Ghana’s Economic Imperative, Why Ghana must have a comprehensive Asian Policy | Lord Adusei

This essay is in two parts. The first part looks at the rise of Asia as economic power. The second part discusses Ghana's current economic situation and the need for government to have a comprehensive Asia Policy to tap into the economic might of the rich region of Asia.

 

A) The Rise of Asia and Why Akuffo-Addo must Focus on the region 

 

In the last few decades, the centre of gravity of global economic power has shifted dramatically  from the West (Europe and North America) to the East (Asia). Asia accounts for six of the G-20 nations of the world's major industrialised economies (China, Japan, India, Indonesia, Saudi Arabia and South Korea). The number rises to 8 if Russia and Turkey are treated as Asian countries. Four of the world's 11 biggest economies are in Asia: China, Japan, India, and South Korea. Figures from the International Monetary Fund show that in 2017 these four countries had a combined Gross Domestic Product (GDP) of US$21.036 trillion which is nearly twice the combined GDP of Europe's four biggest economies: Britain, France, Germany and Italy, which together had a combined GDP of US$10.830 trillion in 2017.

 

In addition to the G-20 countries, Taiwan, Hong Kong, Malaysia, Singapore, and other ASEAN countries are among some of the well performing economies in the world. Again, the countries in West Asia (Middle East) particularly Saudi Arabia, Qatar, United Arab Emirates, and Kuwait and other oil sheikhdoms are among some of the deep pocket countries in the world. Also the Asian region remains the world's workshop with most of the goods consumed in the world being manufactured there. Across the world, Asia's automobile, technology, electronics and telecommunication companies including Toyota, Sony, Samsung, Toshiba, Huawei, Tencent now compete with the world's best and in some cases dominate key sectors of the global economy.  For example three of the top four smartphone companies by market share are in Asia. They include Samsung-South Korea, Huawei-China, Apple-US, and Xiaomi-China in order of importance. Today, three of the top four busiest airports by passenger numbers in the world are in Asia. They are Hartsfield-Jackson Atlanta International Airport (USA), Beijing Capital International Airport (China), Dubai International Airport (Dubai) and Tokyo Haneda Airport (Japan) in order of significance. Hong Kong and Singapore also rival London, New York, Frankfurt and Paris as the financial capital of the world.

 

In the aftermath of the global financial crisis for example, it was Asia and other global south countries that saved the world's economy from total collapse. In fact, many poor performing banking, automobile, robotics and steel companies in Europe were saved by investors from Asia. Barclays Bank UK for example would have either collapsed or would have been bailed out by the UK government had it not been Qatar cash. Jaguar Land Rover, the largest car manufacturer in UK and one of the best known global automobile brands was bought by Tata Motors of India in 2008. In 2012, Chinese investors also acquired Saab, a Sweden-based auto maker.  BAIC another Chinese automobile company has invested $1.9 billion in Daimler AG, the maker of Mercedes-Benz. Indeed, since the financial crisis of 2008, German and other European companies have had to rely on Asian funds to remain competitive. In 2015 for instance, about 39 German companies were purchased by Chinese investors.  In 2017, another 37 German companies were bought by investors from China. One of them was Kuka, a leading robot manufacturer in the world. Kuka was acquired by Midea Group Co. of China at a price of $5 billion. In 2017 alone, Chinese companies invested more than $80 billion in Europe and $29 billion in the United States and the US figure would have gone up tremendously had Donald Trump not imposed some restrictions.

 

Foxconn, a Taiwan-based electronic assembler, recently announced it will invest $10 billion in the US state of Wisconsin making it one of the biggest foreign direct investment in the US. China is providing the funds for the Hinckley nuclear power project a key energy project that aims at strengthening UK's energy security.  

 

Furthermore, Asia is a huge market for every kind of goods and services produced in the world. The reason is that about 4.4 billion or 60.11 percent of the world's 7.5 billion people live in Asia making the continent a significant source of market for all kinds of goods and services. High economic growth and high income growth in the Asia region have seen millions of people joining the middle class every year. This ever expanding middle class is turning Asia into a sea of buyers. Some few decades ago, only Japanese and few Asia elites had the financial power to acquire some of the goods that are associated with modernity: well-built houses, cars, colour television, fridges, computers, telephone, flush-toilet, tap water, washing-machine, boilers, microwave, cookers, and other types of electronics and household appliances. Today hundreds of millions of Asians have joined their Japanese neighbours. This can best be illustrated by the explosion of demand for vehicles in the region. Currently three of the top four biggest car markets are in Asia.  China is currently the world's biggest car market. In 2008, for example only 6.76 million passenger cars were sold in China. In 2017 however, over 24.7 million passenger cars were sold. China overtook the United States as the world's biggest car market in 2009. Japan is the third largest car market in the world with about 5.5 million cars sold in 2017.  In 2017, Indians also bought more than four million vehicles thereby displacing Germany to become the fourth largest car market in the World. Asia is also the world's largest consumer of energy and other metals and a fertile ground for agricultural produce.  With their huge population and rising incomes, demand for everything known to man is likely to rise.

