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Gladys Obeng returned home in Accra recently to find her two children in tears after their day at primary school. When she asked what was wrong, they told her they had barely eaten since morning. “I give them 2 cedis [35p] every day to buy kenkey and bread for lunch. But with the prices in Ghana now, the money was buying them less and less food every month.”
Once seen as a shining economic success story, the situation in the Obeng household is mirrored across Ghana as soaring inflation and interest rates coupled with a plunging currency take their toll on citizens.
When the west African nation discovered the continent’s biggest oil find of a generation in 2007, expectations were high. Petrodollars pumped from the Jubilee oilfields would propel the country into middle-income status if handled wisely over a decade, the International Monetary Fund (IMF) predicted. Consultants from Norway advised on how to avoid the oil curse, seen starkly in neighbouring Nigeria.
And there was reason to be hopeful: already the world’s second-largest cocoa grower, behind Ivory Coast, and Africa’s second-largest gold exporter, behind South Africa, a relatively successful track record of managing a commodity-based economy made Ghana the poster child for a heady “Africa rising” narrative.
But this week, after months of conflicting statements, the government said it would seek financial help from the IMF in a bid to end a deepening currency crisis exacerbated by mismanagement of oil revenues. “The president has directed that we open negotiations with the IMF,” finance minister Seth Terkper told Reuters, saying talks would focus on specific solutions, rather than a general assessment of the economy.
The cedi dropped up to 40% against the US dollar this year, making it the world’s worst-performing currency alongside copper-rich Zambia’s kwacha. From tinned tomatoes to tractor tyres, prices have doubled and occasionally tripled over 24 months. Obeng, a cook who takes home around 400 cedis (£68) a month, can no longer afford a shared taxi to work, and has resorted to cutting back on her own meals to feed her children. “If me and my husband eat three times a day, we can’t give the kids food,” she said.
Ghana’s woes are partly down to mismanaging its oil revenues – which have been more modest than predicted – as it racked up borrowing while failing to keep public spending under control. But the predicament is partly engendered by prosperity, too.
Spurred by petrodollars, the government has bought popular support by increasing civil servant wage bills and subsiding fuel. Yet a booming middle class aspiring to buy foreign products meant demand for imports rose, further weighing down the local currency. That pushed the current account deficit – the amount the government owes – to 12% of GDP last year, a figure expected to be 10% this year in a potential symptom of the resource curse that often feeds corruption.
“It is a mark of Ghana’s success that an IMF deal looks like a crisis, compared, say, with a crisis like an Islamist insurgency or a sci-fi style plague,” says Antony Goldman, director of Promedia Consulting. “But it is a reminder that politicians are under an obligation to deliver if they are to remain relevant and for there to be stability. It is a social contract that Ghana has managed pretty well these last 20 years, but inertia in government, if it remains unchecked, could prove a more serious challenge.”
A home-grown Occupy movement this year was largely led by members of the middle class whose demands included an end to worsening inequality, corruption scandals and increasingly unreliable power.
Rising prices have eroded the cushion many middle-class homeowners counted on. The free-falling cedi means many service providers, such as landlords, now insist on payments in dollars instead.
Joseph Oduro-Frimpong and his wife have had to cut back on US student loan repayments and savings. “We have to purchase dollars at a higher rate. Previous to the rising inflation we were able to make more than the minimum on our student loan monthly payments. Recently it has mostly been just the minimum,” said the Accra-based school teacher, whose colleagues report similar stories. “Everyday items cost so much more at the stores that at the end of the month there seems to be little left for savings.”
Still, analysts say the situation should serve as a cautionary experience, which the country can still extricate itself from.
“There are no quick fixes to any of these economic pressures, but [an IMF] programme should help put a floor on the crisis,” said Philippe de Pontet, Africa director at Eurasia Group. “The [John Dramani] Mahama administration, which is deeply unpopular because of the economic crisis, knows that its political fortunes in the 2016 elections hinge on an economic turnaround.”
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