Ghana Year in Review 2013

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Ghana enters 2014 still ranking as one of the best-performing economies in the region – and by some measures, the world. While growth may have trimmed a little in 2013 due to international factors, it remains comparatively high, driven by capital flows stimulated largely by the oil sector. There are structural weaknesses that the government is looking to address, including a “double deficit” (current account and fiscal) and inflationary bottlenecks, but this remains one of Sub-Saharan Africa’s leading lights, not least due to its admirable stability.

Ghana’s economy is expected to grow by 7.4% in 2014, well above the regional and global average, according to the World Bank’s Global Economic Prospect report published on January 14. The Bank’s forecast is between that of the government – at 8% – and the IMF, which said in its October World Economic Outlook it expected 6.1% growth.

The country’s performance will again be highly dependent on earnings from commodity exports, including oil, cocoa and gold, though efforts to diversify the economy – including by strengthening the manufacturing sector – should also play a part.

Slowdown in second half of 2013

The World Economic Outlook forecast 7.9% growth for 2013, and Ghana’s National Statistics Office made an estimate of 7.4% in September. While it is very likely that Ghana achieved excellent growth last year, full-year figures may be somewhat below projections due to an unexpectedly weak third quarter.

On January 22, the government reported that GDP grew by 0.3% year-on-year (y-o-y) between July and September, down from 6.1% in the previous quarter, and 1.6% in the third quarter of 2012. The slowdown could affect full-year growth figures for both 2013 and 2014, the international press reported.

The dip was largely caused by difficulties experienced by the extractive sectors, most particularly a drop in gold prices, but also brief slowdowns in output for certain commodities.

The third-quarter results have drawn attention back to Ghana’s macroeconomic weaknesses, which it has been able to offset with strong GDP expansion for some time. Inflation is now a serious concern, with producer prices rising 15.3% y-o-y in December, up from 13% the previous month.

But higher inflation can partly be attributed to a necessary hike in fuel prices earlier in 2013. In a September report on Ghana, the IMF identified a large current account deficit as a greater risk for the country. Due to weaker gold and cocoa prices, the deficit is expected to top 13% of GDP for full-year 2013.

Although revenue collection has improved dramatically in recent years following a significant overhaul of the taxation authorities, lower-than-expected government revenues (again partly due to weaker commodity prices) mean that Ghana is likely to report a sizeable “double deficit” for 2013, with the budget deficit also topping 10%.

Electricity subsidies, a large wage bill and expensive repayments on public debt all weigh on the exchequer. However, the IMF has praised the government’s swift moves to tighten its fiscal position, including better payroll and salary controls, and a rebalancing of government spending towards investment rather than wages.

The government moved to bolster its financial position with a bond sale in late July. The issue of ten-year paper aimed to raise $1bn and in the end totalled $750m, at a yield of 7.875%. Aside from the budgetary boost, positive signs included the fact that the sale was oversubscribed, and that the country was able to borrow at a lower cost than in 2007, when it floated a $750m, 8.5% bond, the first dollar-denominated debt issued by a Sub-Saharan African country.

Investments in energy sector expected

In the year ahead, Ghana will again look to the oil sector as a major source of growth and a magnet for investment. On January 21, Alex Mould, CEO of the state-owned Ghana National Petroleum Corporation, said the country expects at least $20bn of investment in the oil industry in the next five years, most of it coming from foreign companies. Much of this will go into the development of three large offshore oil blocks, including the Tweneboa/Enyera/Ntomme (TEN) block, which is set to draw in $1.4bn this year.

This comes on top of the multibillion dollar investments in the Jubilee field, Ghana’s main oil-producing area, over the past five years. According to Kosmos Energy, one of the field’s investors, Jubilee is expected to average production of 100,000 barrels of oil per day (bpd) this year. This figure is roughly on a par with the performance in 2013, although there is a longer-term target of 120,000 bpd for the field.

Meanwhile, the Ghana National Gas Company’s Western Corridor Gas Infrastructure system is expected to start operations by the end of 2014, channelling the Jubilee field’s substantial output of associated gas to productive uses, including boosting power generation.

Looking to broaden the economic base

While developments like the TEN block should help enhance the longevity of the hydrocarbons sector, which has become so important for Ghana in recent years, analysts continue to stress the importance of diversification from base commodities, which have historically driven the country’s economy. There is potential for the metals sector – long the most dominant export segment in terms of revenues – to strengthen, with demand for construction materials across the region particularly strong, but a shortage of inputs and international competition remain challenges.

Finally, the government’s plans to establish the Ghana Infrastructure Fund this year bodes well for strengthening the country’s long-term growth potential and its position as a regional transportation and logistics centre. The government is targeting an increase in housing stock as well as major plans to improve transport nodes and extend gas pipelines. The proposed fund would work with private and multilateral financing organisations to support infrastructure development, and should help generate business for foreign and local contractors – Chinese companies have been particularly keen participants in tenders in Ghana, as elsewhere in the region.

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