The Economic Effects of US-Ghana Relations and the Impact of US Visit on Ghana’s Debt to China

The United States and Ghana have had a relationship since Ghana’s independence in 1957. The United States was among the first countries to recognize Ghana’s sovereignty, and the two countries have maintained a strong diplomatic and economic relationship ever since. Ghana has received aid and assistance from the United States in areas such as healthcare, education, and economic development. Given Ghana’s significant oil and gas reserves, the US has been particularly interested in partnering with the country in the energy sector in recent years. Overall, the US-Ghana relationship has been marked by cooperation and mutual respect, and the recent US visit to Ghana demonstrates the strength of this relationship. 

This essay will consider the possible consequences of the recent US visit to Ghana on the country’s debt to China. How the visit may affect Ghana’s debt repayment and future borrowing, as well as the implications for Ghana’s relationship with China.

China’s Involvement in Africa’s Development

China has played an increasingly important role in the economic development of African countries over the last two decades. China’s total trade with Africa was only $10 billion in 2000. By 2019, the figure had risen to more than $200 billion. China has made significant investments in Africa’s infrastructure, including roads, railways, and ports, as well as loans and aid to support economic development projects. Some have criticized China’s engagement with Africa as neocolonialism, with concerns raised about China’s use of debt to exert influence over African countries. China, on the other hand, has defended its involvement as a mutually beneficial partnership, citing the creation of jobs and economic growth in Africa as evidence of its positive impact. Regardless of varying viewpoints, China’s role in Africa’s development remains a significant and complex issue that necessitates careful examination.

Ghana’s Reliance on Chinese Loans

Ghana has become increasingly reliant on Chinese loans to fund infrastructure and economic development projects. The country’s reliance on Chinese loans started in the early 2000s and has grown since then. Ghana has received loans from China to fund projects such as expanding its electricity infrastructure, building roads and railways, and developing its oil and gas sector. These loans frequently have low-interest rates and long repayment terms, making them an appealing source of financing for Ghana.

However, Ghana’s increasing reliance on Chinese loans has raised concerns about the country’s ability to repay its debt in the long term. As of 2021, Ghana’s total debt to China was estimated to be around $3.5 billion. The COVID-19 pandemic, huge government size, and spending on flagship programs – including Free SHS, NABCO, and Planting for Food and Jobs – have also had a significant impact on Ghana’s economy, leading to a decrease in government revenue and an increase in borrowing to finance pandemic-related expenses. This has further exacerbated concerns about Ghana’s ability to repay its debt, particularly its debt to China. 

China is currently Ghana’s largest bilateral creditor, with the majority of its loans being provided for infrastructure and economic development projects. These loans often come with relatively low-interest rates and long repayment periods, which make them an attractive source of financing for Ghana. As of 2021, Ghana’s debt to China was estimated to be around $3.5 billion, according to data from the World Bank. This represents a significant increase in Ghana’s debt to China since the early 2000s when the country began borrowing from China.  Below are some recent Chinese loans facility to Ghana;

  • In 2017, Ghana secured a $600 million loan from the China EXIM Bank for the expansion of the Bui Dam hydroelectric project, which is expected to increase the country’s power generation capacity.
  • In 2018, Ghana inaugurated a new terminal at the Kotoka International Airport in Accra, which was built with a $250 million loan from China EXIM Bank.
  • Ghana received a $2 billion loan from China in 2018 to fund the construction of the Marine Drive Tourism and Investment Project in Accra, which is anticipated to increase tourism and generate jobs.
  • Jamestown Fishing Port Complex: In order to build the Accra-based Jamestown Fishing Port Complex, which is intended to boost the nation’s fishing industry, Ghana and China inked a credit arrangement worth $60 million in 2019.
  • Western Railway Line: Ghana received a $500 million loan from China in 2019 to build the Western Railway Line, which will connect the port of Takoradi to Kumasi.
  • Pwalugu Multipurpose Dam: Ghana received a $993 million loan from China in 2020 for the construction of the Pwalugu Multipurpose Dam in the country’s north, which will provide irrigation, hydropower, and flood control.
  • Ghana secured a $500 million loan from China in 2021 for the expansion of the Accra-Tema Motorway, which is expected to reduce traffic congestion and improve transportation in the Greater Accra Region.

China’s lending practices in Africa, including in Ghana, may be contributing to a debt trap that could have long-term negative effects on these countries economies. China has spent $240 billion on developing countries between 2008 to 2021 with most countries struggling to pay their debts.

How the US Visit may affect Ghana’s Relationship with China

US Vice President Kamala Harris concluded her visit to Ghana on March 29, 2023, as part of a trip to Africa to counteract growing Chinese influence on the continent. The US visit to Ghana could have an impact on Ghana’s relationship with China, particularly with regard to its debt to China. The United States has criticized China’s lending practices in Africa, including the use of loans to exert political influence and trap African countries in debt. The United States has also encouraged African countries to diversify their financing sources and avoid over-reliance on Chinese loans.

