The government tightens fiscal spending and industrialises rural areas to jump-start economic growth in Ghana


Since assuming power in January 2017, the administration of President Nana Akufo-Addo has sought to move swiftly to restart the Ghanaian economy after a period of sluggish growth. As with many West African countries, local industry is strongly correlated with global commodities. Oil, gold and cocoa provide the three main sources of foreign currency and income; however, price swings over 2015 and 2016 for these three resources, a strengthening US dollar, as well as domestic issues such as fiscal slippage, growing debt and mounting inflation have combined to slow the pace of development, leading to a depreciating currency and a budget shortfall.

As a result, the government has been under pressure to move aggressively over the course of 2017, and has introduced budgetary reforms, improved the ease of doing business and enacted policies designed to diversify economic growth, some of which are beginning to bear fruit.

Recovery Under Way

Starting in 2013, the fall in global gold and oil prices had a significant impact on commodities-exporting countries. Having enjoyed a 14% rise in GDP in 2011 on the back of increased investments in the offshore oil sector, growth slipped below 4% in 2014, where it subsequently remained for the next two years. Although the economy failed to reach the government’s targeted 4.1% growth in 2016, GDP expanded at a modest 3.57%, to reach GHS177.9bn ($42.7bn), according to World Bank data, allowing the 28m-person country to maintain its position as the second-largest economy in West Africa, behind only Nigeria.

Coinciding with the arrival of the new government, the Ghanaian economy bounced back strongly in the first half of 2017. Figures from the Ghana Statistical Service (GSS) showed that GDP growth for the second quarter of 2017 hit 9% year-on-year (y-o-y). This figure was boosted by the recovery in both the oil price, which regained value from its June 2016 low point of under $30 per barrel to over $50 for most of early 2017, as well as by the gold price, which fluctuated between $1200 and $1300 per oz in early 2017, compared to under $1100 in early 2016.

The impact on Ghana’s economy was significant: in the second quarter of 2017 GDP from oil reached GHS635.3m ($152.1m), a y-o-y increase of 188% and equivalent to 6.8% of total GDP, while mining and quarrying hit GHS746.9m ($178.8m), 75% y-o-y growth, and 8% of total economic output.

Meanwhile, the non-oil sector showed more modest 4% y-o-y growth, with the agricultural sector – another major export-earner thanks to cocoa production – reaching GHS4.9bn ($1.2bn), up 3.4%. The services sector, which accounts for 62% of GDP, totalled GHS26.5bn ($6.3bn), a 5.4% y-o-y increase.


Trade also showed a positive rebound in the first half of 2017, following deficits of $1.38bn in 2014, $3.93bn in 2015 and $506m in 2016.

According to preliminary data from the Bank of Ghana (BoG), a trade surplus of $707.6m was generated in the first three quarters of 2017, equivalent to 1.5% of GDP, marking a significant turnaround from the $1.8bn deficit recorded for the same period in 2016. Boosted by stronger oil, gold and cocoa prices, export revenues shot up 25.1% y-o-y, while declining non-oil imports lowered total imports by 5.3%.

The positive terms of trade had a noticeable impact on shrinking Ghana’s current account deficit, which fell to 2.4% of GDP over the first three quarters of 2017, compared to 4.9% in the same period of 2016. Combined with growth in portfolio investment inflows, the overall balance of payments went from a deficit of $1.4bn in the first half of 2016 to a surplus of $379.3m, or 0.8% of GDP.

To maintain this momentum, trade licensing is moving towards the one-stop-shop concept, via the National Single Window, an integrative approach to connect government agencies and private sector operators involved in international trade. Reducing barriers to trade is a primary goal in driving competitiveness and the ease of doing business. “There is a direct correlation between international trade processes and foreign direct investment (FDI), with both having an effect on economic growth. The Ghana National Single Window will certainly have a positive impact on the country’s long-term economic growth prospects,” Valentina Mintah, CEO of West Blue Consulting, told OBG.

 Commodities Conundrum

The confidence generated by the return of strong growth should be tempered by the economy’s continued dependence on extractive industries. Behind the bumper second quarter GDP figure, for example, lies the fact that the previous year’s GDP was noticeably impacted by the temporary halt in production at the Jubilee field in mid-2016. With output forecast to reach over 240,000 barrels per day by 2020, Ghana is set to become the fourth-largest producer of crude in sub-Saharan Africa, as new offshore deposits, such as those in the Tweneboa, Enyenra and Ntomme gas fields, which are operated by London-headquartered Tullow Oil, and the Sankofa oil and gas field, operated by Italian multinational ENI, come online. Similar increases are expected in gold production. Following the growth in 2016, mine expansions and new projects should guarantee strong output for the coming years. However, as has been the case in other emerging and frontier economies, a strong raw commodities-driven performance raises the possible occurrence of higher inflation, weaker employment growth and exposure to price fluctuations in volatile international markets.