 

The Asian region has more billionaires than any other continent in the world. These billionaires are providing endless stream of capital investment in several countries around the world. In 2018, Li Shufu, a Chinese billionaire and founder of Geely one of China's biggest car manufacturers, paid $9 billion to acquire about 10% stake in the Stuttgart-based Daimler AG, one of Germany's most respected companies. The deal made him the biggest investor in Daimler. The Sweden-based Volvo company, one of the iconic automobile manufacturers in Europe and formerly owned by Ford, was also bought by Geely for $11 billion in 2010. The same Geely company now owns London's black cab manufacturer London Taxi Company and also controls 51 percent share of Lotus, the iconic British sports carmaker. Asian billionaires have sunk hundreds of millions of dollars into European football. Indeed, some of Europe's biggest football clubs including Inter Milan and AC Milan of Italy, Lesicerter, Manchester City are owned by Asians. 

 

Additionally, Japan and China have the world's largest financial reserves in the world which is a major source of investment in the world. Currently Japan has invested nearly $1 trillion in US government stocks, corporate bonds and agency holdings. China too has used part of its reserves to buy $1.18tn US government treasury bonds. And under the One Belt, One Road initiative, China is investing $1 trillion of its reserves to build all kinds of infrastructure (including roads, railways, ports, harbours, energy) in Africa, Asia, and Europe as a way of deepening, growing and expanding the global economy. In East Africa for example, China's capital is already building roads, railways, harbours and other infrastructure. Indeed, China provided the funds that built the Addis Ababa-Djibouti railway line as well as the Nairobi-Mombasa rail network at a combined cost of about $8 billion. To put things in perspective, in late July this year, during the 10th BRICS Summit in South Africa, India's Prime Minister Narendra Modi stopped in Rwanda and promised to invest $100 million in that country alone. China's Xi Jinping on his way to South Africa for the summit also stopped in Rwanda and offered to invest $126 million in the country. Early in September 2018, African and Chinese leaders gathered in Beijing as part of Forum on China-Africa Cooperation (FOCAC). At the end of the meeting China agreed to invest $60 billion in Africa in the next three years. Meanwhile, early this year when then US Secretary of State Rex Tillerson visited Africa, he promised $533 million for the countries in the region. Again in the first week of August this year when the US Secretary of State Mike Pompeo visited the ASEAN countries in Asia he could only promise to invest $113 million in the 10 countries that make up ASEAN. 

 

Indeed, the economic strength of Asia has been recognised by all non-Asian economies including those in Europe and North America. Across Europe, governments are rolling out red carpet for Chinese and other Asian leaders in a charm offensive to win investors from the region. In July 2017 example, Walter-Frank Steinmeier the President of Germany, Europe's most powerful economy, greeted Xi Jinping at the Berlin Airport with full military honours. Britain also welcomed Chinese President Xi Jinping with pomp in 2015. During their time in office, Chancellor George Osborne and Prime Minister David Cameron frequently visited Beijing to lobby for China's cash. Philip Hammond and Theresa May who respectively replaced George Osborne and David Cameron as Chancellor and Prime Minister continue to deepen the UK's relationship with China, India and Japan. Since voting to leave the EU, UK Prime Minister Theresa May and her aides have intensified effort to bring U.K. closer to Asia because of the belief that Asia holds the key to UK's bid to become economic superpower. Toyota of Japan responded to the UK's gesture and agreed to invest $310m in its UK plant. Currently the U.K. is lobbying very hard to get Saudi Arabia to list Saudi Aramco, the world's most valuable company, on the London Stock Exchange. The United States is also working aggressively to attract Saudi Aramco to list on the New York Stock Exchange. Saudi Aramco, an oil firm owned by Saudi Arabia, is worth more than $2 trillion and is more valuable than the US-based Apple, the world's most valuable technology company.

