<\/p>\n
Ghana, a country once described as Africa\u2019s shining star by the World Bank, had the world\u2019s fastest-growing economy in 2019.<\/p>\n
However, it plunged into an economic crisis after being hit by the global pandemic \u2014 coronavirus \u2014 and the Russia-Ukraine war.<\/p>\n
The downturn of the local economy had dire consequences for Ghanaians, especially the trading community.<\/p>\n
Read the full story originally published on December 31, 2022 by aljazeera.com.<\/p>\n
Doris Oduro sits at her small, almost-empty store in Odorkor, a suburb of Ghana\u2019s capital, Accra. The single mother of two feels frustrated. After 15 years in business, she is now considering closing because she cannot restock her shop due to the high cost of living.<\/p>\n
\u201cI am running at a big loss,\u201d Oduro, 38, told Al Jazeera. She sells imported items, including juices, biscuits, soft drinks, toiletries and sweets, but Ghana\u2019s economic crisis is taking a huge toll on her business.<\/p>\n
\u201cPrices of goods keep soaring, and it is affecting my principal capital,\u201d she said. \u201cI want to close my store and find something else to do. Things are tough for me because I can\u2019t sustain the business and I have a family to keep.\u201d<\/p>\n
Ghana, a country once described as Africa\u2019s shining star by the World Bank, had the world\u2019s fastest-growing economy in 2019 after it doubled its economic growth. But today, it is no longer the economic poster boy of West Africa. Despite being a major cocoa and gold exporter, it is currently battling its worst financial crisis in decades with inflation hovering at a record 50.3 percent, the highest in 21 years.<\/p>\n
Ghana\u2019s economic successes were in the limelight when the new government of President Nana Addo Dankwa Akufo-Addo took power in January 2017 and brought down inflation significantly. Under the previous government in 2016, it was 15.4 percent, and it fell to 7.9 percent by the end of 2019 and remained in single digits until the pandemic hit in March 2020.<\/p>\n
Ghana\u2019s budget deficit, which was about 6.5 percent of the nation\u2019s gross domestic product before Akufo-Addo\u2019s government came to power, was brought down to under 5 percent of GDP by the end of 2019.<\/p>\n
\u201cThe growth that we experienced around 2017 to 2019 was actually coming from the oil sector,\u201d Daniel Anim Amarteye, an economist with the Accra-based Policy Initiative for Economic Development, told Al Jazeera.<\/p>\n
\u201cWe were so excited that the economy was growing, but we couldn\u2019t devise strategies to ensure that the growth reflects in the other sectors of the economy,\u201d he said. \u201cFor instance, we neglected the agriculture sector, and we couldn\u2019t do any meaningful value-added investment in that sector. The government became complacent.\u201d<\/p>\n
According to the United Nations\u2019 Food and Agriculture Organization, agriculture represents 21 percent of Ghana\u2019s GDP and accounts for more than 40 percent of its export earnings. At the same time, it provides more than 90 percent of the food the country needs.<\/p>\n
\u201cOver the years, the government failed to invest in increasing output in the agricultural sector that will eventually lead to economic growth and transformation and food security. We are a major cocoa growing country, but we didn\u2019t pay attention to increasing yields to translate into more foreign exchange earnings to drive economic growth and employment,\u201d Amarteye said.<\/p>\n
Ghanaian traders, who contribute significantly to the economy, mostly buy and sell products they import from Western countries and China, including home appliances, consumables, cars and second-hand clothes.<\/p>\n
Due to the nature of their businesses, there is a persistent strong demand for the US dollar to pay for imports. This led to the continuous depreciation of the local currency, the cedi, which was recently described as the worst-performing on world markets.<\/p>\n
As inflation surges, rising prices keep the cost of living accelerating for Ghanaians.<\/p>\n
\u201cThings are not the same anymore,\u201d said Francis Anim, a vehicle spare parts importer. \u201cI used to spend $5 a day with my wife and child on food alone early this year. Now we spend close to $10 [for the same amount of food]. Why?\u201d<\/p>\n
\u201cWe are feeling the heat,\u201d he said. \u201cThe import duties are very high at the ports, so we have to pass on that burden to retailers, and eventually the consumer suffers. This has resulted in a high cost of living in Ghana, and the economy is not helping us either.\u201d<\/p>\n
A nation in crisis<\/b><\/p>\n
The president conceded in a recent address to the nation that the West African country is in crisis. He blamed the situation on external shocks \u2013 the pandemic and Russia-Ukraine war.<\/p>\n
However, analysts say the government took certain political and economic decisions that would have eventually exposed the weaknesses in the system even without those external factors.<\/p>\n
For instance, to fulfil one of Akufo-Addo\u2019s most expensive campaign pledges, his government launched a free education programme in public high schools nine months after he took office. It also provided free meals to students at primary and secondary levels.<\/p>\n
Also in 2017, the governing New Patriotic Party scrapped what it called 15 \u201cnuisance taxes\u201d. These included the 17.5 percent value added tax on financial services, real estate and selected imported medicines. They also reduced import duties on spare car parts, abolished the 1 percent special import levy and the 17.5 percent VAT on domestic airline tickets.<\/p>\n
\u201cThis brought a massive reduction in government revenue,\u201d Williams Kwasi Peprah, a Ghanaian associate professor of finance at Andrews University in Michigan, told Al Jazeera. \u201cTo make up for the revenue shortfall, the government adopted borrowing. This increased Ghana\u2019s bond market activities domestically and externally and, as a result, a high debt-to-GDP exposure, leading to the current debt unsustainability levels.\u201d<\/p>\n
From August 2017 to December 2018, Akufo-Addo\u2019s government spent more than $2.1bn on what it called the \u201cbanking sector clean-up\u201d.<\/p>\n
The central bank said some banks were insolvent and were operating on life support, putting the interests of depositors at risk. The clean-up saw a reduction in the number of banks from 33 to 23 while more than 340 other financial institutions, such as savings and loans companies, had their licences revoked.<\/p>\n
The government aimed to restore confidence and reposition the banking sector to support economic growth.<\/p>\n
\u201cThe financial sector clean-up also cost the country more than anticipated in attaining a robust financial sector before 2022,\u201d Peprah said.<\/p>\n
He said the discovery of two more oilfields in 2019 led to the anticipation of more revenues. The government responded by issuing more domestic and external bonds, increasing its debt and raising spending on interest payments, social programmes and employment.<\/p>\n
The government is Ghana\u2019s largest employer, primarily in the fields of education, healthcare and security. It spends almost half of its budget on wages; this year, it raked in $8.2bn in estimated revenue and used about $4.2bn to pay salaries of public sector workers.<\/p>\n
In 2017, the government also restored allowances for trainee nurses and teachers. President John Mahama lost to Akufo-Addo in the 2016 election partly for suspending those allowances two years earlier. They put a huge strain on the public purse. For the nurses\u2019 allowances alone, the government paid more than $2.5 million annually.<\/p>\n
\u201cThat was a poor political and economic decision the Akufo-Addo government made at that time because the country was faced with revenue challenges,\u201d said Kwasi Yirenkyi, a financial analyst with Accra-based Data Crunchers. \u201cThe government was spending more than it was receiving, and at the same time, it failed to widen the tax net. We were slowly heading for disaster.\u201d<\/p>\n