Ghana’s retail sector is navigating various challenges to reach its considerable potential. The ongoing war in Ukraine, volatile commodity prices, a fiscal deficit, rising unemployment and stubborn inflation are among the global and domestic macroeconomic headwinds constraining Ghana’s real GDP growth, limiting household income and spending to basic necessities. Compounding the picture was the more than 55% depreciation of the cedi against the US dollar in the first nine months of 2022. Despite these challenges, Ghana, with its young and emerging urban middle class, high population growth and rising mobile and internet penetration rates, is symbolic of Africa’s ascendancy as the next retail destination amid Asia’s consumer slowdown. Moreover, sub-Saharan Africa is projected to experience the world’s highest compound annual growth rate of disposable income at 9% between 2021 and 2050, according to consultancy Kearney. This will intensify fiscal consolidation and digitisation efforts, which will be critical to realising Ghana’s retail potential.
Oversight
The Domestic Trade and Regional Offices Directorate, under the Ministry of Trade and Industry (MoTI), plays a significant role in the retail space. It is tasked with executing the development of domestic retail infrastructure, a crucial component of the ministry’s 10-point Industrial Transformation Agenda.
The MoTI’s programme seeks to ensure adherence to laws and regulations, while enhancing the establishment of contemporary markets and retail infrastructure in every district. Major undertakings within the programme encompass the creation of brick-and-mortar retail venues, the creation of a commodities exchange, the improvement of craft villages, the establishment of consumer safeguard guarantees and the promotion of domestically produced goods.
In addition to promoting investment in the retail space, the Ghana Investment Promotion Centre (GIPC), through the 2013 GIPC Act, directly regulates retail activity. Act 865, Section 28 (2) imposes a $1m minimum of start up capital on foreign-owned retailers, a rule that arguably contradicts an ECOWAS protocol on the right of establishment and could adversely impact small and medium-sized enterprises from West Africa.
Structure
In 2023 Ghana ranked as the second-largest grocery retail market in West Africa, behind only Nigeria, and the 11th largest in Africa. At the time the food retail segment in Ghana comprised three primary subsegments: traditional open-air markets, which accounted for 60% of grocery sales; small convenience stores (36%) and supermarkets (4%). Traditional markets were the primary source for over 90% of locally produced staple foods, such as fresh fruits and vegetables, meat, and imported and local frozen fish.
Comprising small stalls in open markets and neighbourhood shops providing affordable goods to customers across the income spectrum, informality is the linchpin of a still fragmented retail market. Nevertheless, traditional and modern retailing with domestic and international players is slowly formalising the sector and encouraging consolidation in the market.
Established in 1989, Melcom is the largest local retailer in Ghana. While smaller chains such as Palace and Max Mart are deepening the pool of local retailers, South African firms remain the overwhelming market leaders in Ghana’s modern retail segment. Indeed, in 2021 they accounted for 90% of the top retailers in sub-Saharan Africa. The influx of South African investors into Ghana’s retail space is partly explained by its relatively high average retail yield of 8-12% as of the second quarter of 2022, according to South Africa-based property consultancy Broll. With the presence of regional operators such as Shoprite, Mr Price and Pick n Pay, as well as a few international players, modern retailing remains primed for future growth through strategic investment in the expansion of modern shopping centres and trading spaces.
Accra remains the epicentre of large shopping malls providing consumers with a convenient and comfortable retail experience, and access to a majority of lifestyle retailers. The discount and mid-range market segments are the focus of the majority of consumer expenditure and retailers despite the appetite for luxury spending among Ghana’s affluent demographic. While retail purchases are largely cash-based, consumers are increasingly opting for digital payment methods amid improving merchant payment solutions.
Performance & Size
Ghana’s retail sector is on a trajectory of expansion, growing from $24.4bn in 2020 to a projected value of $33.2bn by 2024, according to the AT Kearney 2020 Global Retail Development Index. Other key performance metrics have been a mixed bag due primarily to suboptimal macroeconomic conditions, which have an outsized impact on the sector. Annual growth in retail sales, for example, increased by 47.9% from GHS107.9m ($9.2m) in 2022 to GHS159.6m ($14.5m) as of May 2023, according to a monetary policy report published by the Bank of Ghana (BoG) in July 2023. Furthermore, the first five months of 2023 saw a cumulative increase of 34.5% in retail sales. However, this was offset by a 3.3% reduction in retail sales in May 2023, from GHS165.1m ($15m) the previous month, indicating short-term volatility or seasonality in consumer spending patterns on a month-to-month basis.
Consumer Confidence
Elevated inflation, interest rates hikes and a depreciating cedi largely dampened consumer confidence during 2023 despite some recent promising upticks in overall optimism. According to the BoG, consumer confidence declined slightly from 88.8 in April to 87.5 in June, primarily driven by rising prices of goods and services. While the first half of 2023 marked a rebound in consumer confidence from the 79.7 level recorded in June 2022, it was still short of the 96.5 average observed during the Covid-19 pandemic in 2020. As a barometer of confidence, a decline in the overall value of mobile money transactions from GHS159.7bn ($14.5bn) in March 2023 to GHS149.4bn ($13.6bn) in June 2023 underscores subdued consumer activity in the second quarter of the year.
