Previous Quarterly Editions
Expropriation Risk: 48 49 49 52 ▲ Political Violence Risk: 39 39 39 39 ► Terrorism Risk: 42 42 45 47 ▲ Exchange Transfer and Trade Sanction Risk: 45 45 44 35 ▼ Sovereign Default Risk: 66 66 66 66 ►
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Ghana’s ruling New Patriotic Party (NPP) earlier this year embarked on ambitious plans to boost its green credentials by significantly scaling up the contribution of renewables (solar, wind, small and medium hydro and waste-to-energy schemes) to the national energy mix, in an effort to demonstrate regional leadership in efforts to address growing climate change concerns.
Speaking at the Department of Energy’s National Energy Transition Forum in Accra in February, entitled ‘Moving Ghana Towards A Net-Zero Future’, Vice President Mahamudu Bawumia said it was imperative to slow down the effects of climate change and transition towards a greater reliance on renewables, particularly small and medium hydro and solar power.
Bawumia warned the transition to renewables would take three decades, during which time there would be less and less funding available for oil exploration, although he conceded Ghana would be dependent on its natural gas reserves for electricity generation for the foreseeable future. Some 80% of Ghana’s carbon dioxide emissions are driven by the way it produces and uses energy.
Ghana currently has an installed generation capacity of some 5,300 megawatts (MW), made up of 38% hydro, 61% thermal and 1% solar. The contribution to the national energy mix of hydro has fallen markedly over the past two decades. However, at the same time, thermal’s contribution has risen as successive governments invested in more gas-fired power plants to boost capacity and bring electricity into more and more homes.
Under the 2019 Renewable Energy Master Plan, Ghana plans to increase the contribution of renewables from 42.5 MW in 2015 to 1,363 MW in 2030, while reducing its dependence on biomass and providing renewable energy electrification schemes for 1,000 off-grid communities. Clearly, the 2019 renewable targets fall far short of a net-zero target by 2030 and will need to be updated considering recent ambitions.
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While Ghana poses little or no risk to foreign investors because of outright expropriation, President Nana Akufo-Addo’s government continues to manipulate the tax system to squeeze additional revenue out of individuals and companies.
Following on from the four new taxes unveiled in Finance Minister Ken Ofori-Atta’s 2021 budget, a new Electronic Transaction Levy of 1.75% on the value of all digital transactions below 100 cedis a day (USD14.6) or 3,000 cedis a month was unveiled in the 2022 draft budget -- which as of February is still awaiting parliamentary approval -- in an effort to capture additional revenues needed to support the economy.
Moreover, the standard rate of value-added tax will in future be applied to all firms, excluding retailers with annual turnovers of less than 500,000 cedis a year. There has, however, been a reduction of the withholding tax on sales of unprocessed gold from 3% to 1.5%. The move is designed to help reverse the significant decline in export by small-scale miners, although it will be warmly welcomed by corporate producers and exporters of bullion.
The Russia and Ukraine crisis which started in February 2022 has reverberated across Africa. This includes Ghana which, while benefitting from increased fiscal receipts as a result of oil prices breaking the USD100 per barrel mark, has also resulted in marked increases in transport costs –up 15% in February alone – with further increases expected to work their way into food and electricity prices in the months ahead.
Significantly higher inflation, particularly in the form of higher fuel and food prices, will put additional strain on already stretched household budgets, which Bank of Ghana Governor Ernest Addison may be forced to respond to with higher interest rates at a time when the economy is still struggling to bounce-back from the impacts of the COVID-19 pandemic.
Social tensions, already elevated by the emergence of the #FixTheCounty youth protest movement, which has spread from cyberspace to the streets, are likely to be amplified by renewed inflationary pressures.
A suspected jihadist incident in the northwest region adjacent to Burkina Faso in January is being seen as a timely reminder that Ghana is not immune to the terrorism and violent extremism which has affected some of its regional neighbours, including Burkina Faso, Niger and Mali, in recent years. The Defence Ministry called on Ghanaians not to be complacent, to remain on alert and to report suspicious persons to the authorities.
The Ghana Armed Forces have been on high alert since last year following the success of the Islamic State of West Africa Province (ISWAP) in routing Nigeria’s Boko Haram Islamic extremist movement, along with French President Emmanuel Macron’s decision to scale down France’s military presence in Mali after more than a decade of failed attempts to contain Islamic extremism in Africa’s Sahel region.
Ghana’s land borders were closed in March 2020 following the outbreak of COVID-19, and while its air borders were opened in September 2021, the country’s land borders have remained closed -- not least of all out of security concerns -- in the face of mounting protests from border communities.
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With inflationary pressures mounting due to rising oil prices on the back of the Russia and Ukraine crisis, Bank of Ghana Governor Addison can be expected to come under mounting pressure to increase the prime lending rate following last year’s 100 basis point cut to 13.5%, in a bid to help stimulate the economic recovery.
Fiscal receipts are likely to rise sharply this year while oil prices remain above USD100 a barrel, although this will be offset by rising fuel and food prices which will tighten the screws on consumer spending. The government will nonetheless press ahead with its plans to widen the tax base, with a target of more than doubling tax receipts from income tax to 28% of gross domestic product (GDP) over the next two years.
Further downgrades in Ghana’s sovereign credit rating have raised renewed concerns over Ghana’s level of public indebtedness, which is now at or at least approaching the unsustainable levels attained two decades ago when the country was granted debt relief under the Highly Indebted Poor Country initiative. The Finance Ministry has responded to the downgrades by accusing the ratings agencies of “institutionalised bias” against African countries.
There are now signs that longstanding investor complacency over Ghana’s high level of public indebtedness may be coming to an end as investor appetite for any additional debt issues appears to be waning. Fresh credit rating agency downgrades, rising inflationary pressures and falling levels of foreign direct investment are indicative of a potentially bumpy road ahead for the highly indebted, commodity-dependent West African country.
As Ghana enters 2022, the combination of high public indebtedness – in excess of 80% of GDP – and anticipated increases in inflation, and rises in interest rates needed to contain it, are making many investors anxious.
Ghana’s fiscal receipts will certainly benefit from rising oil prices, but with output down to an estimated 150,000 barrels per day, falling from nearly 200,000 barrels per day in 2019, increased revenues will not be as great as they might have been had production remained at pre-COVID-19 levels.
The finance minister has intimated Ghana will not be issuing any more debt in 2022 and will not return to the international capital markets until investor appetite for Ghanaian debt improves. But without fresh borrowing or reductions in spending plans, the country will be hard-pressed to implement its cherished public spending programmes.
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