Ghana has re-established itself as a shining beacon in Africa for the benefits of peaceful, clean and transparent democracy when authorities proclaimed opposition leader Nana Akufo-Addo, 72, a British-educated lawyer and veteran statesman, as their next President.
Winning clearly with 54% of the vote from a high turnout of 69%, he has a strong mandate to pursue the New Patriotic Party’s (NPP) policy objectives which are centred on public sector job creation and increased government spending. The challenge facing the new President will be delivering his election promises whilst dealing with the country’s structural macro-economic issues.
The elections, which were rigorously monitored by civil society and improved by technology, have been further enhanced by the previous President, Mr Mahama, who, to his credit, has facilitated the smooth transition of power by conceding defeat and urging his supporters to accept the result calmly. Johnnie Carson, former US Assistant Secretary of State for Africa, said: “This is about the most professionally run electoral process that I have seen in Africa in the last 20 years.”
The electorate’s expectations for the new administration are running high as Mr Akufo-Addo has promised to stifle corruption, stimulate the economy through tax cuts and business incentives and launch an industrial policy to turn Ghana into a regional processing and light-manufacturing centre. He has promised to appoint a public prosecutor to look into corruption but, in the interests of a smooth transition, has hinted he will not go after senior figures in the previous administration.
The NPP appears to be very pro-business, and its policies were in stark contrast to the ruling National Democratic Congress party (NDC) which was advocating debt reduction and financing infrastructure spending, and growth initiatives through higher taxation. The NPP seems likely to follow the traditional Ghanaian practice for new administrations of abandoning spending curbs in the short term to stimulate growth which is expected to reap tangible rewards later on.
However, it is unclear as to how much room they will have to manoeuvre when delivering their promise of allocating $1m pa in development spending to each of the 275 constituencies as this will cost circa $1.1bn over the four year course of the administration. If this promise is financed through borrowing, it could represent a significant increase to the national debt which currently stands at circa $24bn.
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Despite the NPP making grandiose promises to increase spending, it might have to delay initial increases in fiscal expenditure in the first year due to Ghana’s increasing national debt and the cost of large infrastructure projects requiring the adherence to austere spending measures.
However, Ghanaians are used to the historical pattern of experiencing an economic downturn in the first year, before structural reforms and investment begin to pay both political and economic dividends in the second year and onwards.
The increased oil price and the rectification of faults that halted production for almost three months last year are likely to result in an early increase in fiscal revenue which should come on stream in earnest towards the middle of 2017. This may give the new President the confidence to make an early start on his election promises whilst he begins to emulate the diversification strategy of neighbouring Ivory Coast. By weaning Ghana off commodity price dependence and developing a more varied and stable economy in the long-term, he hopes to boost growth and tax revenue which will enable him to continue with his promised reforms.
After eight years of rule by the left-leaning NDC, the victory of Mr Akufo-Addo’s centre New Patriotic party, has finally put to rest much of the perceived market uncertainty that has dogged the investment cycle during 2016. His desire to reduce taxes, which would boost private sector activity, coupled with the proposal to create jobs, is likely to increase economic activity in the near term and increase the country’s potential growth rate. This is likely to have a positive impact in helping Ghana meet its budgetary requirements on the back of an IMF bailout that was in response to its debt management.
The recent decline in international investment into Ghana is more down to fundamental structural reasons within the economy rather than perceived uncertainty caused by the election process itself. The smooth transition of power that we have witnessed in a stable legal jurisdiction coupled with the growing consumer confidence should reaffirm external investor confidence when considering Ghana as part of their expansion plans.
With national debt standing around $24bn and interest rates around 25%, there is little alternative for Mr Akufo-Addo but to cut spending and diversify the economy to bring online new streams of tax revenue to fund his investment spending. The long-term benefit will be an increasingly stable economy that is more resilient to sector specific shocks and a stable and healthy civil society.
This will result in an excellent platform for long term investment and provide a role model for other African nations to follow.
By Adam Waterhouse, Search Consultant, email@example.com