The Likely Consequences of COVID 19 on the Ghanaian Economy

By Julius Opuni Asamoah (BSc MBA CA)

On the eve of 1st January 2020, a number of people especially church congregants, converged, prayed and wished better fortunes in Year 2020 than what transpired in Year 2019, as well as the years beneath. However, at the beginning of this year, 2020, a new influenza epidemic that emerged in China has kept on spreading and spiralling across the globe. This new influenza strain, referred to as coronavirus, and its disease, “COVID-19”, has symptoms including fevers, coughs, shortness of breath, aches, sore throat and vomiting, which seem to appear between two and 14 days after being exposed to the virus. As a respiratory illness, the severity for patients up to date ranged from a mild cold in the younger population to very severe symptoms that can lead to death, especially among the frail and aged.

COVID-19,  commonly  known  as  the  Coronavirus,  is  a  severe  public  health  emergency for  citizens,  societies  and  economies. The World Health Organisation (WHO) has declared this disease as pandemic. Having  spread  from  China,  the  pandemic  has  now provoked  infections  in  almost every corner of the globe.  The pandemic  is  imposing  a  heavy  burden  on  individuals, societies and nations,  and  putting  health  care systems  under  severe  strain. We  must  respond  together  to  slow  down  this  contagion, strengthen  resilience  of  our  health  care  systems  to  help  those  in  need  and  for  progress  in research and development. In  addition  to  its  significant  social  impacts  and  human  dimension,  the  coronavirus outbreak  is a major economic shock to Ghana and the world as a whole. The spread of the virus is causing disruption of the national supply chains, volatility in financial markets, consumer demand shocks and negative impact in key sectors like travel and tourism. The impacts of the COVID-19 pandemic are unfolding in real time. If the pandemic turns out to be more acute and last longer than as anticipated by experts then the economic impacts may be significantly greater than anticipated.

The COVID-19 virus has already had a significant negative impact on the global economy, including the Ghanaian economy. The economic damage will continue for some time and in all likelihood will escalate in intensity. The influenza pandemics have a material effect on the functioning of the Ghanaian economy. In broad terms, pandemics cause individuals to change their normal patterns of behaviour; people change how and when they consume goods and services, and how and when they participate in the labour market. With the prevalence of COVID -19, there is a likelihood of sluggish growth of the Ghanaian economy and a heightened economic anxiety could be closely associated with an unprecedented rise in inequality, across all sectors of the economy. Given this heavily fragile and deeply interdependent global economy, contagion from shocks has become a persistent worry for developing countries, including Ghanaians. It has become increasingly clear that Ghana’s economy has entered more troubled waters with slower growth.

Uncertainty and fear are large drivers of how and why people change their normal behaviour in times of a pandemic. Absenteeism, reduced domestic and international travel and lower attendances at public gatherings are all examples of voluntary risk-modifying behaviour that have occurred in response to this pandemic. While work and school closures, limitations on movement of travel by the public and quarantine procedures have been applied by authorities as non-voluntary, risk-modifying measures that are intended to help curb infection rates, are all impacting negatively on the Ghanaian economy. A key effect of these behavioural changes is a reduction in labour productivity as a higher proportion of workers are encouraged to absent themselves from their workplaces, just to help reduce the spread of the pandemic. It is our wishful hope that some of this lost output should be temporary in nature, as workers might catch up and over-produce when the pandemic is over. The COVID-19 crisis has been emotionally challenging for many Ghanaians, changing day-to-day life in unprecedented ways.

Ghana, as a sovereign country, should  fully  use  all  the  tools  at  its  disposal  to  weather  this  storm. In addition  to  our  coordination  and  guidance  efforts,  and  our  actions  to  limit  the  spread  of  the virus,  the government should act to tackle  and mitigate the socio-economic consequences of the pandemic. The government should ensure that incomes and jobs are not affected disproportionately by this pandemic. It is about ensuring that the liquidity of our financial sector and   countering a threatening economic recession through actions at all levels. Besides and in sum, the government should be proactive and get prepared for a quick recovery from this economic shock, immediately this pandemic subsides.

