Previous Quarterly Editions
Expropriation Risk: 51 51 48 49 ► Political Violence Risk: 36 37 39 39 ► Terrorism Risk: 42 42 42 45 ▲ Exchange Transfer and Trade Sanction Risk: 35 35 45 44 ▲ Sovereign Default Risk: 66 66 66 66 ►
TREND ►
Ghana is currently struggling to contain the impact of a third wave of COVID-19 infections in which the Delta variant is now taking hold. The pandemic has reversed years of progress in poverty reduction, pushing millions of the country’s 30 million people back into penury. Official data, which shows some 100,000 infections and 800 deaths, belies the full impact of the disease in a country which has failed to secure vaccines on the scale initially hoped for -- Ghana has managed to procure only two doses per 100 population. President Nana Akufo-Addo’s ruling National Patriotic Party (NPP) hopes to receive some 18 million vaccines by October, which should boost the government’s public heath response -- providing they materialise.
Increased health costs are putting an additional strain on the public finances, which is unlikely to ease soon. Ghana’s debt-to-GDP (gross domestic product) ratio is now 83.5% -- higher than it was when the country’s debt was written off under the Highly Indebted Poor Country initiative two decades ago. The prospect of a return to macroeconomic stability is unlikely to occur much before 2023-24. Despite this, the government is intent on raising an additional USD2bn on the international capital markets later this year, following on from its success in issuing USD3bn of fresh debt in March, which was two times oversubscribed.
Lower than average rains have resulted in a return of rolling blackouts and brown-outs, as the national grid struggles to meet demand. Low water levels have meant that the country’s hydro plants have been unable to operate at full capacity, which is costing business some USD2mn a day in lost production. At the same time, rising international oil prices have seen an increase in fiscal receipts, which may help the government meet its target of reducing the fiscal deficit to 9.5% of GDP this year. The government also hopes to bolster its finances by doubling tax receipts to 28% of GDP by 2024, via widening the tax base.
The NPP government poses little or no risk to foreign investors as a result of outright expropriation, especially given the judiciary’s commitment to upholding property rights. In Ghana, the risks are more subtle, arising out of the government’s manipulation of tax rates and the imposition of revenue-raising levies.
Finance Minister Ken Ofori-Atta’s 2021 budget saw the introduction of four new taxes: a COVID-19 health levy, which saw the National Health Insurance levy increase from 2.5% to 3.5% and value-added tax increase from 3% to 4%; a new sanitation and pollution levy, funded by increased taxes on diesel and petrol; an energy sector recovery levy, also funded by increased taxes on diesel and petrol; and a financial sector clean-up levy, with a tax on bank profits before tax of 5%, to be reviewed in 2024.
The Bank of Ghana cut the prime rate by 100 basis points to 13.5% in May, in a bid to boost the economic recovery. The government also plans to issue a USD2bn “Social Bond” in November, which would make Ghana the first sub-Saharan African country to sell debt to fund development, including education and health projects -- with free secondary education -- one of the NPP’s key manifesto pledges.
Despite the peaceful resolution of the contested 2020 presidential ballot by the Supreme Court in March, social tensions are likely to remain elevated following the sudden emergence of the so-called #FixTheCountry protest movement on social media. The novel movement, which is propelled predominantly by young Ghanaians calling for better living conditions, especially job creation, is in the process of moving from cyberspace to the streets. Social media is being harnessed to organise street protests.
Police and security forces are uncertain of how best to respond to this development. This is the first time in Ghana that social media has been exploited as a tool to put pressure on government, and this could well be a harbinger of new forms of political protest. Ghana produces an estimated 270,000 graduates a year, only 10% of whom find work in the formal sector a year after graduating.
TREND ▲
The recent success of Islamic State of West Africa Province (ISWAP) in routing Nigeria’s home-grown Boko Haram Islamic insurgent movement has triggered alarm bells across the West Africa region including Ghana, as it suggests a renewed emphasis by Islamic State (IS) on Africa as a fresh front to offset losses elsewhere in the Middle East.
In May, ISWAP stormed Nigeria’s Sambisa Forest in the north east, killing Boko Haram’s veteran leader Abubakar Shekau, and inheriting many of his followers, and much of his arsenal and finances. ISWAP’s leader, Abu Musab al-Barnawi, is a more sophisticated and effective operator than Shekau and may prove to be a significantly greater threat.
While developments in Nigeria are unlikely to have any immediate impacts on Ghana, regional governments are anxious about the medium to long-term implications for fanning the flames of the region’s other insurgent movements -- especially in the wake of President Emmanuel Macron’s decision dramatically to scale-back France’s military presence in Mali after almost a decade of trying to contain Islamic insurgents from IS and al-Qaida.
Bank of Ghana Governor Ernest Addison cut the prime lending rate from 14.5% to 13.5% in a bid to help stimulate the economic recovery from COVID-19’s impact, although it is unlikely to have much more than a nominal impact on borrowing. The government is, however, expending a great deal of energy in improving its fiscal receipts: Ghana’s tax-to-GDP (gross domestic product) ratio is poor, even by regional standards, but the NPP is hoping to rectify this by dramatically widening the tax base, with a target of more than doubling tax receipts from income tax to 28% of GDP by 2024.
At present, some 6.6 million people file a tax return. But the Ghana Revenue Authority has identified a further 14 million individuals who may be eligible to pay taxes. A tax reform outlined in the 2021 budget, in which national identification numbers will also in future serve as personal income tax numbers, is likely to mean that significantly more people will be brought into the formal economy and will therefore be subject to income tax. This is likely to prove highly unpopular.
International Monetary Fund (IMF) and World Bank interventions -- including the disbursement of USD1bn in emergency funding in April -- have helped Ghana ride out the economic headwinds that have hit the commodity dependent country during COVID-19. But while the outlook for macroeconomic and debt stability is improving, significant risks remain.
Public debt has reached 83.5% of GDP, which is higher than it was at the height of the country’s debt crisis in the early 2000s. The IMF says that debt repayments are “manageable”, but this depends on what happens to Ghana’s hard currency earnings from exports of gold, cocoa and oil, and on the impact of successive waves of COVID-19 infections.
In addition, while the financial sector clean-up has made the sector more resilient, the banks’ growing holdings of sovereign debt creates new risks. Improvements in bank anti-money laundering and anti-terrorism financing protocols have, however, enabled Ghana to exit the Financial Action Task Force’s ‘grey list’, something foreign investors will welcome.
Return to contents Next Chapter
