Strong economic growth rates in services and industry channel investment as Ghanaian government aims for fiscal discipline


Ghana’s economy is one of the fastest growing in Africa, and its recently established oil and gas industry has made it a target for foreign investment. However, while prospects for continued expansion are good, the state faces a stubborn fiscal deficit and the longer-term challenge of reducing the nation’s reliance on a small number of exports. Fiscal and economic reform, therefore, remain top of the agenda in the election year of 2020.

Economic Snapshot

Ghana has long been one of Africa’s commodity exporters, and is currently the continent’s biggest producer of gold and second-biggest producer of cocoa. Since the 2007 discovery of significant oil reserves, hydrocarbons exports have been added to the roster, and their anticipated growth underpins much of the optimism that currently surrounds the national economy. A reliance on export commodities, however, means that the economy has in the past been vulnerable to crop failures and falling prices. This weakness has been exacerbated by the failure to build and preserve capital buffers during the boom years. Consequently, the country has been compelled to seek assistance from global development institutions, most notably the IMF. In March 2019 Ghana completed its 16th IMF programme, receiving the final $185m tranche of a $918m, three-year extended credit facility. The IMF’s development funding came with a structural adjustment programme aimed at restoring macroeconomic stability, which continues to guide the government’s economic strategy.

Accordingly, government economic policies are centred on fiscal adjustments that protect social and priority spending, the rebuilding of external buffers and the strengthening of financial sector stability. As regards the latter, the government has completed a clean-up of the banking sector, which cost the state GHS12bn ($2.3bn) and resulted in nine bank closures. The state’s attention has now turned to the non-banking financial segment, made up of microfinance institutions and savings and loans companies, where the IMF expects Ghana to direct a further GHS4bn ($774.8m) to stabilise the economy. In its 2020 budget, however, the government placed this figure at GHS2.4bn ($464.9bn). These actions, although deemed necessary from a financial stability perspective, noticeably limit the availability of credit in the market in the short term.

Nevertheless, Ghana’s economy continues to grow steadily. GDP growth stood at 6.3% in 2018, according to the World Bank, driven by the mining, petroleum, agriculture and forestry sectors. The IMF anticipated that GDP growth would rise to 7.5% in 2019, in large part due to rising oil production. This is double the average pace of emerging economies worldwide, and compares even more favourably to the IMF’s growth forecast of 3% for the sub-Saharan African region in 2019.

Fiscal Challenge

Since the publication of its first budget in 2017, the government’s main fiscal ambition has been to reduce the structural deficit that has caused the nation to borrow heavily for more than a decade. In 2006 the nation’s external debt-to-GDP ratio stood at less than 17% of GDP, but sustained fiscal deficits and government domestic borrowing pushed the public debt-to-GDP ratio to over 70% by 2015. A 2018 GDP rebasing brought the latter to 57.2% in 2018, according to World Bank data. Still, Ghana’s total debt rose by 16% year-on-year in the first quarter of 2019, reaching $38.9bn – the highest level in four years, according to Bloomberg. On the revenue side, fiscal reform efforts have been aimed at strengthening compliance measures and broadening the tax base.

However, with much of Ghana’s economic activity taking place on an informal basis, missed revenue targets are a regular occurrence. The Ghana Revenue Authority fell short of its collection forecast by nearly 10% in the first quarter of 2019, resulting in an actual fiscal deficit of 1.6% of GDP, rather than the targeted 1.4%. As a result, the government decided to replace a number of senior executives at the authority and rotate over 1000 staff members to improve performance.

The authorities have also sought to cut costs to reduce fiscal deficit. Historically, fiscal rigidities in areas such as debt servicing and public sector wages have meant that capital expenditure has tended to be the principal source of spending reductions, to the detriment of long-term growth prospects. While this remains the case, the government has succeeded in making cuts in other areas: in 2019 the Social Security and National Insurance Trust revealed it had removed 6339 ghost names from the system, a move destined to save an estimated GHS40m ($7.7m) annually. “Ghost workers used to be a significant issue for the public sector, but now it has been phased out almost entirely,” Geoffrey France, CEO of the online employment platform company Jobberman, told OBG.

In 2018 the government was able to maintain its stance of fiscal consolidation despite revenue shortfalls and spending overruns, thanks to a larger than expected inflow of corporate income taxes and cuts in capital spending. The year’s fiscal target was met with a deficit of 3.8% of GDP; however, when the oneoff cost of the government’s clean-up of the banking sector is included, the fiscal deficit for the year runs to 7.2%. The country’s 2019 state budget anticipated a fiscal deficit of 4.2% for the year.