With the COVID-19 spreading and affecting all sectors of the Ghanaian economy, the effects are felt across the whole economy in particular in necessary situations of the lock-down to prevent the spread of the pandemic. Measures taken to contain the virus at local and national levels might affect both supply and demand of goods and services. In particular, negative demand is a consequence of  the  measures  to  contain  the  virus  that  governments  are  obliged  to  implement,  affecting private,  professional  and  social  lives. Today, the sectors most affected are the health sector, tourism, transport, in particular the airline industry. More so, the government’s revenue target for Year 2020 is in jeopardy. Since business activities are on the decline, production of goods and services and importations are seriously being affected. Therefore, Ghana Revenue Authority’s daily revenue target will also be seriously affected and it is deemed so unimaginable how such lost revenue can be counterbalanced.

It is too glaring that there is a sharp decline in medical supplies in the nation’s hospitals, clinics and other health facilities, all because of this pandemic. There is the likelihood of shortages of personal protective equipment, such as protective glasses, hand sanitisers, facemasks, gloves, surgical overalls and gowns, and medicines. These shortages risk preventing such essential goods from reaching those who need them most, notably healthcare workers and field intervention teams. Health workers, especially those in the rural areas, are complaining of lack of personal protective equipment in their facilities. Since there are restrictions on exports in other countries, it has created bottlenecks to production of essential supplies, disrupting hospital logistical resources and distribution chains. Countries are encouraged stockpiling responses in their home countries and importing countries are the losers.

The  COVID-19  outbreak  is  also  having  a  major  impact  on  our  transport  systems. As we exist in a global village, supply chains are closely linked. These  links  are  maintained  through  an  extensive network  of  freight  transport  services.  We should therefore note that, interruptions to these flows of goods and services lead to severe economic damages. The aviation industry has already been severely hit by the outbreak and the situation is still deteriorating on a daily basis. Both road and air traffic are expected to decline further in the coming weeks. There is a severe fall in air transport demand and this has been worsened by the closure of the borders of a number of countries. For  land-based  supply  chains in the ECOWAS sub-region,  these  have  been  severely  affected  by  the  introduction  on bans  of  entry  at  land-borders,  or  restrictions  on  drivers  accessing  certain  member countries.

The government has committed itself to a planned approach to the development of the tourism sector through the implementation of an integrated 15-Year Plan. This  15-Year  National  Tourism  Development  Plan  (2013-2027)  assesses how tourism can contribute to national and local economic development and enhance its role as  a leading sector for employment creation, revenue generation, environmental conservation and national cohesion and overall economic growth. However, this blue print for Ghana’s tourism sector is seriously under threat due to the prevalence of COVID-19 worldwide. This sector is confronted with a considerable reduction in international arrivals. There is a massive cancellations and drop in hotel bookings. For instance, Year 2020’s paragliding tourist activity which is organised yearly by the Ministry of Tourism, has been cancelled. All hotel bookings at Kwahu will definitely be reversed. In fact, this pandemic has impacted negatively on the tourism sector. Hoteliers in this sector are particularly affected by this general decrease of tourism and business travels. Other related sectors such as food and beverage services as well as education and  cultural  activities  are  also  coming  under  increasing  pressure  by  the  COVID-19  outbreak.

We should also not forget that large-scale quarantines, travel restrictions, and social-distancing measures are equally driving a sharp fall in consumer and business spending and this is producing an economic recession in the country. As this juncture, when we count the losses accruing to the nation, it will be too devastating to imagine. People stay home mantra, the likelihood of labour lay-offs and businesses losing revenue might contribute to a rise in unemployment. We cannot imagine how delayed business contracts are going to be enforced, especially repayment of loans by bank customers. All these will put significant pressure on the banking and financial systems.

