The age-long rivalry between Ghana and Nigeria assumed a much more sophisticated dimension in 2017. The comparison of the effectiveness of monetary policy as a tool of economic management became an issue of acrimonious debate and analysis.
The perennial competition between both countries dates as far back as pre-independence- the debate and sports rivalry between Kings College Lagos and Achimota College in Achimota, and also between University College of the Gold Coast, now University of Ghana (an affiliate of the University of London) and University College of Ibadan (College of the University of London).
In the realm of politics, there was the egregious and charismatic Nkrumah (Osagyefo), the champion of Pan Africanism and the mild-mannered and soft-spoken Nigerian leader, Abubakar Tafawa Balewa.
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In the war against corruption, there was the Rawling’s formula of clearing the wardrobe (Ghana executed three former heads of states, generals and judges at a go) as against the Nigerian ineffective approach with different outcomes. Ghanaians today fear corruption even though it is growing but Nigerians do not care and cannot wait to put their hands in the till at the slightest opportunity.
In soccer, the Green Eagles of Nigeria fought bitter battles with the Ghanaian Black Stars, whilst Asante Kotoko of Kumasi were the rivals of stationery stores in Lagos at the club level.
In 2016, Nigeria and Ghana suffered from similar commodity shocks of oil, cocoa, gold and aluminium. Both countries saw sharp drops in economic growth, spikes in inflation and currency weaknesses. Both countries adopted drastic steps in fiscal consolidation and international borrowing. Ghana went further to raise approximately $1bn from the IMF under a four-year extended credit facility programme. The Ghanaian fundraising was further complicated by its closeness to a general election and the Nigerian economic plan is a work in progress.
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As both countries began to see slow improvement in their economic fortunes, they adopted diametrically different approaches to monetary policy. The Bank of Ghana eased and lowered interest rates four times in 2017, whilst Nigeria maintained the status quo (contraction) in the last 12 months.
The outcomes are outstanding and tell a stark story of how you can achieve different levels of economic success by being bold, audacious and smart.
Ghana has seen a growth spike from 1.1 per cent in Q2’16 to 9.3 per cent in Q3’17, one of the highest in the world. Inflation has dropped by 7.5 per cent (from last year’s peak of 19.2%) to 11.7 per cent. Ghana was in the league of high inflation countries in the world and has dropped off that ignominious table; its currency has softened by 6.79 per cent this year. However, its growth numbers are distorted by its low oil production base in 2015. Nonetheless, the Ghana economic story makes the Nigerian economic management strategy look amateurish and pathetic. Nigeria’s inflation has slowed cumulatively by 2.82 per cent and growth of 1.41 per cent is suboptimal, fragile and uneven. Unemployment plus underemployment in Nigeria has spiked to record levels of 40 per cent. The naira has strengthened by 42.47 per cent (year to date) and external reserves have grown but so also is the external debt level.
The fast-paced growth recorded in Ghana, within a short space of time, signifies the need for Nigeria to embrace an accommodative stance, reduce interest rates and increase liquidity to boost its recovery. This has the downside of a weaker currency and heightening inflationary pressure. But as the saying goes, the end justifies the means. According to Keynes, in the long run, we are all dead.
This report is written by an analyst at Financial Derivatives Company.
