Dec 20, 2022·edited Dec 20, 2022Liked by Noah Smith
Indeed, this is sad to see. Another worry in this area is increased terrorist threats which appear to be getting deeper into Burkina Faso, Ghana's northern neighbor: http://news.aouaga.com/h/146172.html
That this might happen so far south when I lived there 9 years ago was unfathomable. But here we are.
How can this analysis ignore lockdowns and a panicked pandemic response globally as a proximate cause for the crisis?
Ghana spent billions on lockdowns, closed schools (for a year!) and scared people into not seeking immunisations for diseases far more serious than Covid. From an early point it was clear that the population was never at risk of covid being a serious health burden due to age structure.
More broadly, this is the result of rich nations spending trillions to shut down the global economy and printing money to keep people compliant. The resulting debt bubbles, inflation and interest rate rises were always going to affect developing economies with weak currencies the most. These costs were barely, if ever, mentioned in domestic media or academic discussions of pandemic policy. It’s much harder to conceptualise the health damage of 100 young people kept in poverty over a decade than it is to imagine the death of a single elderly person due to a disease that dominated every news discussion for two years. That’s why “shut it down” won so comprehensively globally, despite the lack of any cost/benefit proportionality.
Developing countries who were teetering on the edge of progress decided to collectively shoot themselves in the foot and take hundreds of millions of children out of schools and into poverty. The global financial crisis created by lockdowns is now pushing them over the edge. History will look back on the episode very poorly.
That was a damn fine read. Like you, I find it fairly fascinating that they went with a preemptive default. You wrote, "Having the government borrow all that money in the first place was not smart. - At this point the IMF needs to start looking at how to gently but firmly cut Ghana off, so that they don’t keep doing this." I recently read and reviewed the book Confessions of an Economic Hit Man,
And one of the key themes is that the bailouts are a *feature* not a bug, in that they allow the IMF and other western institutions to exert political/financial control over the country stuck in the debt doom loop. Do you see that type of thing happening in Ghana? You mentioned there was some hope of finding oil, maybe the IMF was hoping to exert influence over the production of that oil had it materialized. I realize that sounds slightly conspiratorial, but just reading the book you see how this thing has happened over, over and over again.
At any rate, go Ghana defaulting on that debt. Smart move.
Thank you for your insightful post, Noah. As a Ghanaian, I am grateful for your commitment to follow up on your 2020 Blomberg post and bring attention to the current crisis, as well as to offer potential solutions. Going forward, it would be beneficial to see more discourse from you on Africa as a whole.
As the continent is projected to make up 25% of the global population by mid-century, it is important to consider it in a more nuanced way than just as a place of poverty or disarray. While Africans are happy to do business with other global powers like China and Russia, we have a clear bias for America and polls show 7 in 10 Africans (69%) say “democracy is preferable to any other kind of government.” Africans want the US society, as a whole, to pay more attention to us. While the continent faces many challenges, there is also much potential for growth, development, and progress.
If President Biden's promises at the recent US-Africa summit to go "all in” on Africa's future are to be taken seriously, it is essential that America's intellectuals, not just its capital, direct their focus towards the continent. Your commentary is an excellent example of how this attention can be paid. Again, thank you for the post and I hope that you continue to bring attention to the various opportunities and solutions available to African nations and to inspire other US/Western intellectuals to similarly engage on Africa and, where possible, collaborate with African intellectuals.
My Ghanaian friends say the curse of Africa, tribalism, interferes with every decision, my highly educated friends, primarily in British schools, gave up and fled to our shores, they have no hope that Ghana, or any other African nation can survive internecine tribal animosity
Great recap of how Ghana has sadly gone off the tracks. If you are looking for a new candidate for regional leader, I would suggest looking at Kenya. I am biased since I'm from there, but I think it would score well on a lot of the parameters that made you optimistic about Ghana and then some...
I think it would be tremendously interesting and informative for you to do a debate/interview/adversarial-collaboration with Garett Jones about the root causes of, and possible solutions to, these sorts of emerging market crises. My guess is that you wouldn't entirely share his bullishness on the Deep Roots literature or his view of the level of importance of average national IQ-- but understanding where your disagreements come from and how they might be resolved could be very useful!
Sad news, the country had gotten many things right and when I was there in the latest 2000's there really was an overall confidence in economic progress everywhere, even in poor neighborhoods (which unlike in many areas, were safe in Ghana).
The resource curse seems to be a concept that's important to look at in depth for many developing countries.
I wonder though, what part of it is simply cold calculation by the leaders living in networks of favours and compensations. Leaders have much more control over oil production and wealth, than over a diversified economy that includes manufacturing (though if you like at China...).
Also cultural perhaps, if most leaders are born in inherited wealth and far from examples of wealth creation, their view of the world would readily adapt to selling the inherited oil wealth, and not so readily deal with the complexity of letting economic actors run the show.
Excellent article. I think we need to be patient with Sub-Saharan Africa. We forget how long it took to develop, through trial and error, the modern states that work so well.
