Ghana: Risk Assessment
Country Risk Rating
Business Climate Rating
- Health system highly ranked in Africa
- Significant mining (gold), agricultural (cocoa), oil and gas resources
- Huge rise in mobile telephony and progress in digitalization
- Stable democracy
- Attractive business environment, favorable to FDI
- International financial support
- Economic Partnership Agreement with the EU entered into effect in 2021
- High level of debt and risk of fiscal slippage
- Low government revenue: 13% of GDP
- Private sector crowded out of the local credit market by public financing needs
- Weak banking sector: 17.3% doubtful loans in August 2021, high credit costs (12% on average, without inflation), share of government securities in assets (45%)
- Narrow production base: dependence on commodity prices: gold and oil (70% of exports), cocoa (10%, 30% with other agricultural products, such as cashew nuts)
- Large informal economy (27% of GDP)
- Infrastructure gaps (energy, transport)
- Separatist tendencies on the eastern border with Togo
The recovery gains momentum
While already clearly apparent in the second half of 2021, the economic recovery will gain momentum in 2022, barring a severe relapse of the health situation, which is always possible given the persistently low vaccination rate at the end of 2021. Household consumption (70% of GDP), by far the main driver of activity, will remain vibrant with the lifting of mobility restrictions, the increase in expatriate remittances (5% of GDP in 2020), and the resumption of tourism (5.5% of GDP in 2019), a significant source of informal jobs for young people. Conversely, the public consumption boom of 2021 will be a distant memory due to fiscal difficulties. Capital investment (14% of GDP) will remain strong, although the private sector will eclipse the public portion. The One District One Factory initiative, which promotes infrastructure projects and industrial sites to diversify the economy, will continue, as will the COVID-19 Alleviation and Revitalization of Enterprises Support (CARES) initiative. A USD 16 billion (25% of GDP) program over 2020-2024, the CARES initiative, which is 30% funded by the government, is intended to revive the economy and attract investment through exemptions from charges, specific loans, and public-private partnerships. The key target areas are agribusiness, fertilizers, automotive assembly with the arrival of major global players (Volkswagen, Nissan, Toyota), and aluminum and steel. FDI will increase in mining, while the development of the Pecan hydrocarbon field will have to be taken over by state-owned companies as foreign players withdraw. Net exports should contribute further to growth, benefiting from commodity export performances. They will be supported by prices for oil, gold, and cocoa (these accounted for 80% of merchandise export earnings in 2020), which remain favorable after the increase recorded in 2021. However, illegal mining and smuggling of gold, competition from cheaper cocoa, and above all, increased imports due to the recovery of domestic demand will weigh on the contribution of foreign trade to growth.
A difficult fiscal situation
The crisis exacerbated Ghana’s already difficult fiscal situation. The deficit ceiling (5%) provided for in the Fiscal Responsibility Law was suspended. A consolidation process began in 2021, focused on boosting revenues, with taxes on fuel and bank profits and increases for VAT and health insurance contributions, which could bring in the equivalent of 1.4% of GDP. These efforts are expected to continue in 2022, with a freeze on current expenditure (wages and debt interest absorb half of the revenues), investment cuts, and the phase-out of COVID-related spending (3% of GDP). This consolidation process is challenging to accomplish, given the government’s small majority, and will be insufficient to prevent the debt from increasing further this year. This debt is almost equally divided between domestic creditors (banks and other financial institutions) and foreign creditors (half-public, half-private). The financing requirement arising from the deficit and debt service is 24% of GDP. After being put on hold because of the crisis, efforts to reform ailing public sectors, such as the energy sector, through the Energy Sector Recovery Program (2019-2023) will again be prioritized. The government’s new energy sector arrears, mainly due to Taking or Paying contracts with independent gas and electricity producers, represent 1% of GDP each year. In addition, the financial sector could be weakened and become a burden again. Overall, the debt represents a high risk that will be manageable only if growth remains strong, the terms of the trade stay favorable, and markets are confident.
The crisis only slightly widened the current account deficit, which remained modest in 2020. However, while it narrowed in 2021, the debt is set to increase slightly in 2022 as the comfortable trade surplus shrinks due to a larger import bill. As in the past, the current account deficit will be mainly driven by the income deficit, reflecting increased debt servicing and profit repatriation by foreign investors, and the services deficit, which is poised to narrow thanks to a pick-up in tourism. The services deficit is dominated by purchases of services related to oil development and transport and is increasing due to the growing use of telecommunications. The increase in expatriate remittances (5% in 2020) will not compensate for these deficits. With FDI for the development of the Pecan hydrocarbon field drying up, financing of the current account deficit has been weakened. In addition, despite central bank interventions, the cedi may continue to depreciate slowly, in line with the still high inflation level (linked to food products). Foreign exchange reserves represented three months of imports at the end of 2021 and were bolstered by the IMF’s allocation of USD 1 billion in SDRs in August 2021. Bond issues and a possible new program with the IMF would complete the financing.
The December 2020 elections returned President Nana Akufo Addo to a second and final term (51.3% of the vote in the first round). His New Patriotic Party and the main opposition party, the National Democratic Congress, each won 137 of the 275 seats in the assembly. With the lone independent joining the NPP, the president has a slim majority, forcing him to make concessions to maintain party loyalty. Ghana has close ties to the United States, the United Kingdom, and China, an important trading partner.