Bridging the Gap

To date, Ghana has had little difficulty in bridging its structural fiscal gap through borrowing. The country issued its first eurobond in the international capital market in 2007, and by the end of 2017 the total outstanding balance on its eurobond issuances stood at $3.6m, distributed across four offerings with tenors of 10 and 15 years. Since then, the government has sought to advantageously re-profile its debt liability by extending its average tenor.

Ghana raised $2bn through sovereign bond issuances during 2018, achieving relatively low rates for an emerging market: the government raised $1bn through a 10-year offering at 7.63%, while its maiden 30-year bond raised a further $1bn at 8.63%. In 2019 the minister of finance, Ken Ofori-Atta, reaffirmed the nation’s commitment to issuing longer-dated debt. The government’s eurobond sale in the first quarter of 2019 raised $3bn in three tranches of seven-year, 12-year and 31-year maturities and was six times oversubscribed. The ability of future governments to borrow to cover the fiscal deficit has been constrained by recent moves to enshrine fiscal responsibility in legislation. In 2018 Parliament introduced the Fiscal Responsibility Act, which prevents governments from producing budgets with deficits surpassing 5% of GDP per fiscal year. The act established the Fiscal Council, the first of its kind in the sub-Saharan African region, charging it with monitoring the performance of the government’s budget and ensuring that it complies with fiscal rules. The new legislation also introduced the Financial Stability Council, which is tasked with strengthening the financial sector, and coordinating regulation and supervision between a number of entities, including the central bank, the Bank of Ghana (BoG); the Securities and Exchange Commission; the National Insurance Commission; and the National Pensions Regulatory Authority.

Inflation & Monetary Policy

A weakening local currency is also a concern to the government as it surveys its growing debt. Legislation introduced in 2002 allows the BoG to pursue an independent monetary policy, guided by its Monetary Policy Committee. The central bank has made significant efforts to maintain the value of the Ghanaian cedi, most notably its use in late 2018 of $250m of its foreign reserves to defend the currency as it slipped in value against the US dollar. However, this currency-propping effort was halted by the need for the government to maintain foreign exchange reserve levels, causing the cedi to drop by 18% against the dollar in early 2019, before staging a partial recovery. The successful offering in 2019 of three eurobonds by the government boosted its foreign exchange reserves and allowed it to return to its policy of currency support. As a result, by mid-March 2019 the cedi had stabilised against the dollar at a point 11% lower than the beginning of the year.

The fragility of the cedi means that the BoG’s ability to lower interest rates is circumscribed. The central bank has consistently been lowering interest rates since July 2017, responding to an increasingly favourable inflation environment: having reached a high of around 19% in 2016, Ghana’s inflation in early 2019 was around 9%, which is within the BoG’s target range of 6-10% (see analysis). This trend has allowed the BoG to gradually lower its policy rate from 21.5% in 2016 to 16% in January 2019, marking its lowest level since 2013. In turn, this has enabled Ghana’s banks to lower their lending rates, with the average commercial bank lending rate declining from 29.3% at the beginning of 2018 to 26.9% in December of that year. Over the first nine months of 2019 the lending rate ranged 22-24%. The decrease in borrowing costs is an important development. Elevated lending rates are frequently targeted by complaints from the business community, and are often cited as an obstacle to private investment and economic growth. The World Bank anticipates that inflation will remain within the BoG’s target range of 6-10% over the medium term.


The long-term solution to Ghana’s fiscal deficit lies in the mobilisation of the productive areas of the economy. The 2019 budget therefore placed emphasis on building productive infrastructure in order to reach this objective. The 2020 budget, meanwhile, focuses on the nation’s industrial capacity as part of a broader aim to establish Ghana as a regional centre for trade. This represents a continuation of the government’s main industrial programme, the One District, One Factory (1D1F) initiative. Launched in 2017, 1D1F aims to transform Ghana’s economy from one driven by the export of commodities to one powered by an industrialised value chain, with private sector investment acting as a key catalyst. Incentives offered to private investors include tax holidays and exemptions from duties and taxes on imported machinery, equipment and raw materials. According to the Ministry of Trade and Industry, 181 projects under the 1D1F programme were being implemented as of May 2019.

Other initiatives aimed at boosting national productivity include the National Entrepreneurship and Innovation Plan, increasing access to credit for micro- and small-sized enterprises, launching an online electronic registry for all business-related laws, and instituting measures to attract foreign direct investment (FDI). “While access to finance is a major challenge faced by new businesses, access to market, good corporate governance and limited basic financial management are also large constraining factors,” Yaw Owusu-Brempong, CEO of Venture Capital Trust Fund, told OBG. “This has created an urgent need for more start-up accelerators and business incubators to help increase the capacity of entrepreneurs.” Yet more programmes seek to tackle pressing socio-economic issues, such as uneven wealth distribution and a lack of opportunities for the disadvantaged. These include the Infrastructure for Poverty Eradication Programme, the Free Senior High School initiative and the Nation Builders Corps.

