Freda Maku Yoobi is hot and angry.
The 33-year-old Ghanaian has been hit twice over by her country’s economic woes. First, Covid-19 restrictions ended her work as a make-up artist and now rising prices have choked off her fledgling chilli-sauce business.
These are problems that have hit countries across the globe, but for Ghana, with one of the worst performing currencies in the world this year and worryingly high levels of debt, the outlook for Ms Yoobi is unlikely to improve any time soon.
It has also gone to the International Monetary Fund (IMF) for help, which might then demand tough spending cuts.
The sauce entrepreneur is in a reflective mood as she tries to cool down in the shade of a towering neem tree near her home in Kpone Katamanso district, southern Ghana.
The cost of oil, ginger, onions and even chilli peppers – the key ingredients of her red-hot sauce – have all increased. For example, since June last year a 20-litre can of oil has gone up from around $16 (£13) to $85, she explains.
“When people make orders and I tell them I have increased the prices, then they cancel them. You know times are hard,” she shrugs. As a single parent, the chilli-sauce business was her family’s main source of livelihood.
She wants the government to make life easier for entrepreneurs by, for example, lowering the cost of registering a business.
But also “if the government can set up a committee to regulate price increases it will help us”.
The chances of that are slim as there is no money available to pay for subsidies.
To describe Ghana’s economy as struggling is not the view of commentators shouting from the sidelines, but of the president himself.
“We are in a crisis, I do not exaggerate when I say so,” President Nana Akufo-Addo said in a sombre televised address at the end of last month when he talked about measures to deal with the problems.
He blamed what he called “malevolent forces” from outside – Covid and Russia’s invasion of Ukraine – but the country’s high debt levels and continued dependence on imports for many essential goods have presented particular difficulties for Ghana.
In 2006, after Ghana came out of a special IMF and World Bank debt-relief programme, the country’s debt amounted to 25% of its GDP. Now that figure stands at nearly 80%.
The government anticipated a windfall after it started exporting oil in 2010 and began borrowing money to pursue ambitious flagship programmes such as free senior-school education. But critics say the money was frittered away.
From 2017, debt levels increased rapidly.
The rise was down to three key things, according to University of Ghana economist Adu Owusu Sarkodie writing in The Conversation.
Firstly, state-owned enterprises have needed government help to pay energy bills, then a financial sector clean-up left the authorities with a huge bill to compensate customers of defunct banks and finally Covid led to a fall in government revenue and an increase in spending.
The borrowing come at a cost as the state has to make larger interest payments. At the moment, the government is spending more than 65% of the money it receives in revenue on servicing the debt.
This has had an impact on the money available for basic services and has meant that many new projects have been suspended.
The country has also been hit by its currency, the cedi, depreciating against the US dollar.
This is partly due to the strength of the dollar caused by increases in US interest rates, but the cedi has performed particularly badly, losing more than half its value this year, as the government has been unable to borrow more dollars to shore up reserves and some investors have pulled out.
For the ordinary person, this means that all imports that are priced in dollars, including fuel and raw materials, have become more expensive. As a result, annual inflation – the rate at which prices increase – hit more than 40% in October.
In recent weeks people have taken to the streets to demand more government help.
The depreciating currency is hurting businesses that rely on imports.
Kormi Courage Amese runs a printing company and imports most of his inputs such as paper and ink.
The falling value of the cedi has meant that quotes for jobs that he now gives are only valid for seven days, rather than the previous 30, as prices are changing so quickly.
“So, in a lot of instances our clients will rather hold back from making an order and this is significantly affecting our revenue,” the 35-year-old says.
“We have lost more than one million cedis ($73,000; £58,000) within two months.”
Amid all this, pressure has been mounting on Finance Minister Ken Ofori-Atta with calls for his dismissal coming from members of his own party as well as the opposition.
Some say he made the crisis worse by delaying an appeal to the IMF.
In February, the minister dismissed the idea, saying that Ghana was “a proud nation”. But now the country is once more negotiating a deal with the IMF to help stabilise the economy.
