By Constance GBEDZO
On paper, Ghana is considered a very well organized society. Talk about banking and financial services, cocoa merchandising, mining, power, oil and gas, food, etc., we have good legal framework, good organizational structures, and well trained human capital. These organizational structures are to ensure good decision making processes. Surprise to note however that, where it matters most, these structures are usually rendered redundant.
Over the years, the Auditor General’s Report contained many cases of financial irregularities and breaches in procurement laws, resulting in billions of cedis of losses every year. Indeed, “poor corporate governance across public enterprises has also had a significant adverse impact on Ghana’s fiscals, with state owned enterprises reporting significant and persistent operating losses.”
These state-owned enterprises have rather become a burden on the fiscals with heavy outstanding loan obligations. In recent times, we have had more disturbing pieces of news to the effect that the Bank of Ghana also recorded a loss of GH¢60 billion, and Ghana COCOBOD, PBC Plc, Cocoa Processing Company, Tema Oil Refinery, and many more have also been suffering from dire financial distress.
On the other hand, in 2017 and 2018, licenses of a total of seven commercial banks, hundreds of savings and loans and microfinance companies, and asset management companies were revoked in Ghana. Also, a number of commercial banks went on life support from Government, and till today, there are still a number of Ghanaian banks that require life support. Consequently, the state ended up spending over GH¢21 billion to remedy the consequences of bad corporate governance in the financial sector and a further GH¢4.5 billion to protect investors in failed asset management companies.
In all of this, the managers of the national economy have failed in offering explanation to their actions and/or inactions. With regards to the financial sector clean up exercise, all Ghanaians were told was that there were lapses in regulatory oversight and there was lack of good governance practices in financial services sector. We also heard that the executives and boards of the financial institutions were acting in their self-interests.
Nevertheless, the macro economy of Ghana also suffered grave consequences of bad economic management over the years. In 2022, real GDP growth decelerated to 3.3percent from 5.4percent in 2021, compared to an average of 7percent between 2017 and 2019. Many scholars and economic observers have attributed Ghana’s economic woes to the structure of the economy which has, over the years, been imports driven, led by the service sector at the expense of the productive sectors, and heavily dependent on dollar denominated debts even to finance consumption.
Consequently, the economy recorded a sharp decline in commodity exports with an overall GDP as low as 0.4percent in 2020. Imports, however, expanded faster than exports in early 2021 while external demand for commodities remained subdued. Public debt which stood at 63percent in 2019, 81.1percent in 2020 and 82.0percent in 2021, hit 93.5percent of GDP in 2022. Government attributed this to the surge in the primary fiscal deficits and exchange rate depreciation.
Overall fiscal deficit doubled to 15.2percent in 2020, dropped to 9.2percent in 2021, and 9.3percent in 2022. This placed Ghana at a significant risk of debt distress. Ghana has been struggling to service its debts, and faced a balance-of-payments deficit of US$934.5 million in the first quarter of 2022, compared with US$429.9 million in the same period 2021. Foreign exchange reserves therefore declined to US$6.2 billion in 2022 (2.9 months of import cover) from US$9.7 billion in 2021 (6.9 months).
The economic slowdown had a considerable impact on households. The poverty rate declined marginally from 11percent in 2021 to 10percent in 2022. However, living standards have been negatively impacted by the rising cost of living and unemployment. Unemployment increased from 11.9percent in 2015 to 13.4percent in 2021, with youth (ages 15–24) unemployment at an estimated rate of 7.2percent in 2021, decline from 7.3percent in 2020. Food prices were up by 30percent in annual terms in May 2022.
Inflation in the country rose to a record of 27.6percent in May 2022, then to 54.2percent in December 2022, amidst a hike in fuel prices and a near 21percent loss in the value of the local currency (the cedi) against the dollar.
In response to the rising cost of living, protests hit the capital, Accra over rising inflation. Ghanaians protest as a result of the economic pressures felt in their households. Hundreds took to the streets of Accra for days to demonstrate against spiraling costs.
At this rate, we need to call a spade, a spade. ‘The tone at the top’ has failed Ghanaians. As a result, there have been monumental policy failures in Ghana’s national governance. For example, over the years, governments have initiated a number of economic programmes, including, the golden age of business, planting for food and jobs, 1D1F, presidential special initiatives, rural irrigation projects, expansion in social services, investments divestiture programmes, etc.