Emerging Areas

The government starts its search for growth opportunities with the advantage of a diversified economy. Provisional data published by the Ghana Statistical Service in 2019 showed that services remains the leading area of economic activity, accounting for 46.3% of GDP in 2018. Two services segments showed double-digit growth in 2018: information and communication, which expanded by 13.1%, and health and social works, at 22.6%. Services also experienced some contraction during this period, with financial and insurance activities, and real estate declining by 8.2% and 6.5%, respectively. The recent expansion of the ICT sector has been aided by the state’s e-Transform programme, backed by the World Bank, which covers areas as diverse as job creation, nurturing entrepreneurship, health care and public administration, among others. The vibrant segment is now home to telecoms operators, internet providers, software manufacturers, wireless mobile operators and very small aperture terminal data operators – which will all benefit from an ongoing government project to create a fibre communications backbone for Ghana. Financial services also play a central role in the economy: the domestic market is home to 35 universal banks, nearly 150 rural and community banks, around 350 microfinance institutions and approximately 50 insurance companies. The government’s clean-up of the financial services sector, which involved the implementation of new capital requirements and closure of troubled institutions, has been a key economic theme since 2017, and will continue to be a focus in 2020.

In terms of niche sectors, entertainment and gaming are emerging as high-potential growth areas. “The implementation of international best practices in gaming is expected to attract international investors and develop the sector from a largely unregulated and informal space to a revenue-generating mature market,” Peter Mireku, commissioner-general of the Gaming Commission of Ghana, told OBG.

Key Sectors

The fastest-growing sector in Ghana in 2018 was industry, which, accounting for 34% of GDP, is also the second-largest area of the economy. Mining and quarrying recorded the highest growth within the industry segment (23.3%), and has emerged as a key driver of economic growth over recent years. Ghana is now the largest gold producer in Africa and is well endowed with other minerals, including bauxite, diamonds and manganese. The presence of large mining companies in Ghana, such as Newmont Goldcorp, AngloGold Ashanti, Kinross Gold and Golden Star Resources, has driven mineral exports, which made up 37% of total exports in 2018, according to consultancy firm PwC. Since 2017 the government has been attempting to formalise the sector by clamping down on illegal mining, which has attracted foreign participants despite small-scale mining being limited by law to Ghanaian citizens. Much of the interest regarding industry in Ghana currently resides within the upstream oil and gas segment. Hydrocarbons have played an increasingly important role in the economy since the 2007 discovery of the deepwater oil and gas reserves at the Jubilee field. As an increasingly significant hydrocarbons-producing market, the fluctuations of global oil prices have a marked effect on the nation’s economic trajectory: firming oil prices helped Ghana increase its GDP by 8.5% in 2017, compared to the relatively modest 3.7% expansion of the year before, according to the central bank. Tullow Oil, the operator of the Jubilee field, is also developing the upstream offshore Tweneboa Enyenra Ntomme field, known as the TEN project, where peak production is expected to reach 80,000 barrels per day (bpd) of crude oil and 50m cu feet per day of natural gas. The other major upstream offshore project in the country is the Sankofa-Gye Nyame oil field developed by Italy’s Eni, which started producing oil in May 2017. These projects, as well as the potential held within more recently discovered offshore deposits, have the capacity to provide Ghana with an oil production level of 500,000 bpd by 2024, according to some estimates.

Ghana’s third major area of economic activity is agriculture, which accounted for 19.7% of GDP in 2018. It also employs nearly half of the country’s workforce, most of whom are smallholders. Ghana’s roster of crops includes industrial crops, such as cocoa, palm oil, coffee and cotton; starchy staples, cereals and legumes, such as cassava, plantains and sorghum; and fruits and vegetables, such as mangoes, bananas and peppers. The crops subsector accounts for approximately three-quarters of Ghana’s agricultural GDP, with forestry and logging, livestock and fisheries making up the remainder. Despite the variety of agricultural activity taking place in Ghana, the country continues to be a net importer of food. Improving agricultural efficiency has therefore been a strategic priority for successive governments, starting with the publication of the Food and Agriculture Sector Development Policy in 2007 and continuing today with the Planting for Food and Jobs initiative, launched in April 2017.

