Ghana's Sinohydro deal touted as a new model for Africa to follow

BY WWW.GHANAWEB.COM - Jan 15, 2020 at 12:16pm 100

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Ghana's multi-billion dollar deal with China's Sinohydro has been hailed internationally as a model which the rest of Africa must emulate to help reduce the financial woes of their economies.

The game-changing deal, signed by the government of President Akufo-Addo in 2018 with the Chinese Government, is a multi-billion dollar equivalent exchange of refined Ghanaian bauxite, a mineral crucial to aluminium production, in return for Chinese construction of infrastructure in the country.

The deal has been remarkably described as a complete departure from direct foreign currency loan from China, in exchange for infrastructure, which many African governments easily adopt to fund their development projects at the expense of sound fiscal management of their economies.

Known as the 'Angola model', African countries who are in dire need of foreign currency to fund infrastructure projects go for direct foreign currency loan from China in exchange with mineral resources, unlike the Ghana-Sinohydro arrangement which is not a direct foreign currency loan, but a direct batter with refined bauxite exchanged for its equivalent of infrastructure - with no money exchanging hands.

Writing for APPS Policy Forum (policyforum.net), an international economic journal which brings together the world's best essays, opinions and ideas about public policy in Asia and the Pacific, International Economists, Laurene Johnston, hailed the Akufo-Addo Government's strategy as the best, and the way forward for Africa.

"With low savings and foreign reserves, some states in Africa are struggling to secure investment for their development, but a recently announced policy model from the west of the continent provides a potential way forward," wrote Lauren Johnston.

"The deal is a multi-billion dollar equivalent exchange of refined Ghanaian bauxite, a mineral crucial to aluminium production, in return for Chinese construction of infrastructure in the country."

This new style of China-Africa (Ghana) barter arrangement is a step away from the recent and widely used 'Angolan model', the international economist added.

Lauren Johnston, who is a Research Associate, China Institute, School of Oriental and African Studies, London University, and also a PhD holder in International Economics, further explained why the Sinohydro deal between the Government of Ghana and China is mutually beneficial to both countries.

"This represents a step away from mega foreign currency loans and towards direct bartering. In China’s case, it offers a crucial mineral and a step around accusations of China’s debt-trap diplomacy. For Ghana, it offers a loan and foreign currency-free means of securing development investment."

Hailing the Sinohydro deal by the government, the international economist recalled how Ghana, under the then government of the NDC, suffocated Ghana with debts with the hope of financing it with anticipated oil revenue a forecast which backfired when oil revenues failed to meet repayment requirements.

"Almost a decade ago, Ghana itself borrowed extensively on the back of an oil find, only to find itself in trouble when oil revenues failed to meet the repayment requirements. In contrast, this new model offers upfront finance for Ghana's development - at an implicitly fixed price for the agreed supply of Ghana's bauxite," wrote the economist in the international journal.

She added: "in effect, this is something of a fixed interest rate deal - the gamble being on whether the agreed price of bauxite rises or falls against that benchmark."

"The deal takes away this uncertainty for Ghana's planners and offers a step around foreign currency supply and price volatility risks in the process. It is perhaps a kind of new fixed interest rate development loan - one where payment is in the form of a fixed-price commodity, in this case, bauxite."

Continuing, the writer observed that given Ghana's poor experience with resource-backed foreign currency lending, especially in the past decade under the previous government, the Sinohydro deal is a strong indication by the Akufo-Addo government to regain Ghana's long term status as a "frontier of African development" and the impact of the Sinohydro deal may soon be felt on the African continent.

"Given its poor experience with resource-backed foreign currency lending, the new bauxite deal suggests that Ghana is instead setting a new, currency-free lending course. The impacts of this may yet be felt across the continent and beyond."

The Government of Nana Akufo-Addo agreed the mega Sinohydro deal with the Chinese Government in 2018.

The deal will finance infrastructure development in each of the sixteen regions in the country. Priority projects such as construction and rehabilitation of roads, the extension of electricity to rural communities, hospitals, etc. are to be funded through the Sinohydro deal.

A number of such projects, including the Tamale interchange, have commenced.