INTERVIEW: The Ukraine war threatens Ghana’s food security?

By David Hecht in Ghana May 25, 2022

Ghana used to be on the list of the world’s least developed countries. No more. Today the republic is one of the fastest-growing economies in West Africa. Though poor, more children have been going to school, and more parents have disposable income. There is a burgeoning middle class. It is the world’s second-largest exporter of cocoa and one of the top ten gold producers. And Ghana is also starting to exploit recently discovered oil and gas reserves. But Joe Jackson, a fellow at Ghana’s Institute of Charted Economists and the business director at Dalex Finance, says the war in Ukraine coupled with drought could bring Ghana’s good times to an end in an exclusive interview with bna IntelliNews.  

Ghana has weathered difficult times in the past. Why are you so pessimistic now?

We are facing two very serious external shocks. One is the rising food and fuel prices related to the conflict in Ukraine; the other is specific to West Africa the failure of crops in the Sahel [savanah] region in countries such as Burkina Faso, Niger, northern Nigeria, and so on.  

But droughts are not new to the Sahel?

It is way worse this year. Humanitarian aid groups estimated that about 27mn people are going hungry at the moment and in the next three months another 20mn people could join them. West Africa is facing the worst food crisis in a decade.  

There were food shortages a decade ago in Niger and other Sahel countries but not in tropical countries to the south like Ghana.

This time it is going to hit Ghana and the south. It is taking the south because food shortages in the north are coinciding with a rise in Islamic terrorism and a rise in the cost of imported foods.  

Do you mean imported food like wheat from Ukraine?

Yes, that is part of the problem, and now India has banned all wheat exports. This will be a big problem in urban Africa, where wheat bread has been a staple eaten at breakfast and in the evening, even though wheat is not grown in the region. In rural Africa, bread is not eaten as much and as the price of wheat rises, people will more easily switch to other foods like yam and rice, some of which [are] grown locally.  

So more food will be grown locally, which is good?

Yes, but now we get to the far more serious problem: fuel prices are a greater concern to me than the price of wheat per se. Fuel prices are driving general inflation in Ghana. In April inflation reached 23.6% and we should expect it to go much higher. There was another round of price increases in May, with transport prices going up by 30%. Ghana’s Public Utilities and Regulatory Commission has warned that electricity prices could increase by 148% this year and water rates could rise by more than 344%, which is unsustainable.

Could Ghana become more self-sufficient with fuel?

No. We have a small oil refinery but it is not even working at the moment. Plus the amount of oil we export so far is significantly less than the amount we import.

Can Ghana find investors to scale up?

[LAUGH] Ghana has borrowed, borrowed and borrowed. Ghana’s debt has been downgraded to B minus and in some cases C by the credit rating agencies.  

Why?

Successive mismanagement of the economy, both under the current ruling New Patriotic Party (NPP) and the former National Democratic Congress (NDC). Both parties over-borrowed but for different reasons. The former NDC government primarily spent money on politically motivated infrastructure projects that were wrongly evaluated and turned out to have low returns on investment. Also, costs were overinflated with an estimated 40% of the projects’ costs leaked away in corruption.  

And the current NPP government?

Their crime has been borrowing for populist consumption, the largest cost being free senior high school. They borrowed to make it free, they borrowed to fund all manner of populist schemes like paying teacher trainees and trainee nurses’ allowances, all in the name of boosting the health sector and the education sector. But when COVID hit it was apparent that we were heading for deep trouble.

What sort of trouble?

The government’s response to the coronavirus (COVID-19) pandemic was to borrow even more to try to mitigate the economic effects. In 2020, when the global economy got stuck, Ghana’s government provided free food, free electricity and free water for a huge segment of the population. But when we got to 2021 the chickens came home to roost with the economy experiencing a downturn.  

When COVID restrictions were lifted at the end if 2021 Ghana’s economy seemed to be recovering?

It only seemed like the economy was growing again because the economic base had shrunk so much. Plus we were hit by an increase in borrowing costs. Figures in the 2022 budget show that salaries in 2021 made up 55% of all government expenditures and another 50% went to interest payments to service all the debt. That adds up to 105%.  

So there is no budget for the government to do anything?

Exactly. And now that we are being hit by high food and fuel prices from the conflict in Ukraine and drought in the Sahel there are no shock absorbers left to absorb these new external shocks. We need to rapidly scale up investments in roads and the logistics sector so that we can move what food we have from farm gate to market as efficiently as possible. It may seem that the biggest driver of inflation is food prices. But when you delve into the food prices you see that the problem is not farm gate prices, it’s the increasing cost of logistics.  

And could Ghana stop the price of logistics from rising?

Definitely. The logistics of getting food to the markets is crying out for investment improving roads is a solution that could bring big returns on investment. Most roads in Ghana are not tarred, so it’s just a matter of getting bulldozers to grade them. This will improve the movement of produce, especially now that we are in the rainy season.

But investing in that would require more borrowing?

Or reducing expenditure in other areas. The government has refused to reduce expenses enough to compensate for what is required. They are flatly refusing to do away with free senior high school because it would be a bad move politically. It is just the politics that makes it difficult. It is not rocket science. The government is bringing in some new revenue but it is like trying to fill a hole that we haven’t yet stopped digging.

Could Ghana better leverage its gold?

That is possible, because the investment in gold comes from the private sector and commodity prices are going up and will probably stay up for a while. But exporting gold is not going to get us out of the hole we are in either. We have to take an axe to expenditure.  

So, austerity?

Yeah, austerity, which is politically unpalatable.

And austerity does not bode well for Ghana’s new middle class?

The middle class is based on an economy that is not grounded. We Ghanaians created a middle class by essentially spending more than we earn. We created a middle class by borrowing and we can’t keep doing that. We did not create a middle class by increasing productivity or increasing industrialisation or by providing services. We did do that to some extent, but not enough.  

Are any of Ghana’s neighbours better off?

The whole of West Africa is now at risk. Most countries in the region are over-indebted. Cote d’ Ivoire is in a slightly better position than us. Nigeria is in a worse position because they are also faced with Islamic terrorism. To the north in the Sahel, Mali has the same problems with Islamic terrorism, plus war and coup d'états. Burkina Faso has Islamic terrorism and the same sorts of issues.  

But these problems have been festering for a while.

True. It’s the crop failures in the Sahel that are our immediate problem. Ghana traditionally imports a lot from those countries tomatoes, onions, ginger and various staples. All that is going to collapse this year. What little the countries produce they will keep, not export. So we are faced with a loss of imports from the sub-region and from the conflict in Ukraine. Plus we should expect a huge inflow of refugees from the Sahel because of drought, starvation and Islamic terrorism.

 

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