Foreign Investment

Much of the private sector investment that the government hopes to channel into its diverse economy will come from outside the country, making Ghana’s attractiveness as a destination for foreign capital an important matter of interest to government planners. Ghana ranked 118th out of 190 countries in the World Bank’s “Doing Business” report for 2020, 10 places lower than its 2017 position of 108th – a reminder that improvements to local business conditions need to be made alongside global economies, which are also reforming their legislative and regulatory frameworks in a bid to attract foreign capital. Areas where Ghana scored well included obtaining credit (where it ranked 80th globally), securing electricity (79th) and protecting minority investors (72nd). Its overall score of 60.00 placed Ghana above the sub-Saharan African average of 51.8, though it continues to lag behind competitive economies such as Kenya – for example, in areas such as starting a business (116th), enforcing contracts (117th), paying taxes (152nd), trading across borders (156th) and resolving insolvency (161st). However, in terms of the last category, the Corporate Restructuring and Insolvency Bill that was before Parliament in December 2019 aims to facilitate more efficient insolvency proceedings.

Despite these challenges, Ghana’s natural resources and emerging middle class make it an increasingly popular destination target for investment. Efforts to boost FDI are coordinated by the Ghana Investment Promotion Centre, a state agency mandated with creating an attractive incentive framework and establishing a “transparent, predictable and facilitating environment” for investors. The centre registered 168 projects in 2018, with a total value of $3.54bn and an FDI component of $3.32bn. The services sector was the largest recipient of foreign capital, followed by general trade and manufacturing. On the investor side, the Netherlands was the biggest investor in Ghana in terms of value, followed by India, Hong Kong and Angola. In terms of number of projects, China topped the list with 37 projects in Ghana, followed by India (18), the Netherlands (15) and the UK (12).


Investment in the upstream oil and gas industry has already helped stimulate Ghana’s exports, establishing the national trade balance as a bright spot of the balance sheet: merchandise exports grew by 24.2% in 2017, according to the World Bank, while imports fell by 1.7%, resulting in the trade balance shifting to a surplus. In 2018 merchandise exports expanded a further 7.5%, a trend that was largely attributable to increased export receipts from oil and other non-traditional items. Ghana’s largest export categories are gold, crude petroleum, cocoa beans and paste, while its top export destinations are India, China, Switzerland, South Africa and the Netherlands.

Removing non-tariff barriers to trade remains a government priority. In 2019 the Ghana Trade Hub mobile application was launched, enabling stakeholders to check information such as the estimated payable duty from anywhere in the world. The initiative is part of the Paperless Port reform, which is introducing automation to key port processes, such as certificates of origin and checks on status. According to the government, recent reforms of port activities have reduced physical inspections by 50%, reducing opportunities for revenue leakage. A number of major challenges hinder trade development both in Ghana and the surrounding region, including border bureaucracy, poor road and rail links, and corruption. These are expected to be alleviated over the medium term by the newly established African Continental Free Trade Area (AfCFTA). The 54-nation bloc is the largest to come into existence since the establishment of the World Trade Organisation in 1994, and is expected to improve intra-regional trade, which currently accounts for 17% of total African exports. Signatories to the agreement have sought to eliminate tariffs on most goods, an act that is expected to significantly improve trade in the region in the medium term, while incurring limited fiscal revenue loss for participating states. The multi-year process of tariff elimination is expected to start in the summer of 2020. The Secretariat of the AfCFTA will be situated in Ghana, a fact that the government hopes will burnish the nation’s credentials as a trade and investment centre. Accra may benefit in other ways as well: numerous African capitals have seen increases in job creation and property values as a result of hosting continental secretariats and headquarters, such as the African Union in Addis Ababa, Ethiopia, and the African Development Bank in Abidjan, Côte d’Ivoire.


Despite a narrowing current account deficit from 2017, the World Bank’s fourth “Ghana Economic Update”, published in June 2019, foresees a current account deficit of about 5% over the medium term, meaning that Ghana is likely to remain at a high risk of debt distress. The ongoing clean-up of the financial sector is another downside risk to Ghana’s fiscal position. Having restored stability to the banking sector, the World Bank estimates that the government will need to spend an additional GHS5.5bn ($1.1bn) – the equivalent of 1.6% of GDP – to address weaknesses in the microfinance, and saving and loans segments. Despite these challenges, Ghana’s medium-term growth outlook is positive, and expected to average nearly 7% over 2020 and 2021, according to the World Bank. The oil sector is expected to emerge as the primary growth driver during this period, although the World Bank also anticipates that the non-oil economy will expand by 6.5% per year in the medium term.

The government of President Nana Akufo-Addo assumed power on a promise to take “Ghana Beyond Aid”, and is pushing ahead with initiatives to formalise the economy, diversify its manufacturing base and overhaul its taxation structure. The most recent IMF programme resulted in fiscal reform and stabilised the state budget deficit. The nation’s ability to retain its newfound fiscal discipline over an election cycle will be tested in 2020, with election-related expenditure expected to increase in the run-up to the 2020 poll.

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The Report: Ghana 2020

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