But there are concerns that the IMF will introduce some tough conditions in exchange for helping out, including cuts in spending which could have a disproportionate effect on the poor.
The government has started to introduce some short-term measures that could help the situation.
President Akufo-Addo blamed speculators and illegal forex traders for the collapse in the value of the currency. As a result, he has asked the central bank to step up efforts to clamp down on their activities.
He has also cut salaries for ministers and other government appointees – though it is not clear how much money that will save.
To help government workers deal with the rising cost of food, the agricultural ministry has started to transport foodstuffs from rural areas and sell them cheaply in Accra.
But some argue that there are fundamental problems with the economy that will take time to solve.
Prof Godfred Bokpin of the University of Ghana argues that the government should be restructured to avoid unnecessary duplication.
He also says that the international markets must see a government willing to take practical measures to overcome the problems in order to build confidence.
“That urgency assures the market that you are willing to do everything possible to calm the market. Here we have the president saying let’s give the minister of finance time before he sacks him – even if he will ever do.”
For Bright Simons, the deputy head of policy think-tank Imani Africa, the government should admit that the root cause of the problem lies in Ghana rather than with the Russia-Ukraine war or Covid.
He wants a review of spending by a “competent, highly independent panel” to be undertaken.
This would “prune the budget” of unnecessary spending, Mr Simon says.
“By so doing, there would be no need for the central bank to continue conjuring money from thin air for the government to spend, which is the main driver of inflation, and, consequentially, the currency crisis.”
He also wants the country’s debts to be restructured to give the government some breathing space in repaying the loans.
Other suggestions include developing better local industries which could help replace imports and reducing taxes on fuel to make it more affordable.
There are no shortage of ideas for those in power to ponder, but what seems clear is that there are no easy ways out of the crisis to help the likes of chilli-sauce maker Ms Yoobi.
As Foreign Minister Shirely Ayorkor Botwey put it recently: Ghana has to “either impose IMF-guided austerity, potentially leading to labour retrenchment and accompanying social instability… or home-grown yet equally tough decisions to satisfy the markets”.
UK to Be the Only G-7 Economy in Recession This Year, IMF Says – BNN Bloomberg
(Bloomberg) — Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.
The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.
The forecast highlights the challenges Prime Minister Rishi Sunak’s government faces in the leadup to the next election. Chancellor of the Exchequer Jeremy Hunt suggested the economy is likely to perform better than the IMF expects.
“The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted,” Hunt said in a statement. “We are not immune to the pressures hitting nearly all advanced economies. Short-term challenges should not obscure our long-term prospects.”
In 2024, the economy will rebound only slowly, growing at 0.9% — matching Japan and Italy at the bottom of the G-7 league table for growth.
The forecast anticipates the first UK recession, excluding the pandemic, since the financial crisis in 2009. Across the two years leading up to the deadline for Prime Minister Rishi Sunak to call an election, the economy will effectively stagnate — expanding just 0.3%.
The IMF did not downgrade any other G-7 economy this year as it raised its global growth forecast from 2.7% to a still sluggish 2.9%. An escalation of the war in Ukraine or a health crisis in China as Covid spreads could set back the world economy, it said in its World Economic Outlook update. However, “adverse risks have moderated since October.”
The downgrade to UK growth is striking because the IMF’s October forecast was prepared before the £45 billion ($55.7 billion) unfunded tax giveaway in the September budget during the short-lived Liz Truss premiership. At the time, the fund said the fiscal splurge would have boosted growth.
Since then financial conditions have tightened, rising borrowing costs for businesses and households. The Bank of England has raised rates from 2.25% to 3.5%, and markets now expect rates to settle around 4.5%. The IMF said it’s downgrade also reflected “tighter fiscal” policy but, according to Treasury figures, fiscal policy is looser this year than at the last forecast.
In October, the IMF attacked the UK’s massive spending spree — arguing that fiscal and monetary policy should not be working at cross purposes and that the government needed to bring the public finances under control.
