Ghana Economy - Entrepreneurs Struggle As Cedi Plunges and Inflations Rises - BBC News

2/8/23, 2:04 PM Ghana economy: Entrepreneurs struggle as cedi plunges and inflations rises - BBC News
The 33-year-old Ghanaian has been hit twice over by her country's economic
woes. First, Covid-19 restrictions ended her work as a make-up artist and now
rising prices have choked off her fledgling chilli-sauce business.
These are problems that have hit countries across the globe, but for Ghana,
with one of the worst performing currencies in the world this year and
worryingly high levels of debt, the outlook for Ms Yoobi is unlikely to improve
any time soon.
Ghana is a major producer of gold and cocoa, but its once-booming economy
has run into trouble and the embattled finance minister is facing a
parliamentary enquiry.
It has also gone to the International Monetary Fund (IMF) for help, which
might then demand tough spending cuts.
The sauce entrepreneur is in a reflective mood as she tries to cool down in the
shade of a towering neem tree near her home in Kpone Katamanso district,
southern Ghana.
The cost of oil, ginger, onions and even chilli peppers - the key ingredients of
her red-hot sauce - have all increased. For example, since June last year a 20-
litre can of oil has gone up from around $16 (£13) to $85, she explains.
"When people make orders and I tell them I have increased the prices, then
they cancel them. You know times are hard," she shrugs. As a single parent,
the chilli-sauce business was her family's main source of livelihood.
She wants the government to make life easier for entrepreneurs by, for
example, lowering the cost of registering a business.
But also "if the government can set up a committee to regulate price increases
it will help us".
The chances of that are slim as there is no money available to pay for
subsidies.
REUTERS
Demonstrators have taken to the streets to complain about the increasing cost of living
https://www.bbc.com/news/world-africa-63628352 2/11
To describe Ghana's economy as struggling is not the view of commentators
shouting from the sidelines, but of the president himself.
"We are in a crisis, I do not exaggerate when I say so," President Nana Akufo-
Addo said in a sombre televised address at the end of last month when he
talked about measures to deal with the problems.
He blamed what he called "malevolent forces" from outside - Covid and

Russia's invasion of Ukraine - but the country's high debt levels and continued
dependence on imports for many essential goods have presented particular
difficulties for Ghana.
In 2006, after Ghana came out of a special IMF and World Bank debt-relief
programme, the country's debt amounted to 25% of its GDP. Now that figure
stands at nearly 80%.
The government anticipated a windfall after it started exporting oil in 2010

and began borrowing money to pursue ambitious flagship programmes such
as free senior-school education. But critics say the money was frittered away.
From 2017, debt levels increased rapidly.
The rise was down to three key things, according to University of Ghana
economist Adu Owusu Sarkodie writing in The Conversation.
Firstly, state-owned enterprises have needed government help to pay energy

bills, then a financial sector clean-up left the authorities with a huge bill to
compensate customers of defunct banks and finally Covid led to a fall in
government revenue and an increase in spending.
The borrowing come at a cost as the state has to make larger interest
payments. At the moment, the government is spending more than 65% of the
money it receives in revenue on servicing the debt.
This has had an impact on the money available for basic services and has
meant that many new projects have been suspended.
The country has also been hit by its currency, the cedi, depreciating against
the US dollar.
This is partly due to the strength of the dollar caused by increases in US

interest rates, but the cedi has performed particularly badly, losing more than
half its value this year, as the government has been unable to borrow more
dollars to shore up reserves and some investors have pulled out.
For the ordinary person, this means that all imports that are priced in dollars,
including fuel and raw materials, have become more expensive. As a result,
annual inflation - the rate at which prices increase - hit more than 40% in
October.
In recent weeks people have taken to the streets to demand more government
help.
The depreciating currency is hurting businesses that rely on imports.
Kormi Courage Amese runs a printing company and imports most of his inputs
such as paper and ink.
The falling value of the cedi has meant that quotes for jobs that he now gives
are only valid for seven days, rather than the previous 30, as prices are
changing so quickly.
"So, in a lot of instances our clients will rather hold back from making an order
and this is significantly affecting our revenue," the 35-year-old says.
"We have lost more than one million cedis ($73,000; £58,000) within two
months."
Amid all this, pressure has been mounting on Finance Minister Ken Ofori-Atta
with calls for his dismissal coming from members of his own party as well as
the opposition.
Some say he made the crisis worse by delaying an appeal to the IMF.
In February, the minister dismissed the idea, saying that Ghana was "a proud
nation". But now the country is once more negotiating a deal with the IMF to
help stabilise the economy.
But there are concerns that the IMF will introduce some tough conditions in
exchange for helping out, including cuts in spending which could have a
disproportionate effect on the poor.
Kormi Courage says he is losing orders as he has to keep revising estimates every week
The government has started to introduce some short-term measures that

could help the situation.
President Akufo-Addo blamed speculators and illegal forex traders for the
collapse in the value of the currency. As a result, he has asked the central bank
to step up efforts to clamp down on their activities.
He has also cut salaries for ministers and other government appointees -
though it is not clear how much money that will save.
To help government workers deal with the rising cost of food, the agricultural
ministry has started to transport foodstuffs from rural areas and sell them
cheaply in Accra.
But some argue that there are fundamental problems with the economy that
will take time to solve.
Prof Godfred Bokpin of the University of Ghana argues that the government
should be restructured to avoid unnecessary duplication.
He also says that the international markets must see a government willing to
take practical measures to overcome the problems in order to build
confidence.
"That urgency assures the market that you are willing to do everything
possible to calm the market. Here we have the president saying let's give the
minister of finance time before he sacks him - even if he will ever do."
For Bright Simons, the deputy head of policy think-tank Imani Africa, the
government should admit that the root cause of the problem lies in Ghana
rather than with the Russia-Ukraine war or Covid.
He wants a review of spending by a "competent, highly independent panel" to

be undertaken.
This would "prune the budget" of unnecessary spending, Mr Simon says.

"By so doing, there would be no need for the central bank to continue
conjuring money from thin air for the government to spend, which is the main
driver of inflation, and, consequentially, the currency crisis."
He also wants the country's debts to be restructured to give the government

some breathing space in repaying the loans.
Other suggestions include developing better local industries which could help
replace imports and reducing taxes on fuel to make it more affordable.
There are no shortage of ideas for those in power to ponder, but what seems
clear is that there are no easy ways out of the crisis to help the likes of chilli-
sauce maker Ms Yoobi.
As Foreign Minister Shirely Ayorkor Botwey put it recently: Ghana has to

"either impose IMF-guided austerity, potentially leading to labour
retrenchment and accompanying social instability… or home-grown yet
equally tough decisions to satisfy the markets".
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2/8/23, 2:04 PM Ghana economy: Entrepreneurs struggle as cedi plunges and inflations rises - BBC News

He blamed what he called "malevolent forces" from outside - Covid and

The government anticipated a windfall after it started exporting oil in 2010

From 2017, debt levels increased rapidly.

Firstly, state-owned enterprises have needed government help to pay energy

This is partly due to the strength of the dollar caused by increases in US

The depreciating currency is hurting businesses that rely on imports.

The government has started to introduce some short-term measures that

He wants a review of spending by a "competent, highly independent panel" to

This would "prune the budget" of unnecessary spending, Mr Simon says.

He also wants the country's debts to be restructured to give the government

As Foreign Minister Shirely Ayorkor Botwey put it recently: Ghana has to

LIVE Clock ticking for rescuers as quake toll nears 8,000

Biden urges Congress to finish economic fightback

US sources insist Chinese balloon was military

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