Index trend
Previous Quarterly Editions
Expropriation risk: 54 53 54 53 ► Political violence risk:39 39 39 39 ►Terrorism risk:48 48 47 45 ►Exchange transfer and trade sanction risk: 55 55 55 55 ►Sovereign default risk:74 74 74 73 ►
Overall Risk Temperature: 57 (Significant -1) TREND ►
Special topic: Relationship with the 'global rules-based order'
Ghana’s decades-long commitment to multiparty democracy and a rules-based multilateral order has been widely recognized. This commitment started when the country returned to civilian rule in the early 1990s. The European Union’s High Representative Josep Borrell publicly applauded this record during his visit in November 2023.
Ghana is highly dependent on international markets for its key commodity exports: cocoa, gold and hydrocarbons. As such, it actively seeks to promote the international rules-based order. Greater protectionism and the breakup of the world into regional trading blocks would threaten its access to key markets and impede the flow of foreign direct investment, which has helped drive growth in its mining and oil and gas sectors.
This broad-based support for democracy, open markets and the rules-based international order has not prevented successive Ghanaian governments from supporting the African Union’s call for the reform of the United Nations Security Council to give the African continent a greater voice (including a permanent seat on the Security Council along with the U.S., the Russian Federation, China, the U.K. and France). They also advocate for a reassessment of the Bretton Woods institutions’ mandate to provide greater support for Africa’s development needs — especially for more support to help bridge the continent’s vast infrastructure deficit.
The erosion— or the unlikely event of an outright collapse — of the international rules-based order would present formidable challenges for the West African country of some 33 million people. It would likely result in a marked deterioration in terms of trade, decreased capital inflows, reduced economic growth and marked increases in poverty. Ghana, and the other 53 members of the African Union, would struggle to mitigate such effects.
At present, both the ruling New Patriotic Party and the opposition National Democratic Congress appear committed to the maintenance of multiparty democracy and the rules-based multilateral order; however, Ghana’s current financial and economic crisis — the worst in a generation — is sorely testing that commitment among the rising generation of upcoming politicians.
TREND ►
The risk of outright expropriation of physical assets in Ghana remains negligible. The government is seeking, implausibly, to reduce its debt-to-GDP ratio from 105% in 2022 to 55% by 2028. Resolving the sovereign debt crisis will be felt by both domestic and foreign investors in reduced interest rates on existing debts and longer maturity dates.
Accra has, however, moved swiftly to help bolster its reputation as a safe destination for investment. It joined the African Trade Insurance agency (founded in 2006 to help foster intra-African trade) and successfully bid to become the administrative headquarters for the African Continental Free Trade Agreement (AfCFTA), which came into effect in 2020.
The AfCFTA created the world’s largest free trade agreement reported to be worth more than $4 trillion in both consumer and business spending. This is forecast to trigger a 20% increase in foreign direct investment (FDI) to some $50 billion. Multinationals from the U.S., the U.K. and France are expected to account for the largest share of those FDI inflows.
The advent of the AfCFTA opens the door to Ghanaian exporters to service new markets across Africa and for importers to source goods from other African markets duty-free. Consequently, the government is unlikely to do anything to jeopardize these potential new markets.
Hundreds of protestors took to the streets in the capital, Accra, in October, calling for Ghana Central Bank Governor Ernest Addison to resign or be dismissed. The protests were triggered by the revelation that the bank had lost 60 billion Ghanaian cedis, around $5.2 billion, in 2022.
Public anger was further inflamed by the disclosure that the bank had spent $762,000 on domestic and foreign travel and $250 million on a new office building in the capital — all this at a time when real incomes have lost around 50% of their value since the onset of the COVID-19 pandemic and Russia’s invasion of Ukraine.
The ferocity of these protests, along with mounting disillusionment of Ghanaian youth with mainstream political parties, marks a growing rift between the young generation and the country’s established political institutions. This disillusionment is a result of the parties’ seeming inability to manage Ghana’s worst economic and financial crisis in a generation
A 2023 World Bank report estimated that 850,000 Ghanaians have sunk into poverty as a result of the country’s debt crisis and the measures required to recover from it.
The European Union (EU) donated 105 armored vehicles to Ghana in 2023, as part of a wider 20-million-euro security package. The EU and Ghana have been in constant dialogue over the series of coup d’etats that have afflicted Mali, Niger and Burkina Faso, with Brussels pledging to help counter the spillover of insecurity from the Sahel.
Ghana is one of 19 African countries holding elections in 2024. Its presidential election is due to take place in December. President Nana Akufo-Addo will step down at the end of the year having completed two four-year terms, so Ghana will have a new president in 2025. The security services will be on high alert in the run-up to the December ballot to preempt any threats to the smooth running of the election from regional spoilers.
Ghana’s inflation accelerated to 23.5% in January — up from 23.2% in December — before slowing to 23.2% in February. Inflation remains stubbornly higher than the central bank’s target band of 6% to 10%. The January inflation figure dampened hopes of a rate cut, but the central bank took the markets by surprise by reducing its benchmark rate for the first time since 2021 from 30% to 29%.
Economic growth slowed to 2% in the second quarter of 2023, down from 3.2% the previous quarter. This was driven by a decline in the industrial sector, especially mining and construction. Ghana is still in talks with some external creditors over debt restructurings, which it needs to secure before qualifying for the next tranche of $600 million under the International Monetary Fund’s (IMF’s) bailout package.
Ghana is expected to secure an agreement with its remaining external creditors on outstanding external debts in the coming months if it has not already done so. That will allow it to draw down the next $600 million of the IMF’s $3 billion bailout package.
Nevertheless, serious questions are being asked about the competence of the bank’s senior management. This comes after revelations that the bank lost $5.2 billion on the currency markets in 2022 and lent the government $700 million, which it could not fully repay.
The bank attributes the $5.2 billion loss to fluctuations in the currency markets over which it has little or no control; however, the government’s refusal to repay some $350 million of the original $700 million loan has severely damaged the reputation of the country’s lender of last resort. The central bank insists that it has been “abused” by the government, but there are mounting questions about the competence of the governor and growing calls for his removal.
