The COVID-19 crisis is affecting the entire global economy and that of Ghana. Some key sectors of the Ghanaian economy are already experiencing a slowdown as a result of the pandemic. Tourism, air transport, and the oil sector as well as the formal and informal private sectors of the economy are visibly impacted. However, the invisible impacts of COVID-19 should be expected by the country in 2021 and possibly beyond regardless of the duration of the pandemic.
After its outbreak in China in the latter part of 2019, the Coronavirus disease (COVID-19) has continued to spread across the world. No continent has been able to escape this virus, which has recorded an average mortality rate of about 6.01% according to the Chinese Center for Disease Control and Prevention, and the Coronavirus lives tracker website of South Africa. To date, there have been over 371,366 deaths, with more than 6,184,267 people infected and 2,754,386 recoveries across about 204 countries and territories around the world and 2 international conveyances: the Diamond Princess Cruise ship harbored in Yokohama, Japan, and the Holland America’s MS Zaandam cruise ship, worldwide, thus portraying the severity of the virus globally (WHO Situational Report, 3 April 2020).
Declared a pandemic by the WHO on March 11, 2020, COVID-19 has become a global emergency, given its impact on the entire global population and the economy. According to scenario simulations of the International Monetary Fund (IMF), global growth could fall by 0.5% for the year 2020. Several other sources are also predicting a fall in global growth due to the direct effects of the COVID-19 outbreak.
The global economy may enter a recession at least in the first half of the year 2020 when adding the direct and indirect effects of the crisis (such as supply and demand shocks, commodity slump, fall in tourism arrivals, etc.). However, as the pandemic progresses slowly on the African continent, studies have less addressed the economic impact on individual African countries. Indeed, Ghana is not immunized from COVID-19. As of March 13, 2020, the spread of the virus has reached Ghana. Currently, the country has recorded 7,881 cases with 2,841 recoveries and 36 deaths; and is showing no signs of slowing down. Ghana, because of its openness to international trade and migration, is not immune to the harmful effects of COVID-19, which are of two kinds: endogenous and exogenous.
- The exogenous effects come from direct trade links between affected partner continents such as Asia, Europe, and the United States; tourism; the decline in remittances from African Diaspora; Foreign Direct Investment and Official Development Assistance; illicit financing flows and domestic financial market tightening, etc.
- The endogenous effects occur as a result of the rapid spread of the virus in many African countries. On one hand, they are linked to morbidity and mortality. On the other hand, they lead to a disruption of economic activities. This may cause, a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human lives and support economic activities.
During the 2008 financial crisis, the entire African continent lost up to $7.2 billion from the tourism industry alone. Unlike the past financial crisis, the fear of the emergence of the virus may continue to haunt the tourism sector even after the COVID-19 pandemic, leading to more losses from the sector.
Since 2000, remittance flows to the continent have shown steadfast growth, except for a small decrease in 2009 due to the financial crisis. The World Bank finds that sub-Saharan Africa gained about $46 billion in 2018 from remittances. Given the global dimension of the crisis, Africa might see stagnation or even a reduction in remittances.
The virus is indiscriminately impacting global supply and demand. The European Union and India have announced their decisions to limit the export of medical equipment and drugs as they struggle to meet domestic demand and face difficulty to source key ingredients to step up production.
Furthermore, other major export commodities such as gold, oil, and cocoa are also expected to face some levels of a price drop. This will impact many businesses throughout the value chain and decimate many jobs along the way. Also, it will significantly reduce governments’ revenue from royalties, income, and payroll taxes in a time when public finance is urgently needed to meet increased health expenditure and reduce the impact on businesses and jobs, thus worsening the already widening budget deficits.
It is important to assess the socio-economic impact of COVID-19, although the pandemic is at a less advanced stage in Ghana due to its lesser quantity of international migrants’ arrivals relative to Asia, Europe, and North America, and strong precautionary measures put in place by the government. The Ghanaian economy remains relatively informal and very vulnerable to external shocks.
This article places a spotlight on the fragility of growth in the Ghanaian economy, seeking to stimulate an informed policy dialogue and related policy decisions aimed at reducing identified fragile contexts and building a more resilient Ghanaian economic sector.
However, social and economic issues that were already highly challenging have now become exponentially more serious due to the current COVID-19 health crisis and the catastrophic effect it is having on the Ghanaian economy as well as the global economy.
Despite decent economic and social progress the country has achieved in the last two decades, the growth of the Ghanaian economy remains characteristically fragile. This inherent fragility extends across the economic, social, political, and cultural fabrics of life in the country.
The typology of the fragile context revolves around weak institutions that lead to poor accountability and leadership, labor unrest, low human development, low investment levels and the low level of economic diversification that produces protracted economic decline with a negative shock from one sector of the economy, among many other factors.
Although the effects of the coronavirus pandemic are devastating on the already fragile Ghanaian economy, the outlook is not completely dire.
In order to move forward, we need to look at the lessons learned from this crisis and heed the urgency for change that it has highlighted. Weak points, some known, others underestimated, have been brought to the fore.
In addition to infrastructural issues, the reliance of the Ghanaian markets on imported goods (and services) has proven to be a detrimental factor during this crisis, particularly regarding the shortage of masks and other health and safety resources typically sourced from outside the country.
There is an urgent need for solutions that will move the Ghanaian economy forward, reduce risk, and maximize opportunities in the wake of the COVID-19 crisis. Proposed means of achieving this include:
- Policymaking and interventions that consider the existing weaknesses within the economy, the post-crisis challenges facing the country and future long-term methodologies to forestall the negative effects of the crises
- Enlisting the support of multilateral institutions and bilateral partners and working together to develop comprehensive and effective solutions to overcoming challenges across different sectors.
- Governments and the private sector need to consider ways to help the population and the Ghanaian markets recover from the debilitating effects of COVID-19 on factors such as GDP growth, critical macro-economic indicators, inflation, exchange rates, employment and livelihoods to vulnerable sectors.
- The implementation of the African Continental Free Trade Area agreement needs to be accelerated to boosting intra-African trade, development, and economic diversification, making the Ghanaian and other African economies less vulnerable to economic shocks and more resilient to global crises or market disruptions.
It must be noted that the government’s reaction in the aftermath of this social and economic crisis will be definitive in guiding the recovery and inclusive growth of the Ghanaian economy. We cannot predict the future, but we can be better prepared for the uncertainties that lie ahead.