The dynamic energy of Ghana’s economic activity creates an image of a country trying to strike the equilibrium between stability and development in the busy capital city of Accra. Underneath the surface, though, the Ghanaian economy is facing a number of issues with ramifications both locally and internationally. Understanding the factors at work in this West African country will help investors, legislators, and individuals all around negotiate 2024.
Historical Context: An odyssey of highs and lows
Transformative times abound throughout Ghana’s economic past, each influencing the present state of the country. Following its 1957 independence, Ghana started a development trip full of great expectations and grand ideas. The early years following freedom were marked by fast industrialization and infrastructure development. However political unrest and poor economic management in the next decades brought about years of suffering and economic downturn.
The turning point in the millennium brought fresh hope. Political stability, economic reforms, and the 2007 oil discoveries set Ghana among Africa’s fastest-growing economies. From 2004 to 2014, the “Golden Decade” saw average annual GDP growth rates of over 7%, a notable drop in poverty rates, and major improvements in infrastructure and social services.
The Present Economic Situation
The Ghanaian economy is negotiating a complex web of domestic and global issues as of 2024. The COVID-19 epidemic had a long-lasting effect on the healthcare system, upset supply networks, and lower income from important industries such as travel and hospitality. Although the government’s reaction—which includes support for underprivileged groups and stimulus packages—has lessened some of the negative consequences, it has also worsened the fiscal imbalance.
One still major worry is inflation. Rising food and energy prices cause inflation rates, which average around 12%, to be about mid-2024. To lower inflation, the Bank of Ghana has instituted monetary tightening policies including interest rate increases. These policies have, however, also raised consumer and company borrowing rates, therefore perhaps reducing economic activity.
“We’ve never seen it this bad,” laments a trader who we want to call Kwame Asante, a 52-year-old fruit vendor around the Makola Market the biggest market in Accra. “Every day, I have to raise my prices just to keep up. But then my customers can’t afford to buy as much. It’s a losing battle for everyone.”
Asante’s predicament is representative of the broader economic condition gripping the nation of over 32 million people. Ghana’s annual inflation rate surged to above 50% in 2023, a 21-year high, before moderating slightly to 35.2% by the end of the same year with inflation currently hovering around 22.8% in July 2024 according to Ghana Statistical Services. The cedi, Ghana’s currency, lost nearly 30% of its value against the US dollar in 2022 and continued to slide in 2023, albeit at a slower pace whereas in the first half of 2024, the Cedi depreciated by almost 19%.
The Finance Minister, Dr. Mohammed Amin Adam, during the Mid-year budget presentation to Ghana’s Parliament this July 2024 disclosed that provisional total central government debt at the end of June 2024 stood at GH¢742.0 billion, which is equivalent to 70.6% of the country’s GDP. This represents a 22.0 percent increase since the end of December 2023 when central government debt stood at GH¢608.4 billion. The increase in public debt the Minister posited, is primarily due to the depreciation of the cedi and disbursements from creditors. Our current Monetary Policy Rate by the Bank of Ghana stands at 29%, having been maintained for the third consecutive time.
These macroeconomic pressures have their roots in a complex interplay of domestic policy missteps and external shocks. Ghana’s public debt reached unsustainable levels, hitting 88.1% of GDP in September 2022, due to years of expansionary fiscal policies and ambitious infrastructure projects. The COVID-19 pandemic and the Russia-Ukraine conflict further strained government finances and disrupted global supply chains, exacerbating inflationary pressures.
“Ghana’s current economic crisis is a culmination of long-standing structural weaknesses and recent external shocks,” explains Prof. Godfred Bokpin, a Senior Finance lecturer at the University of Ghana. “The government’s inability to broaden the tax base, coupled with its reliance on commodity exports and foreign borrowing, left the economy vulnerable to global headwinds.”
In December 2022, Ghana secured a $3 billion Extended Credit Facility from the IMF, a lifeline aimed at restoring macroeconomic stability and laying the foundation for inclusive growth. The program came with stringent conditions, including fiscal consolidation, monetary policy tightening, and structural reforms.
Finance Minister Dr. Mohammed Amin Adam, speaking at a recent press conference to announce Ghana’s agreement with the external creditors on restructuring of our debts as part of the IMF conditionalities under the programme, emphasized the government’s commitment to reforms. “We are taking the necessary steps to put our economy back on track. It’s a difficult path, but one we must tread for the long-term benefit of all Ghanaians.”
The government’s reform agenda includes efforts to enhance domestic revenue mobilization, improve public financial management, and strengthen the financial sector. A key component of this strategy is the controversial electronic transaction levy (E-levy), introduced in May 2022 to tax mobile money transactions and other digital payments. While the E-levy has fallen short of revenue targets, the government maintains that it is a crucial step towards widening the tax net in a largely informal economy.
