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The $2 Billion Ghana-Sinohydro Deal Does Not Serve Ghana’s National Interest. Review It

Ghana's President Nana Akufo-Addo (2nd R) meets with visiting Chinese Vice Premier Sun Chunlan in Accra Nov. 10, 2019 (Xinhua/Zhang Yu)

While Ghana’s President, Nana Akuffo-Addo, is eyeing the next election; the Chinese are gazing at the opportunity to secure supply of strategic resources probably at the expense of the Ghanaian nation.

About The Deal

Atiwa forest is a 26,000 hectares area in the southeastern part of Ghana. It is rich in bauxite and other mineral resource deposits like manganese and iron.  According to the US geological department, the Atiwa forest holds more than 960 million metric tonnes of bauxite reserves valued at more than $500 billion. 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.

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 will 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 biggest challenge to the China-Ghana relationship is the latter’s poor leadership. Whether the ordinary Ghanaian will benefit from this relationship, depends on the ability of the government of Ghana to negotiate deals that will inure to the benefit of all.

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 of new railway routes would be constructed. Some of the key towns in Ghana to hold terminals are Kumasi, Sunyani, Techiman, Tamale and Paga.

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 amount of bauxite that would be chipped away by the Chinese by the end of the duration of the agreement would culminate into only 5% of the total bauxite reserve, I maintain that the figure to be mined cannot be guaranteed; if anything, the percentage could be higher than expected.

Contrary to the US geological department, the economic adviser to the Vice President of Ghana has said that when bauxite is processed into aluminum, the country is going to realize about $460 billion in gross revenue. This raises alarm because the price of aluminum per tonne is about $2170 while that of bauxite is $396. This means that the price of aluminum is 5.5 times higher than bauxite. Going by these numbers, the gross monetary value of Ghana’s refined bauxite should rather be in the range of $2.5 – 3 trillion. But it appears that a government official is under-reporting the worth of the bauxite industry.

A view of an old bauxite sample at an abandoned shed extracted from Kyebi Forest Reserve in the East Akim Municipal district in Eastern Region. Environmental campaigners want Ghana’s President Nana Akufo-Addo and his government to abandon plans to mine bauxite in the Atewa Range Forest Reserve, in the country’s Eastern Region, arguing it will destroy the habitat of rare plants and animals. Akufo-Addo, who comes from Kyebi, on the eastern slopes of the forest, has signed a multi-billion dollar agreement with China to provide the mineral in exchange for infrastructure projects. CRISTINA ALDEHUELA / AFP

Another point worth mentioning is the debate over whether or not the $19 billion dollars Chinese facility, part of which is the MPSA worth $2billion, is a loan. The fact of the matter remains that, the facility is a loan just like any other we have gone for. The only difference, which the government of Ghana keeps capitalizing on is that the Chinese have a different financing module. Instead of paying back with money which can lose some of the value through inflation, Ghana is paying back with aluminum. Something that hardly loses its value – you see how smart the Chinese are? And in case the aluminum loses some of its value, Ghana would then have to give the Chinese more aluminum to make up for the loan. The senior minister of Ghana, Yaw Osafo Marfo, even conceded to the fact that the Chinese money is a loan when he said that the interest rate is yet to be agreed on the $19 billion loan facility.

3 Reasons Against The Proposed Deal

  • Now that it has been established that the $19 billion Chinese money 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 $39 billion, approximately 80% of GDP (not rebased) at the time of writing, is likely to hit rooftops increasing our debt to GDP ratio to well over 100%. When this undesirable situation happens, Ghana’s creditworthiness would fall, possibly to a record low. A Possible Aftermath Of The Ghana-China Deal. When the loans come on stream, the government in effect has successfully sold Ghana’s resources to China without the proper mechanism to ensure that the deal serves the national interest of Ghana.  No one knows the amount of bauxite the Chinese will take in the period they will be in charge of the Integrated Aluminium Industry.
  • The people of Ghana would not be able to fully realize the benefits from the injection of the $19 billion into the Ghanaian economy, earmarked for the fulfillment of electoral promises and tackling of Ghana’s infrastructural deficits valued at $30 billion. One reason is 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 a bright economic future for the nation. Dambisa Moyo in her new book, ‘edge of Chaos’ has pointed out how short-termism on the part of our political leaders may lead to an instantaneous boom but a big bust and misery in the future. 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 whilst sacrificing the future, then it is better not taken. It is noteworthy that Chinese money will help reduce the infrastructural deficit of the nation, but when these infrastructures are so arranged strategically to allow the Chinese companies to maximize profits from their numerous investments in the country, then it becomes problematic. It reminds us of colonial-type infrastructure.
  • The extent of local content or indigenous participation in the execution of the various projects. It is pegged at 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 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!

So Why Is Ghana Going Forward With The Deal?

The reason why this deal is still being carried out without any revision leaves one with no comment but to suggest that our national interest as Ghanaians is being sacrificed for political expediency. Ghana’s president, Nana Akuffo Addo, needs money to fulfill his promises, else he risks re-election.

As expected, Chinese projects upon completion would boost national production but what would be accounting for this boom would not necessarily be a rise in the productivity of indigenous businesses but that of the Chinese as the Chinese would be manning the bauxite refinery they are to build. This means all the revenue streams are going to be held by the Chinese. Therefore, improvement of macroeconomic indicators of Ghana that will result in such as the increment in GDP or per capita income, etc would not be a true reflection of the wellbeing of Ghanaians.

So in sum, while Xi Jinping is innovatively finding alternative funding for his ambitious multi-trillion-dollar Belt and Road Initiative (BRI). According to bftonline.com, Ghana is a key hub on the BRI, therefore, getting Ghana’s government to use its resources to pay for the key infrastructures that will connect the country to Burkina Faso and other countries in West Africa which is key for Chinese economic expansion of the continent. Already Kenya has agreed to pay the $3 billion Chinese funded standard gauge railway linking Mombasa to Nairobi which is a project earmarked for the BRI.

The biggest challenge to the China-Ghana relationship is the latter’s poor leadership. Whether the ordinary Ghanaian will benefit from this relationship, depends on the ability of the government of Ghana to negotiate deals that will inure to the benefit of all.

The government of Ghana should be cautious of its Chinese trajectory; it should not make the mistake of thinking that there is something like a free lunch. You always, one way or the other, have to pay for it.

Amodani Gariba, 22, is a student at Koforidua Technical University (KTU) of the class of 2020. He is majoring in Biomedical Engineering. He currently serves as president of KTU Debate Society. In this capacity, he helps students understand local and global issues and the impact they can have through constructive dialogue and debate. He is passionate about community advocacy and development. He is interested in pursuing politics after he graduates. He is a Africans on China Campus Leaders Ambassador.                                            

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