 

Due to their growing wealth, power and influence, European countries like Germany and Britain have established strong bilateral economic relations with Asia's powerful economies. The UK and China for instance have established strategic dialogue in which leaders from both countries meet annually to discuss strategic issues of common interest: trade, investment, finance and access to each others market among others.

 

Perhaps what is making Asia unique is the amount of money they have been investing in education particularly in Science, technology, engineering and mathematics. As a result of the investment some of the world's best universities and research institutions can now be found in Asia. While the United States tops the global list when it comes to publishing in the world's top scientific journals, it is followed by China with Japan occupying the fifth position. Singapore and South Korea are ranked as two of the world's best countries in terms of delivery of education of primary, secondary and postsecondary education. In other words, it is not only the centre of gravity of economic power that is shifting but also knowledge and information production. The global power shift to Asia is nothing new. According to the Singaporean scholar Kishore Mahbubani, for more than 18 centuries (1 to 1820 A. D.), China and India were the two biggest world economies. In the first century AD for example, Asia controlled 76.3 percent of the global economy while Western Europe had 10.8 percent. It was the unset of the Industrial Revolution that shifted the global balance of power to Europe and America. Indeed, the Industrial Revolution has seen the West dominate the global economy for two hundred years. However,  in the last fifty years, Western dominance of the global economic system is beginning to wane. By 2050, three of the top four economies in the world will be in Asia: China, Japan and India with the United States the only Western country among the top four. This is something that Ghana can ignore.

 

B) Ghana's Economy Today

 

Akuffo-Addo was elected into office at a time when Ghana’s economy was in a very bad shape. To put things in perspective, the economy had grown 14 percent in 2011, then it decelerated to 9.3 percent in 2012, then 7.3 percent in 2013. It fell to 4.0 percent in 2014 and 3.8 percent in 2015. In 2016, the economy grew just 3.7 percent. The GDP to debt ratio was more than 70 percent. Inflation was in a double figure territory at 17.5 percent in 2016. The cedi was not doing well against several international currencies. Unemployment was stubbornly high and nurses and graduates were agitating for government and businesses to hire them. The almighty power crisis (which Ghanaians labelled dumsor) was forcing companies to close down and they responded by sacking workers, a situation which added to the country's already serious unemployment problem. 

 

The price of oil which had collapsed in 2014 was still not recovered denying the Mahama government the hundreds of millions of dollars in revenue it needed to improve the economy. The worsening economic situation forced the government to agree to a $918 million IMF Extended Credit package in 2015. In the words of the International Monetary Fund (IMF), the facility was to enable Ghana “to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation”. The Fulani menace that was sweeping across Eastern, Ashanti and other regions remained out of control. Galamsey was destroying forests and rivers in several parts of the country causing serious environmental havoc in the affected communities. Armed robbers were terrorising many communities. To put it mildly, the Akuffo-Addo government may have inherited more problems than any government in the Fourth Republic. The urgency to address these economic, security, and environmental challenges was daunting.

 

After nearly 20 months in office, most of the problems have been contained but a number of them remains to be completely resolved. For instance the economy has started to grow again. In 2017, it grew by 8.4 percent causing the GDP to expand from $42.8 billion in 2016 to $47.0 billion in 2017 and IMF projections indicate that the economy may grow by 6.3 percent in 2018, and 7.6 percent in 2019 which will subsequently swell the GDP to nearly $57 billion by 2019. According to the IMF, inflation fell from 17.5 percent in 2016 to 12.4 in 2017 and is projected to decline sharply to 8.7 percent by the end of 2018, which will be the lowest since 2012. 

 

A permanent solution has been found by the government for the Fulani and their cattle. A 600 acre land is currently being developed to permanently settle the cattle herders. Many Ghanaians agree that the uncomfortable power supply hazard has been contained though the previous John Mahama government deserves some of the credit for particularly bringing in the 300 megawatts emergency power supplied by Ameri. It is important to state that the long term energy security of Ghana has not been addressed. Notwithstanding, armed robbers and armed robbery remain a challenge. 

 

However, the biggest challenge is still the economy notably the stability of the local currency, the weak manufacturing sector and the associated dependency on foreign imports as well as unemployment particularly among the youth. The debt to GDP ratio is still high at above 65 percent and may exceed 70% by 2019. The size of Ghana's economy is projected to expand from $47 billion in 2017 to $60 billion in 2020. This suggests that Ghana has a long way to go before bridging the development gap with her Asian peers such as South Korea, Malaysia, Singapore, Hong Kong and Taiwan. By 2020, Ghana's level of development will be at where South Korea was in the 1970s, and where Malaysia and Singapore were in the early 1990s. In other words, Ghana has to double or triple its efforts if it is to develop and catch up with the her peers in Asia.