To help counter this, the recently elected New Patriotic Party (NPP) government aims to couple the expansion of the resources sector with an aggressive industrial policy, an overhaul of the agricultural sector, and improved access to financial services to ensure greater economic diversification and value addition.

Forming the key tenets of the NPP’s policy are the One Village, One Dam and One District, One Factory programmes, which were announced during the 2016 election campaign. The schemes include large-scale investments to ensure greater access to irrigated land, plans to decentralise industrial growth to each of the country’s 216 districts and the production of value-added products, particularly from the agricultural sector.

Private investors are expected to provide the bulk of financing, and over 100 projects are currently in the pipeline. The local press reported in March 2017 that the One District, One Factory initiative had already received investment pledges totalling $3bn, with 40 business plans under review, and that GHS94.4m ($22.6m) had been earmarked for the One Village, One Dam project (see Industry & Retail chapter). At the same time, as with most countries developing on an extensive scale, Ghana’s push for greater industrial progress has the potential to augment the negative impacts associated with sharp inflows of foreign currency.

Smart Support

Central to the success of these policies is ensuring that investments are targeted appropriately, come with the necessary supporting infrastructure, and can function without the need for continued subsidies or support. Ghana has been here before, notes Newman Kwadwo Kusi, executive director of the Institute for Fiscal Studies, a local non-profit focused on providing policy guidance. “In the 1960s the government undertook a similar industrialisation programme, which resulted in the establishment of over 300 state-owned industries,” he told OBG. “Ghana used to produce a number of value-added products, as well as diverse crops such as palm oil, coffee, corn, beef and sugar. Following the economic crises of the 1980s, the World Bank advised the government to divest from these companies, and around 90% were sold to the private sector. However, almost all of those companies collapsed because the basic infrastructure needed to run the businesses did not exist,” he added.

While the current government’s plans to build dams and factories could provide jobs and investment in the short term, detailed planning will be required to ensure that the businesses are competitive in the long run. “There is a real need to modernise Ghana’s rural areas, but as for any industry, there are a set of basic requirements, such as human resources, energy and water, technology and transport infrastructure, that need to be put in place. We need to study why the previous industrial processes were not sustainable in order to avoid making the same mistakes,” Kusi added.

Infrastructure Upgrades

The importance of providing ancillary infrastructure – from transmission lines to railways – has become more clear in recent years, as the country’s manufacturers grapple with dumsor – the local term for power outages. With roughly half of the country’s energy coming from hydroelectric dams, droughts can lead to drops in production, while shortages of natural gas have forced the import of expensive fuel oil. The country has endured four major energy crises since 1982. During the most recent, in 2015, there were blackouts on 159 days of the year, at which time the energy sector racked up $2.4bn in debt. According to the World Economic Forum’s “Global Competitiveness Report 2017-18”, Ghana ranked 111th out of 137 countries for the quality of its electricity supply, ahead of Sierra Leone at 120th and behind Senegal at 103rd. Ghana faired slightly better for roads, rail and air transport infrastructure, which ranked 78th, 98th and 94th, respectively. Nonetheless, the inadequate supply of infrastructure is considered to be the fourth-most problematic obstacle to doing business in the country. As a result, in March 2017 President Akufo-Addo announced that the government was working on an electricity master plan that could include measures to privatise an element of state power generators and include more renewable energy in the national energy mix.

Private Capital

The government’s investments in industry and infrastructure will require sizeable public expenditures, but programmes are also counting heavily on private commitments and inflows of foreign capital. Ghana has also benefitted from a surge in local direct investment, which rose more than 10-fold from $830m in 2013 to $9.4bn in 2015.

Since 2008 Ghana has typically attracted net FDI inflows of between 7% and 9% of GDP, although in 2016 it received net FDI inflows of $2.4bn, a $300m decrease on 2015’s figure of $2.7bn, which was itself a 4.9% decline on 2014, according to the Ghana Investment Promotion Centre (GIPC). The slowdown has been mirrored in a number of other African markets. From 2011 to 2016 total FDI fell by two-thirds; the downturn followed wider international trends of weaker demand in advanced economies and the fall in commodity prices.

The GIPC outlook is more bullish for 2017, however, setting an FDI goal of $5bn, more than double 2016’s figure. The figure is premised in part on large-scale investment in natural resources projects over the medium term, along with components of a $19bn package financing deal from China for the development of bauxite and rail projects. The new administration is also encouraging greater collaboration between government and private actors. “The public-private partnership model is one of the preferred mechanisms to make investments in infrastructure development in all areas, ranging from transportation and industry, to energy and tourism,” Solomon Asamoah, CEO of the Ghana Infrastructure Investment Fund, told OBG.