IMF Chief Economist Pierre-Olivier Gourinchas repeated the warning. In a blog post alongside the forecast, he said many countries are being too generous with their energy support, which is “costly and increasingly unsustainable.”
Instead, countries should “adopt targeted measures that conserve fiscal space, allow high energy prices to reduce demand for energy, and avoid overly stimulating the economy,” Gourinchas said.
He also urged central banks, like the Bank of England, to press on with rate rises even if it means inflicting more misery on cash-strapped households. The BOE is expected to raise rates a half point to 4% on Thursday.
“Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path,” Gourinchas said. “Easing too early risks undoing all the gains achieved so far.”
- UK Wage Inflation Points to Another Big Rate Hike This Week
–With assistance from Andrew Atkinson.
©2023 Bloomberg L.P.
In Egypt, economic heat of Russia's war in Ukraine is only getting worse – Al-Monitor
GIZA — With every passing day, the money in Hanan Hussein’s purse becomes more and more dwarfed by the items in this crowded vegetable market in Embaba — a densely populated neighborhood in the Giza province of Greater Cairo.
Hussein, a mother of two in her early 50s, looks at the price tags of food items placed on the carts or on the wooden tables jockeying for limited space on both sides of the market and shrugs her head, knowing that the few pounds she has can only buy a few of the items on display.
“Tomatoes selling for 10 pounds a kilo, potatoes for 12, zucchini for 15 and rice for 19,” she says to herself.
“What are these prices?” she asks herself as she moves toward the end of the market.
Hussein passes by the shops selling fish, meat and chicken but pays no attention to them.
When she reaches the end of the market, she turns back and starts a new journey through the vegetables and fruit on display, hoping to come across something she can buy.
“We can’t afford these high prices,” Hussein told Al-Monitor, pointing at the vegetables in front of her. “I am looking at all the items on my shopping list, but it looks like I can’t buy any.”
Tens of millions of Egyptians, especially the poor and the middle class, are affected by the economic repercussions of Russia’s war on Ukraine.
Al-Monitor/Premise poll released this month found 68% majority of the population in Egypt, Turkey, Yemen, Tunisia and Iraq worried about their ability to access food in the coming months.
Having initially deprived the Egyptian tourism sector of billions of dollars in revenues, with Russians and Ukrainians constituting a third of annual tourist arrivals, the war has caused food import-dependent Egypt to pay more for its imports, especially cereals such as wheat and maize, according to the World Economic Forum.
Disruptions caused by the war on the international supply chain are also translating into a higher price for industrial and agricultural production requirements in a country where dependence on imported production essentials is very high.
Egyptians are feeling the pinch, with price increases in shops and markets across the country.
Hussein has stopped buying fish, chicken, meat and table condiments, among other items.
So has Alaa Mamdouh, a civil servant in his mid-30s who has one child.
Like many Egyptians, Mamdouh has decided to take on a side job to supplement his income. However, with less than 4,000 Egyptian pounds (less than $133) from both jobs, he can’t manage.
“I don’t know what to do,” Mamdouh told Al-Monitor. “People like me can’t keep going with food prices assuming new heights every day.”
Other Egyptians are complaining about their income being dwarfed by growing commodity prices.
Deep beneath their suffering is an inflation rate that is hitting an all-time high, threatening a political and security backlash.
Fears from this backlash have prompted Egyptian President Abdel Fattah al-Sisi to assure the public that things are going to be alright.
“I know that some people are worried, and they have reasons to be concerned,” the Egyptian leader said Jan. 6 after entering a large church in the New Administrative Capital, a new megacity he is constructing in the desert, to congratulate his country’s Coptic Christians on Christmas. “But you have to be sure that God will not fail us,” he added.
Two days later, he asked Egyptians not to buy into the uninformed rhetoric of those who spread fear about national economic conditions.
“We did not enter wars or squander the wealth of our country,” Sisi said. “Egypt did not cause these conditions.”
