Stopping the cycle of economic pitfalls in Ghana
By Prof. Samuel Lartey
Introduction
IN the journey of life, both individuals and businesses often face challenges that can feel like deep, inescapable holes.
The famous saying “If you find yourself in a hole, stop digging” serves as a poignant reminder that, when faced with adversity, it is crucial to pause and reassess rather than persist in the same actions that led to the problem.
In Ghana, this wisdom is highly relevant today as we grapple with pressing economic and social challenges that affect both the personal and business sectors.
Ghana’s Economic Hole: A Look at the Numbers
Ghana’s economy has experienced significant strain in recent years, with inflation hitting an alarming 40.1% as of October 2023.
The national debt continues to balloon, reaching GH₵575 billion (over $50 billion) by mid-2023, with interest payments consuming nearly half of government revenues.
Ghana’s debt-to-GDP ratio now stands above 75%, and as the cedi continues to lose value against major currencies, the cost of imports rises, placing further pressure on businesses and consumers alike.
Taxation has become one of the government’s key strategies for revenue generation, but this too has its limits. Ghana’s businesses, particularly small and medium-sized enterprises (SMEs), are already overburdened by a tax regime that stifles growth.
Corporate taxes, value-added taxes (VAT), and the controversial e-levy implemented in 2022 have contributed to a climate where many entrepreneurs struggle to remain profitable.
Despite these pressures, Ghana’s financial sector remains heavily reliant on external aid and loans. Since the first bailout from the International Monetary Fund (IMF) in 1983, the country has continued to return to the IMF for economic relief, most recently securing a $3 billion loan in 2022.
These loans, while necessary to maintain economic stability, often come with stringent conditions that restrict fiscal freedom, leaving the country with fewer options for sustainable growth.
Stopping the Dig: Reassessing Ghana’s Economic Policies
When facing such financial challenges, the temptation is often to keep borrowing, raising taxes, or enacting short-term measures to stabilise the economy. But as the saying goes, if these policies are not producing the desired results, it’s time to stop digging and explore new avenues.
One such avenue is the diversification of the economy. Ghana’s over-reliance on commodity exports, particularly gold, oil, and cocoa, has left it vulnerable to fluctuations in global markets.
In 2022, these three commodities alone accounted for over 70% of export revenue. While they provide significant foreign exchange, the country’s economy remains largely unindustrialised.
There is an urgent need to focus on local manufacturing, technology, and service industries, sectors that have the potential to create jobs and reduce dependency on imports.
Local production, especially in sectors like agriculture, holds great promise. Despite contributing 18% to the GDP, agriculture in Ghana remains underdeveloped, with high post-harvest losses estimated at 30%-50%.
Developing agro-processing industries and creating value-added products for export could alleviate some of the country’s economic woes and help create a more sustainable economy.
The Personal Hole: Financial Discipline and Debt Management
On a personal level, Ghanaians are also feeling the pinch. Household debt has risen steadily over the years, with an increasing number of individuals relying on loans to sustain their livelihoods.
The recent introduction of mobile money loans has exacerbated this trend. In 2023, Ghana saw over GH₵1.2 trillion ($100 billion) worth of mobile money transactions, many of which involved small, high-interest loans that people often struggle to repay.
The culture of borrowing to maintain a lifestyle beyond one’s means is another form of digging a deeper hole. Instead of falling into the trap of perpetual debt, individuals should focus on financial discipline. This includes budgeting wisely, living within one’s means, and saving for future needs rather than relying on loans to make ends meet.
In Ghana, financial literacy remains low, and many individuals lack the skills to manage personal finances effectively. Encouraging financial education and creating accessible programs for budgeting, saving, and investment are crucial steps to help Ghanaians climb out of their financial holes.
Businesses: Avoiding the Pitfalls of Over-Expansion
For Ghanaian businesses, particularly SMEs, the hole often appears when they expand too quickly without the necessary capital or market research.
The allure of growing profits can lead companies to stretch themselves thin, diversifying into unfamiliar industries or markets without adequate planning.
A classic example is the real estate boom that occurred in Accra in the early 2010s. Many businesses took advantage of the perceived demand for luxury apartments, but by 2020, the market became oversaturated, leading to a significant drop in property values and profitability.
In a difficult economic climate, the key for businesses is to stop digging deeper by halting expansion plans or diversifying into risky ventures.
Instead, companies should focus on strengthening their core operations, cutting unnecessary expenses, and building resilience in their existing markets.
For example, with the rise of fintech and mobile money in Ghana, businesses in the financial services sector that focus on refining their digital services and creating value for their customers are likely to see sustainable growth.
How to Climb Out of the Hole
1. Reassess Economic Policies:
The government needs to adopt a long-term view of economic growth. This includes prioritising investment in local industries such as manufacturing and technology to reduce reliance on imports and boost domestic production.
It is essential to rethink the country’s tax policies to encourage entrepreneurship and reduce the burden on businesses, while developing programs that incentives industries critical to national development.
2. Invest in Human Capital:
Ghana’s workforce is one of its most valuable resources, but there is a significant skills gap between education and the needs of the job market.
By investing in education and vocational training, particularly in STEM (Science, Technology, Engineering, and Mathematics), Ghana can develop the human capital needed to drive innovation and productivity.
The government’s YouStart initiative, which aims to create 1 million jobs for young entrepreneurs by 2025, is a step in the right direction but must be properly funded and managed to be effective.
3. Financial Literacy and Debt Reduction: For individuals, the first step to climbing out of the financial hole is improving financial literacy. Initiatives by the Bank of Ghana to promote financial education are commendable, but more targeted efforts are needed to reach low-income households and small business owners who are most vulnerable to debt traps.
4. SME Growth and Support:
Small businesses are the backbone of Ghana’s economy, accounting for about 70% of employment. To stop digging deeper, SMEs need access to affordable credit, business development services, and market opportunities.
The Ghana Enterprises Agency (GEA) has played a crucial role in supporting small businesses, but greater efforts are needed to create an enabling environment for SMEs to thrive.
Conclusion
“If you find yourself in a hole, stop digging” is a timeless lesson that resonates deeply with Ghana’s current economic and social challenges.
As individuals, businesses, and a nation, we must recognise when our actions are counterproductive and have the courage to pause, reassess, and change course. Only by stopping the digging can we begin to build ladders that will help us climb out of the holes we’ve created and achieve long-term growth and sustainability.
Prof. Samuel Lartey
sammylaatey@yahoo.com