The creation of jobs for the country’s rapidly growing population is another key priority for the government. With an estimated 80% of working-age Ghanaians employed in the informal sector, data on unemployment in Ghana is not easy to come by. The GSS does not publish regular numbers, and the 5.77% unemployment rate reported by the International Labour Organisation for 2016 fails to fully capture the challenging labour situation in the country. A 2015 GSS report on the state of the Ghana labour market estimated that 1.2m citizens over the age of 15 were unemployed, making for a total unemployment rate of 11.9%.

As is the cases for many economies in Africa, the ability of the state to absorb new employees is limited. The public sector wage bill is already high – accounting for GHS14.2bn ($3.4bn) in 2016 – and staff turnover tends to be low. This situation pushes the burden of job creation onto the private sector. In its March 2017 budget statement, the Ministry of Finance announced that it would incentivise youth job creation by providing tax credits to firms hiring recent graduates, although the exact details of the scheme have yet to be expanded upon.

The push for construction to support the government’s industrialisation and infrastructure projects may also help alleviate the issue. In November 2017 Mahamudu Bawumia, the vice-president, announced that the government would hire 100,000 graduates in 2018 as part of the Nation Builders Corp, an ambitious jobs programme focused on tackling youth unemployment through sanitation, health, education and revenue-collection programmes, although jobs created would likely be temporary.


Beginning in mid-2013 a strengthening dollar, lower foreign-currency revenues, a loose fiscal policy and a reliance on imported staples all helped stoke a rapid rise in inflation well beyond the central bank’s target of 8% plus or minus two percentage points. In March 2016 inflation peaked at 19.2% but has since fallen steadily.

According to the Ministry of Finance, October and November 2017 saw inflation drop to 11.6% and 11.7%, respectively, the lowest rates since mid-2013, and well within range of the BoG’s 2018 inflation target. Non-food inflation continues to drive headline price increases, at 13.2% in October 2017, compared to 8.2% in the food segment in the same period.

“From late 2015 to early 2016 Ghana’s monetary policy has been adequately tight,” Natalia Koliadina, the resident representative of the IMF in Ghana, told OBG. “Inflation has been declining consistently, and we expect it to reach the upper bound of the target band by end-2017. Once fiscal consolidation has resumed, and it becomes evident that the government is consistently implementing its budget and achieving the budget target, monetary policy burdens will be alleviated,” she added.

Zero Financing

Under the previous administration, the BoG could fund up to 10% of the previous year’s total deficit, but that was ended under the policy of zero financing beginning in January 2016. “The BoG wants to stop financing the government, and the IMF has strongly advised the government to pass a law to forbid funding,” Kusi told OBG. “However, if the BoG does not fund the government’s fiscal deficit, the main remaining option is Treasury bills (T-bills), which are already running at a high interest rates.” Fortunately, however, the government’s fiscal prudence has allowed rates to drop from over 23% in 2016 to 13.29% for the GHS448m ($107.3m) worth of T-bills sold in November 2017.


The revalued cedi was introduced in 2007; since then, the free-floating currency has depreciated, from GHS0.50:$1 to around GHS4.63:$1 in November 2017. Particularly sharp depreciation was seen in 2014 and 2015, when the cedi ranked among the lowest-performing African currencies. However, 2016 and 2017 have offered greater stability, with the local currency maintaining a rate of around GHS4.35:$1 for much of 2017, before a surge in dollar demand for end-of-the-year imports caused a downtick in November. As of December 18, 2017 the cedi was trading at GHS4.51:$1.

A number of commodity-dependent emerging markets faced shortages of foreign currency over the course of 2016 and 2017, but Ghana managed to sidestep most problems. By August 2017 gross foreign assets stood at over $7.1bn, providing for a healthy 4.1 months of import cover and a significant increase from the $4.9bn held in August 2016. While the current exchange rate suits the Treasury for the repayment of debt, it could encumber the development of export-oriented industry. “The previous 15-year domestic bond was calculated at a rate of GHS4.40:$1, and if the exchange rate is not managed by the central bank, the tendency will be for the cedi to depreciate more,” Joe Jackson, director of business development at Dalex Finance and Leasing Company, one of the country’s largest non-bank lenders, told OBG. “At present, the rate is relatively stable, but in the long run, the Ghanaian economy could prove unbalanced. The country is heavily reliant on imports of foreign goods; however, we need to devalue the currency to create the conditions for an export industry,” he added.


