Ghana seeks home-grown solutions
The superstars of Ghana’s business scene are in a bind. Just as they are getting the ear of government and looking for dividends as the oil and gas industry starts up, the country is faced with its worst financial problems in more than a decade.
For two decades, imports of foodstuffs that Ghana produces locally have risen inexorably
Everybody’s favourite economy two years ago with world-beating growth rates, Ghana is now the the target of the rating agencies.
Citing worries about the budget deficit remaining stubbornly above 10% of gross domestic product, Fitch downgraded Ghana’s local foreign debt to B from its former B+ ranking in October 2013.
This year, Standard & Poor’s listed Ghana among the top three emerging markets most vulnerable to changing capital flows as the United States (US) tightened its monetary policy: the other two countries were Turkey and Ukraine, both immersed in political crises.
For now, Ghana’s woes are far more economic than political. The cedi has lost about a quarter of its value against the US dollar over the past year, making it Africa’s worst-performing currency after the South Sudan pound.
In Ghana’s import-heavy economy, that in turn pushed inflation up to 13.8% in January, prompting serious rethinking in government about backing local production.
Profit from a crisis
So in February, President John Dramani Mahama invited about 50 business leaders to a retreat at Peduase Lodge, the state guest house in the Aburi hills just north of Accra.
Gazing down from the escarpment on the capital and its rap- idly spreading suburbs, entrepreneurs and financiers explained how the combination of high interest rates, late payments from government agencies and intermittent power supplies is holding back their operations.
Not all the conversations were apocalyptic. Do not let a crisis go to waste was the message from Kwesi Amoafo-Yeboah, the chairman of Venture Capital Fund who was also at Peduase Lodge: “You buy a dilapidated building and instead of trying to renovate it, you tear down everything and rebuild it. I think that’s where we are.”
The major part of the rebuilding is to redirect the economy towards production and export, away from consumption and imports.
That means substantial public and private investment in the real economy, for example in manufacturing and processing, if the government’s Made in Ghana campaign is to become reality.
Amoafo-Yeboah, a veteran of California’s information technology and oil services industries who was once an independent presidential candidate in Ghana, says the policy change is real: “We are finally heading in the right direction, which is why I’m so excited now.”
The government is determined to cut Ghana’s import dependence and to double exports to $5bn within three years, according to Haruna Iddrisu, the trade and industry minister.
Iddrisu was speaking to The Africa Report just hours after returning to Accra from Mauritius where he was negotiating for Omnicane to invest in a sugar plantation and refinery.
“Plans are far advanced to relaunch Ghana as a sugar-producing country,” says Iddrisu. “We will be cutting the sod in June for a major sugar factory in Komenda in Central Region. It will be executed by Seftech of India. I have the no-objection clearance from the Eximbank of India to proceed.”
Then he reels off a list of sugar projects targeted for his home region of northern Ghana, where he says the huge po- tential for commercial agriculture is largely untapped.
Dreams and constraints
Iddrisu is similarly enthusiastic about expanding rice production and irrigation, again in northern Ghana, near Savelugu and also in Brong Ahafo.
The government is talking to local and foreign investors about these projects, he says. Both Amit Agrawal of Olam and Nabil Moukarzel of Finatrade – currently a major rice importer – went to Mahama’s Peduase Lodge session and talked about expanding rice production.
Plenty of state support for rice and horticulture as well as dam building is also being promised, at least for what Iddrisu defines as “bankable projects”.
But with huge constraints on state finances, the commercial commitment of those company bosses invited to Peduase Lodge is going to be critical to the success of the Made in Ghana campaign.
Another initiative likely to concentrate minds is the government’s new International Trade Commission, which will review tariffs and import duties to boost incentives for local producers and make importing less lucrative.
Iddrisu will be running the commission. It will have the power “to consider anti-dump- ing measures and even a future ban on some major imports into Ghana so long as we can guarantee their domestic production,” he explains.
Just how steep is the climb to self-sufficiency, even just in staple foods, is clear from these statistics from the Bank of Ghana and trade ministry.
In last year’s import bill, Ghana spent $467m on rice, $217m on sugar and $234m on edible oil – all commodities that the country produces already.
Ghana imported another $283m of fish, $226m of wheat and $169m of poultry last year.
Yet cheap imports from the giant rice plantations of Thailand and Vietnam, which attract a 20% tariff, are easily outpacing local production.
Rice imports in 2011 were 485.6m kg, that was a 65.5% increase in imports over 2010. Perhaps surprisingly, given that it was an election year, when rice imports often rise exponentially, Ghana rice imports grew by just 5.3% to 511.2m kg in 2012 and a further 12.8% to 576.9m kg in 2013.
The $467m of rice imports last year may be a future business opportunity for rice growers, but it is a current opportunity for Ghana’s formidable import lobby.
With their powerful tentacles in both the major political parties, the ruling National Democratic Congress and the opposition New Patriotic Party, the import lobbyists have had the resources and the personal connections to scupper any attempt to reduce their cut of the national economy.
For the past two decades, imports of foodstuffs that Ghana produces locally have risen inexorably. www.gollgi.com – get best Car Rental
There are already some success stories, such as sugar. Imports of sugar fell to 215.8m kg in 2013 from 283m kg in 2010. That trend could be reinforced with the revival of the sugar project in Komenda.
But imports of fish and poultry have also gone up by over 25% from 2010 to 2013. That is probably due to the growth of the protein-hungry middle classes.
Similarly, edible oil imports have risen by a third in the same period, most of it palm oil from Southeast Asia, from countries such as Indonesia and Malaysia, which studied Ghana’s oil palm industry in the 1960s.
Turning around local production will take several years, which is beyond the electoral schedule.
But the toughest and most time-bound tasks will fall to finance minister Seth Terkper, whose repeated promises to reduce the budget and trade deficits have been confounded by falls in the prices of Ghana’s main exports – gold fell by 28% last year but has risen a little this year on the back of political instability in Eastern Europe – together with the country’s import bill and the implementation of a new public sector wage structure, which was not properly costed.
Terkper insists that the systems are now in place to cut back sharply on waste and corruption in government, with a state contracts database and close monitoring of all state-sector procurement.
At the same time the government will be raising more revenue from a 2% increase in value-added tax and a temporary fiscal stabilisation levy.
But Terkper’s toughest negotiations will be with state employees. “The Economic Community of West African States convergence guidelines stipulate that governments spend 35% of tax revenue on wages and salaries. We were at 42-43%, but we went up as far as 55% and we are now trying to get it down.”
Cutting that figure, even if he can substantially raise tax revenue when economic growth is slowing, means that Terkper will have to continue with a wage and hiring freeze on the public payroll.
Indeed, ministers speak delicately about adjusting the size of the state payroll: the last time a government made substantial cuts to that was under the military regime of President Jerry John Rawlings and the cuts were at the International Monetary Fund’s and World Bank’s insistence.
This time the tough choices are all with President Mahama and his ministers when they meet at Flagstaff House.
As Terkper will tell them, if the government does not get the deficits under control, it will be the markets not the economists in Washington that will be giving their verdicts and the cost of servicing Ghana’s foreign debt could spiral.
As the government tries to fight off a financial crisis, it is broadcasting its determination to restructure the economy: this year may prove a decisive chapter in Ghana’s economic future. ●