Ghana s Economic and Political Environment and the Implications for Doing Business

Transcription

1 Ghana s Economic and Political Environment and the Implications for Doing Business Dr. Joe Amoako-Tuffour Director of Research The African Center for Economic Transformation Accra November 5, 2015 NORWAY-GHANA BUSINESS FORUM

2 Outline 1) Recent Pulse of the Macroeconomy 2) Causes - the domestic, the external 3) Challenges economy-wide/private sector 4) Should Ghana Remain High in the minds of the Investor Community? 5) Issues and Uncertainties 6) Prospects and the Opportunities 7) Looking Forward, Risks and Takeaways 2

3 Excerpts from News media Ghana has fared badly in the past 3-4 years, overtaken by Cote d Ivoire, Kenya and Rwanda in competitiveness due to macroeconomic infrastructure, governance, labour efficiency issues (B&FT Oct, 2015) More than 5000 job losses by the end of 2015: Uncertainties in the business and economic environment (B&FT, May 2015) AGI Business Barometer Q2, 2015: Falling business confidence by 13 percent. Interest rates may reach 42% (B&FT, Nov 2015) 3

4 Pulse of the Economy-output, inflation, interest rates, exchange rates * jan.14 feb.14 mar.14 apr.14 mai.14 jun.14 jul.14 aug.14 sep.14 okt.14 nov.14 des.14 jan.15 feb.15 mar.15 apr.15 mai.15 jun.15 jul.15 aug.15 sep Percent Growth of Real National Output Annual Fluctuations (rhs) Real GDP growth rate 3, ,8 17 Inflation Trends: Jan 2014 to Sept 2015 Projected year-end at 14.3% 17,4 10

5 jan.14 feb.14 mar.14 apr.14 mai.14 jun.14 jul.14 aug.14 sep.14 okt.14 nov.14 des.14 jan.15 feb.15 mar.15 apr.15 mai.15 jun.15 jul.15 aug.15 sep.15 okt.15 Monthly percentage changes 14.jan 28.jan 11.feb 25.feb 11.mar 25.mar 08.apr 22.apr 06.mai 20.mai 03.jun 17.jun 01.jul 15.jul 29.jul 12.aug 26.aug 09.sep 23.sep 07.okt 21.okt 04.nov 18.nov 02.des GHC/USD Exchange Rate Volatility 5 4,5 4 Rate of USD to GHC Month-to-Month Fluctuations in the GHC/USD Exchange Rate 3, ,5 Cumulative depreciation Jan-Dec 2014 (31%) Jan Aug 14 (22%) Jan 2014 to October Winners and Losers: Distributional effects exporters, importers, capital flows, FDI Gov t own demand for forex capital projects, debt service high 5

6 2. Internal Drivers: Trends in Expenditures and Receipts ( : Percent of National Output) 40,0 35,0 30,0 Forecast 2015 end year: Spending/GDP = 27% Revenue = grants =20% 31,19 25,0 20,0 15,0 19,09 17,8 21,8 10,0 5,0 Total Revenue and Grants (% of GDP) Total Expenditure (% of GDP) 0,

7 15,0% 16,0% 16,1% 16,2% 19,6% 16,8% 19,8% 18,0% 19,8% 19,9% 23,0% 25,1% 26,6% 29,2% 30,9% 36,7% Trends in public debt 70% External debt/gdp Domestic debt/gdp Pubic debt/gdp 67,6% 60% 50% Forecast end 2015: Domestic debt/gdp = 29.6% External debt/gdp = 43.2% Total Debt/GDP = 72.8% 48,0% 55,5% 40% 36,3% 37,8% 39,7% 30% 31,1% 32,3% 20% 10% 7

8 J A N. 1 4 M A R. 1 4 M A I. 1 4 J U L. 1 4 S E P. 1 4 N O V. 1 4 J A N. 1 5 M A R. 1 5 M A I. 1 5 J U L. 1 5 S E P. 1 5 jan.14 mar.14 mai.14 jul.14 sep.14 nov.14 jan.15 mar.15 mai.15 jul.15 sep.15 jun.14 aug.14 okt.14 des.14 feb.15 apr.15 jun.15 aug.15 EXTERNAL FACTORS: Commodity Price Shocks Gold Prices (USD/ounce) 3400, ,00 cocoa (USD$ per tonne) 120,00 110,00 Crude oil (USD$per barrel) ,00 100,00 90, ,00 80, ,00 70,00 60, ,00 50, ,00 40, , ,00 20,00 8

