Situation Report: Ghana - New government, old debt

Ghana has a new government since early January, but old demons are likely to spook investors and increase political risk in the longer term.

The Black Star: a beacon of democracy?

On 7 December 2016, Ghanaians elected a new president and a new legislature. The vote was concluded peacefully and defeat was quickly conceded by the then-incumbent president and leader of the National Democratic Congress (NDC), John Dramani Mahama. The new president, Nana Akufo-Addo, the leader of the New Patriotic Party (NPP), was sworn in as president on 7 January 2017 in the capital Accra. Compared to other constitutional democracies in west Africa, the Ghanaian experience continued to highlight the country as a model democracy in an otherwise unstable region, where long-ruling presidents, such as Joseph Kabila in the Democratic Republic of the Congo or Yahya Jammeh in the Gambia, have refused to step down or hand over power. This was the second time since returning to multiparty democracy in 1992 that the opposition managed to win power from the incumbent government. It was also significant that very few incidents of electoral violence were reported in the media. A2's intelligence sources had previously warned of the potential risks of youth mobs, loyal to either the NDC or the NPP, taking control of access to the polling stations to ensure that citizens cast the right vote, as had been the case in previous polls in 2012 and 2008. The main incident, which led some people to fear further violence, occurred when the NDC's march outside Akufo-Addo's private residence in the Nima neighbourhood of Accra escalated into fighting between over 100 NDC and NPP supporters.

Institutional change and voting patterns

Also, progress from previous elections was the institutional strength and leadership demonstrated by the Electoral Commission (E.C.). in the run-up to the election; the E.C. has been criticised by the NPP and other parties in recent elections for its poor organisational capacity which, for instance, allowed for multiple voting. Since then, the E.C. rolled out a biometric voter registration system, implemented a two-step voter verification process (electronically or manually) on polling day, and sent out mass text-messages with information about the elections to mobile-phone users. However, the E.C. was really put to the test in October 2016, after it decided to suspend 13 presidential candidates, and dozens more parliamentary hopefuls. The E.C. was widely accused by some of those affected by the suspension of being politically biased, even though most of these suspensions were due to formalities, such as poorly or erroneously filled-out registration forms. Neither of the two major parties, NDC and NPP, were barred. Legal challenges followed from many of the suspended candidates, raising fears within the public sphere that the E.C. would be unable to hear all cases before the 7 December poll. The process was settled at the Supreme Court, which ruled to extend the registration period to allow all candidates to make the necessary amendments to their applications. Despite Akufo-Addo's comfortable win on 7 December with over 53 per cent of the votes, the race against Mahama remained tight until the very end. Voting patterns from previous elections were cemented, with the NPP growing its support in its heartland Ashanti region, which includes the central city of Kumasi, near where the bulk of the country's cocoa plantations and gold reserves are located. The NDC increased its already large support in the eastern Volta region. Swing constituencies, including the Greater Accra Region, voted for the opposition leader.
Ghanaians were frustrated by the slow pace of promised infrastructure projects
Judging by conversations on the ground, Ghanaians were frustrated by the slow pace of promised infrastructure projects; ironically, the ruling party's election campaign trumpeted its achievements in terms of infrastructure development which was highlighted by its publication of the Green Book a compendium of infrastructure projects that the government claimed to have completed during the past term. That did little to convince Ghanaian voters. Most Ghanaians remained frustrated about intermittent power cuts, potholed roads in urban areas, lack of running water and sanitation, and limited employment opportunities.

Reviving the economy - the ghost of old debt

The new government made some bold promises on the campaign trail. Support for the administration will be contingent on its ability to tackle the country's inherited but poor economic outlook, with high levels of public debt and a budget deficit, both of which grew under the previous administration. This was mainly due to a global slump in commodity prices, during a period of intense borrowing by the government after the country began to extract crude oil in its western Jubilee oil fields in 2010. This slump hit the commodities on which Ghana relies, including cocoa, gold, and crude oil; together, these make up approximately 80 per cent of Ghana's export volume. In only a few years, Ghana went from having very low levels of debt in 2006  after over half of Ghana's debt was cancelled by international lenders to needing to seek a three-year extended credit facility (ECF) agreement, worth USD918 million, with the IMF in April 2015. That was at the depths of the commodity-price slump, which saw Ghana issue sovereign bonds, in both Euros and U.S. dollars, worth approximately USD1 billion. Ghana's total debt stock reached GHC119.9 billion (USD26 billion) in November 2016, equivalent to 71.9 per cent of GDP, placing the country at moderate to high debt distress according to IMF criteria. However, the outlook turned bleaker when, at the end of January of this year, the incoming government announced that it had discovered at least USD1.6 billion in undisclosed debt from the previous administration. The revelations set off alarm bells reminiscent of last year's major international debt scandal, in which it was revealed that Mozambique had over USD1 billion in undisclosed debt. The IMF suspended its lending to Mozambique in response. Although relations between Ghana and the IMF look better in comparison, and the Washington-based institution appears to be satisfied with the government's efforts and plans to reduce the deficit and the debt burden, the state of Ghana's finances will become clearer in March when Akufo-Addo's government presents its first budget. In the meantime, the government has set up a commission tasked with investigating the budget gap.

Are the ambitions feasible?

Furthermore, the incoming government's ambitious promises, made during the election campaign, will unlikely be fully implemented, which will cost it political support over the coming term. For instance, in the same vein as Ghana's first president under independence, Kwame Nkrumah, who pursued a state-backed industrialisation process, Akufo-Addo promised to build a dam in every town and a factory in every district of the country; there are 216 districts in the country and not every village possesses a waterway that would justify building a dam, making it almost certainly unlikely that the government will come anywhere close to fulfilling that promise. This is likely to be politically damaging at the next election in 2020, should the government fail to provide tangible results for the electorate. Other more feasible promises, such as cuts to corporate taxes, universal education, industrialisation and economic diversification are, broadly speaking, more likely to be kept. The Akufo-Addo administration appears convinced that the economic outlook will improve; the IMF projects that Ghana's gross domestic product (GDP) will grow by at least 7.4 per cent this year, up from a meagre 4.3 per cent GDP growth in 2016. While a 4.3 per cent growth rate is considered very strong performance for advanced economies, Ghana's growing debt and budget shortfalls, infrastructure deficits like endemic power cuts, rising inflation and rapid demographic growth have offset the impact of the growing Ghanaian economy. Therefore, the new government plans to invest heavily to boost employment through manufacturing and cut corporate taxes to attract foreign investors.


Regardless of these plans, the Ghanaian economy remains highly susceptible to external shocks, due to its commodities-based economy, high inflation and a weak currency against a currently strong greenback. This will unlikely favour Ghana in the two-year outlook, but the probable impact of such shocks could be offset by a more diversified economy. Akufo-Addo has also shown an intention to develop the country's mining industry of bauxite and iron ore, primarily located in the northern and western parts of the country, and to expand the range of cash crops to minimise Ghana's dependence on cocoa exports... Read the full article