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ARC Briefing Ghana January 2023: IMF Reaches Deal with…


Ghana Summary 10 January 2023

The International Monetary Fund (IMF) announces on 12 December that it has reached a staff-level agreement with Ghana’s government for $3 billion to be disbursed via the IMF’s Extended Credit Facility (ECF). Government agrees to a comprehensive debt restructuring programme to secure the agreement, triggering global rating agencies, which view this restructuring as a de facto debt default to further downgrade Ghana’s sovereign credit rating. Trade and industry minister Alan Kyerematen submits his resignation to President Nana Akufo-Addo (2017-present) to focus on his campaign ahead of the ruling New Patriotic Party’s (NPP) upcoming leadership primaries in which he is considered one of the leading candidates.  Kyerematen’s resignation increases expectations of an imminent cabinet reshuffle. The opposition National Democratic Congress (NDC) holds its elective conference on 17 December, electing former party general secretary Johnson Asiedu Nketiah the new party chairperson.  Asiedu Nketiah defeats the incumbent party chairperson, Samuel Ofosu Ampofo by 5,569 votes to 2,892. The #FixTheCountry movement holds protests in Tamale (Northern region) on 7 January, calling for constitutional review and expressing discontent with the handling of the economic crisis.


Staff-level agreement reached with the IMF

The IMF announced on 12 December that it had reached a staff-level agreement with Ghana’s government and the relevant authorities for a $3 billion three-year agreement which will be disbursed via the IMF’s Extended Credit Facility (ECF). The agreement still needs to be ratified by the IMF’s executive board, however, the institution’s board votes against the recommendations of the respective mission and this ratification are largely viewed as a formality. As such, Ghana should gain access to the ECF funds before the end of January 2023.

This ECF funding is a bailout that will go a long way to stabilising Ghana’s economy which has been in a state of crisis for several months marked by rapid currency depreciation and soaring inflation. Global currency markets reacted favourably to the news of the IMF agreement and the cedi strengthened by more than 31% from GHS 12.98/$1.00 on 11 December to GHS 8.95/$1.00 by 16 December. This currency strengthening should go some way in helping reduce inflation in the country as it will make imported goods such as food and fuel more affordable, a promising development as Ghana Statistical Service has indicated in several reports that such imported goods were major contributors to the current surging inflation levels. Consumer price inflation is currently at a 21-year high reaching 50.3% in November compared with 40.4% in October.

In order to secure the ECF agreement, Ghana had to make several concessions to the IMF, namely agreeing to a comprehensive debt restructuring programme that has seen Ghana suspend payments on some of its foreign debt obligations, a move which is essentially a voluntary debt default. This programme includes a suspension on payments servicing Ghana’s Eurobond debt which accounts for $13.1 billion of the country’s total $28.4 billion external debt. Ghana has also agreed to approach the Paris Club of creditor countries and apply to participate in the G20 Common Framework process for debt relief and restructuring agreements.

Ghana has also introduced a debt exchange programme under which Ghana would ask its creditors to exchange around $9.7 billion in domestic debt for new bonds. The deadline for this programme ends on 16 January, however, this exchange programme has faced intense local opposition, which has a deadline of 16 January, especially from labour unions who are fearful that such a debt exchange would negatively impact workers’ pension plans which hold government bonds. The government elected to exempt pension funds from the domestic debt restructuring to avoid a threatened countrywide indefinite strike over this matter.

The debt restructuring programme also had the negative result of triggering credit rating downgrades by global rating agencies. United States-headquartered Fitch Solutions and Standard & Poor’s (S&P) both announced credit ratings downgrades for Ghana on 21 December. Fitch downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘C’ from ‘CC’ and downgraded the issue rating on Ghana’s partially-guaranteed $1 billion notes maturing in 2030 to ‘CC’ from ‘B-‘. S&P lowered its sovereign rating for Ghana to ‘selective default’ from CC in its second downgrade for Ghana in December after lowering its rating for Ghana’s long-term bonds to CC from CCC-plus on 6 December (see ARC Briefing Ghana Dec 2022). These cuts occurred a month after US-based Moody’s announced that it had cut Ghana’s credit rating by two levels from Caa2 to Ca.  These rating cuts were widely expected as all three agencies had previously warned that they would view any large-scale debt restructuring to be the equivalent of a debt default (see ARC Ghana Briefing Nov 2022). These rating cuts will result in Ghana needing to offer higher interest rates on its government-backed bonds. This will increase the cost of borrowing for the government and hurt its debt burden. However, the government has accepted this as the necessary consequence of securing the IMF bailout as access to the ECF will help stabilise the country’s economy and enable the state to meet most of its budgetary obligations. This stabilisation is essential for the economic crisis to end and for the state to commence the recovery process.