Critics, however, argued that the levy disproportionately affects low-income Ghanaians and may hinder the country’s digital finance revolution. “The E-levy risks pushing people back to cash transactions, undermining years of progress in financial inclusion,” warns Bright Simons, a prominent Ghanaian tech entrepreneur and vice president of IMANI Africa, a think tank.
The Bank of Ghana I must say has also played a crucial role in the stabilization efforts, aggressively tightening monetary policy to combat inflation and shore up the cedi. The central bank raised its policy rate to 29.5% in November 2022, the highest level in two decades, before gradually easing it to 29% by the end of 2023 as I earlier indicated and has maintained it at 29% to date as inflationary pressures began to subside.
“Our monetary policy actions are yielding results,” asserts Dr. Ernest Addison, Governor of the Bank of Ghana. “We’re seeing early signs of inflation moderating and exchange rate stability improving. But we remain vigilant and ready to act as needed to ensure price stability.”
The central bank’s efforts have indeed shown some positive results. The cedi’s depreciation has slowed, and inflation, while still high, has begun to trend downward. However, these improvements come at a cost. High interest rates have made borrowing expensive for businesses and consumers alike, potentially stifling economic growth in the short term.
Key Drivers and Challenges: Sectoral Analysis
The main agricultural good is cocoa; Ghana ranks second among all the producers worldwide. Still, the industry deals with issues including aging farms, changing temperatures, and poor infrastructure. Sustainable development depends on efforts towards diversification of agricultural output and value addition via processing.
Mining and Energy: Export income and GDP are strongly influenced by the extractive businesses, especially gold and oil. Changing world commodities prices, however, create hazards. The government is emphasising on improving local value addition and content in several fields. With initiatives in solar and wind farms meant to diversify the energy mix and lower reliance on fossil fuels, renewable energy is also attracting interest.
Manufacturing & Industry: Though yet underdeveloped, Ghana’s manufacturing industry offers promise. Growing is hampered by high production costs, poor infrastructure, and import competition. Programs like the “One District, One Factory” effort seek to increase industrialisation by supporting local industry and employment generation. Success in this industry calls for better infrastructure, access to reasonably priced loans, and a business environment fit for this sector.
Services: Comprising over half of the GDP, the services sector is progressively driving major economic growth. Key sub-sectors are tourism, finance, and telecommunications. Fintech and e-commerce systems are driving the fast expansion of the digital economy. Regulatory systems must change, nevertheless, to foster creativity and provide consumer protection at the same time.
Outsourced Trade and Investment
Changes in the pricing of important exports including gold, cocoa, and oil affect Ghana’s trade balance. Reducing sensitivity to outside shocks requires diversifying goods and export markets. While realizing these benefits calls for eliminating non-tariff obstacles and enhancing infrastructure and logistics, the African Continental Free Trade Area (AfCFTA) offers chances for increasing intra-African commerce.
Economic growth still depends critically on Foreign Direct Investment (FDI). Because of its political stability and commercial environment, Ghana has long been a draw for foreign direct investment. Maintaining investor confidence, however, calls for consistent policy execution, openness, and measures for corruption prevention.
Social and Financial Integration
A major difficulty is making sure that economic progress results in better living conditions for every Ghanaian. Regional differences and income inequality still exist; poverty rates are higher in northern and rural areas. Fostering inclusive growth depends on social protection programs, education and healthcare investments, and focused development projects.
Given its enormous workforce, the informal sector calls for attention. In this industry, increasing access to money, formalising companies, and offering vocational training can help to raise output and quality of living.
Sustainable Growth and Environmental Issues
Given the environmental problems presented by pollution, deforestation, and climate change, sustainable development is a top concern for Ghana. The administration is striving to include sustainable practices in economic planning and has promised international accords such as the Paris Agreement. This covers pushing sustainable agriculture, improving waste management, and renewable energy.
Conclusion
With its great potential and strong population, the Ghanaian economy finds a pivotal point. Dealing with the present calls for a multifarious strategy combining social inclusion, economic diversity, and fiscal restraint.
Ghana’s economic future still presents many difficult obstacles. Deft policymaking and national will help to balance budgetary austerity with the need for development, control inflationary pressures while helping disadvantaged populations, and apply structural reforms in the face of political constraints.
The impression of a country at a crossroads is evident when the sun sets over Accra’s skyline and gives the mix of colonial grandeur and modern high-rises a golden glow.
Whether Ghana can overcome its present challenges and restore its leadership in the economic scene of Africa will depend on the next months and years. Hoping for better days ahead, the country watches, waits, and works right now.