The packaging machine is running at full speed in the Nakobs’ Pac factory, on the outskirts of Accra, the capital of Ghana, which produces sachets of drinking water for consumption.
At the chain, three workers pack the packages by 30 sachets. And yet, all is not well at Nakobs’ Pac. As in many Ghanaian businesses, the owner lives in anguish of having to close down soon.
With historical inflation of more than 50%, the collapse of the local currency rate by 50%, prices at the pump which have doubled and a debt whose reimbursement swallows up half of the State’s income, Ghana is grappling with a severe economic crisis. Its the worst in decades.
The government on Tuesday signed a $3 billion bailout deal with the International Monetary Fund in a bid to shore up its public finances, but economic stability is still a long way off.
“It would be better for us to close the factory,” director Daniel Tekyi told AFP, sitting in the garden next to the factory. “We really don’t know when this crisis is going to end.”
Until a few years ago, Ghana was a model of economic and political stability in a West African region plagued by coups and violence by jihadist groups.
But like much of the continent, the country struggled to recover from the downturn caused by the global pandemic, before being abruptly hit by the economic fallout from the war in Ukraine.
– Fiscal austerity? –
It is to avoid a payment default that President Nana Akufo-Addo turned to the IMF, he who had once promised a “Ghana without aid”.
It must be said that as the country sinks into crisis, investors are turning away from it.
The measures taken by the government to increase its revenues, in the face of an exploding debt, were not enough. Neither the increase in VAT of 2.5%, nor the freeze on hiring in the public service.
Finance Minister Kenneth Ofori-Atta says bailout deal with IMF, debt swap and package of reforms will restore investor confidence and must get economy back on track following ‘serious times’ .
But many Ghanaians fear that with this agreement the government will be forced to impose new austerity measures that would further burden the population.
“The government must design mechanisms to mitigate any IMF conditions that might affect citizens, especially on public employment and high taxes,” economist Daniel Anim Amarteye told AFP.
“If this is not done, it might be politically fatal.”
The next presidential election will take place in two years. With President Akufo-Addo set to step down following two terms, the ruling NPP party is preparing for primaries scheduled for 2023.
– Whose fault is it ? –
How did Ghana get here? He, who before the pandemic, was held up as an example in Africa for his high growth rates, rising oil production and very strong investor interest.
The government was long-sighted: it spent heavily on social programs such as free secondary education and training programs.
However, its high level of debt was a looming problem. However, since the beginning of the year, the local currency – the cedi – has devalued by more than 50% once morest the US dollar. This helped increase the value of the debt by $6 billion.
An important part of the IMF deal is to return the country to debt sustainability through restructuring, asking investors to swap their bonds for new bonds maturing later.
“Whatever the outcome of the IMF program and how they can raise the bar, history will show that the government drove us to 40% inflation…and the cedi depreciated by 54%,” opposition leader Isaac Adongo told AFP.
For the ruling party, the crisis is only due to external shocks: the Covid and the Russian offensive in Ukraine.
“Assuming that the Covid did not take place, what would be our story?” Asks Richard Ahiagbah, spokesperson for the NPP. “Global costs are the cause of our inflation.”
This political debate is of little interest to Mr. Tekyi, the owner who is trying to keep his plastic bag factory afloat. Due to inflation, its production costs now exceed its selling price. So impossible to consider buying new parts for the machines.
“For the moment, we are producing and are in deficit,” he says. “We manage to be able to produce and keep our workers and that they at least can continue to receive a salary”.
