Economy: Tears for Ghana, Cheers to Indonesia

One of West Africa’s largest economies, Ghana is battling a deepening economic crisis, with its annual inflation rate rising to 27.6% in May, up from 7.5% a year ago. Last Friday, following days of nationwide protests, the Ghanaian government announced it would approach the International Monetary Fund for financial support. The Ghanaian government has blamed the Russian invasion of Ukraine for disrupting global supply chains and leading to a surge in prices of fuel and food — both of which Ghana imports in large quantities. And the conflict is certainly contributing to the economic challenges facing ordinary Ghanaians, said consumer rights activist Kofi Kapito, in a conversation with OZY. But others believe that the war has compounded a deeper malaise afflicting the nation’s finances.

The Russia-Ukraine conflict has caused energy and food prices to soar worldwide. But Zimbabwe’s weak currency has made its situation especially problematic. Earlier this month, the falling Zimbabwean dollar (ZWL) caused its annualized inflation rate to jump nearly 60 percentage points to 191.6% — the third-highest rate globally.

“Businesses operate on borrowed funds so really with interest rates at 200% it is going to be difficult to fund their activities,” said Kurai Matsheza, president of the Confederation of Zimbabwe Industries, the largest business membership organization for manufacturing firms in the country, in an interview with OZY.

Matsheza noted that, if businesses borrow at 200% interest, ultimately they will transfer the higher costs to the final consumer. “So really, it’s the consumer who is going to suffer. Some businesses are going to fail to operate, and those who do operate … will see prices going up.”

Zimbabwe's economy is dependent on agriculture and mining, and on manufacturing firms that produce critical supplies for those sectors.

As with economically-troubled Sri Lanka, Ghana’s struggles are rooted in deeper structural problems, according to some analysts. “The deliberate collapse of the banking system and financial institutions led to massive job cuts, industry losing capital and businesses dipping,” Ghanaian activist Bernard Mornah told OZY. He was referring to Ghana’s 2017-2020 banking crisis, when several banks struggled to meet the central bank’s minimum capital requirements. Some banks failed and five were consolidated into one institution. Many companies failed to secure the capital they needed, triggering job cuts — all before COVID-19 hit, further decimating the economy. And in 2022, the government has raised taxes, adding to the pain for ordinary Ghanaians. Ghana’s Minister of Information Kojo Oppong Nkrumah did not respond to requests from OZY for a comment.

The Economic Community of West African States (ECOWAS) has lifted financial and economic sanctions on Mali after the country’s military leaders agreed to a two-year transition of power to democratic rule. “However, the heads of state decided to maintain individual sanctions, and the suspension of Mali from ECOWAS, until the return to constitutional rule,” ECOWAS Commission President Jean-Claude Brou told reporters on Sunday. Mali’s May 2021 coup d’état resulted in the deposition of the country’s President Bah N'daw. ECOWAS imposed an economic embargo on Mali leading to a debt default of over $300 million. (Source: Reuters)

French healthcare giant Sanofi will provide up to 40 lower-income countries with 30 treatments, on non-profit terms. The support includes a $25 million fund for startup companies and innovators capable of delivering solutions for sustainable healthcare in underserved regions, according to the firm. “With critical medicines, relentless drive and impactful partnerships, we can take our innovation beyond the lab and use it to strengthen health systems and access to medicines for those most vulnerable communities of patients,” Sanofi CEO Paul Hudson said on Monday. (Source: Reuters).

It’s a case of risk versus reward. Doctors in Australia, Italy and Japan are prescribing Merck’s COVID-19 pill Molnupiravir more than other antivirals, even though it is less effective than, for instance, Pfizer’s Paxlovid. The reason? It’s less risky in terms of contraindications, according to Australian Medical Association Vice President Dr. Chris Moy. (Source: The Wall Street Journal).

Not everyone is on board with Moy’s prescription. Germany will promote the use of Pfizer’s Paxlovid in order to lower the burden of serious COVID-19 infections. “A system involving family doctors will be prepared to administer this far too rarely-used COVID life saver more routinely,” Federal Minister of Health Karl Lauterbach said on Twitter. The announcement comes amid increased intensive care admissions and deaths since late June, driven by increases in COVID-19 omicron variants that are more infectious. Currently, Pfizer’s antiviral is available only for emergency usage in the U.S. (Source: Reuters)

American investment banks may lose billions of dollars on loans they promised when demand was higher, as the credit market cools amid interest rate hikes by the Federal Reserve to combat inflation. Since investment banks sell debt securities to institutional investors to raise money on behalf of companies or individuals at an agreed upon interest rate, higher rates could bleed these financial institutions. Bank of America, Credit Suisse and Goldman Sachs are already exposed to such losses, which have increased the risk of a recession in 2023. (Sources: The Economist, The Wall Street Journal, Bloomberg).

Argentine President Alberto Fernández has chosen Silvina Batakis, a government official and economist, as his next Minister of Economy. This comes after her predecessor, Martín Guzmán, resigned on Saturday over disagreements within the country’s ruling party on how to handle high inflation, energy costs and potential debt defaults. Guzmán, the architect of a complex deal with the International Monetary Fund to replace an earlier, failed program with the global body, was an advocate for a balance between social spending and managing debts. Batakis is more closely aligned with the leftist wing within the Peronist party. How she manages the economy will affect more than just Argentina — a major exporter of wheat, corn and soy in a world facing a food security crisis. (Source: Reuters).

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Inflation is low. There’s no hint that interest rates will be raised. And the country’s rupiah is among Asia’s better-performing currencies. Indonesia is outperforming most emerging economies — and smart policies might be responsible. The country is avoiding too much dependence on the U.S. dollar, using additional currencies for trade, selling more debt securities to domestic investors, and creating a local currency market. “Indonesia benefits as a net commodity exporter ... it is in a very good place to control some of the supply side inflationary pressures that some of the other economies are grappling with,” said Ivan Tan, an S&P analyst. (Source: Reuters)

On Monday, Singapore’s Finance Minister Lawrence Wong told Parliament that he expected no recession next year, despite a volatile global market and worsening inflation. He also ruled out a “stagflation scenario” — where spiraling inflation combines with high unemployment and low demand to pummel the economy. Singapore’s government has been forced to increase its social spending to tackle inflation. (Source: Bloomberg).

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