As he spoke, the Egyptian pound continued to lose its value to the US dollar, the main import currency in this country — at the time of writing selling at 30 pounds per dollar.
Egypt has had to depreciate its national currency two times since February 2022, says Al-Arabiya News.
It scrapped its managed exchange rate regime a few days ago in light of an agreement with the International Monetary Fund and as part of other measures that will also include the elimination of energy subsidies and the withdrawal of the state from economic activities.
A cheaper pound weakens the purchasing power of people like Hussein and Mamdouh and stagnates the business of people like fishmonger Ahmed Hamdi, who sat outside his shop in the same market in Embaba where fish prices filled passersby with aversion.
“People come here only to ask about prices, but nobody buys anything,” he tells Al-Monitor.
Some fellow traders closed down their shops due to sales spiraling downward and losses spiraling upward, he says. “I may do the same if things get worse.”
To reduce the intensity of the downturn, the government has opened dozens of outlets where food is sold at a discount. It also increased food subsidies for tens of millions of people registered in the national food rationing system, according to Daily News Egypt.
Economists say, however, that these efforts will not pay off without proper market control.
“Traders use current conditions to amass huge wealth by increasing monopolies and raising prices,” director of think tank Capital Centre for Economic Studies Khaled al-Shafie told Al-Monitor. “This requires strong supervision over the market.”
The lack of this supervision caused a traditionally reticent parliament to grill the minister of supply a few days ago.
Parliament members criticized the minister for his failure to control runaway commodity prices.
“The minister does nothing to prevent traders from exploiting the poor,” parliament member Nafie Abdelhadi told Al-Monitor. “Commodity prices are rising dramatically, but the minister is only watching.”
This leaves people like Hussein in limbo. Every day, she faces the riddle of matching the little money in her purse with the needs of her family.
“It is a new, difficult test every day, but I am sure God won’t forget us,” she says.
Power Crisis Triggers Water Cuts in South Africa’s Economic Hub – BNN Bloomberg
(Bloomberg) — Parts of Johannesburg, South Africa’s economic hub, are being subjected to renewed water-supply cuts as ongoing electricity shortages disrupt pumping operations.
A power failure at Rand Water’s Eikenhof pump station, which supplies reservoirs in several high-lying areas of Johannesburg, resulted in critically low levels of supply, the municipality said on Twitter on Monday. While repairs have been completed, it warned that time is needed to replenish the storage system. Alternative sources of water have been arranged for hospitals.
State-owned utility Eskom Holdings SOC Ltd., which provides 90% of all of South Africa’s electricity, is unable to meet demand for power from its mostly old and poorly maintained plants, and has instituted rolling blackouts to keep the national grid from collapsing. There were record outages last year and they show no signs of abating.
The power rationing that can last for hours at a stretch is taking an ever-increasing toll on the economy and disrupting manufacturing, mining and farming. Cape Town, the country’s main tourist hub, partially shut several beaches during the height of the holiday season late last year after wastewater pumps broke down.
Read more: Why Blackouts Are Still Crippling South Africa: QuickTake
Municipalities must ensure sanitation infrastructure, sewer-pump stations and generators are maintained and continue operating to ensure there aren’t sewage spills, according to the Department of Water and Sanitation. It confirmed that the power cuts were, however, reducing the reliability of water supply to consumers, with the effects varying between different areas depending on the capacity of their back-up generators.
“The stop and start process at the water-treatment works negatively impact on water quality,” the department said in an emailed reply to questions. “The power cuts also negatively affect the treatment process at the waste-water treatment works, resulting in poorly processed discharge from the treatment plant. The storage capacity at the sewer pump stations were not designed for long durations without pumping. That also increases the risk for possible spillages.”
Crime and vandalism has also impacted negatively on Johannesburg’s water supply: thousands of water meters, manhole covers and hundreds of water tanks were stolen over the past year, according to the municipality.
©2023 Bloomberg L.P.
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