However, these all-important programmes did not inure to the benefit of the national economy. It was expected that these programmes were going to diversify Ghana’s economic base, ensure imports substitution, create the necessary jobs and eventually engender growth in GDP thereby improving the socio-economic well-being of the Ghanaian. Obviously, these opportunities eluded Ghanaians.
By 2022, Ghana’s economy was described as one suffering grave distress, and that Ghana’s economic policies have lost credibility in the eye of our investors. Ghana’s economy was no longer seen as creditworthy. This is exactly so because the international rating agencies began to downgrade the economy of Ghana which had ended in the junk status.
Ghana was then thrown out of the capital market because the national economic policies of Ghana have lost credibility in the face of the investor community in view of the downgrade it attracted from the international rating agencies. To the surprise of many, the managers of the economy of Ghana themselves, asserted that Ghana’s access to the international market to borrow was restricted, stressing that ‘our access to the international market is being curtailed to a certain degree’.
Many actors in the Ghanaian economy, including ordinary citizens and scholars are talking about the mismanagement of the national economy. To many of these people, corrupt practices have left Ghana with devastating fiscal constraints. Many have bemoaned the desire of Ghanaians, be it government officials and politicians, civil/public servants, businessmen, etc., to amass wealth immediately after they assume office, contributing to the country’s economic crisis.
We have lost our socio-cultural values and ethics to corrupt decision making processes. These corrupt practices also do not make provision for the people of Ghana to invest in available opportunities and our own natural resources for national development.
We have lost the sense of social and ethical accountability to the extent that our political actors do not truly account for their stewardship to the state. In the face of Ghana’s monumental economic policy failures in recent times, the managers of the economy have still not been held to account. We have succeeded in relegating the practice of good corporate governance to the background. The resultant effect is the stagnant economic growth and development of Ghana.
In the case of the collapsed financial institutions, there were significant job losses with 1000s of Ghanaians losing their livelihood and falling down the poverty line. Some of these collapsed banks and microfinance companies were serving the sublime MSMEs considered high risk by the banking sector. Consequently, some of these MSMEs also suffered collapse for lack of finance to take advantage of ensuing business opportunities.
Some also could not pursue business expansion. Some also had to undertake redundancy programmes leading to further job losses, etc. At the end of the day, the national economy of Ghana suffers. I believe that if the state had acted on the side of caution and upheld the tenets of good corporate governance practices, the decision to revoke licences of these financial institutions would not be considered.
Indeed, the national economy suffered lack of diversification, depending solely on few commodities for exports, and depending mainly on import of even the basic necessities of life. This also resulted in the adverse balance of payment account with devastating domestic currency depreciation, escalating interest rates and lack of employment and poverty. Ghana’s economy continues to suffer debilitating impacts of external shocks as experienced in recent times.
For example, the effect of global economic meltdown in 2008, the effects of the COVID-19 pandemic in 2019, and the Russia-Ukraine war. In all these, Ghana’s economy was hard hit. These developments have raised global prices for several key commodities, including food, fuels, fertilizers, and metals used in manufacturing, adding to prior inflationary pressures in Ghana.
Ghana’s national economic outlook has, therefore, deteriorated so fast to the level that the’ quick fixes’ could not salvage the economy.
The real cost of poor governance to the national economy of Ghana has now dawn on the people of Ghana. Response from the managers of the economy during this turbulent times has been with many questions. Government also hesitated in heeding the advice of academic scholars and political opponents to halt the excessive borrowing, especially those meant to fund recurrent expenditure, and cut down on expenditure in general. By 2021, when it became obvious that there was need to head to the International Monetary Fund (IMF), government again was reluctant to do so.
Government resorted to some ‘quick fixes’ to attain fiscal consolidation in 2021 which saw the deficit declining to 11.3percent. Thereafter, government announced a 50percent cut to subsidized fuel for all ministers and heads of government institutions in April 2022. Ministers’ salaries were temporarily cut by 30percent.
The Bank of Ghana tried tightening its monetary policy which was hiked to 27percent in 2022 from 14.5percent in 2021. Policies to generate public revenue through taxation such as the famous e-levy, which targeted mobile money transactions have proven politically unpopular. The 1.5percent tax on all electronic payments above 100 Ghanaian cedi eventually came into force in May 2022.
