Ghana s Economic and Political Environment and the Implications for Doing Business

(1)

Ghana’s Economic and Political Environment and the Implications

for Doing Business

Dr. Joe Amoako-Tuffour Director of Research

The African Center for Economic Transformation Accra

November 5, 2015

NORWAY-GHANA BUSINESS FORUM

(2)

Outline

1) Recent Pulse of the Macroeconomy 2) Causes - the domestic, the external

3) Challenges – economy-wide/private sector 4) Should Ghana Remain High in the minds of

the Investor Community?

5) Issues and Uncertainties

6) Prospects and the Opportunities

7) Looking Forward, Risks and Takeaways

(3)

Excerpts from News media

3

Ghana has fared badly in the past 3-4 years,

overtaken by Cote d’Ivoire, Kenya and Rwanda in

competitiveness due to macroeconomic

infrastructure,

governance, labour

efficiency issues (B&FT Oct, 2015)

• More than 5000 job losses by the end of 2015:

• Uncertainties in the

business and economic environment

(B&FT, May 2015)

AGI Business Barometer Q2, 2015:

Falling business

confidence by 13 percent.

Interest rates may reach 42% (B&FT, Nov 2015)

(4)

1. Pulse of the Economy-output, inflation, interest rates, exchange rates

3,4

-60 -40 -20 0 20 40 60 80 100 120

0 2 4 6 8 10 12 14 16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Percent Growth of Real National Output Annual Fluctuations (rhs)

Real GDP growth rate

13,8

17

17,4

10 11 12 13 14 15 16 17 18 19

jan.14 feb.14 mar.14 apr.14 mai.14 jun.14 jul.14 aug.14 sep.14 okt.14 nov.14 des.14 jan.15 feb.15 mar.15 apr.15 mai.15 jun.15 jul.15 aug.15 sep.15

Inflation Trends:

Jan 2014 to Sept 2015

Projected year-end at 14.3%

(5)

GHC/USD Exchange Rate Volatility

2 2,5 3 3,5 4 4,5 5

jan.14 feb.14 mar.14 apr.14 mai.14 jun.14 jul.14 aug.14 sep.14 okt.14 nov.14 des.14 jan.15 feb.15 mar.15 apr.15 mai.15 jun.15 jul.15 aug.15 sep.15 okt.15

Jan 2014 to October 2015

Rate of USD to GHC

-25 -20 -15 -10 -5 0 5 10 15 20 25

14.jan 28.jan 11.feb 25.feb 11.mar 25.mar 08.apr 22.apr 06.mai 20.mai 03.jun 17.jun 01.jul 15.jul 29.jul 12.aug 26.aug 09.sep 23.sep 07.okt 21.okt 04.nov 18.nov 02.des

Monthly percentage changes

Month-to-Month Fluctuations in the GHC/USD Exchange Rate

5

Cumulative depreciation Jan-Dec 2014 (31%)

Jan – Aug 14 (22%)

Winners and Losers:

Distributional effects – exporters, importers, capital flows, FDI Gov’t own demand for forex – capital projects, debt service – high

(6)

2. Internal Drivers: Trends in Expenditures and Receipts (2005-2014: Percent of National Output)

17,8 19,09 21,8

31,19

0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Revenue and Grants (% of GDP) Total Expenditure (% of GDP)

Forecast 2015 end year:

Spending/GDP = 27%

Revenue = grants =20%

(7)

Trends in public debt

15,0% 16,1% 19,6% 19,8% 19,8% 23,0% 26,6% 36,7%

16,0% 16,2% 16,8% 18,0% 19,9% 25,1% 29,2% 30,9%

31,1% 32,3%

36,3% 37,8% 39,7%

48,0%

55,5%

67,6%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009 2010 2011 2012 2013 2014

External debt/GDP Domestic debt/GDP Pubic debt/GDP

Forecast end 2015: Domestic debt/GDP = 29.6%

External debt/GDP = 43.2%

Total Debt/GDP = 72.8%

7

(8)

EXTERNAL FACTORS: Commodity Price Shocks

1000 1050 1100 1150 1200 1250 1300 1350

jun.14 aug.14 okt.14 des.14 feb.15 apr.15 jun.15 aug.15

Gold Prices (USD/ounce⁾

2700,00 2800,00 2900,00 3000,00 3100,00 3200,00 3300,00 3400,00

JAN.14 MAR.14 MAI.14 JUL.14 SEP.14 NOV.14 JAN.15 MAR.15 MAI.15 JUL.15 SEP.15

cocoa (USD$ per tonne)

20,00 30,00 40,00 50,00 60,00 70,00 80,00 90,00 100,00 110,00 120,00

jan.14 mar.14 mai.14 jul.14 sep.14 nov.14 jan.15 mar.15 mai.15 jul.15 sep.15

Crude oil (USD$per barrel)

(9)

Trends in Ghana’s external accounts

-6,0 -5,0 -4,0 -3,0 -2,0 -1,0 0,0

-16,0 -14,0 -12,0 -10,0 -8,0 -6,0 -4,0 -2,0 0,0 2,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent of GDP

Investment Income flows (right hand axis): Huge net outflows

Current Account Flows Merchandise and

Service Trade flows

9

Level of gross international reserves May 2014 =3 months of imports May 2015 = 2.7 months

(10)

3. Economy-Wide Challenges….

o Severe fiscal exuberance

o Severe macroeconomic imbalances o Severe external shock

o Severe energy crisis

o High unemployment, rising layoffs o Adverse macroeconomic

indicators:

 high inflation rate,

 high interest rates,

 Volatile and falling value of Cedi

 High inflation expectations

What are effects of

these on businesses and what can

business do?

