The $19 Billion Ghana-China Deal Does Not Serve Ghana’s National Interest; Review It
While President Akuffo Addo is eying the next election; the Chinese are gazing at the opportunity to exploit Ghana’s resources at the expense of the Ghanaian nation.
Atiwa forest is a 26,000 hectares area in the south eastern part of Ghana. It is rich in bauxite and other mineral resource deposits like manganese and iron. One of the least said things about the forest is that it serves as the habitat of some of the world’s most rare and endangered species. For the White Collared Mangabey, the Atiwa forest remains their last hope of survival. According to the US geological department, Atiwa forest holds more than 960 million metric tonnes of bauxite reserves valued at more than $500 billion.
It is against this backdrop of sealed wealth that the government of Ghana entered a barter deal with the Chinese government. As part of the deal, the Chinese state run Sinohydro Company, a hydropower engineering and construction firm is supposed to finance and execute the construction of infrastructural projects across the length and breadth of Ghana, in an agreement dubbed the Master Project Support Agreement (MPSA).
The MPSA is supposed to cost $2 billion and is part of an overall $19 billion dollar loan facility that would be granted by the Chinese government in exchange for Ghana’s refined bauxite. According to the agreement, china would exploit Ghana’s bauxite for 15 years. Although for some, the accumulated bauxite that would be chipped away by the chinese by the end of the duration of the agreement, would culminate into only 5% of Ghana’s total bauxite reserve, I maintain that it is uncertain to ascertain that, and if anything, the percentage should rather be revised higher.
Part of the agreement is a $10 billion dollar project earmarked for expansion of the mines, industrial and railway sector. A bauxite processing factory is to be established. A total of 4,000 km railway line would be constructed. Some of the key towns to hold terminals are Kumasi, Sunyani, Techiman , Tamale and paga.
Contrary to the US geological department, the economic adviser to the Vice president of Ghana has it that after the after the bauxite has been processed into aluminium, the country is going to realize about $460 billion. This raises some alarm, because the price of aluminium per tonne is about $2170 while that of bauxite is $396. This means that the price of aluminium is 5.5 times higher than bauxite. Therefore going by these figures, the monetary value of Ghana’s refined bauxite should be rather in the range of $2.5 – 3.0 trillion. Here, we have a government official is under reporting the worth of the bauxite industry for reasons he best can tell.
Another thing worth mentioning is debate over whether or not the $19 billion dollar Chinese facility is a loan. The fact of the matter remains that, the facility is a loan just like any other we have gone for, whether it is the Eurobond or the structural adjustment policies of the IMF, with the first tranche being the $2 billion SinoHydro MPSA. The only difference is that, this Chinese has a different financing module. Instead of paying back with money which can lose it value at any given moment, we are paying back with something that hardly loses its value – you see how smart these Chinese are? The senior minister of Ghana even had to concede just that by saying that the interest rate is yet to be agreed on the $19 billion loan facility. The only difference between this loan agreement and others is that it has different financing module – natural resources instead of money would be used to service the debt.
Now that it has been established that the $19 billion facility is a loan we must also appreciate the fact that it would balloon our debt stock should it come on stream. Ghana’s debt, which is hovering around $37 billion, approximately 69.8% of GDP is likely to hit roof tops increasing our debt to GDP ratio to over 100%. When this non desirable situation happens, Ghana’s creditworthiness would fall, possibly to a record low.
A Possible Aftermath Of The Ghana-China Deal.
Aside the free SHS program, it should be noted that the major campaign promises like the One District, One Factory and One Village, One Dam policies, to mention a few, of the Akuffo Addo led administration is predicated on the $19 billion Chinese loan, hence if you have observed, the delay in rolling out the policies. The delay is so because of the Chinese cash is yet to hit the government’s vaults.
When the loans come on stream, the government in effect has successfully sold Ghana’s resources to china for peanuts for only God knows the amount of bauxite the Chinese will take in the period they will be in charge of the of the Integrated Aluminium Industry.
The people of Ghana would not be able to realize fully, the benefits from the injection of the $19 billion into the Ghanaian economy, earmarked for the fulfilment of electoral promises and tackling of Ghana’s infrastructural deficits valued at $30 billion. One reason being that, most of the electoral promises made by President Akuffo Addo stem out of the aim to use political patronage to secure the next term of office for the ruling New Patriotic party. This cannot, even in the wildest imagination, translate into bright economic future for the nation. If the use of the Chinese cash would be to fund activities which implicitly would inure to the electoral advantage of the ruling party at the next polls, then it is better not taken.
The other reasons being that the infrastructural arrangement for the most part, takes the colonial form; from the point of extraction to the point of export. The infrastructural development under the deal is strategically situated to allow the Chinese companies to maximize profits from their numerous investments in the country.
Another point of worry is that the local content or the indigenous participation in the execution of the various projects is 30% – this is woefully inadequate considering the current rooftop rate of unemployment in Ghana. We should be ready to see a lot of Chinese workers doing most of the basic artisanal works around project sites instead of Ghanaian artisans. This makes a big mockery of the government’s Job creation mantra. Come to think of it, the Chinese government is in essence, loaning the government of Ghana to create employment for Chinese workers – how insidious!
The reason why this deal is still being carried out leaves one with no comment but to suggest that our national interest as Ghanaians is being sacrificed for political expedience. Akuffo Addo needs to get that money whatever the cost, in order to fulfill his promises, other than that, he risk sending the NPP back into opposition in 2020.
As expected, these Chinese projects upon completion would boost national production but what would be accounting for this boom would not necessarily be rise in the productivity of indigenous businesses but that of the Chinese. Remember the Chinese would be manning the bauxite refinery they are to build for God knows how many years. This means all the revenue streaming in are going to be held by the Chinese. Therefore the increase in the GDP of Ghana would not be a true reflection of what actually is being produced by Ghanaians. Rather, the true reflection of what is going would be the Gross National Product (GNP), which is the measure of the output produced by all Ghanaian nationals as opposed to what is being produced within the boundaries of the country. The GNP would expose the fallacy behind the economic boom that Ghana would likely see. How? It is going to be decreasing at worst and stagnant at best, instead of increasing.
Like a balloon, after every boom, there is a bust, Ghana’s boom won’t be any different it is unsustainable, to say the least. When is this going to happen? When the deal is over and the Chinese have left, after having almost sucked the life out of the Aluminium industry leaving it on its knees. What would become of the bauxite industry is expressed as follows; gross mismanagement would soon engulf as politicians try to scrape off the crumbs that would be left, before everything get capped with privatization of the entire industry, probably to the same Chinese and the cycle repeats itself. Show me one privatised national enterprise which is of strategic economic importance aside the meagre taxes government derives from them.
Xi Jinping is innovatively finding alternative funding for his ambitious $1 trillion Belt and Road Initiative (BRI). According to the bftonline.com , Ghana is a key hub on the BRI therefore getting Ghana’s government to use it resources to pay for the key infrastructures that will connect the country to Burkina Faso which will inure to the benefit of the china later on sounds laudable. Already Kenya has agreed to pay the $3 billion Chinese funded standard gauge railway linking Mombasa to Nairobi.
The government of Ghana should be cautious of this Chinese trajectory, because there is nothing like free lunch. You always, one way or the other have to pay for it.
The Nkrumahist Circle
Disclaimer: "The views/contents expressed in this article are the sole responsibility of Amodani Gariba and do not neccessarily reflect those of Modern Ghana.