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AfricaJune 19 2012

Ghana confident in its democratic credentials

Ghana has been a bastion of stability in a volatile west Africa for the past 20 years. It will have a chance to reassert its credentials in elections later this year and most analysts think it will succeed, despite political rhetoric becoming more heated in recent months.
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In the past few months, west Africa has lived up to its reputation for political volatility. A military coup in Mali in March, resulting in a power vacuum that allowed rebels to annex part of the country, was followed less than a month later by soldiers in Guinea-Bissau overthrowing a democratically elected government.

In such an unpredictable neighbourhood, Ghana has largely stood out for its peaceful politics. This has especially been the case since 1992, when multi-party democracy was ushered in. Its reputation as one of Africa’s, let alone the region’s, most stable and democratic states was established after elections in 2000 and 2008 that both saw the ruling parties accept defeat to their opponents. The latter even saw the president cede power after losing by less than 0.5% of the vote. “That doesn’t even happen in the US without a recount,” one Ghana observer wryly notes.

Parliamentary and presidential elections in December will give Ghana the chance to reassert those credentials. Most analysts have few doubts it will, citing recent history and the fact that it lacks the tribal and religious tensions present in much of the rest of the continent. “The prospect of violence doesn’t worry me in the least,” says Stephen Bailey-Smith, head of African research at Standard Bank. “Ghanaians have frequently demonstrated that they prize democracy.”

Local businessmen add that Ghana’s institutions, not least its electoral commission and courts, are strong enough to ensure a fair outcome. “People cherish the environment in which we live,” says Dominic Adu, chief executive and co-founder of Ghana Home Loans, one of the country’s biggest mortgage providers. “The last elections provided all the right ingredients for violence. But it didn’t happen.”

Growing animosity?

Nonetheless, there are concerns about growing animosity between the ruling National Democratic Congress (NDC) and long-time rival New Patriotic Party (NPP), which between them have dominated Ghanaian politics for the past 20 years. The NPP, led by Nana Akufo-Addo, has recently ramped up personal attacks on John Atta Mills, the president.

For its part, the NDC has launched several corruption investigations against opposition legislators, who complain the moves are politically motivated. The heightened tensions have been fuelled by the likelihood that this year’s polls will be as close as those in 2008. “We’ve all become accustomed to the story of Ghana being the poster child of the region in the sense that we’ve seen peaceful transitions from one government to another,” says Razia Khan, Standard Chartered’s head of research for Africa. “But the rhetoric ahead of this year’s elections is that much more heated. The politics have a less comfortable feel about them.”

Few businesses seem perturbed over who wins, however. Despite the NDC being viewed as more leftist than the liberal conservative NPP, most say both parties’ policies are supportive of investment and commerce and that there is little separating them in substance. “For the past 22 years we’ve been in Ghana, we’ve never suffered a loss of business as a result of one government,” says Samuel Adjei, managing director of Ecobank Ghana, the country’s biggest lender by assets. “We don’t believe the result will have an impact on us.”

Economic strength

Ghana’s political maturity has been matched by the strength of its economy in recent years. Gross domestic product (GDP) rose 14% in real terms in 2011, making it one of the fastest growing countries in the world.

Oil has much to do with this. Having discovered a vast offshore field in 2007, Ghana began pumping crude in December 2010. It is still a small producer, extracting about 80,000 barrels a day, less than a 20th of the output of Nigeria or Angola. But with a GDP of just $35bn, the $400m it earned in oil export revenues last year provided a significant boost to its coffers.

The oil sector will continue to grow in the near term. Production should increase to 120,000 barrels a day by next year. As such, few doubt that Ghana's economy, which is expected to expand by between 7% and 8% in 2012, will remain buoyant over the medium term. “I think we’ll easily continue to experience real GDP growth of between 6% an 8%,” says Keli Gadzekpo, chief executive of Databank, a local investment bank. “And if we have any additional oil finds – and I think we will – then you can imagine growth will be north of 8%.”

However, the rest of the economy is hardly any less robust. The non-oil sector, driven by a high output of gold, cocoa and services, was responsible for more than half of last year’s GDP rise of 14%. “All the sectors are growing very fast,” says Kwabena Duffuor, minister of finance and economic planning. “Mining is doing very well. So are construction, telecommunications and the financial sector. Therefore, the growth of the economy is not all due to oil.”

No oil curse

This gives Ghanaians hope that their government will be able to avoid the mistakes of neighbours such as Nigeria, where huge earnings from oil have led to rampant corruption and to other parts of the economy, notably agriculture, being neglected by policy-makers. So far, Ghanaian politicians have largely been commended for their attempts to make sure oil benefits the population as a whole, including the creation of a sovereign wealth fund that will be held for future generations. “The non-oil sector is pretty robust and has huge scope for growth,” says Alhassan Andani, head of Stanbic Bank Ghana. “That’s where I hope the government focuses so that we can avoid the Dutch disease. We shouldn’t get deluded by oil.”

Analysts say that continued reforms of Ghana’s economy and public finances will be needed for it to sustain its high growth rates in the long run. For one, it will have to boost manufacturing to lessen its dependence on imports, which saw its current account deficit widen to as much as 9% of GDP in 2011 and was partly why the cedi depreciated 15% versus the dollar in the first five months of the year, making it one of Africa’s worst performing currencies. Further fiscal tightening, including cutting fuel subsidies, are also likely to be a priority, as well as increased investment in transport and energy infrastructure.

But it is the maintenance of political stability that will be even more important. The turmoil in Mali, which had been progressing impressively in that regard in recent years, demonstrates how quickly situations can change. Few Ghanaians fear the same would happen in their country, where a democratic culture and institutions are far more entrenched. A smooth election in December would go a long way to ensuring they are right.

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