ot so long ago Ghana was the poster child of everything that could go right about sub-Saharan Africa, and this wasn't anything new, the country has always been ahead of the pack. In spite of the works for agitation of independence by people like Herbert Macaulay and Nnamdi Azikiwe both of Nigeria, Ghana managed under Nkuruma to obtain her independence from Britain in 1957, three years ahead of Nigeria and most other African countries. In recent years, Ghana became the place to be in Africa. Their economy was booming, the country was stable with successive peaceful and transparent democratic successions. They had steady light, low inflation, and new offshore oil discoveries that portends vast riches. Ghana became the number one destination for black Americans and Jamaicans for resettlement and for investment. Even Nigerians began flooding the streets of Ghana for business and leisure, while many more simply sent off their children to schools there.
In the past few days, however, Ghanaians have taken to the streets in protest about the state of their economy, rising inflation, and the declining value of their local currency. The Ghanaian President, John Muhama, recently indicated that Ghana is about to seek financial bailout from the IMF. Isn't it amazing how times have changed for Ghana, and rather suddenly because just a couple of years ago Ghana was still recognized as the shining example of stability in West Africa. Only last year the country celebrated ten years of uninterrupted power supply, something most Nigerians can only dream about. About six months ago I heard of the first signs that all was not well with Ghana's economy. At first I thought it might be just a minor hiccup, perhaps a small or rather soft landing of an overheated economy, or maybe that it was only an unfounded rumor without any merit. Unfortunately everything I heard turned out to be true, and even worse.
I have since wondered what happened to Ghana, how could a well-managed economy with seemingly less corruption than their Nigerian neighbors suddenly take a nose dive? The answer is still blowing in the wind, but there are a few pointers that might lead us to where the problem began. First, sometime ago Ghana decided to revalue their currency, the cedi. Their central bank applied a reverse split that ultimately brought the formerly weak currency to par with the US dollar. For example, if one had one million cedi in the bank, after the reverse split the person may now end up with a thousand cedi, but that cedi will have the same purchasing parity with the US dollar. I recalled publishing an article in the US when Ghana did this, warning them that they are embarking on a never-ending slippery slope. At the time I sighted countries like Mexico that have tried doing this with their Peso and how they have revisited that valuation more than once. In 2007 Nigeria's Central Bank Governor, Chukwuma Soludo attempted a similar revaluation of the Naira, and I published an article (Go East, to China, young man) in which I cautioned against that move. I reposted that same article in March last year, cautioning Sanusi.
Fortunately for Nigeria, but for political reasons, the Yar'adua's government stopped Soludo from carrying on the revaluation. I believe that Ghana has revalued their currency more than once since the first time, and currently the cedi has lost 50% of its value this year alone, making it the worst performing currency in the world so far in 2014. As the cedi depreciates, so does the cost of buying products from overseas, which is passed on to the consumers and consequently inflation in Ghana has now topped 15% this year. As mentioned Ghana celebrated ten years of uninterrupted power supply last year. It was as if Nigeria, which has failed to achieve even a day of uninterrupted power supply, decided to rain in on their parade. Nigeria supplies most of the gas used to power the electric plants in Ghana, and lately as Nigeria experienced stoppages due to gas pipeline vandalism, their supply to Ghana was finally affected. And suddenly Ghana began to experience rolling blackouts and just downright power failures that sometimes lasts for weeks in some neighborhood. Well, I say to them, welcome to the Nigerian world.
Surely lack of power must have accounted for significant drops in manufacturing and other business activities, especially for people that have grown accustomed to steady power supply through the years, and some might have failed to make necessary provisions for alternative source of power as most Nigerians do. But the major measurable source of decline is about the price of gold. Gold represents about 45% of Ghana's export, and gold prices have declined in recent times, undoubtedly affecting that nation's income. Cocoa has equally been on the decline though Ghana has significantly reduced their dependency on cocoa export since it was the dominant foreign exchange earner for them back in the fifties and sixties. Apparently overreliance on one product as it is with gold in this case has come to bite Ghana harder than they expect. As bad as it is for Ghana that gold represents 45% of their export, can you now imagine what could happen to Nigeria if and when oil prices crash as oil represents well over 90% of our export revenue. The potential outcome is simply unfathomable yet no one in Nigeria's government has taken out time to think seriously about its potentially devastating effects.
A few years back Ghana discovered oil in their offshore waters and they have spent quite a bit of money to develop those oil wells. Their planning on what to do with the oil revenue was more structured and acclaimed to be something of a forward thinking approach. But in the end, the amount of oil being tapped have falling far short of expectation. Amid all these shortages here and there, the government of Ghana has become highly stretched, and are now desperately struggling to make up for these shortfalls, but it appears that the damage has been done, and anything short of a major bailout would mean doom for the country. Ghana has come a long way; in 2007 it became the first country in sub-Saharan Africa other than South Africa to issue international bonds. Today, it's unlikely that issuing more international bonds would be part of the solution as those international investors are now fleeing in droves. It did not help matters that Ghana did not treat her neighbors such as Nigerians kindly during their years of abundance. I recalled all the obstacles the Ghanaian government put along the way to dissuade potential Nigerian investors. I'm sure now they wish they hadn't done so, but again, the damage is done, for I can't see those Nigerians rushing out to rescue Ghana from herself.
The bottom line is that Ghana is not quite Nigeria. The economy of Lagos and Akwa Ibom combined is greater than that of Ghana, and its population is under 30 million. But there are lessons here for Nigeria. If this can happen to Ghana it surely can happen to Nigeria. Our over reliance on oil for export revenue is one thing that makes Nigeria overexposed to the risk of price fluctuations or worse a crash in price. Our inability to provide constant power supply continues to be a drain on the cost of doing business in Nigeria. Our cost of supporting the Naira is unaffordable to this economy, and I have written about this issue before. There is no doubt that corruption has played some role on what is going on in Ghana, I am certain that we have far greater corruption in Nigeria. And finally, we must always keep our doors open, this is America's best kept secret. Open doors means a constant flow of hungry immigrants that are willing to work harder than the otherwise settled population. We have repeatedly flaunted how Nigeria is growing at 7% annually, it is no longer true. Last year, Nigeria's economy grew at just under 6% but I am sure that your political leaders won't tell you this. And finally, as the Champaign begins to flow in Abuja and across most state capitals in anticipation of next year's election, I hope we still keep our eyes on the ball…on the economy of Nigeria before we suddenly hear stories as it is happening in Ghana today.