9 Percent of GDP Trends in Ghana s external accounts 2,0 0,0 0,0-2,0-4,0 Investment Income flows (right hand axis): Huge net outflows -1,0-2,0-6,0-8,0 Merchandise and Service Trade flows -3,0-10,0-12,0-14,0-16,0 Current Account Flows Level of gross international reserves May 2014 =3 months of imports May 2015 = 2.7 months -4,0-5,0-6,0 9

10 3. Economy-Wide Challenges. o Severe fiscal exuberance o Severe macroeconomic imbalances o Severe external shock o Severe energy crisis o High unemployment, rising layoffs o Adverse macroeconomic indicators: high inflation rate, high interest rates, Volatile and falling value of Cedi High inflation expectations What are effects of these on businesses and what can business do? 10

11 Private Sector Challenges. Uncertainties in macroeconomic indicators on long-term business decision making-inflation, high interest rates, exchange rate volatility: Predictability of revenue flows, balance sheet effects Distributional effects (Winners and Losers) Importers Exporters, FDI (risk capital) Portfolio investors Dr. Joe Amoako-Tuffour, 11

12 4. Are There Reasons for Optimism Growing and youthful demographics (39% 0-14 yrs) Gateway to West Africa Market Growing urbanization Growing middle class consumption Sound foundation for social stability Big infrastructural gaps big opportunities for improvements, opportunities for investment. Ghana s history of economic progress Average growth rate : 5 percent Oil production to double bpd by 2017 Privatization initiatives telecommunication, banking, petroleum, energy Political stability Watchful eye on regional security and stability Well grounded tradition of civil society Growing social movement for better governance (accountability & transparency) 12

13 Ranking of Ease of Doing Business in Selected SSA Countries (out of 189 countries) Ranking: Ease of Doing Business rd th th EDB 2014 EDB DB Index = (Basic Requirements, Efficiency Measures, Innovation and Sophistication) 13

14 5. Some Issues. 1) Can gov t afford to let the Cedi depreciate? How far? Cost to private sector? 2) What is the price of defending the external value of the Cedi? 3) Will gov t have enough foreign exchange reserves? Dr. Joe Amoako-Tuffour, [email protected] 14

15 4) What is the risk that gov t may begin to prioritize its scarce foreign exchange reserves for? ogov t debt service, capital projects ocorporate demand to meet external obligationsdebt service, suppliers payment, profit repatriation osmes demand to pay foreign suppliers oothers 5) Can Ghana continue to keep portfolio investors on its side? At what cost? 15

16 6. Prospects and Opportunities Construction Growth market middle income housing & urbanization Services Financial services banking & insurance (financing to support growth and supporting existing firms to scale up once gov t sharpens its focus on fiscal policy) Tourism and hospitality Agriculture Patient capital, need to identify correct sector, growing population and urbanization, growth of supermarkets, growing sub-regional demand for food, agroprocessing 16

17 Wood Processing ( value addition) Energy (shortages a threat to growth & job creation) Aim: 20% renewable mix by Building energy infrastructure Energy Investment in renewable energy solar and off-grid power solutions Aug 2015 Gov t - intention to auction various power projects to IPPs tender. Petroleum: Downstream deregulation and price liberalization Dr. Joe Amoako-Tuffour, [email protected] 17

18 Gas Infrastructure Gas transmission need to build up national transmission infrastructure (e.g. 2 nd phase of Ghana Western Corridor Gas Infrastructure development Project. Internal distribution network Urbanization - Waste Management and Recycling Water Industrial and urban need (treatment plants) 18

19 7.1 Gov t Signalling Signalling of PPP Framework of PPP (MoF) Use of Ghana Infrastructure Investment Fund, 2014 (Act 877) JVs in infrastructure development (Energy, Transportation, Utilities..) Export Guarantee (EXIM Bank) - Export-driven growth The future of Investment Guarantees Dr. Joe Amoako-Tuffour, [email protected] 19

20 7.2 Risks of Electoral fiscal spending in 2016 Political expediency and economic efficiency Would gov t continue to borrow at what rates? Risk of Domestic Interest Rates Can Ghana keep portfolio investors on side to prevent speculative attacks Is there the risk of rationing foreign exchange reserves 20

21 Ghana s current economic outlook is shaky, but not insurmountable It will take 2-3 years to fix the macro imbalances and lay foundation for meaningful transformation Growing urbanization Commitment to transformation ACET is helping 7.3 Takeaways Political stability Watchful eye on regional security and stability Big infrastructure gaps - big opportunities for improvements, and for investments Vehicles: JVs, PPPs, GIIF 21

22 Thank you Dr. Joe Amoako-Tuffour, 22