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Vol 56 No 18

Published 11th September 2015


A helping hand from the Washington twins

Cash and lobbying from the IMF and World Bank boost the government a year before elections

Smiling broadly and sporting his trademark northern smock, on 7 September John Mahama submitted his application in Accra to stand again as the governing party's presidential candidate in next year's election. Having sidelined most of the National Democratic Congress dissidents, Mahama is likely to sail through the NDC party primaries. 

Ghana's economic profile (Image © Africa Confidential 2015)

After the party formalities, Mahama received Nigerian President Muhammadu Buhari for discussions on regional security cooperation. Buhari's victory in March against an incumbent president has fired up opposition hopes in Ghana. Mahama then flew off to Germany to address the Fifteenth International Economic Forum on Africa in Berlin on 8-9 September, where Ghana was again held up as one of Africa's brighter prospects amid concern at China's slow down and the international commodity price crash.

One reason for Mahama's good humour is that his government has managed to steer its way through one of worst years of economic travails since the 1980s: worsening power cuts, devastating floods, inflation soaring to 17% in June, ballooning foreign debt, and opposition claims of unprecedented political and business corruption. Bizarrely, Mahama's prospects of victory in next year's elections are higher after this annus horribilis, thanks both to local political machinations and help from the International Monetary Fund and the World Bank in Washington.

Firstly, the opposition New Patriotic Party is undercutting itself by a succession of internal disputes in which rivals have enthusiastically destroyed each other's reputations live on Accra's radio stations (AC Vol 55 No 15, Letting a crisis go to waste). The NPP's General Secretary, Kwabena Agyepong, is lambasting the presidential candidate, Nana Addo Dankwa Akufo-Addo. Meanwhile, police are investigating complaints that some senior officials have misused party funds.

Venality and mismanagement
All this has crowded out the campaign about the government's venality and mismanagement by Akufo-Addo and his able running mate, Mahamudu Bawumia, a former Deputy Governor of the Bank of Ghana. Although Mahama boasts of success in fighting corruption, the government agency for this, the Commission on Human Rights and Administrative Justice (CHRAJ) has been almost paralysed by administrative disputes and a chronic lack of resources. Accusations of grand corruption in the award of oil blocks and the much-delayed gas processing plant at Atuabo (AC Vol 55 No 18, Popping the gas balloon) go uninvestigated, as do claims about horrific labour abuses in the mining sector and complicity in drug smuggling by some security officers.

For now, the opposition parties' biggest battle is their campaign to get a new electoral register. They reckon the existing one is inflated by over a million names: the population is about 26 million and the median age is 18, meaning that if every eligible Ghanaian registered, there would be about 13 mn. names. The governing NDC, which has a formidable electioneering apparatus, especially when in power, dismisses the arguments saying it is too late and too costly to draw up a new register.

Christine Osei, appointed to chair the Electoral Commission in June, says the register's accuracy will be assessed. Civil activists, such as Emmanuel Akwetey of the Institute of Democratic Governance, who was at one stage tipped for the EC job, argue that the register should be reviewed by an independent task force, drawing on academics and civil society.

A new alliance known as 'Let my vote count' is organising protests in Accra and Kumasi adding to the pressure for a new register. It also wants to see the EC adopt the reforms proposed by the special judicial panel on the 2012 elections, which spent eight months assessing opposition claims of massive fraud in the presidential vote won by Mahama. But by a majority vote, the panel of judges upheld Mahama's election.

This time political tempers are even hotter and the economic situation is much tougher. That second factor has given the IMF and World Bank a key role in Ghana which has been following economic reform programmes for the past three decades.

At the height of the current problems, the IMF has agreed a US$900 million credit to bolster state finances and, more spectacularly, the World Bank is offering a $700 mn. guarantee which it hopes will generate the $7.9 billion that Ghana needs to build the Sankofa gas project. Using local gas, the plant will generate some 1,000 megawatts of electricity and cut costly fuel imports and reduce carbon emissions.

Paradoxically, the companies to benefit from the Bank's guarantee will be Italy's ENI and the Swiss-based oil trader Vitol; but both companies have been plagued by a succession of accusations of malfeasance and trade mispricing operations, especially in Africa.

