Ghana has been one of the world’s fastest growing economies since 2017, reaping the benefits of improved management of its finances under president Nana Akufo-Addo, and a significant rise in oil production. And while the country is set to experience its fair share of setbacks from the global coronavirus pandemic, it is one of the few economies in Africa expected to escape recession in 2020, according to the International Monetary Fund (IMF), underlining the country’s ongoing growth potential.
Already the world’s second largest supplier of cocoa and a top 10 centre for gold mining, Ghana began pumping oil in 2010. Production rose to just shy of 200,000 barrels per day by late 2019, with finance minister Ken Ofori-Atta predicting a more than doubling of output by 2023.
Since the election of Mr Akufo-Addo in January 2017, the country has tightened its finances, eliminating subsidies on utilities and petroleum products and cracking down on tax evasion and exemptions, while allowing the central bank, the Bank of Ghana, to target inflation more effectively. The economy expanded by an estimated 6.1% in 2019, compared with 6.3% in 2018 and 8.1% in 2017, according to the IMF, which reports that tighter monetary policy has resulted in inflation dropping from as high as 17.5% in 2016 to 7.9% at the end of 2019.
Growth slowed
Such success will not shield Ghana from the impact of the global coronavirus pandemic, however, even though the country looks likely to avoid a recession in 2020. On March 30, the government imposed a two-week lockdown in the capital, Accra, as well as the cities of Tema and Kumasi. Banks were exempted and food chains were also allowed to remain open. More than 600 cases of coronavirus had been registered in the country by mid-April.
The collapse in global demand for oil, together with restrictions on local economic activity, prompted the government to cut the country’s economic growth forecast to 1.5% for 2020 – the lowest in 37 years – from 6.8% previously. The IMF concurred with this forecast in its World Economic Outlook of April 2020, but predicted a return to growth of 5.9% in 2021.
The government said it expected a 5.7bn cedi ($989m) shortfall in oil receipts and a further gap of 2.3bn cedis from lower tax revenues and duties for 2020. This will widen the budget deficit to 6.6% of gross domestic product from an initial forecast of 4.7% for 2020. “The negative impact is expected to come from a decline in external demand, changes in terms of trade, and lower inflows from foreign direct investment [FDI] and tourism,” says Pierre Laporte, World Bank country director for Ghana.
“Once Covid-19 becomes widespread domestically, social distancing policies and the lack of adequate healthcare facilities (health expenditure per capita is 1.4% of the global average), which exacerbate the aversion behaviour of individuals, will hit domestic economic activity. Adverse poverty and social impacts are expected, especially for those engaged in agriculture and services sectors, where job losses could be substantial and widespread, albeit temporarily,” he adds.
International funding
Speaking to parliament in late March, Mr Ofori-Atta warned that the crisis would affect key parts of the Ghanaian economy including tourism, travel and conferences, FDI and international trade, as well as efforts around food and nutrition and poverty reduction.
The international community has been quick to come to the country’s aid with funds for its healthcare needs and balance of payments. The World Bank announced in early April that it would provide $100m, consisting of $35m in emergency support to help the country provide improved response systems and $65m-worth of financing for laboratory and medical equipment, as well as supplies including test kits and personal protection equipment.
In mid-April, the IMF announced it had approved $1bn to help “address the urgent fiscal and balance of payments needs that Ghana is facing, improve confidence, and catalyse support from other development partners”.
In his address to parliament in late-March, Mr Ofori-Atta noted that Ghana was in a relatively fortunate position, having built up a $900m stabilisation fund from past oil revenues, and had in January 2020 issued a $3bn Eurobond. “Without it, we would have been in tatters completely,” he said.
The Eurobond, which was issued across three tranches with seven-year, 15-year and 41-year maturities, was five times oversubscribed, indicating the appetite for Ghanaian debt and the confidence in the country’s ongoing growth. The 41-year note, priced at 8.9%, was the longest dated bond in sub-Saharan Africa’s history. The January issue followed a $3bn sovereign bond issued in March 2019 that was seven times oversubscribed. The government had expected to sell the longest tranche – a 31-year bond – at an annual yield of at least 9.5%. However, demand for the debt was so strong that the final coupon was cut to 8.95%.
Oil or nothing
Ahead of the coronavirus crisis, Ghana’s expanding oil and gas industry, together with its mining sector, made it Africa’s largest recipient of FDI in 2018, with total inflows amounting to $3bn, according to the UN Conference on Trade and Development. The amount was 8% lower than 2017 but compared favourably with Nigeria, which received about $2bn in inward FDI in 2018, a 43% decline on the previous year.
Among the country’s key oil and gas projects is the Offshore Cape Three Points project, an integrated greenfield oil and gas project located in the Tano Basin, 60 kilometres off the Ghanaian coast. A consortium made up of state-owned Ghana National Petroleum Corporation, Eni Group and Vitol Group has committed to invest up to $7bn in the project.
The slump in oil prices since March 2020 – prompted by a collapse in global demand during the coronavirus outbreak – is likely to significantly impact Ghana’s public finances for the year, with the IMF in mid-April forecasting a 2.1% contraction in oil and gas GDP for the year. As The Banker went to press, Brent crude futures were trading about 50% below the $58 per barrel benchmark used in its annual budget funding amount (ABFA) – the account that manages oil and gas revenues targeted for state budgets – for 2020.
Economists have warned that the crisis could spell problems for a $2bn loan agreement signed in 2018 between the government and China’s Sinohydro, which gives Beijing access to Ghanaian reserves of bauxite in return for cash for infrastructure and road projects.
“Projects anchored on the ABFA are expected to suffer if the global coronavirus spread is not contained and mitigated,” says professor John Gatsi, dean at University of Cape Coast Business School, one of Ghana’s leading business schools. “It is possible the coronavirus will affect disbursement of the $2bn Sinohydro bauxite-backed loan. It also means the year of road development is entangled by the coronavirus.”
Travel takes a hit
Among the many other key sectors of the economy under threat from the pandemic is tourism and aviation, following the imposition of travel restrictions both internationally and domestically in a bid to halt the transmission of the virus.
One of Mr Akufo-Addo’s objectives upon taking office in 2017 had been to make the country a regional and international aviation hub. More than $275m has been invested in a new terminal at Kotoka International Airport in Accra, which was ranked number one in west Africa by the Airports Council International in 2019 and receives between 2 million and 5 million passengers a year. Kumasi, Tamale and Sunyani airports have also benefited from major improvements to their infrastructure.
Ghana’s national tourism development plan, announced in 2012, set a target of attracting 8 million tourists a year to the country by 2027. Most of them would arrive by air and were expected to contribute more than $8bn to the economy. Such hopes are now on hold, but Ghana's upward trajectory has impressed many and there is optimism that the country can pick up where it left off once the coronavirus outbreak subsides.
