Economy and Trade
Ghana, a relative economic star in Africa, is considered likely to attain its goal of middle-income status by 2015, especially given future oil revenues. It is the second-largest producer of cocoa, and Africa’s no. 2 gold miner. It is relatively open to foreign investment. The domestic economy centers on agriculture. United Kingdom firm, Tullow Oil, has announced the discovery of 600 million barrels of proven reserves of light oil in the offshore Jubilee field, and additional reserves of up to 1.2 billion barrels. In September 2007, Ghana launched a US$750 million Eurobond to finance energy and infrastructure. However, escalating public spending, and a widening current-account deficit have plagued the economy, despite debt relief. The currency was revalued in July 2007 (deleting several zeros), and Ghana has been badly affected by the global economic crisis. Corruption remains an issue, yet a World Bank report in September 2008 rated Ghana as West Africa’s best place for business.
Economic Policy over 12 Months
The focus of former president, John Kufuor’s, 2008 Budget was infrastructure—roads, water, and energy. The government also launched an initiative to improve the regulatory environment for business. Foreign direct investment remains a priority. In May 2008, an emergency program to mitigate the impact of higher crude oil and food prices was launched. Import duties on rice, corn, wheat, and vegetable oil were removed, as were the debt recovery levy and excise duty on some imported fuels. A medium-term target for inflation at 5% was agreed in March 2008 by the central bank and Ministry of Finance.
In line with Ghana’s policy of developing its infrastructure to sustain GDP growth, several major deals involving state companies have taken place in the past year. In August 2008, Vodafone completed the US$900 million purchase of 70% of the government-owned Ghana Telecom.
Ghana’s shortage of power has led to recurring residential electricity cuts, and the government has taken various initiatives to address the problem. The Export-Import Bank of China has loaned US$562 million for building the Bui dam. The Juale and Pwalugu dams will be financed with US$550 million from Brazil’s government, while the Ghanaian government is to invest US$400 million in thermal power. In February 2009, the World Bank’s International Finance Corporation also approved US$215 million in loans for Dallas-based Kosmos Energy and Tullow Oil to help finance the US$3.2 billion first phase of developing the offshore Jubilee oilfield.
In February 2009, the Bank of Ghana raised its prime interest rate by 1.5% to 18.5%, a five-year high. Governor Paul Acquah said the bank had adopted a “policy bias” towards interest-rate reductions, based on expectations that inflation will fall below 10% by 2010. The central bank estimates that the budget deficit amounted to 14.9% of GDP in 2008, and that the economy will grow by 5–6% in 2009. As of February 2009, the cedi had shed nearly one-third of its value against the dollar in the preceding 12 months.
Incoming president, John Atta Mills’ “Rescue Plan for a Better Ghana,” unveiled in February 2009, promised austerity measures, including: monitoring the targets and dividends at state-owned companies and enterprises; “reinvigorating” revenue collection; changing the structure of public wages; and slashing the budget for official travel.
The rescue plan also included proposals for a new cocoa-processing plant in western Ghana, and plans to increase rice production for domestic consumption in order to reduce the import bill. An attempt to boost government revenue from gold mining was launched in 2008.
Economic Performance over 12 Months
Despite steady growth, political stability, and reform of the financial sector, Ghana has faced economic problems for several years. Provisional government statistics put GDP growth in the first nine months of 2008 at 6.2%.
However, in February 2008, Fitch downgraded its outlook on Ghana’s B+ credit rating. The fiscal deficit escalated to nearly 10% of GDP in 2007, partly due to rising public wages, price subsidies for utilities, and energy investments. A report by members of the IMF Fiscal Affairs Department, in July 2008, said there had been a “loss of control over public expenditure,” and called for urgent corrective measures before the oil starts to flow.
From 2010, additional oil revenues are expected to make a big difference to the economic outlook. In October 2008, Tullow Oil said that the Jubilee field will start producing in the second half of 2010. Ghana’s revenues from oil and gas are expected to rise from 3% of non-oil GDP in 2011 to about 5% of non-oil GDP starting in 2013.
Following elections in January 2009, John Atta Mills, leader of the opposition center-left NDC party took over as president with a minority government. He had campaigned to rein in spending, reduce taxes, and use oil revenues for education, and to alleviate poverty. Predecessor, John Kufuor, of the center-right NPP, had completed the maximum period in the presidency of two four-year terms.
The new administration has blamed Kufuor’s government for fiscal profligacy, and pushing the budget deficit to its highest level in a decade. According to Reuters, on his last day in office, Kufuor announced public-sector pay increases of 16–34%. “In a word, the government of Ghana is broke,” said Mills. Paul Rawkins, an analyst at Fitch, said: “Obviously senior politicians talking about being broke is not particularly good for creditworthiness.”
In February 2009, Mills outlined an austerity package, after again painting a bleak picture of the economy in his first state of the nation speech—an external deficit of 18% of GDP and inflation of almost 20%, up from 12.7% at the end of 2007.
He cited “volatility” in global commodity prices, the weakening cedi, and reductions in foreign aid and remittances. The state-owned Tema Oil Refinery and Volta River Authority together owed more than US$1.6 billion. “The picture of our economy. . . is not flattering, but this should not be cause for despair or panic,” said Mills. He faces an uphill battle to fulfill his campaign promises, especially given the uncertainties of the price of crude, and the pace of Jubilee’s development.
Support for Inward Investment and Imports
Ghana Investment Promotion Center is the official agency that advises and monitors foreign investors, other than in mining, petroleum, and in free zones. Projects in the extractive industries must be approved or licensed by the Minerals Commission, and the Ministry of Mines and Energy, respectively. Free-zone investment is overseen by Ghana Free Zones Board.
Ghana has had non-reciprocal market access to the European Union since 1975, meaning that most of its exports enter the EU duty and quota-free. The planned integration of Ghana into the Economic Community of West African States (ECOWAS), a full customs union, will enhance its attractiveness by providing access to a larger market. Ghana also has an investment incentive agreement with the United States, and eight bilateral investment treaties (BITs) with countries including the United Kingdom, China, and Germany.
Tax Exemptions
Ghana’s top corporate tax rate is 25%. Tax incentives are available for investing outside the main cities. For example, investors operating under the Free Zone Act are entitled to a 10-year corporate tax holiday. Agricultural and industrial plant, machinery, and equipment imported for investment purposes are exempt from customs duty. The Ghana Investment Promotion Center can provide more information, as can Ghana Free Zones Board.
Statistics
GDP growth: 6.3% (2008, EU est.)
GDP per capita: US$1,500 (2008, est.)
CPI: 20.34% (Feb 2009, Bloomberg)
Key interest rate: N/A
Exchange rate versus dollar: cedi (GHS) per US dollar—1.1 (2008, est.)
Unemployment: 11% (2000, est.)
FDI: N/A
Current account deficit/surplus: −US$1.807 billion (2008, est.)
Population: 23.4 million (July 2008, est.)
Source: CIA World Factbook except where stated
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