Efforts over the past year to stabilise Ghana’s economy are finally bearing fruit. Following a period of sluggish growth induced by weaker oil prices, the economy expanded by 7.9% in 2017, according to a statement made by President Nana Akufo-Addo in early 2018.
With commodities such as cocoa, oil and gold serving as the mainstay of the Ghanaian economy, the fall in global prices in 2013 saw GDP growth slip to 4% the following year. This represented a significant drop from the 14% expansion in 2011, which was driven primarily by investments in the hydrocarbons sector after the Jubilee offshore oilfield came on-line.
2017, the year of reform
With the election of a new government headed by President Akufo-Addo in January 2017, the country’s primary focus has been to bring the economy back on track through enhanced fiscal and monetary discipline, and debt management. Supported by a recovery in oil and gold prices, the first half of 2017 alone saw the economy expand by 7.8% compared to the same period of the previous year, according to Ghana’s 2018 budget statement.
By the end of 2017 efforts to stabilise the economy had started to materialise, as the government reported a slowdown in debt growth, better control over spending and an improvement in fiscal credibility. Indeed, in a statement made by the president in early 2018, the country’s budget deficit was said to have narrowed from 8.9% of GDP in 2016 to 5.6% in 2017, while annual debt growth fell to 13.6%.
These results line up with the general business sentiment gauged by the 2017 Oxford Business Group Business Barometer: Ghana CEO Survey: 91% of respondents said they had positive or very positive expectations of business conditions in the coming 12 months.
The year-long survey involving more than 100 C-suite executives across all sectors of the economy also found that eight out of 10 respondents were reportedly likely or very likely to make a significant capital investment during that same period.
Recovery afoot
On the back of these positive achievements, the IMF forecast GDP growth would reach 8.9% in 2018, making it one of Africa’s fastest-growing economies. This was substantially more optimistic than the expectations of survey participants: only 2% projected GDP growth of 8% or higher.
Short-term expansion is set to be driven not only by heightened activity in the hydrocarbons sector, but also by growth in non-hydrocarbons activities such as agriculture and ICT, in line with the government’s economic diversification objectives.
This is a crucial move that most resource-rich nations have taken, with the view of shifting their economic dependence away from hydrocarbons. In the meantime, however, energy markets continue to have a bearing on local growth prospects; some 37% of OBG survey respondents view rising oil prices as the greatest perceived external event that could impact the economy. Other external factors seen as top influencers were regional instability and slowing demand growth in China.
Brighter prospects
The government’s commitment to maintain its grip on fiscal and monetary discipline should bolster efforts to reduce spending and debt levels.
This commitment comes at a crucial time, as Ghana’s GHS918m ($220m) IMF credit deal is scheduled to end this year. The three-year programme, which started in 2015, has aimed to improve fiscal management by containing expenditure and introducing reforms to strengthen public finances.
As a result, the IMF predicted public debt would drop from an estimated 70.5% of GDP at the end of 2017 to 66.1% in 2018 and 55.1% in 2022. It is hoped that such a recovery would allow the country to avoid resorting to similar bailouts in the future.
Confidence is returning, but a number of challenges need to be overcome for investments to resume – and potentially exceed – pre-crisis levels. When asked which policies the President Akufo-Addo administration should prioritise to support economic growth, 62% of participants in our survey said improving the business environment should be the main focus.
Looking forward, this indicates that the path towards continued growth will require greater supporting measures for domestic companies. With 70% characterising the ease of access to credit as difficult or very difficult, and particularly as local firms reported the greatest difficulty, these will need to be addressed for future development.
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