Ghana: Risk Assessment
Country Risk Rating
Business Climate Rating
- Significant mining and agricultural resources (gold, cocoa), as well as oil and gas resources
- Established democracy
- Attractive business climate, favourable for FDIs
- International financial support
- High level of public debt
- Infrastructure gaps (energy, transport)
- Dependent on commodity prices (gold, oil, cocoa)
- Weak public banks which affects entire banking sector
Hydrocarbons, Driving the Rebound in Growth
After posting a solid rebound in 2017, thanks to the hydrocarbon sector, growth is expected to consolidate in 2018. Increased production at the TEN (oil) and Sankofa (gas) hydrocarbon fields, which became operational in August 2016 and May 2017 respectively, will lift growth further. Exploitation of the Jubilee oil field, hampered by several technical incidents in 2016, should start to benefit from the development work undertaken in 2017. Meanwhile, although still impeded by weak credit growth and fiscal consolidation, non-hydrocarbon growth is expected to gradually regain momentum. The Bank of Ghana’s accommodative monetary stance and the decline in inflationary pressures will sustain household consumption as well as services (telecommunications, financial services). Moreover, the improvements observed in electricity supply should help the industrial sector. In contrast, given the budgetary constraints, it will be difficult to implement the nearly 200 projects selected for 2018 under the One District, One Factory industrialization program, especially in agri-industry. Although on an upward trend, private investment is unlikely to focus on these activities while the outlook for the primary sector remains mixed. In particular, the drop in the price of cocoa and in the quality of beans from Ghana will continue to weigh on the agricultural sector.
Despite the recent easing by the central bank, monetary policy - which is still fairly tight - is expected to support disinflationary trends in 2018. Higher domestic demand is nonetheless expected to keep inflation at the top of the Bank of Ghana’s target range (between 6 and 10%).
Falling Twin Deficits
In 2018, the fiscal consolidation efforts undertaken by the government following budget slippage in 2016 are expected to be continued and, accordingly, enable renewed deficit reduction. Efforts will continue to focus on rationalizing current spending so as to protect capital investment spending. Tax administration reforms should help broaden the tax base. Revenue generated by the oil and gas bonanza should increase gradually and also contribute to higher receipts. Initially due to expire in April 2018, the IMF’s ECF has been extended until December 2018 and its objectives have been reviewed. The IMF program and the fiscal adjustment are aimed at restoring a primary surplus so as to bring the debt path back under control. The debt ratios, especially the external debt ratio (about 55% of the total debt stock), have increased very rapidly since the country benefited from the Multilateral Debt Relief Initiative (MDRI) in 2006. The development of a domestic capital market should, in particular, help reduce the use of external borrowings.
The country’s external position is expected to continue to improve in 2016, thanks to the gradual reduction in the trade deficit. Hydrocarbon production, in particular, enabled Ghana to become a net oil exporter in 2017: a trend likely to be confirmed in 2018. In contrast, technical services for the oil and gas sectors are likely to cause the balance of services deficit to widen and profit repatriation by foreign companies will widen the income balance deficit. The contribution of expatriate remittances to the transfer balance will remain significant. Capital flows and FDIs will further help finance the current account deficit. Although the foreign exchange reserves, which cover about 3.5 months of imports, are being rebuilt, Ghana remains vulnerable to capital flight.
Democracy Favors Political Changeovers
Winner of the December 2016 general elections, President Nana Akufo-Addo and his New Patriotic Party (NPP) succeeded the National Democratic Congress (NDC) led by former president John Mahama (2012-2016). The relatively peaceful political changeover at the end of 2016 has, in particular, helped confirm Ghana’s democratic credibility. The country’s stability is not especially threatened by the rivalry, sometimes hostile, between the two main parties. After several years of economic slowdown, the population still has high expectations of President Akufo-Addo. Established as priorities during the campaign, the objectives of reducing poverty and social help for the most vulnerable are now being put under the microscope.
Although the infrastructure deficit and a degree of red tape still impedes the development of the private sector, Ghana is well placed as regards the business climate and governance compared to its competitors in the region and sub-region. So, according to the Doing Business 2018 rankings, Ghana still enjoys the most favorable business climate in West Africa, but, with stagnation in all the areas assessed, has dropped 12 places compared with the 2017 Index. It has therefore seen the gap between itself and its competitors - Ivory Coast and Senegal - narrow.