Burden and Ease: Spotlight on Ghana in June & July

Ghana’s Covid-19 recovery is occurring within the context of President Nana Addo Dankwa Akufo-Addo’s second term in office.  We expect considerations about legacy, evidenced by a strengthening regulatory framework for businesses, a clearer policy agenda focusing on fiscal consolidation alongside an ambitious infrastructure spending regime, to continue. At the same time, the current administration will be weighed down by criticisms regarding the handling and emergence of corruption claims and an increasingly nonchalant posture. Here, we look at the extent to which recent developments will impact upon investor confidence in the coming months.

What Goes Up…

Removal from the Financial Action Task Force (FATF) grey list: In May last year, Ghana, along with three other African nations (Mauritius, Botswana, Zimbabwe), was placed on the EU’s financial crimes watch list, for the second consecutive year. Ghana was listed as high risk for money laundering and the potential for funding terrorism even though it had been making high-level commitments to strengthen its anti-money laundering regime since it entered into an agreement with FATF in October 2018.

However, according to the European Commission (EC), Ghana has made sufficient progress in implementing an action plan laid out by the International Corporation Review Group (ICRG), to the extent that it should be removed from the FATF ‘grey’ list this month. A key part of the progress made was the enforcement of the mandatory provision of information relating to beneficial ownership by the Registrar General’s Department. This will positively impact the ability of Ghanaian firms to operate within the EU as they would have previously been subjected to increaseddue diligence by European banks. 

Ghana Touted as Regional C-19 Vaccine Manufacturing Hub: Ghana is poised to receive support from the EC to become a regional hub for the manufacturing ofvaccines. At the same meeting in which the lift on the FATF action was announced, the EC lauded Ghana’s efforts so far in taking steps to establish a regional vaccine manufacturing hub in the country[1]. Ghanaian drug manufacturers have been lobbying AstraZeneca to acquire a license to allow them to manufacture Covid-19 vaccines locally and the ministry of health has also stated that a committee has been established to help support this effort. Estimates are that any facility would cost at least USD 50 million to establish and this could take anywhere from six months to two years.

Monetary Policy Committee (MPC) rate cut: For the first time in over a year the MPC of the Bank of Ghana (BoG) has made a change to the policy rate, cutting it from 14.5% to 13.5%. Governor of BoG, Ernest Addison stated that the main drivers behind the decision were improvements in overall economic activity and recent falls in inflation[2]. The hope is that this will lead to an increase in lending to the private sector as interest rates may be lowered by retail banks. Already Ghana Commercial Bank (GCB) has reduced interest rates on personal loans from 26% to 24%. Banking options for the private sector are also set to be bolstered with the launch of the Development Bank of Ghana in July with financing having been secured from both the World Bank and the EC. This institution will be aimed primarily at providing financing to the private sector, especially SMEs. 

…What’s Going Down

Allegations of double salaries: Ghana’s former Special Prosecutor, Martin Amidu,[3]has alleged that the president used the issues of double salaries as an illicit bargaining chip in the appointment of ministers.During the administration of former President John Dramani Mahama, it was claimed that some members of parliament who were also ministers illegally claimed two salaries and that case is now to be re-examined by the Attorney General. Many of the MPs in question still sit in parliament and the allegation is that the threat of prosecution was hung over their heads to ensure that they approved government's ministerial nominees.

Rising public debt: Ghana’s external borrowing has reached GHS 291.6 billion or 76.1% of GDP according to the Ministry of Financeand clearly, the government is under pressure. Recently, during the Summit on Financing African Economies that was held in Paris,Akufo-Addocalled for the total cancellation of all African debt[4]. This uncharacteristic way of expressing his position has engendered criticism locally and externally, all the more in the midst of allegations of impropriety. For instance, it has been alleged by an opposition National Democratic Congress (NDC) MP, Isaac Adongo, that firms linked to the Finance Minister Ken Ofori-Atta and his deputy Charles Adu Boahen have benefitted from fees valued at GHS 856million (USD 148million) since the New Patriotic Party (NPP) came intopower in 2017[5]. 

Surprise exit by oil major: Exxonmobil has announced that it will not pursue its exploration in Ghana any further, despite promising results from initial geological surveys. Initial reports are that Exxon is apprehensive to initiate new fossil fuel projects. However, there are suggestions that it is rather issues with the governmentthat havecaused the withdrawal, specifically a refusal to implement agreed-upon VAT exemptions. Exxon has said that it will release a statement this month clarifying its position. Delays are also continuing around the forced unitisation of the fields operated by Springfield and Eni because government research has determined that they share the same source. Government gave the two firms 120 days to reach an agreement in May 2020 though none has been forthcoming. The Ghana National Petroleum Corporation (GNPC) is clearly losing patience though further unilateral action would likely only end up in international arbitration. 

Outlook - Cautious Optimism 

Recent economic, regulatory and operational developments have inspired confidence in Ghana’s investment climate, to the extent that we expect the IMF’s forecast of 4.8% growth this year (up from 0.2% in 2020) to be attainable. If lower interest rates for business become a reality, a spike in industrial activity is likely, notwithstanding an announcement on utility tariffs that is also due in July. The potential establishment of Ghana as a regional vaccine hub would also be a shot in the arm to the country’s reputation as one of the leading investment destinations in the region. 

Conversely, the persuasive force of the executive about media reportage is potentially damaging to Ghana’s oft-celebrated press freedoms. Allegations of impropriety through inflated fees and the appeal for debt cancellation on a global platform will reduce confidence of investors and possibly ratings agencies in the government’s ability to meet its obligations. Indeed, Exxon’s exit is arguably indicative of some of these challenges yet companies like Twitter who have selected Ghana for its regional headquarters will continue to be encouraged by the rising growth and its comparative political stability. 

*Photo credit: Songhai Advisory

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[1]https://presidency.gov.gh/index.php/briefing-room/press-releases/1915-ghana-to-be-removed-from-eu-money-laundering-list-selected-as-manufacturing-hub-for-covid-19-vaccines-in-africa

[2]Falling from 10.3% in March to 8.5% in April

[3]                See A Losing Battle: Ghana’s Anti-Corruption Guru Resigns

[4]https://presidency.gov.gh/index.php/briefing-room/news-style-2/1912-cancel-africa-s-debts-restructure-global-financial-architecture-president-akufo-addo

[5]https://www.myjoyonline.com/isaac-adongo-urges-ndc-mp-on-appointments-committee-to-reject-charles-adu-boahens-nomination/