The down grade of France by Standard and Poor has deepened the euro zone crisis. This negative economic turmoil in Europe has endangered the economic growth of African countries, specifically Ghana's economy which depend totally on the export of cocoa, gold and recently oil to Europe.
EnterpriseAfrik has compiled some facts for Ghanaian entrepreneurs and investors in Ghana and abroad, who are undertaking or willing to execute business projects in the country, to be guided by these economic indicators for 2012
THE ECONOMY AND PUBLIC FINANCES
In revised data released in mid-October, the statistical office said Ghana's economy expanded by 16.4 percent in the second quarter of 2011 mainly on oil production.
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| Traders in Nima market, Accra. © EnterpriseAfrik |
The government lowered slightly its projected growth for 2011 to 13.6 percent from the 14.4 percent programmed in revised budget estimates approved by parliament in July. This is broadly in line with an IMF forecast of 13 percent for the year.
The 2012 budget raises spending by 12 percent to tackle poverty in this election year but aims to increase state revenues and keep the public deficit at 4.8 percent of GDP.
Inflation is predicted to average 8.7 percent for the year and finish 2012 at 8.5 percent, barely changed from the 8.58 percent recorded in December 2011.
What to watch:
A decision by the government in late December to remove fuel subsidy is expected to trigger general price pressures leading to climbing inflation from next month.
- Mounting price pressures. Many analysts suggest rising spending and the weak cedi (see below) could add to inflationary pressures. At present the modest inflationary outlook has allowed the Bank of Ghana to keep its prime rate on hold at 12.5 percent - but the removal of fuel subsidies and the associated general price hikes are enough reasons for the Central Bank to a tighten monetary policy in coming weeks.
- The risk that the euro zone debt crisis may lead to a European recession which would hit trade with Africa.
INVESTMENT
Ghana's relatively strong record on governance and some signs of the emergence of middle-class consumers make it an attractive investment destination for some. Unfortunately the euro zone debt crisis has made many investors much more risk-averse and prompted them to retreat from the African assets to which they were flocking less than two years ago.
The Ghanaian cedi has been among the victims, falling about 10 percent against the dollar on the year for cedi-dollar to trade around new lows of 1.68-1.70 in early January.
The Ghana Stock Exchange's main composite index has shed about 3.5 percent on the year to date, while the once favoured banking sector has taken a bigger hit, the Financials component of the index has slumped 14 percent.
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| Jubilee oil field, Ghana |
In line with other African countries, Ghana has had to offer more attractive yields on its debt to find buyers -- the last auction of five-year bonds on Dec. 8 resulted in an average yield of 15.9 percent compared with 14.25 percent for a first tranche of the same bonds auctioned in August.
Even then, the December auction was only slightly oversubscribed and failed to attract offshore funds.
There are also concerns that Ghana's fiscal environment is becoming less investor-friendly. The 2012 budget increases mining sector corporate tax from 25 percent to 35 percent and introduces a windfall profit tax of 10 percent. At least one miner has raised concerns that this could discourage investment.
What to watch:
- Central Bank intervention. How ready is the Bank of Ghana to support the cedi? The Bank consistently intervened in the last quarter of last year but that has failed to halt the slide so far.
Source: Reuters
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