As suggested by the challenges of inflation and depreciation, the government has inherited some fiscal issues that will take time to resolve. January 2017 the Ministry of Finance announced that off-book spending during the previous administration of then-President John Dramani Mahama had resulted in a GHS7bn ($1.7bn) hole in state finances.

In addition, the high proportion of revenue dedicated to statutory funds is hampering the government’s ability to reduce spending. “After subtracting salaries, interest payments and earmarked expenditures, nearly 85% of government revenue is exhausted,” said Kusi. “The capital budget in Ghana has been decreasing, and the inability to raise enough revenue to undertake priority expenditure programmes has only increased the public debt and escalated interest payments.”

Fiscal policy will focus on a more progressive reduction in the deficit over the medium term, from 8.7% of GDP in 2016, to 6.5% in 2017 and 4.5% in 2018, as well as the opening up of funding for priority projects by capping the proportion of revenues earmarked for statutory funds at 25%. By the end of the first half of 2017, Ghana had lowered its deficit to 4.5% of GDP, according to the BoG (see analysis).


Tempering successive budget deficits will go some way towards containing the public debt, which has continued to grow despite falling interest rates. By the end of 2016 total public debt amounted to GHS122.3bn ($29.3bn), equivalent to 72.5% of GDP. This compares to a debt of GHS36bn ($8.6bn), or 47.8% of GDP in 2012. Since 2007 the country has tapped the eurobond market on five occasions. With the original 10-year bond maturing in 2017, additional bonds have been issued to service old debt (see analysis). However, foreign debt accounted for only 20% of the public total in 2016, thanks to the popularity of domestic T-bills among local banks and the participation of foreign firms in local bond offerings (see Banking chapter). In August 2017 the IMF noted how foreign participation in the domestic debt markets could strengthen the country’s external position, but pointed out that Ghana’s already “unfavourable debt dynamics” could be worsened if the trend of fiscal slippage were to continue.

Fund Times

A key reason for the country’s improving macroeconomic fundamentals has been the reassurance offered by the IMF’s $920m extended credit facility. Beginning in April 2015, at a time when rising inflation, government overspend and a series of power outages were weighing on growth, the facility helped reassure markets. “The fund’s prolonged stay gives comfort to the market, which was starting to get twitchy about the possibility of Ghana’s fiscal discipline [following] the IMF programme,” Neville Mandimika, Africa analyst at South Africa’s Rand Merchant Bank, told international press in September 2017. The three-year credit line was extended by a year in August 2017, at which time the IMF completed its fourth Article IV Consultation on Ghana and dispersed $94.2m to the government for a total loan of $565m. “The authorities have taken some encouraging steps, and the economy is showing signs of recovery,” Tao Zhang, the fund’s deputy managing director and acting chair, said in a statement accompanying the report. “Ongoing fiscal consolidation and implementation of the medium-term debt management strategy will be key to further reducing domestic refinancing risks.”


This net-positive assessment of the Ghanaian economy was echoed by ratings agencies. In July 2017 Moody’s maintained a rating of “B3” with a stable outlook for the country, highlighting the positive growth prospects as new hydrocarbons developments come on-stream, and the fact that, compared to the regional average, Ghana’s economy is relatively diversified. The two other main ratings agencies upgraded Ghana’s outlook over the course of 2017, in recognition of the improving outlook for the country on the back of climbing commodities prices, and the fiscal and economic policies enacted by the government. In May Fitch revised its credit outlook from negative to stable, and then in October 2017 Standard & Poor’s maintained its “B-” rating for Ghana, and changed its outlook from stable to positive. “We expect Ghana’s new administration to implement numerous measures that would help strengthen public finances from their current very weak level,” the agency noted.


Ghana’s economic prospects for 2018 appear strong. Following a belt-tightening process, the government has both brought down the problematic fiscal deficit and freed up capital spending for priority projects by capping budget transfers to statutory funds. A partial rebound in oil and gold prices should also help to stabilise the economy.

In November 2017 the government – using an assumed oil price of $54.77 per barrel – revised its 2017 GDP growth forecast upward from 6.8% to 7.9%; although 2018 growth was in turn revised from 9.1% to 6.8%. According to Moody’s, the non-oil economy is expected to continue to expand at a rate of between 4.5% and 5%.

With the goal of keeping the fiscal deficit under control, tackling debt will be an important challenge. However, there was positive news on this front as well, with the debt-to-GDP ratio falling from 73% at the end of 2016 to 68.3% in September 2017. If the government’s ambitious plans to industrialise rural regions, improve the business environment, harness the financial sector and improve access to credit for private actors comes to fruition, a more robust, diverse and sustainable economy is in the cards.


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The Report: Ghana 2018

Economy chapter from The Report: Ghana 2018

The Report: Ghana 2018

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