Ghana: Risk Assessment
Country Rating1
Rating: C
Business Climate Rating1
Rating: B
Risk Assessment2
Growth spurred by the start-up of oil production
Growth recovered in 2010 without reaching pre-crisis levels. In 2011, though, economic growth will likely receive a significant boost when the new oil fields start producing. The traditionally strong economic sectors will also contribute: agriculture (especially cocoa), gold mining, and the service sectors (notably telecommunications and construction). High cocoa and gold prices will provide an additional lift.
Investment will be underpinned by the plan for road infrastructure improvement to be financed by a first drawdown on a $13 billion credit line from China. This line will also be allocated to energy, agriculture and the food-processing industry. Foreign investment related to oil exploration and production is expected to be particularly dynamic
A ripple effect from the start-up of oil production will likely benefit private consumption even with households still faced with 10% inflation driven by the new oil revenues and the rise in electricity and petrol prices.
The Bank of Ghana's monetary policy will remain restrictive.
Uncertainties surrounding the management of the new oil wealth
The economic growth surge and the new oil revenues are not expected to result in a significant reduction in the public sector deficit, which has, however, fallen considerably since John Atta Mills and his National Democratic Congress Party came into power in 2009. Incompressible expenses, especially wages in the public sector where the remuneration system has just been reformed to the benefit of employees absorb all ordinary, ongoing revenues, leaving little fiscal room for maneuver.
In addition, payment arrears to local suppliers increased again in 2010, and catch-up settlements will ultimately be necessary. Finally, uncertainty persists over management of the new oil wealth. The events surrounding the sale by the owners of the Jubilee offshore oil field, with both the government and Ghana National Petroleum Company intervening, can be explained by concerns about ensuring adequate control over oil revenues in face of foreign operating companies. The persistent public deficit is going to weigh on national debt, which represented 68% of GDP in 2010, with over half owed to foreign countries.
External deficit financed by both investment and foreign loans
Exports are expected to benefit from higher gold, cocoa and oil prices. Imports will also increase with the purchase of equipment and services related to the development of transport and oil infrastructures. Dividend payments to oil companies will also increase, whereas remittances from expatriate workers are expected to remain stable. Overall, the current account deficit, although in decline, is expected to remain large.
The deficit is expected to be covered by foreign direct investment and by loans from foreign governments, international organisations, and private banks. These loans, more than half of which are not on concessionary terms and which are contracted mainly by the public sector, will consequently increase total foreign debt, which has grown considerably since its reduction in 2006 under the MDRI debt relief program.
However, with the forecast 25% increase in official GDP figures by inclusion of part of the informal economy, and with the prospect of the increase in oil revenues, the increase in public and foreign debt can be justified insofar as it is related to investments aimed at improving economic potential. That Ghana requested and obtained financial assistance from the IMF in 2009 and since then has submitted to regular checkups, augurs well for success on that score.
Strengths
- On track to become sub-Saharan Africa’s seventh largest oil producer in 2011
- Solid fundamentals propitious to foreign direct investment
- Political and institutional stability
- Civil liberties and security generally satisfactory
- Major natural resources — agriculture (cocoa) and mining (gold)
- Support of financial backers (United Kingdom, United States and China) and the IMF
Weaknesses
- Inadequacies in education and public health
- Uncompetitive farm sector
- Excessive dependence on cocoa and gold
- Defective infrastructures in transport and energy (70% hydroelectric)
- Public companies weakened by underpricing and indebtedness