Ghana’s Economy in 2015: Three Years Under President Mahama

Accra: For a leader who shot to the peak of his political career – the Presidency – through the untimely demise of his boss, getting the love and sympathy of the people in his first days in office was guaranteed, almost the same way his migration from the position of Vice President to the number one job in the country was. Ghana’s President John Dramani Mahama knows that very well.

On July 2011, when he was sworn in as president following the painful demise of then President John Evans Atta Mills (Ghana’s constitutions requires that the vice be sworn in should the President die in office), the unity of the grieve-stricken nation behind him was visible to all and sundry.

For once, the politically polarised nation dumped the usual politicking on the streets and media space to grieve and extol the virtues of the late law professor. Until his untimely death in July 24 2011, Prof Mills was in the fourth year of his first tenure as president, a position he attained after two failed successive attempts at the presidency.

With presidential and parliamentary elections due in six months and him as contender for the presidency, President Mahama, a professional communicator, quickly embraced the odds and capitalised on the situation to make the most political capital out of it. In the speeches and public appearances that he would make in the days leading to and after the funeral of the late president, the need to unite in honour of the legacies of Prof Mills became his catch phrase while his peaceful demeanour continued to endear him to many Ghanaians nationwide. That trick worked, albeit expectedly.

Ghana is a typically conservative country, where a critique of a dead person’s legacies could be misconstrued to mean disrespect to the dead and the deceased’s family.

As a result, the anger that most people harboured against President Mills’ government and its handling of the economy at the time quickly sublimed and was replaced with sympathy.

Yet, in a country where unemployment is on the rise, electricity supply erratic, access to portable water still a mirage to many people in the cities and villages and maternal mortality still a headache to authorities in the health sector, only time could test the authenticity and duration of that love for the government.

Mahama and Ghana’s economic growth

Fast forward to December, 2012, and Ghana is heading to the polls to elect a president and members of parliament. President Mahama and his one-time colleague in parliament, Nana Addo Dankwah Akuffo Addo, the flag bearer and leader of the opposition New Patriotic Party (NPP), were the main contenders for the seat of president.

As President Mahama played out the sympathy card, pointing to a stable economy, increased numbers of school facilities, hospitals and roads in the hinterlands as the major achievements of the President Mills-led administration that called for his election and the retention of the National Democratic Congress (NDC) party, the apposition NPP and its leader panned growing corruption, rising unemployment, high cost of living, a depreciating currency and an epileptic energy sector as signs of an ineptitude government that are drawing back the fortunes of the over 25 million Ghanaians.

At the end, the antics of both politicians worked but President Mahama won the election. The opposition NPP, however, disputed the results of the election and later headed to the country’s highest court, requesting the Ghana’s Supreme Court to nullify the results and declare its candidate the winner.

Eight months later, the court gave its verdict; there were election irregularities in voting and tabulation of election results but President Mahama won.

Although news of the court’s verdict gave relief to president Mahama, causing him to later celebrate with his legal team, the damage that the court petition brought to the country’s economy was evident and would return to hunt the president and his legacies.

Mounting debt suppresses economic growth

Within the eight month-period that the court case traveled, investor confidence in Ghana’s economy tumbled, the value of the cedi, the local, depreciated steeply and business growth was subdued as entrepreneurs held-back expansions to be able to study the reaction of the citizenry to the court verdict.

The net result was a dampened economic growth that will characterise the four years that President Mahama will remain in office.

Between 2011 and 2014, annual economic growth witnessed a step fall from a record high of 15 per cent in 2011 to 7.9 percent in 2012 before sliding further to 5.4 percent in 2013.

In June 2015, the Ghana Statistical Service announced that the economy grew at 4.1 percent, directly mirroring the grim sentiments that characterised the outlook of the economy in that year. The dampened economic outlook in 2014 was largely due to Ghana’s recurrent energy crisis, which resurfaced last year and has since been an albatross to President Mahama and the business community.

The erratic nature of the country’s electricity supply meant that the growth of power-dependent businesses such as those in the mining and quarrying, manufacturing, construction, food and beverage and the services sector subdued, forcing most of them to holdback expansion plans while downsizing to be able to meet costs.

Beyond the dimming growth rates posted within the past years, other key fiscal indicators of Ghana’s economy (inflation, debt stock, budget deficit and foreign exchange rates) worsened within the first three years of President Mahama’s tenure.

Annual inflation, which ended 2012 at 8.8 percent, rose to 13.5 percent in December 2013 before ending 2014 at 17 percent. Although the rise in inflation was unannounced, it was not surprising given that the cedi also tumbled within the period, shedding about 65 percent of its value to the US Dollar between 2011 and 2014.

The import-dependent nature of Ghana’s economy means that a steep decline in the value of the cedi will raise the cost of imported items, thereby fuelling annual inflation, which measures the average change in prices of goods and services in the country.

While these happened, public debt stock resumed an upward. It grew from GHS24 (42.6% of GDP) in 2011 to GHS76.1 (67.1% of GDP) in 2014, raising fears among local economists that the country would be declared debt distress should the government not reduce its appetite for borrowing.

Ghana’s economy: new status, new challenges

While majority of Ghana’s current economic challenges – the decline cedi, rising inflation and widening budget deficit – are the results of this mounting debt, mention must be made that the government’s increased appetite for borrowing was partly the result of situations beyond the control of the country. This is because in 2010 when the economy was rebased, moving Ghana to the status of a lower middle income country, few Ghanaians anticipated the implications of that new status on the future prospects of the economy, one that relies heavily on the earnings of commodities.

Key among them is the drying up of concessionary loans, which was the anchor of Ghana’s envious economic growth. This, therefore, created a revenue gap that required alternative finances to plug the deficit that the new status created.

With domestic revenues and foreign exchange earnings, resulting from the export of minerals, cocoa, timber and oil also declining, the President Mahama government found solace in borrowing to meet rising public expenses.

The situation was complicated by the depreciating cedi, which caused the cost of interest payments on government loans from GHC1.6 billion in 2011 (equivalent to 2.7% of GDP) to GHc7.8 billion (equivalent to 6.8% of GDP) in 2014.

The dolling out of these monies to pay off interests accrued on loans meant that the provision of social amenities such as water, electricity and education facilities suffered, leading to a dwindling public sympathy towards President Mahama and his government.