Erasing the ‘stigma of default’
Ghana spent years pitching itself as a business-friendly country that offered political stability, and a place for foreign investors to make outsized returns that they would easily be able to repatriate. Foreign Direct Investment soared to nearly $4 billion in 2019, regularly outstripping neighboring Nigeria, which has an economy over five times larger.

But, as Simons notes, Ghana’s FDI-stock-to-GDP ratio of nearly 80% — compared with a continental average of around 25% — makes it “highly vulnerable to global shifts in sentiment.”

Those shifts have caused domestic problems for President Nana Akufo-Addo. Store closures and street protests over the cost-of-living crisis have sprung up around the country. And the majority of his own ruling party has called for the resignation of Ken Ofori-Atta, the finance minister, who faces a censure motion from parliament over his management of the economy, including spending on the cathedral.

The beginning of commercial oil production in 2010 helped shape Ghana's economic ascent, but stresses in the system have become more apparent. Crude production figures have never matched government projections — it sits at under 200,000 barrels per day, less than half of earlier predictions — and investment in the sector has slowed in recent years.

Ghanaians demonstrate against the soaring cost of living in Accra, Ghana on Nov. 5. Photographer: Ernest Ankomah/Getty Images Europe
Along with the impact of the pandemic and the Ukraine war on the economy the government and opposition largely blame each other’s overspending for the crisis that the country finds itself in.

Some current ministers point to a slew of lucrative take-or-pay power contracts awarded by the previous government between 2013 and 2015. Designed to solve a short-term electricity crisis, the deals resulted in private producers setting up plants that can supply 4,600 megawatts, nearly double national peak demand of 2,700 megawatts — leaving the country paying $500 million a year for power it does not use and cannot store. Debt owed to fuel suppliers and the power companies could reach $12.5 billion by 2023.

Until this year foreign investors held an unusually large slice of domestic debt in Ghana — close to 40% — but that figure is projected to fall below 10% by the end of the year, an exodus that has piled further pressure on the cedi. Meanwhile commercial banks hold about a third of domestic debt and some derived as much as between half and three-quarters of their interest income from government securities in 2021, according to Fitch, giving them a ringside seat in any debt repayment negotiations.

Bondholders are waiting for restructuring proposals on about $21 billion of bonds, including $13  billion of sovereign dollar-denominated debt.

“There is no more stigma around defaulting or restructuring, and this is quite unusual in the context of emerging markets  history. It is part of the natural economic cycle,” said Yerlan Syzdykov, global head of emerging markets at Amundi SA, Europe's biggest money manager which is a member of the Ghana bondholders committee. “What worries me is that loss of stigma of default.”

Ghana has also borrowed to fund infrastructure and social programs that, if properly implemented and paid for, are widely seen as down payments on future development including free secondary school education and a national health service. But critics argue it did too much too quickly at too high a borrowing cost.

The government invested heavily in its power sector, key to industrialization, largely financed by external debt.  “By doing it that way — yes, you build an electricity grid, but you also take yourself to the brink of default, as Egypt has done, and as Kenya is not that far away from, as Pakistan has done,” said Charles Robertson, chief economist at Renaissance Capital.