There’s a lot there with Ghana. As with the influence of their last 19th century colonializer, Britain, today they are English-speaking, but surrounded all-around by their Franco-phone neighbors.
Could it be that their sandwiched position along the Ivory Coast makes them look more to Europe for cues & influence than their neighbors—ie, with their choice of their flavor of culture, education, business and finance savvy?
Foresight, with good planning, for the larger African Good, also goes hand & hand with the Ghana mix of attributes that this African nation are—in normal times—capable, ready, and willing to provide.
I'm sure you get a lot of requests like this, but I'd be interested to read a piece about Rwanda, how it's managed economic development since the genocide, and if you buy the hype about Kagame's leadership (in terms of economics, not human rights).
This is not the first time for Ghana to be in this position. Nkrumah, its first leader, was British educated and trained. They had tremendous hope for what he might be able to achieve. Then he got in power and stayed, and stayed.
Am curious about just how much of this is belt and road money. Any idea?
The run up and the fast decline look like a made on Wall Street scenario, that is to hard to do again in the U.S., but many other countries can be edged in this direction. Even in default, if the World Bank, etc. provides, again, why would not something like this happen again?
Great overview, however, I think you may have missed some salient points. Majority of Ghana’s debts come from overpaying for power plants during a period when there was shortage of power and also huge infrastructure spending over the last decade. With the Government eschewing the hard task of collecting revenue (Tax to GDP ratio is about 12% compared to 16% in the region or 26+% in South Africa) and instead borrowing via Eurobonds to keep the show on the road. Without the revenues to service the debt it was only a matter of time before they went back for an IMF bailout. Most of the inflation you mention is as a result of increase in food and energy costs via the exchange depreciation route, with a weaker currency forcing importers to increase prices to meet future exchange rate expectations leading to a vicious cycle which has only recently been abated by the announcement of the debt default and IMF staff level agreement. The currency I believe is currently the best performing against the dollar with a 63% appreciation over the last few weeks. Whilst Ghana still has a chance of becoming a Malaysia (ps Ghana had a higher gdp per capita than both Malaysia and South Korea when it attained independence in 1957), it will depend on the ability of the political elites to collect taxes and restrain Government largesse especially in the public sector, where the State employs large numbers of unproductive workers and political patronage abounds.
Indeed, this is sad to see. Another worry in this area is increased terrorist threats which appear to be getting deeper into Burkina Faso, Ghana's northern neighbor: http://news.aouaga.com/h/146172.html
That this might happen so far south when I lived there 9 years ago was unfathomable. But here we are.
How can this analysis ignore lockdowns and a panicked pandemic response globally as a proximate cause for the crisis?
Ghana spent billions on lockdowns, closed schools (for a year!) and scared people into not seeking immunisations for diseases far more serious than Covid. From an early point it was clear that the population was never at risk of covid being a serious health burden due to age structure.
More broadly, this is the result of rich nations spending trillions to shut down the global economy and printing money to keep people compliant. The resulting debt bubbles, inflation and interest rate rises were always going to affect developing economies with weak currencies the most. These costs were barely, if ever, mentioned in domestic media or academic discussions of pandemic policy. It’s much harder to conceptualise the health damage of 100 young people kept in poverty over a decade than it is to imagine the death of a single elderly person due to a disease that dominated every news discussion for two years. That’s why “shut it down” won so comprehensively globally, despite the lack of any cost/benefit proportionality.
Developing countries who were teetering on the edge of progress decided to collectively shoot themselves in the foot and take hundreds of millions of children out of schools and into poverty. The global financial crisis created by lockdowns is now pushing them over the edge. History will look back on the episode very poorly.
That was a damn fine read. Like you, I find it fairly fascinating that they went with a preemptive default. You wrote, "Having the government borrow all that money in the first place was not smart. - At this point the IMF needs to start looking at how to gently but firmly cut Ghana off, so that they don’t keep doing this." I recently read and reviewed the book Confessions of an Economic Hit Man,
https://theunhedgedcapitalist.substack.com/p/book-review-confessions-of-an-economic
And one of the key themes is that the bailouts are a *feature* not a bug, in that they allow the IMF and other western institutions to exert political/financial control over the country stuck in the debt doom loop. Do you see that type of thing happening in Ghana? You mentioned there was some hope of finding oil, maybe the IMF was hoping to exert influence over the production of that oil had it materialized. I realize that sounds slightly conspiratorial, but just reading the book you see how this thing has happened over, over and over again.
At any rate, go Ghana defaulting on that debt. Smart move.
Thank you for your insightful post, Noah. As a Ghanaian, I am grateful for your commitment to follow up on your 2020 Blomberg post and bring attention to the current crisis, as well as to offer potential solutions. Going forward, it would be beneficial to see more discourse from you on Africa as a whole.