Trade minister resigns ahead of ruling party primaries

Trade and industry minister Alan Kyerematen submitted his resignation to President Nana Akufo-Addo (2017-present) on 5 January 2023 as Kyerematen moves to focus his energies on campaigning to be elected as leader of the ruling New Patriotic Party (NPP). The NPP will hold its leadership primaries on a yet-to-be-confirmed date later this year.

Kyerematen’s resignation has intensified speculation about the NPP leadership race as his decision to exit the government coincides with emerging perceptions that the contest has narrowed to a two-horse race consisting of Kyerematen and Ghana’s vice president Mahamudu Bawumia. Other potential candidates believed to be considering a run for the party leadership are Assin Central member of parliament (MP) Kennedy Ohene Agyapong and agriculture minister Owusu Afriyie Akoto.

The perception that the primaries will come down to Kyerematen and Bawumia appears to have permeated across the NPP’s senior leadership, leading to growing calls for the two men to reach an agreement to form a joint ticket with one taking the role of leader and the other of deputy leader. Such a negotiated alliance is unlikely as both men currently believe they have a viable chance of winning the primary but such an agreement could bring about party unity and ensure that the NPP puts forward the strongest ticket in the 2024 general election.

The NPP will consolidate into two camps – centred on Kyerematen and Bawumia respectively – in the coming months in absence of a grand agreement. This will elevate political tensions within the NPP and potentially even cause divisions within the cabinet and the NPP parliamentary caucus which could lead to legislative gridlock given that the NPP-led coalition has a single-seat majority in parliament.

Kyerematen’s resignation has also increased pressure on Akufo-Addo to announce a cabinet reshuffle. The president has not appointed a permanent replacement but has rather made finance minister Ken Ofori-Atta the acting trade and industry minister. This decision has also caused tension within the NPP and the opposition National Democratic Congress (NDC) as Ofori-Atta has shouldered much of the blame for Ghana’s ongoing economic crisis.

The political fallout from the country’s economic crisis has also placed pressure on Akufo-Addo to reshuffle his cabinet. The NPP itself is eager for Akufo-Addo to remove and replace poor-performing ministers, creating the view that he is taking aggressive action. The NPP is fearful that public anger over the economic crisis will hurt during the 2024 election and, as such, is eager to change the discourse around governance in the country and has suggested consolidating ministries in a cost-cutting exercise

Among the ministers considered most likely to be removed are Akoto, who is expected to follow Kyerematen’s example and focus on his party leadership campaign, fisheries minister Mavis Hawa Koomson, labour relations minister Ignatius Baffuor Awuah, and natural resources minister Samuel Jinapor. The fate of the broadly unpopular Ofori-Atta also remains uncertain. The finance minister remains a close ally of Akufo-Addo, and reports indicate that the president was impressed by Ofori-Atta’s success in securing a $3 billion financing agreement with the International Monetary Fund (IMF), but Kyerematen’s resignation will likely force Akufo-Addo’s hand leading the president to announce a cabinet reshuffle sooner rather than later.


Opposition elects new leader

The opposition NDC party held its elective conference on 17 December, electing Johnson Asiedu Nketiah, the former NDC general secretary, as chairperson. Asiedu Nketiah defeated the previous incumbent Samuel Ofosu Ampofo by 5,569 votes to 2,892. Awudu Sofo Azourka was re-elected as the party’s first deputy chairperson, and former MP Fifi Kwetey was elected as the new NDC general secretary, while Barbara Serwaa Asamoah retained her position as deputy general secretary Sammy Gyamfi, who ran unopposed, was re-elected as the national communications officer while former deputy Ashanti regional minister, Joseph Yamin, was elected as the party’s national organiser.