Demand suffers as consumers cut spending. According to Ghana’s Business News of Wednesday, 25th March 2020, some business operators in the Kumasi Metropolis have lamented over poor sales as a result of the outbreak of the coronavirus. According to them, the outbreak and the subsequent public restriction orders by the government had affected the movement of people to the markets, thereby affecting daily sales. These business operators pointed out that things were not going well at all. Mr Yussif Toure, a forex bureau operator, said the situation had been compounded by the misinformation and the spread of uncertainties by social media. He said social media had been amplifying misinformation, which was causing fear and panic among the populace, making some people unable to even go out. Mr. Toure stressed the need for the government to intensify public education to the pandemic in order not to put the country’s economy into total collapse. Mr Patrick Asker, a shop owner at the Kejetia Market in Kumasi, prayed that God would intervene to stop the pandemic in the country. The economic impact is severe, and this will throw the global economy into global financial crisis, as happened in Year 2008. Developing economies would suffer more than advanced economies and not all sectors will be equally affected in this scenario. The service sectors, including aviation, travel, and tourism, are likely to be the hardest hit. Airlines have already experienced a steep fall in traffic on their highest-profit international routes, especially air flights to and from Asia.

The oil price collapse is one more warning for Ghana. In the midst of the COVID-19 epidemic, the sharp collapse in the oil price has received little attention. Brent oil fell marginally on 25th March 2019, the largest fall since the 1991 Gulf War. On 25th February 2020, Brent oil was traded at US$56.71. On 25th March 2020, thus, a month later, this same Brent oil dropped to US$25.62, all because of the coronavirus pandemic. This COVID-19 epidemic has put great strain on demand of crude oil in international markets. China remains the world’s primary importer of crude, and was the source of 80% of the growth in global oil demand in 2019. In the past weeks, production and consumption in China has fallen substantially, with a major chunk of China’s manufacturing industry grinding to a halt and large parts of the country under lockdown. The fear of continued spread of the coronavirus worldwide has put further downward pressure on oil markets. The airline industry has slashed its numbers of flights, and this is greatly reducing jet fuel demand. The steep drop in the demand for crude oil is hitting the Ghanaian economy so severely. Government’s revenue from oil and gas will be adversely affected as oil prices stay lower than expected. Price variability in oil prices may induce macroeconomic fluctuations, thus, national income instability. The  decrease  in  the  prices  of  oil  has  been  a  significant  factor  in  the  dynamics of global current account adjustment. The country’s highly dependent on oil exports, this volatility in oil earnings and associated economic shocks have made Ghana extremely vulnerable. Furthermore, Ghana’s oil export revenue volatility is strongly linked to its growth volatility, so significant fluctuations in oil export earnings may definitely result in fluctuations in economic growth.

To conclude, specific measures are required from the government to alleviate the employment impact for individuals and the hardest hit sectors of the Ghanaian economy. We  need  to  protect workers  from  unemployment  and  loss  of  income  where  possible,  as  they  should  not  become victims  of  the COVID-19 outbreak.  Counterbalancing the socio-economic effects of the COVID-19 outbreak requires bold actions taken timely and in a coordinated way by government. As a people, we should closely monitor the developments of the situation and stand ready to take all further necessary initiatives. We  need  to  be  conscious  that  it  is  evolving on  a  daily  basis. A further deterioration of the economic outlook cannot be excluded, therefore, the government needs to be financially disciplined in order to stabilise the macro-economic variables. As a matter of urgency, the government should discard the approved Year 2020 National Budget and re-write a newer one since the economic situation is now more volatile than expected. The New Year 2020 Budget should review and reprioritise spending towards mitigating expected negative impacts from COVID-19 on the economy. It should provide a safety net, provide incentives for food importers to quickly forward purchase to ensure sufficient food reserves in key basic foods items; fund the virus preparedness, prevent and provide curative facilities including logistics. The government should use the crisis to improve health delivery systems, prepare fiscal stimulus packages, including guaranteeing wages for those unable to work due to the crisis, favouring consumption and investment, and finally, maintain infrastructure investments to protect jobs.