How Ghana can build a resilient economy

The macroeconomic outlook for the year 2022 continues to look bleaker as the months go by. The united states federal reserve board hiked interest rates by 0.75 percentage points for the second consecutive time in the bid of fighting inflation. German cities are cutting down gas usage in reaction to the impending gas shortage. In the motherland, the government is to cut the salaries of agencies and ministries up to 30% and has initiated contact with the International Monetary Fund (IMF) for financial support.

It seems the story is the same for all economies around the world as everyone is shifting gears into survival mode. However, some economies are better prepared than others, and would not feel the full impact of a global recession. It is likely that these economies will maintain single-digit inflation and come out of “a recession” unscathed. These resilient economies all have one thing in common; surplus.

Surplus countries, as they are generally known, are countries that sell more to other countries than buy from other countries. Therefore, surplus countries tend to have a net positive trade balance or current account balance (CAB). A positive current account balance indicates three important metrics that solidify a country’s economy.

The first is that the country has some “spare change” in foreign assets which eases pressure on the local currency. As a result, the local economy may enjoy relief in utilities and tariffs as there’s enough “spare change” to cover those expenses, assuming public debt has been paid off. In other words, any future unforeseen financial threat to the local economy can be backstopped with a positive CAB.

Secondly, when expenses are paid in foreign assets within the local economy, the local currency is strengthened. The price of a currency is determined by its market activity so when foreign assets are sold (via forex or open markets) to buy local goods and services (eg. pay artisans and contractors who spend the local currency), more buy pressure is heaped on the local currency causing it to outperform foreign assets.

Thirdly, a positive current account balance is an indicator of how other countries are reliant on a particular country, and it is quite obvious that the bottom 99% of countries rely on the top 10 surplus countries.

To become a resilient country that is able to survive recessions, Ghana should have other countries rely on its economy for basic necessities like energy and food. The sovereignty of Ghana is questionable until it is able to have surpluses for consecutive decades and I believe that is the reasoning behind the Ghana Beyond Aid policy but its execution leaves much to be desired.

When other countries depend on you for energy and food, your economy becomes an asset that can be used as leverage in international negotiations. The importance of a country having a surplus balance cannot be overstated. In times of economic uncertainty like this current climate, Ghana would have been much better off with some trade surplus on its current account balance. “Too much meat does not spoil the soup,” as the loosely translated Akan adage goes, it doesn’t hurt to have a very large trade surplus sitting for a rainy day.

The onus, however, does not lie on State Owned Enterprises (SoEs) alone, but also on private corporations with the capacity, to explore and invest in foreign trade. We need the few extra millions of dollars to bolster the economy, and off the top, I can think of 10 unique Ghanaian-made products (minus services) that can sell on large-scale international markets, not to mention cocoa and chocolate.

The future of the motherland is in our own hands, and posterity will be the judge of our actions or inactions. God bless our homeland Ghana.