This new executive committee has been tasked with preparing for and winning the 2024 general election. The NDC are in a strong position to regain power given the widespread frustration over the NPP’s handling of the economic crisis but Asiedu Nketiah will need to unify the party behind him and begin presenting his case against the ruling party. Asiedu Nketiah should face no challenges in achieving this given his former role as the party’s general secretary and the fact that several executive members retained their positions.


Demonstrations called demanding systemic government reforms

The ‘#FixTheCountry’ movement held protests in Tamale (Northern region) on 7 January, indicating that widespread societal frustration with the government and its mishandling of the Ghanaian economy has continued despite the announcement of the staff-level agreement with the IMF. The movement coincided the protests with Constitution Day (celebrated on 7 January) and demanded a review of Ghana’s constitution.  

The #FixTheCountry is a rapidly growing movement advocating for major governance reforms in Ghana. The movement is comprised of multiple different nongovernmental organisations (NGOs) and activist groups and is particularly strong in northern Ghana. The ongoing economic crisis has re-invigorated Ghana’s civil society and labour movements and the widespread social frustrations have led to several protests in recent months. This is significant as Ghana is entering a period of elevated political sentiment as the ruling party will hold its leadership primaries this year and the country will hold its general election next year. This has created opportunities for social and labour movements to pressure political parties to meet their demands while the economic insecurity caused by the high inflation levels has caused a sense of urgency to secure gains for workers and vulnerable groups.


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Africa Risk Consulting: Interview with Lord Hain

The Judicial Commission of Inquiry into Allegations of State Capture – also known as the Zondo Commission – was a public inquiry launched by the government of Cyril Ramaphosa in August 2018. Whilst the initial furore created by the daily revelations of how insidious Zuma’s state capture project was have somewhat calmed down, it is as important as ever to understand why the commission is so critical, not just for South Africa, but across the continent. 

Tara O’Connor caught up with ARC advisor, Lord Hain, on his involvement in the Zondo Commission… 

Lord Hain, thank you for agreeing to speak with us around your commitment this year to combat corruption in South Africa. In particular, we are interested in your involvement in The Judicial Commission of Inquiry into Allegations of State Capture and your report presented to the commission in November 2019. What was the key motivator for your giving evidence to the commission? 

Thanks, Tara, and for the opportunity to discuss the commission and the report presented, which is of the utmost importance to how we move forward in South Africa. As you know, whenever there are large-scale corruption cases in Africa, there is a propensity to ignore the complicity of international actors in the facilitation of money laundering activities, but rather to focus on the domestic changes that are needed in the subject country. The commission is already well aware of the systemic lack of transparency and accountability of South African government bodies that allowed corruption to thrive. Instead I wanted to use the opportunity to make a plea for the international community to acknowledge its own role in the saga. Domestic changes are, of course, needed in South Africa, yet lessons must be learned by international actors who helped and continue to help corrupt individuals enjoy the spoils of their illegality by allowing them to move their ill-gotten gains from South Africa and then sometimes back into the country undetected. It has to be realised that without these players, state capture could not have been as monumentally lucrative to its perpetrators as it so tragically has been. 

You have been particularly vocal about the role played by banks in state capture in South Africa, can you explain why they were a particular focus? 

Yes, I have always been very vocal about this. Simply because I strongly feel that it is the banks who are at the frontline of tackling state capture that have repeatedly failed in their duty to prevent it. Electronic banking remains the simplest and fastest means of transferring funds between people and across borders. It allows criminals to move their money to more convenient and less regulated jurisdictions and it ‘cleans’ the money by mingling it with other funds and disguising its source so that it is easier to spend. As we know, the Guptas used a number of international banks to transfer money around their network and disguise payments. The banks appear to have assisted the Guptas in two ways: first by allowing bank accounts to be opened and in doing so granting access to the bank’s global network; and secondly by allowing the transfer of illicit funds into and out of accounts. 