(11)

Private Sector Challenges^….

• Uncertainties in macroeconomic indicators on long-term business decision making-inflation, high interest rates, exchange rate volatility:

• Predictability of revenue flows, balance sheet effects

• Distributional effects (Winners and Losers)

• Importers

• Exporters,

• FDI (risk capital)

• Portfolio investors

Dr. Joe Amoako-Tuffour, jtuffour@acetforafrica.org 11

(12)

4. Are There Reasons for Optimism

• Growing and youthful demographics (39% 0-14 yrs)

• Growing urbanization

• Growing middle class consumption

• Sound foundation for social stability

• Ghana’s history of economic progress

Average growth rate 2000-2015: 5 percent

• Oil production to double bpd by 2017

• Privatization initiatives – telecommunication, banking, petroleum, energy

• Political stability

• Watchful eye on regional security and stability

• Well grounded tradition of civil society

Gateway to West Africa Market

• Big infrastructural gaps

• – big opportunities for improvements, opportunities for investment.

(13)

28

43

70 74

127 132 136

147

158

167 170

181

0 20 40 60 80 100 120 140 160 180 200

Ranking of Ease of Doing Business in Selected SSA Countries (out of 189 countries)

EDB 2014 EDB 2015

Ranking: Ease of Doing Business 2012 -63^rd 2013-64^th 2014 -69^th

13

DB Index = (Basic Requirements, Efficiency Measures, Innovation and Sophistication)

(14)

5. Some Issues….

1) Can gov’t afford to let the Cedi

depreciate? How far? Cost to private sector?

2) What is the price of defending the external value of the Cedi?

3) Will gov’t have enough foreign exchange reserves?

(15)

4) What is the risk that gov’t may begin to prioritize its scarce foreign exchange reserves for?

oGov’t debt service, capital projects

oCorporate demand to meet external obligations- debt service, suppliers payment, profit

repatriation

oSMEs demand to pay foreign suppliers oOthers

5) Can Ghana continue to keep portfolio investors on its side? At what cost?

15

(16)

6. Prospects and Opportunities

• Construction

• Growth market – middle income housing & urbanization

• Services

• Financial services – banking & insurance (financing to

support growth and supporting existing firms to scale up once gov’t sharpens its focus on fiscal policy)

• Tourism and hospitality

• Agriculture – Patient capital, need to identify correct sector, growing population and urbanization, growth of

supermarkets, growing sub-regional demand for food, agro- processing

(17)

• Wood Processing ( value addition)

• Energy (shortages a threat to growth & job creation)

• Aim: 20% renewable mix by 2020.

• Building energy infrastructure

• Energy Investment in renewable energy – solar and off-grid power solutions

• Aug 2015 Gov’t - intention to auction various power projects to IPPs tender.

• Petroleum: Downstream deregulation and price liberalization

(18)

Gas Infrastructure

• Gas transmission – need to build up national transmission infrastructure (e.g. 2^nd phase of Ghana Western Corridor Gas Infrastructure development Project.

• Internal distribution network

• Urbanization - Waste Management and Recycling

• Water – Industrial and urban need (treatment plants)

(19)

7.1 Gov’t Signalling

 Signalling of PPP – Framework of PPP (MoF)

 Use of Ghana Infrastructure Investment Fund, 2014 (Act 877)

JVs in infrastructure development (Energy, Transportation, Utilities..)

 Export Guarantee (EXIM Bank) - Export-driven growth

 The future of Investment Guarantees

(20)

7.2 Risks of

Electoral fiscal spending in 2016

Political expediency and economic efficiency

Would gov’t continue to borrow at what rates?

Risk of Domestic Interest Rates

Can Ghana keep portfolio investors on side to prevent speculative attacks

Is there the risk of rationing foreign exchange reserves

(21)

7.3 Takeaways

Ghana’s current economic outlook is shaky, but not insurmountable

It will take 2-3 years to fix the macro imbalances and lay foundation for

meaningful transformation

Growing urbanization

Commitment to

transformation – ACET is helping

Political stability

Watchful eye on

regional security and stability

Big infrastructure gaps - big opportunities for

improvements, and for investments

Vehicles: JVs, PPPs,

GIIF ₂₁

(22)

Thank you

Email: jtuffour@gmail.com jtuffour@acetforafrica.org