All of this did not yield the desired outcome. It became obvious that a more significant effort was required to alter the debt dynamics meaningfully. Obviously, the run-rate to attain debt sustainability became burdensome on the managers of the economy. As a result, Ghana headed to the IMF, the 17th Time after Independence.
Interestingly, in an era of ‘Ghana beyond aids’, Ghanaians were told that going to the IMF constitutes resolved commitment to restoring Ghana’s long-term debt sustainability and strengthening macroeconomic stability. Ironically, the expected disbursements from the fund are key for Ghana’s economic recovery and ambitious economic reform agenda. Indeed, the ‘cost of poor corporate governance can be enormous’, therefore, ‘everyone should be concerned about governance infractions as and when they arise, because they exert enormous costs that affect the entire society’.
We have attained some marginal gains. Overall real GDP growth stood at 2.8percent for the first three quarters of 2023, higher than the 2023 initial GDP growth target of 1.5percent. Also, the Ghana cedi reported a depreciation of 7.2percent between February and December 2023, compared to 28.4percent during the same period in 2022. The economy also recorded a decline in inflation of 54.2percent in December 2022 to 23.2percent in December 2023.
I believe these gains are not enough to off-set the excruciating economic hardship confronting the average Ghanaian. The question has been how sustainable this would be going forward. Obviously, Ghanaians need to know that this has nothing to do with reduction in the prices of goods and services, except to say that prices still increase at a reducing rate of 23percent per annum.
We cannot over-emphasize the importance of Good Corporate Governance Practices in Ghana. The questions on the lips of Ghanaians have been whether the Bank of Ghana should have necessarily revoked the licenses of the hundreds of financial institutions that were only in need of life support.
In addition, there is too much of everything to do with corruption among the public institutions, and everyone appears helpless. The state governance structures need to wake up. The state institutions, including parliament, must also work hard to forestall wastage in the management of our scarce national resources.
Recommendations
I dare say that our SMEs, the financial institutions, and the state institutions and parastatals must begin to rethink the way they go about their businesses. On the part of the state organizations and parastatals, we need to set a proper tone at the top, give the job to competent people, ensure efficiency, stop the leakages, thereby return those organizations into profit mode. The heads of those organizations must work with performance targets. This should be possible!!
In this way, those already scarce resources we dissipated in ensuring the revocation of the licenses of those financial institutions, and bail out the state parastals could have been invested in the productive sectors of the Ghanaian economy or to expand social services to enhance Ghana’s productive capacity, increase GDP, and diversify the economy thereby enhancing the living conditions of Ghanaians.
Till date, there was little done to investigate why the financial services sector had collapsed in order to proffer policy reforms to forestall its recurrence. Research is required to determine the actual causes of the collapse, the cost involved, including the social cost, and the reasons why even regulations could not forestall their collapse.
Thus far, we have been unable to hold to account anyone for all the regulatory infractions and the financial losses occasioned by those infractions, irregularities and possible incompetence on the part of the managers of those institutions. This, we must do to serve as punitive measure against future occurrence of such infractions.
Also, research institutions and academic scholars should assist the ordinary Ghanaian citizens to assess the number of secondary legislative enactments made to provide guidance and support in the management of public debt in Ghana. We need to know whether these legislative instruments were followed or adequate in ensuring increased accountability and transparency in areas relating to public financial management, including public debt management.
The mangers of the Ghanaian economy need to simplify Ghana’s developmental programmes to target the productive sectors of the economy and become prudent in decision making. I wish to call our leaders to duty and remind them that under the Directive Principles of State Policy and Economic Objectives, Section 36 (1) states that ‘the State shall take all necessary action to ensure that the national economy is managed in such a manner as to maximize the rate of economic development and to secure the maximum welfare, freedom and happiness of every person in Ghana and to provide adequate means of livelihood and suitable employment and public assistance to the needy’.
In view of the foregoing analysis on the economy, the state has actually failed its people. Obviously, we needs to define our purpose as a nation. This purpose defines the quality of our collective determination to do or achieve something, living with a PLAN, living to achieve a goal, and working towards achieving such a plan.
>>>the writer is a governance expert