Finance Minister Seth Terkper presents this combined package as a tremendous vote of confidence in Ghana. He will need every ounce of confidence this month in his campaign to float another eurobond. This time he's looking for $1.5 bn., just as a stronger United States dollar and prospects of a US interest rate rise are drawing money away from emerging markets.

Indeed one banker told us of diminishing commercial interest in Ghana, arguing that IMF, World Bank and African Development Bank would be playing a bigger role. Peter Enti of Nubuke Investments suggests that successful elections in Nigeria and perhaps in Côte d'Ivoire next month, could reduce he value of Ghana's reputation for political stability.

The IMF projects reduced growth in gross domestic product of around 3.5% this year and a persistently large fiscal deficit of over 7% of GDP. Adding to the problems are an interest rate of a hefty 22%, determined by the central bank. This is accompanied by costly local borrowing rates, falling gold prices, government debt to the fuel and power sectors, and lower cocoa production this year.

Although the World Bank's financing help for Sankofa will boost electricity production in the medium term, before that, the power sector needs extensive reform and restructuring, says Franklin Cudjoe of the Accra-based IMANI Centre for Policy and Education. He backs private sector involvement in the state-owned Electricity Company of Ghana, which Mahama is trying to push through in the teeth of trades union opposition.

IMANI has just rated the NDC's delivery record on its 2012 election manifesto at 47% or significantly below average. Conditions for the IMF credit include other policy shifts, such as freezing public sector wages as well as new borrowing at home and overseas. There are also tougher restrictions on the central bank's ability to finance the government deficit.

Renaissance Capital economist Yvonne Mhango says this IMF restriction on Bank of Ghana debt monetisation is critical. Although Ghana might miss the IMF's fiscal deficit reduction targets, an overshoot of 1% or less would still represent progress and not spark major concern over the government's commitment to fiscal tightening. IMF confidence is reflected by its positive assessment in June and its approval of Ghana's planned $1.5 bn. Eurobond, which will be partially guaranteed by the World Bank, she adds. On the downside, Mhango emphasises that the approximately $500 mn. that the government owes to bulk distribution company (BDC) fuel importers needs resolution. 

With about a third of the Eurobond funds used to retire outstanding instalments on Ghana's first Eurobonds, the remaining $900 mn. should provide a boost to state finances. In his address to Parliament on 21 July, Terkper said this year's deficit target would rise to 7.3% from 6.5%, and the growth target would fall from 3.9% to the IMF's predicted 3.5%. Terkper added that developing the Tweneboa, Enyenra and Ntomme (TEN) fields was '57% complete' and would supply oil and gas by the second half of 2016.

Nubuke's Enti, who argues that the 'green shoots' of the IMF-assisted economic recovery have not yet emerged from the trough, predicts that the coming Eurobond's yield will reflect the terms of Ghana's other debt issues, which are above the rates of peer countries such as Côte d'Ivoire. Other analysts predict the interest on the bond could rise above 10%. Copper-dependent Zambia is paying 9.4% on the $1 bn. bond it floated in July.

Enti adds that Ghana should benefit from the US$1.8 billion cocoa facility being arranged with a consortium of local and international banks this month to support Ghana Cocoa Board purchases of cocoa from farmers in the 2015-16 season. The Bank of Ghana has already been able to access some of these incoming proceeds through a financial swap deal.

For Terkper and Mahama, the market's response to the bond issue will be a key test of their recovery plan. Even if the interest rates are no higher than the 8% charged on last year's bond, debt obligations are now approaching 70% of GDP. That's higher than a decade ago, when the previous government negotiated an IMF- and World Bank-backed write-down under the Heavily Indebted Poor Countries Initiative.

A couple of random factors could yet help Ghana: international economic jitters are likely to push up the price of gold, the country's second biggest export; those same jitters have caused much more economic trouble elsewhere in Africa, in South America and even in Asia, so Ghana's economic woes are no longer exceptional. Much will depend on its politics but it could just be one of the first to emerge from the morass. 

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