An economic recession is not a pretty time for a people nor one to behold. Peoples entire life savings and investment are rubbished to zilch by no fault of theirs really.
The last time the world saw an economic recession was in 2007 when the world markets tumbled and fell over and over again and every economic indicator was in the negative – more like the health of a critically ill ICU patient. Things however picked up from 2009 and economies could have a little breathing space.
It was around the same time that Ghana discovered oil and was ready for mass production. The hope was that things were going to be good. Did it turn out so?
Shortly after Ghana’s discovery, oil prices tumbled so we could not make much as expected. Meanwhile we had budgeted on the hope of a cash-in on oil. Well, that too has passed and we survived magically.
Fast forward, things happened, governments changed hands and now we seem to have a crisis on our hands. We have seen large corporate lay-offs as BoG consolidates 5 banks in the central bank’s bid to ‘clean the financial services sector‘ and salvage depositor’s funds.
The question I ask now is: ARE WE IN A RECESSION?
In the United States, mortgage backed securities which were given by the banks, were then bundled and sold to hedge funds who then also sold it to investors from Wall Street. The 2008/2009 recession When federal rates started increasing it meant that interest on the mortgages also increased.
Households were faced with debts that they could not service because most of the homeowners were less credit-worthy and there were no investors willing to take up that burden. This caused liquidity challenges and a financial crises was upon the US.
In Ghana, the consolidation of the 5 banks is mainly due to a high non-performing loans profile, which means that, government and businesses did not live up to payment plans as scheduled and the banks have run out of liquidity to continue with their core business. Money is locked up.At the heart of these non-performing loans are issues of good corporate governance but that is not really the issue.
Now workers are being laid off, consumer consumption power is reducing, household incomes are reducing and poverty is staring a lot of the population in the face.
700 workers of one of the banks have already lost their jobs and an estimated 1,700 more looming. A ripple effect is also seen as allied businesses to this banks can no more retain workers.
However, the economy is not expanding to absorb these workers in any other sector, so essentially, these laid off workers are coming back to compete with the unemployed population which currently stands at 11.9% as of 2015 (figure from Ghana Statistical Service). The unemployment figure might have shifted significantly before now when one considers the fact that more graduates are produced by universities and other colleges of higher education every year.
The big questions now become how these people will fund their lives – rent, water, clothing, food, insurance, transport etc? And how will those who are the sole bread winners of their households provide for their dependents?
The rippling effect of this will go as far as to the consumption of goods and services and will definitely sting the surviving banks since there is a tumble in the economy and their loan profiles might also need a restructuring to survive.
Clearly, there is a financial crises on our hands that goes beyond collapsing different banks into one entity. In a rigid and disarranged economy like what we have, how do we deal in this tough times? Are we in a recession, or we are not?