Based on value-added tax (VAT) collections and retail sales, however, consumer spending improved significantly in May 2023 when set against the same period in 2022. According to the BoG, domestic VAT collections rose from GHS700.1m ($63.6m) in May 2022 to GHS1.1bn ($96.1m) in May 2023, representing a 51.2% increase. Moreover, the total domestic VAT for the first five months of 2023 posted a cumulative increase of 71.9%, reaching GHS5.4bn ($492.1m), in contrast to GHS3.2bn ($286.3m) for the corresponding period in 2022. Conversely, Ghana’s purchasing power parity has not witnessed similar growth in recent years. Ranked as a lower-middle-income country by the IMF, Ghana posted an adjusted GDP per capita purchasing power parity of $6270, $6780 and $6970 in 2021, 2022 and 2023, respectively. This compared favourably to the sub-Saharan African regional average of $4840 in 2023. While recent purchasing power parity growth has been modest, the IMF projects household spending to reach GHS107.8bn ($9.8bn) in 2023, surpassing the GHS101.9bn ($9.3bn) posted in 2019 prior to the pandemic and increasing to GHS112.1bn ($10.2bn) in 2024.
Based on the consumer price index (CPI) published by the BoG in July 2023, elevated levels of inflation will likely continue to weigh heavily on consumer purchasing power. The average CPI inflation increased from 10% in 2021 to 31.5% in 2022, attaining a high of 54.1% in December 2022. While headline inflation dipped in the first half of 2023, decreasing from 53.6% in January to 42.5% in June, the CPI was still higher than prices recorded in June 2022 (29.8%) due to price fluctuations in both food and non-food items.
Business Confidence
The business confidence index (BCI) recorded lower levels of volatility in the first half of 2023, with the BCI remaining largely unchanged at 80 in June compared to 80.1 in April. Misgivings about the financial burden of recent increases in the tax and utility tariff dampened positive business sentiment around improving macroeconomics. The 2022 increase in VAT, which was raised to 15% for the supply of goods and services in Ghana, has been particularly contentious for retailers, especially given the sector’s import-intensive nature. Additionally, bottlenecks at seaports, unreliable power supply and suboptimal facility management by mall operators are foremost among the constraints on sectoral growth for retailers.
Retail
Approximately 59,000 sq metres of retail space was under development in the first half of 2022, up from the 37,000 sq metres in the second half of 2021, according to figures published by Broll. Of the 59,000 sq metres in the pipeline, over 20,000 sq metres of stock was opened to retailers in the first half of 2023 following the completion of the A&C Corner, a 9000-sq-metre, grade-A retail centre anchored by Home World Building Supplies; the 13,000-sq-metre Atlantic Mall; and the Centre Point Mall. This marked an increase in the 13,000 sq metres of stock available to retailers in 2020 following the development of the Oyarifa Mall and City Galleria, both of which are in Accra.
Situated 1 km from the A&C Mall, Ghana’s first mall, A&C Corner caters to Ghana’s fledgling building materials and decor market. Launched in June 2023 by International Finance Corporation-backed A&C Development, the mall is part of a retail portfolio that will include the 68,000-sq-metre A&C Village. The Atlantic Mall is a $20m retail and leisure development that opened in April 2023 and is anchored by Palace Superstore. The mall includes a cinema, childrens’ playgrounds, a fitness centre and nine restaurants, indicative of trends in modern retail in Ghana, with malls chiefly clustered in large commercial cities like Accra and Kumasi.
Rental Market
The rent for prime retail space has continued its downward trend from highs seen in 2018, when retail rental prices ranged from $40 to $70 per sq metre per month. The following year marked the beginning of a fall in rental prices, with prices dropping to the $20-40 range before dipping further, to $20-35, in the first half of 2022. The prospect of a rebound in rental prices remains slim, at least in the short term, for two reasons. First, the increasing supply of prime retail stock since 2019 has placed pressure on rents. To buttress this point, the annual change in retail occupancy rates averaged 0.2 percentage points between 2018 and 2023, despite 16% average annual growth in retail space since the start of that period, according to Broll. Second, lower levels of consumer spending, occasioned by declining household income since 2022, have decreased demand for retail space especially from non-essential retailers, intensifying requests for lower rents and placing further downward pressure on rents.
Retailers
Melcom, Palace Superstores and MaxMart are Ghana’s leading domestic retailers. As of late 2023 Melcom operated 51 outlets and 10 cash and carry depots, while Palace, established in 2005 as a 1500-sq-metre department store, expanded to include five branches in Accra and one in Kumasi. The Palace Mall in Accra marked its transition from anchor tenant to successful developer of its own shopping complex. Meanwhile, MaxMart, founded in 2001, had seven Accra-based supermarkets in its portfolio as of 2023.
South Africa’s regional retailers, including Shoprite, Mr Price and Pick n Pay, anchor the majority of Ghana’s grade-A trading spaces. The trend of international retailers exiting the Ghanaian market, which began in 2019, has continued with South Africa’s discount store chain Game shutting down operations in 2022. The move was part of the company’s broader closure of operations in West and East Africa.
The Ghanaian retail market continues to attract international players with Japanese lifestyle brand Miniso opening a second store at Achimota Mall in August 2020 following its market entry in 2019. Furthermore, Hong Kong apparel and accessories brand Giordano International opened its first store in September 2021 after signing an exclusive franchise agreement with Melcom. As of late 2023 the store had a presence in eight of Melcom’s key retail outlets across Ghana. Giordano’s African footprint is set to expand using this franchising model, burnishing Ghana’s reputation as the gateway to the West African retail market.
Outlook
International and domestic headwinds are expected to slow a sustained recovery in household income and consumer spending, limiting Ghana’s retail growth in the short term. However, a significant upside for investors exists amid improving macroeconomic fundamentals expected in the second half of 2024, alongside the broadening of an urban middle class, rising disposable income, and deepening adoption of e-commerce by both Ghana’s sizeable youth population and adaptable retailers. Reinforcing these factors are an accommodating business landscape and access to a large regional consumer market amid the emerging African Continental Free Trade Area environment.
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