 

The above analysis about the global economic power shift suggests that it is difficult for any country trying to grow its economy, or  develop and industrialise to ignore the Asian continent. Yet this is what is happening in Ghana. To be fair with the Akuffo-Addo government, since assuming office it has taken some steps to attract investment from Asia. On Friday 31 August 2018, President Akuffo-Addo left Ghana for China with a delegation that included businessmen and women. This is a good move by the President because it is likely to deepen relations between China, the world's second biggest economy and Ghana, one of Africa's fastest growing economies. In China, President Akuffo-Addo signed several economic agreements with Chinese investors and promoted Ghana as the top destination for Chinese investment. The China visit afforded China to meet understand the huge investment opportunities that exist in Ghana. In February 2018, Finance Minister Ken Ofori-Atta, travelled to Singapore and Hong Kong to draw the attention of investors in both countries about investment opportunities in Ghana’s government bonds.

 

In April 2018 he also made a visit to Japan, Asia's second largest economic powerhouse to showcase Ghana to Japanese investors. In Japan he spoke in geopolitical language reminding his host that “China has had a growing influence in Africa for some time. But most African countries are beginning to see how there could be a balance in terms of their relationship with Asia...I think Japan offers a solid alternative to a multipolar global diplomacy, and it is of interest for Africa to have diversity of options for ourselves". He added “Our economy is becoming more robust and it is time to encourage Japanese FDI (foreign direct investment) and market investors, from places such as pension funds, to invest into Ghana”.

 

In late July 2018, Ghana’s Parliament ractified agreement between Ghana and Sinohydro Group Limited of China to exchange Ghana’s refined bauxite for infrastructure projects worth $2 billion to be provided by Sinohydro.

 

These visits and agreements are in the right direction except that they do not represent a coherent and a comprehensive policy. They are not based on a wider, calculated approach to sell Ghana to the wider Asia region. Some of investors in Asia for example will like to see a detailed government policy document that seeks to guide, target and engage the rich Asian countries in their engagement with Ghana. The lack of existence of a comprehensive Asian Policy document makes investors not sure of where government stands, its goals and objectives including the priority sectors the government would like to have investors channel their capital into. This is even more important given the urgency with which the government needs funds to turn its campaign promises into tangible, deliverable outputs.

 

Therefore, in order for Ghana to benefit from Asia's huge financial goldmine,  Akuffo-Addo's government must have a comprehensive actionable Asia Policy and a well-defined strategy to woo Asian investors. This is particularly important given that for decades Ghana has been focusing disproportionately on European and North American countries for investment but the response has not been all that encouraging. For instance in February 2018, President Akuffo-Addo addressed 50 US Governors in the United States urging them to invest in Ghana. He also told officials of German government to take keen interest in Ghana's economy. Except for the recent announcement that the VW car company intends to set up assembly plant in Ghana, there is little evidence to suggest that European and American investors are strongly responding to his calls. Moreover, there is one major difference between Asian and European investors. European and American investors are always interested in few sectors (particularly oil and mining) whereas Asians always broaden their investment portfolios to include agriculture, transportation, energy, finance, oil and mining.

 

As Ghana tries to position itself as the West Africa's economic powerhouse, the government's economic and industrial policy must seek to lure Asian investors to establish key operations especially in manufacturing in the country by reforming Ghana's civil service, as well as the economic, political, social and legal institutions. The recent collapse of some Ghanaian banks for example sends a wrong message to all investors about the health of the Ghanaian economy in general and banking and finance in particular. 

 

An Asian Policy must not be reduced to only borrowing, selling bonds and exporting raw materials but must include investing in technology, finance, energy, infrastructure, security, defence, as well as education and research collaboration with top universities in the region. An Asian Policy must also identify the key Ghanaian sectors that the government wants to develop and guide investors to channel their investment into those sectors. A dedicated body should be established to focus solely on selling Ghana to Asia. Members of such body must be drawn from key ministries including Foreign Affairs, Finance, Natural Resources and Trade and Industry.

 

In conclusion, the 21st Century is Asia's century but it could also be Ghana's century if Ghanaian leaders take the necessary steps to mobilise domestic resources while attracting investment from other regions particularly the strategically important Asian region.

 

 

 

Lord Adusei is a Financial and policy analyst with areas in security, geopolitics and international relations.