As the continent is projected to make up 25% of the global population by mid-century, it is important to consider it in a more nuanced way than just as a place of poverty or disarray. While Africans are happy to do business with other global powers like China and Russia, we have a clear bias for America and polls show 7 in 10 Africans (69%) say “democracy is preferable to any other kind of government.” Africans want the US society, as a whole, to pay more attention to us. While the continent faces many challenges, there is also much potential for growth, development, and progress.
If President Biden's promises at the recent US-Africa summit to go "all in” on Africa's future are to be taken seriously, it is essential that America's intellectuals, not just its capital, direct their focus towards the continent. Your commentary is an excellent example of how this attention can be paid. Again, thank you for the post and I hope that you continue to bring attention to the various opportunities and solutions available to African nations and to inspire other US/Western intellectuals to similarly engage on Africa and, where possible, collaborate with African intellectuals.
I'm Ghanaian-American myself. One thing I hated what Nana did was give free high school to everyone. He should have means tested it.
Ghana also desperately needs to raise tax revenue from the informal sector some how. It doesn't collect enough in tax revenue at all..
Good
My Ghanaian friends say the curse of Africa, tribalism, interferes with every decision, my highly educated friends, primarily in British schools, gave up and fled to our shores, they have no hope that Ghana, or any other African nation can survive internecine tribal animosity
Great recap of how Ghana has sadly gone off the tracks. If you are looking for a new candidate for regional leader, I would suggest looking at Kenya. I am biased since I'm from there, but I think it would score well on a lot of the parameters that made you optimistic about Ghana and then some...
I think it would be tremendously interesting and informative for you to do a debate/interview/adversarial-collaboration with Garett Jones about the root causes of, and possible solutions to, these sorts of emerging market crises. My guess is that you wouldn't entirely share his bullishness on the Deep Roots literature or his view of the level of importance of average national IQ-- but understanding where your disagreements come from and how they might be resolved could be very useful!
Really enjoy these reads on developing economies. Thanks Noah.
Sad news, the country had gotten many things right and when I was there in the latest 2000's there really was an overall confidence in economic progress everywhere, even in poor neighborhoods (which unlike in many areas, were safe in Ghana).
The resource curse seems to be a concept that's important to look at in depth for many developing countries.
I wonder though, what part of it is simply cold calculation by the leaders living in networks of favours and compensations. Leaders have much more control over oil production and wealth, than over a diversified economy that includes manufacturing (though if you like at China...).
Also cultural perhaps, if most leaders are born in inherited wealth and far from examples of wealth creation, their view of the world would readily adapt to selling the inherited oil wealth, and not so readily deal with the complexity of letting economic actors run the show.
Anyway, hope it goes better soon.
Excellent article. I think we need to be patient with Sub-Saharan Africa. We forget how long it took to develop, through trial and error, the modern states that work so well.
There’s a lot there with Ghana. As with the influence of their last 19th century colonializer, Britain, today they are English-speaking, but surrounded all-around by their Franco-phone neighbors.
Could it be that their sandwiched position along the Ivory Coast makes them look more to Europe for cues & influence than their neighbors—ie, with their choice of their flavor of culture, education, business and finance savvy?
Foresight, with good planning, for the larger African Good, also goes hand & hand with the Ghana mix of attributes that this African nation are—in normal times—capable, ready, and willing to provide.
I'm sure you get a lot of requests like this, but I'd be interested to read a piece about Rwanda, how it's managed economic development since the genocide, and if you buy the hype about Kagame's leadership (in terms of economics, not human rights).
This is not the first time for Ghana to be in this position. Nkrumah, its first leader, was British educated and trained. They had tremendous hope for what he might be able to achieve. Then he got in power and stayed, and stayed.
Am curious about just how much of this is belt and road money. Any idea?
The run up and the fast decline look like a made on Wall Street scenario, that is to hard to do again in the U.S., but many other countries can be edged in this direction. Even in default, if the World Bank, etc. provides, again, why would not something like this happen again?
Great overview, however, I think you may have missed some salient points. Majority of Ghana’s debts come from overpaying for power plants during a period when there was shortage of power and also huge infrastructure spending over the last decade. With the Government eschewing the hard task of collecting revenue (Tax to GDP ratio is about 12% compared to 16% in the region or 26+% in South Africa) and instead borrowing via Eurobonds to keep the show on the road. Without the revenues to service the debt it was only a matter of time before they went back for an IMF bailout. Most of the inflation you mention is as a result of increase in food and energy costs via the exchange depreciation route, with a weaker currency forcing importers to increase prices to meet future exchange rate expectations leading to a vicious cycle which has only recently been abated by the announcement of the debt default and IMF staff level agreement. The currency I believe is currently the best performing against the dollar with a 63% appreciation over the last few weeks. Whilst Ghana still has a chance of becoming a Malaysia (ps Ghana had a higher gdp per capita than both Malaysia and South Korea when it attained independence in 1957), it will depend on the ability of the political elites to collect taxes and restrain Government largesse especially in the public sector, where the State employs large numbers of unproductive workers and political patronage abounds.