Ghana: Risk Assessment
Country Risk Rating
Business Climate Rating
- Significant mining (gold), agricultural (cocoa), oil and gas resources
- Stable democracy
- Attractive business environment, favorable for FDI
- International financial support
- Infrastructure gaps (energy, transport)
- Dependent on commodity prices (gold, oil, cocoa)
- Fragile banking sector
Growth exposed to hydrocarbon-related developments
Growth is expected to be slightly lower in 2020, in line with developments in the hydrocarbon sector. The contribution of the trade balance, which has been a major driver of the pick-up in activity since 2017, is thus set to weaken, amid reduced oil and gas production gains and softer oil prices. While cacao production is expected to continue to be affected by the fight against cacao swollen-shoot virus (CSSV), bean exports will also likely suffer. Conversely, gold exports could benefit from the redevelopment of the Obuasi gold mine, which shut down in 2014, and from a rise in prices fuelled by global economic uncertainties. Growth will be supported by public consumption and investment, which are expected to increase in the election year. Public expenditure will focus on the One District, One Factory program, which will benefit manufacturing activities, mainly in the agro-industry sector. However, financing constraints could limit the contribution of these growth drivers. Private investments in infrastructure (including roads and railways), but also in manufacturing, mining (bauxite) and oil (Pecan oil field) are expected to support the construction sector. However, a new wave of capital outflows, triggered, for example, by fiscal slippage in the run-up to elections, could depress the sector's prospects, as cedi depreciation pushes input costs higher. Such a scenario could also weaken the contribution of private consumption, which is set to benefit from an upturn in lending and the disinflationary trend. Services, particularly financial services, which are recovering following the sector’s consolidation, should thus remain dynamic.
2020: a year of fiscal risk?
The impact of the cost to rescue the financial sector, which has weighed on public finances in recent years, is expected to fade in 2020, supporting a reduction in the budget deficit. Revenue should continue to improve, thanks in particular to the introduction of digital tax payment systems. However, the difficulties in containing the State's wage bill (about one-third of expenditure) and the debt service burden (absorbs one-third of revenue) will continue to pressure the deficit, squeezing capital investment expenditure. In addition to commitments to the financial sector, those of state-owned energy companies, which are plagued by cash flow problems and operational inefficiency, could increase the deficit. Fiscal slippage in election years has regularly affected the public finances in the past, so the Fiscal Responsibility Act passed in December 2018, which caps the budget deficit at 5% of GDP, is likely to be put to the test with the 2020 elections. These risks continue to pose a significant threat of debt distress. The exposure of external debt (about 50% of the total) to foreign exchange risk and the share of commercial loans (50% of external debt) are additional sources of vulnerability.
In 2020, the current account deficit is expected to widen modestly, due to a slight deterioration in the trade balance. The income balance is also set to deteriorate, in line with increased debt service payments. Despite the positive remittance-fuelled contribution from the transfer account, the services deficit will continue to weigh on the overall balance. Although the current account deficit is mainly financed by FDI, the cedi may continue to come under pressure as a result of portfolio investment-related capital outflows. Recurrent pressures on the cedi played a part in eroding the foreign exchange reserves, which nevertheless recovered to a level equivalent to more than four months of imports in 2019 thanks to the issuance of a Eurobond in March 2019, which increased debt.
2020 duel feels like déjà vu
Elected in December 2016, President Nana Akufo-Addo of the New Patriotic Party is expected to stand for re-election in the November 2020 elections. He will face John Mahama, his predecessor, who was defeated in the 2016 election and who will be running for the National Democratic Congress. Despite the efforts of the other opposition parties to make Ghana’s political life less bipolar, victory is likely to be contested by the two parties that have dominated the political scene since 1992. The political climate may become tenser as election day approaches, as evidenced by (isolated) cases of violence between supporters of both sides in by-elections in 2019. The announcement of a failed coup d'État in September 2019 suggests that there is a risk of political violence. Nevertheless, despite fierce rivalries at times between the two main parties, the fact that respect for constitutional norms has been entrenched for almost three decades suggests that it would be difficult to obtain popular support to overthrow the institutional order and undermine the country's political stability. Despite high growth rates, the lack of progress in reducing poverty and fighting corruption continues to fuel popular frustration and will likely dominate the presidential campaign. The business environment remains relatively favorable compared with Ghana’s regional peers (118th out of 190 countries), despite persistent issues relating to the infrastructure gap and red tape.