Appiah’s major challenge in scaling his business is the lack of funds. Financial institutions, who are traditionally apprehensive about lending to start-ups, have taken an even tougher approach to mitigate risk against bad debts. The government, however, has set up the Ghana Infrastructure Investment Fund (GIIF), to provide resources and attract investment. But Cudjoe says the approach of the government in implementing this leaves little to be desired.

“I know for a fact that the Ghana infrastructure fund that is being set up is being funded by the country’s oil money as seed capital, instead of using private funding from abroad. You ask yourself if this is the most prudent way of utilizing resources in an austere economy. I don’t really believe that austerity measures are the [solution] but I think the way we are going about it is to use the tax to solve it, and I think taxation is the last measure you want to resort to in a time like this,” he says.

As voters prepare to make their mark, the Ghanaian economy is on shaky ground. Business in the country is still firmly in the grips of the energy crisis, which has reduced output from the manufacturing and agricultural sectors, while increasing production costs.

The recent growth in the economy has achieved certain goals – such as reducing poverty – but ballooning costs and debt has left many wondering if Ghana’s progress is about to be stunted.

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