The US visit to Ghana is unlikely to have a direct impact on BRIC (Brazil, Russia, India, and China) countries as a whole, as Ghana is not a member of BRIC and the visit was primarily focused on US-Ghana relations. The visit, however, could be seen as part of a larger US strategy to counter China’s growing influence in Africa and other regions, which could have implications for other BRIC countries.

China is an important trading and investment partner for many BRIC countries. The United States has expressed concern about China’s economic and political influence in these countries and has sought to strengthen its own engagement in the region through initiatives such as the Prosper Africa program.

Possible implications for Ghana’s Debt repayment and future borrowing

The United States’ visit to Ghana could have an impact on Ghana’s debt repayment and future borrowing. During the visit, US officials emphasized the importance of responsible borrowing and lending practices, as well as the need for economic transaction transparency. This calls for closer scrutiny of Ghana’s debt to China, as well as a greater emphasis on sustainable debt management practices.

While this may pose some challenges for Ghana’s debt repayment and future borrowing, it could also lead to greater support for sustainable debt management and a more diversified approach to financing Ghana’s economic development.

For instance, the $100 million pledged by the US for three African countries, including Ghana, is a relatively modest amount of funding in the context of regional security challenges. However, if used effectively, it has the potential to improve regional security.

While $100 million is a small amount of money, it could make a difference in supporting the joint task force’s efforts. However, it is important to note that effective use of the funding will be critical to its impact on regional security. The participating countries must ensure that the funds are used in a coordinated and effective manner, with a focus on achieving tangible results in combating extremism and improving regional security.

Comparison of the US and China’s Approaches to Development in Africa

The United States and China take very different approaches to African development, reflecting their broader foreign policy priorities and strategic goals.

The United States’ approach to African development is primarily focused on promoting democracy, human rights including rights of LGBTQI, and good governance. The United States provides grants, technical assistance, and capacity-building programs to African countries in order to promote economic growth and reduce poverty. The US also works to encourage private sector investment in Africa, with a focus on small and medium-sized businesses.

China, on the other hand, is primarily concerned with economic growth and expanding its influence in the region. China provides loans and infrastructure projects to African countries, with a focus on building roads, railways, ports, and other critical infrastructure. China also encourages resource extraction and trade with African countries, with a particular emphasis on securing access to natural resources and markets for Chinese goods.

One significant difference between the US and Chinese approaches to African development is their emphasis on governance and human rights. The United States prioritizes good governance and democratic institutions, whereas China prioritizes economic growth and stability. China’s approach strengthens authoritarian regimes while undermining democratic values in African countries. The United States frequently collaborates with civil society organizations and local communities to identify development priorities and ensure that projects are responsive to local needs. China, on the other hand, works more closely with governments and state-owned enterprises, raising questions about accountability and transparency in development projects. It is trite that most state-owned enterprises in Ghana are inefficient and operate with huge losses, therefore, making it difficult for recoupment by the Ghanaian government and pay back Chinese loans. 

Controversies on LGBTQI

The controversial LGBTQI comment made by US Vice President Kamala Harris in Ghana is unlikely to have a direct impact on African countries’ ability to receive US grants. The remark, made during a press conference with Ghana’s President, has sparked controversy and criticism from some Ghanaian officials and religious leaders who oppose LGBTQI rights.

It is important to note, however, that grant programs in the United States are typically focused on supporting development priorities and initiatives in areas such as health, education, and economic growth, rather than social or cultural issues. While the US government may advocate for human rights and equality, including LGBTQI rights, these issues are unlikely to be made a prerequisite for receiving grants.

Furthermore, the United States has long been one of the largest donors of foreign aid to African countries, handing out billions of dollars in grants and assistance each year. While Ghana and other African countries may object to LGBTQI rights, this is unlikely to result in a significant reduction in US funding.

In conclusion, the recent US visit to Ghana highlighted the importance of Ghana’s foreign policy in balancing its relationships with both the US and China – the principle of non-alignment. While Ghana has relied heavily on Chinese loans to fund infrastructure projects in recent years, the US visit has signaled a potential shift in focus toward US development assistance and investment.

The visit also resulted in agreements and initiatives that could promote economic growth and security in Ghana, though how they will be implemented and the extent to which they will impact Ghana’s debt repayment and future borrowing remains to be seen.

Furthermore, Kamala Harris’s controversial LGBTQI remark during the visit highlighted ongoing tensions between Western countries and many African countries on social and cultural issues.

Overall, Ghana’s foreign policy will be shaped by its relationships with major global powers like the United States and China, as well as its own development priorities, commitment, and initiatives – reducing government expenditure and size and curbing government waste. Ghana’s relationships with these powers must be carefully balanced in order to promote economic growth and development while also respecting its own values and cultural traditions.

Article by Nathaniel Dwamena

Nathaniel is a free-market policy analyst and president of the YAFO Institute. He engages in activities that promote civil liberty and economic freedom in Ghana. He was part of the team consulted by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ Ghana) to undertake a study on business red tape in Ghana. He has a background in law, geography and economics.

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