There were, however, clear warning signs even in publicly available materials that the Guptas’ activities were suspicious and these ‘red flags’ should have been spotted by the banks either much sooner or immediately – including the secretive nature of numerous transactions, unexplained payments to and from third parties and unexplained connections with and movement of monies between jurisdictions. Given that banks ought to have access to customer data and transaction data for all accounts they open and transfers they facilitate, they are well placed to monitor the legitimacy of any and all transactions, in addition to having regulatory and moral responsibilities to recognise and stop illegal money flows. They systematically failed, time and time again in this case. We have to hold them to account, but also must force them to implement more stringent measures going forward. Banks possess the technological and financial clout needed to force change and my advice is that that power should be harnessed to assist regulators to target their often too limited resources. 

What must the banks and private enablers do differently to ensure this is not repeated? 

Data sharing will be critical. There must be an increase in the sharing of data within and between banks, professional enablers and the state, so that there is greater visibility around the risk profile of customers and transactions. I know of course that some sharing of information already occurs, however, it is clearly not effective. These banks have to cease hiding behind confidentiality and work collaboratively and pro-actively to share useful data and intelligence on a confidential basis with South Africa, global regulators and enforcement agencies. 

Understanding who the beneficial owners (BOs) of corporate entities are is integral to enabling banks and professional enablers to understand the background to a transaction so that a proper assessment can be made of whether there is a corruption risk. For them to recognise suspicious customers or transactions, they have to know the identity of the customer and they must be forced to conduct proper and thorough due diligence on EVERY client. I recommended that audits should be conducted by the South African Reserve Bank on all banks in South Africa. These must happen more regularly and without notice and a random sample of due diligence files should be reviewed regularly as part of this. 

Transparency between all parties will also be key to how we move forward. In South Africa, there should be increased transparency around the parties that enter into contracts with state-owned enterprises by creating a BO register. This would help banks and professional enablers to assess the legitimacy of payments from state-owned enterprises to third parties. In order for this to be effective, I suggest the register be updated and verified by an independent body on a monthly basis. 

You have said that there have to be some changes around Black Economic Empowerment (BEE) in South Africa. Are you able to elaborate a bit more on what changes you would like to see? 

The Black Economic Empowerment (BEE) programme is so important to South Africa’s future. And given its importance, it is all the more tragic that it has been wrongly exploited and manipulated by state capture criminals over a protracted period. I have emphasised repeatedly that greater transparency and accountability in this area is essential to ensure that the important and legitimate aims of the BEE programme are not undermined through corrupt manipulation by a few corrupt individuals (such as the Guptas) and their illegal ‘rent seeking’. 

In recent history, contracts with state-owned enterprises have been awarded to enterprises under the BEE initiative that do not have, or intend to obtain, the requisite capability to properly perform those contracts, nor intend to further the aims of the BEE movement. In that regard, there must be increased transparency around whether BEE parties a) have a relevant track record; b) meet basic up-skilling requirements to perform a contract e.g. do hire and train black employees to the number and qualifications required for competency under the contract; and c) satisfactorily perform their contract against contractual key performance indicators including final sign-off on completion. The number of employees retained by businesses claiming to operate as a BEE enterprise should also be recorded, verified and disclosed, as those that exploit the BEE initiative usually create a shell company with very few employees (much fewer than would be needed to fulfil the contract) solely to win the contract. It really is a tragedy how such actions have worked to undermine the necessary objectives of the programme. 

How could this additional transparency be achieved? 

In the form of regular public updates by the state through the Department of Public Enterprises websites and a whistle-blowing hotline for the reporting of breaches 

What lessons can be learned by other African nations from this matter? 

Across the continent, citizens deserve better than the looting and devastation caused by state capture that still occurs. I hope the recommendations, some of which I’ve summarised in this discussion, and all put forward to the commission, are implemented not just in South Africa but are used as guidance to all nations. Key to this is an understanding that fighting corruption requires global action and global co-ordination from a range of stakeholders, including governments, businesses, banks and NGOs. Without this cooperation, the state capture of South Africa or another country will happen again. 

Therefore, throughout Africa, international actors across the public and private sectors must commit their resources to strengthening regulations, improving corporate governance, increasing transparency and coordinating globally to reduce financial crime. Without cross- border cooperation and engagement of the public and private sectors, no country will be emancipated from financial crime.