FEATURE: The Economic Ramifications of COVID-19 for Ghana

The world has been thrown into a state of pandemonium. There is growing uncertainty about the potential havoc coronavirus could cause. From Wallstreet to other financial markets down to individual households in the remotest part of the world, the impact of this novel virus is been felt.

According to the World Health Organization (WHO), COVID-19, as it has come to be known, are a large family of viruses that cause illness ranging from the common cold to more severe diseases.

Timelines

December 31, 2019 – Cases of pneumonia detected in Wuhan, China, are first reported to the WHO. During this reported period, the virus is unknown. The cases occur between December 12 and December 29, according to Wuhan Municipal Health. The crisis has become dire with data from WHO reveals confirmed cases globally at 191 127 with 7807 deaths as at 18.03.2020.

Global Impact

One may wonder why global leaders and businesses are panicking over coronavirus. The World Health Organisation (WHO) has declared this novel coronavirus a pandemic. Economic activities have been disrupted. The overall impact on the global economy, at the moment, is immeasurable. Some economic experts suggest the implications could be far reaching than that of the Great Depression around the 1930s when the global economy experienced a contraction of about 26 percent.

As countries continue to lockdown and institute travel restrictions in the wake of COVID-19, the impact on the aviation industry goes beyond flights to-and-from mainland China. The International Air Transport Association (IATA) estimates an impact of around $30billion solely due to decline in flights to and from China. One can envisage the dire implications for the global aviation industry.

Financial markets are plummeting, factories, businesses, hotels and schools are closing. The global economy is near shut down.

Source: Dow Jones

Stimulus Packages by Global Leaders

As this novel virus spread across the globe causing unforeseen damages to human existence and business survival, several world leaders, particularly from developed countries are taking measures to safeguard their citizens and businesses.

US President Donald Trump has described the coronavirus crisis as an ‘‘invincible enemy’’. The US Congress on Wednesday 18.03.2020 approved a one trillion-dollar stimulus package. According to CNN, individual Americans would be supported with $500 billion in cheques. The remaining $500 billion is to support businesses severely affected by COVID-19.

The French government has earmarked a stimulus package of €45 billion for businesses and also guarantee bank loans to a tune of €300 billion. This was revealed by Finance Minister Bruno Le Maire.

German Chancellor Angela Merkel indicates the government would do “whatever is necessary” to cushion businesses. Finance Minister, Olaf Scholz, indicates that businesses will be given a limitless credit from the state-owned development bank, KfW. Starters would be supported with the equivalent of US$614 billion, Economy Minister Peter Altmaier also noted.

Forbes indicates the UK government has unveiled a stimulus package of $400 billion total (£330 billion) which was disclosed by recently appointed Chancellor Rishi Sunak. This amount is the equivalent of 15 percent of UK GDP.

These world superpowers have instituted measures to tackle the fallout of this health cum economic crisis. COVID-19 is a global pandemic, meaning no country is spared. The world has become a global village and no economy is in isolation. Developing countries cannot ‘run to’ to developed economies for financial aid. They are at the mercy of their meagre national income. The biggest question is, will developing countries such as Ghana survive this economic meltdown?

Ghana’s economic gains over the past years are likely to be erased by this novel coronavirus. World Bank data indicates that the country’s GDP increased by 1.3% in the first quarter of 2019 over the 5.4 percent recorded same period in 2018.

The country depends largely on export of goods and services. Total export revenue for 2018 stood at US$23.118 billion according to the World Bank and represents 35% of GDP. With most trading partners and global businesses experiencing the shocks from this epidemic, one could anticipate a significant decrease in export revenues in the coming months and probably years. A decrease of a minimum of 10% (US$2.3billion) of the 2018 export revenue could spell doom for the country.

Crude oil prices have also plummeted below $30 per barrel. According to CNN Business, this is the lowest since 2002. Nasdaqtrading data indicates that prices have falling over 50% from US$53 to US$25 between February and March 2020. Data from the Ministry of Finance shows that Ghana earned over US$0.6 billion from petroleum receipts. As the country’s second source of export revenue, Ghana may grapple with trade imbalance.

In a similar vein, several businesses along the export supply chain could experience the ripple effects from this decline. This comes with associated decrease in tax revenues from such businesses. Again, with several countries under lockdown, global trade flows are expected to decrease. Revenues from the country’s ports and harbours would obviously decline. Other consequences could be job losses for temporal workers at the ports and harbours.

The country is also expected to see sharp a decline in revenues from the tourism, hospitality and aviation industries. The government of Ghana issued travel restrictions on several countries as a result of the corona virus outbreak. A Citinewsroomreport indicates that Emirates airline flights to and from Ghana have been suspended until May 2020. Several airlines could follow suit. The losses to African airlines could exceed US$4 billion CNN indicates.

According to a publication on Ghanaweb, Director-General of the Ghana Civil Aviation Authority (GCAA), Simon Allotey, revealed that as a result of the travel restrictions imposed on flights to Ghana, the country’s aviation sector could see a drop in revenue. He noted that “Airports Company depends largely on charges levied on airport passenger charges, while the GCAA also depends on landing fees, reroute charges for aircraft overflying Ghana’s airspace and the passenger safety charge. So once passenger numbers drop, there will be a corresponding decrease in passenger safety charge. For now, we can generally say there will be at least 20% dip as the situation improves or deteriorates, there could be either a further increase or decrease”.

The other fallout from the coronavirus pandemic on Ghana could be job losses. This would worsen the unemployment situation in the country. The International Labour Organisation (ILO) indicates that ‘‘the world of work is being profoundly affected by the global virus pandemic. In addition to the threat to public health, the economic and social disruption threatens the long-term livelihoods and wellbeing of millions’’. According to Reuters, ILO estimates that about 25 million jobs could be affected globally unless governments take measures to mitigate the impact.

In the budget statement for 2020, Ghana’s Finance Minister, Ken Ofori-Atta, projects a total revenue equivalent of US$119.55 billion. With a gloomy global economic outlook, this projection may not be achieved. According to Bloomberg, the Bank of Ghana anticipates a decline in GDP by 5%.

Government of Ghana Measures

The central bank of Ghana has instituted some measures to mitigate the impact on the economy. The monetary policy committee on Wednesday 18.03.2020 reduced the policy rate from 16% to 14.5%, the first cut since January 2019.

A reduction in the policy rate alone may not cushion businesses and the economy from the shocks caused by this global pandemic. Speaking on Accra based CitiTV, the Chief Executive Officer of Dalex Finance, Ken Thompson, suggests that the government should initiate a stimulus package for tax compliant companies. This he indicates would ‘‘bring relief to Ghanaians immediately, and safeguard the economy from crumbling.’’

Resulting trade deficit from the ongoing crisis could hinder the country’s short-term development goals. One just hopes the worse does not happen.

In view of this, the government could consider the following measures:

• Emergency budget review:

As a matter of urgency, the government should review the 2020 budget. The country could seek support from the World Bank’s US$12 billion package for countries affected by COVID-19.

• Stimulus package for individuals and businesses:

Immediate package may include withdrawal of the proposed Communication Service Tax and taxes on fuel. Reduction in Income Taxes for employees. Welfare benefits for socially and economically deprived and vulnerable Ghanaians.

• Suspension of non-essential expenditures:

The Minister of Finance after a review of the 2020 budget should defer all non-essential expenditures.

These are not ordinary times. Government must undertake pragmatic steps to reduce its financing gap created by this novel coronavirus. These among others, could help reduce the impact of COVID-19 on Ghanaians.

By Ernest Degraft-Amoah

(M.A. International Business Administration and Foreign Trade)