Previous Quarterly Editions
Expropriation Risk: 49 52 52 52 ►Political Violence Risk:39 39 39 39 ►Terrorism Risk:42 45 47 48 ▲Exchange Transfer and Trade Sanction Risk: 35 35 25 44 ▲Sovereign Default Risk:66 66 66 65 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Ghana’s foreign policy, under both the New Patriotic Party and the National Democratic Congress – the two main political parties which have alternated in power since the end of military rule in the 1990s – is officially non-aligned, although the country’s market economy, democratic institutions and political sympathies place it firmly in the Western ideological camp.
The country’s broadly Western alignment remains uncontested, although this has not inhibited successive governments from courting development assistance from multiple sources including China, particularly in the oil and gas and infrastructure sectors following the discovery of significant offshore oil and gas deposits in 2007.
Ghana has, for decades, relied heavily on Western capital to help develop its agriculture, mining, and oil and gas sectors, though both foreign direct investment in, for example, the gold sector, which generated exports of in excess of USD5.9 billion in 2020, and issuing multiple Eurobonds on the international capital markets, to help fund key infrastructure and social development programmes.
While Western capital was harnessed to develop the offshore Jubilee and related oil fields, Ghana wasted no time courting Chinese capital to help fund related oil and gas infrastructure. This included a USD800 million loan from the state-owned China Development Bank in 2011 to build a gas pipeline linking offshore production to a new onshore gas processing plant and thermal power station.
Ghana is likely to be a beneficiary of China’s decision in September to write-off loans to some 17 African countries, as part of Beijing’s efforts to counter U.S. accusations its lending policies amount to ‘debt-trap diplomacy’. China remains Washington’s main rival for influence in Africa, something many African countries, including Ghana, have exploited to increase their sources of development funding.
TREND ►
Ghana continues to pose little or no risk to foreign investors through outright expropriation. President Nana Akufo-Addo’s government, however, is now facing mounting economic and financial challenges because of the combined effects of the fallout from the COVID-19 pandemic and the Russian/Ukraine crisis.
These two external shocks have led to further credit downgrades, sharply higher inflation, and increased currency depreciation, which have forced the government to return to the International Monetary Fund (IMF) for yet another financial bailout, the seventeenth in Ghana’s history.
The marked deterioration in the country’s economic outlook forced the Central Bank of Ghana to raise interest rates by 300 basis points to 22% in August, the latest in a series of interest rate hikes this year aiming to tame runaway inflation, which reached 31.7% in July.
The interest rate hike, while painful, will be welcomed by the IMF as a signal the government is serious about initiating the reforms needed to return the country to macroeconomic stability. However, it is unlikely to be sufficient. Preparatory talks with the IMF have already started, and a deal paving the way for a new USD3 billion Extended Credit Facility is likely to be in place by the end of the year, which can be expected to include new taxes and painful reductions in government spending.
Anxious investors have been racing to offload Ghana’s bonds and cedi currency amid mounting concerns over the country’s ability to repay its debts. The retreat from Ghanaian assets has triggered sharp falls in the value of the cedi, down some 50% this year against the U.S. dollar, which has in turn led to a surge in the cost of basic necessities in everything from food to bus fares.
The sudden downturn sparked street protests against economic hardship, with hundreds of protestors demonstrating in the capital, Accra, against food and fuel price rises, and the imposition of the new tax on economic payments. Ghana police fired tear gas to disperse the protests after the demonstration turned violent.
More than two dozen protestors were arrested for pelting police with stones and other objects, and twelve officers were injured and several police vehicles damaged in the disturbances, which were unusually violent for Ghana. With further tax increase likely, and painful cuts in public spending programmes likely until the public finances are placed on a more secure footing, further violent protests cannot be ruled out.
Ghana, the only country in the Gulf of Guinea to have been spared terrorist attacks by Islamic extremists on its territory, fears recruiters have already been at work on its soil following the discovery by French counterterrorism forces of Ghana 223 area code numbers in jihadi mobile telephones.
The annual West African Centre for Combating Extremism report published in May expressed growing concern over the southward expansion of Sahelian terrorist groups, warning Ghana is an ideal fallback location for terrorist groups operating in neighbouring Burkina Faso, Cote d’Ivoire, and Togo border regions. Moreover, Ghana’s Vice President Mahamudu Bawumia warned in June that the country faced an imminent terrorism threat following recent attacks in Burkina Faso, Togo, and Cote d’Ivoire, by terrorist groups determined to expand beyond landlocked Sahelian countries.
President Akufo-Addo also appealed to the U.S. for help countering the terrorism threat facing his country, which he said arose out of the country’s decade-long fight against terrorism in the Middle East and elsewhere during a meeting with a congressional delegation evaluating USAID programmes in the country.
Inflation soared to 32.7% in July, the highest year-on-year increase for 20 years. The cost of diesel has more than doubled, while petrol is up by 85%, causing widespread pain across the economy. Although oil prices remain around USD100 a barrel, bringing in much needed foreign exchange, all other fiscal receipts are down sharply due to the economic downturn. Ghana is heavily dependent on imports of refined products as the Tema Oil Refinery only has a capacity of 30,000 barrels per day, while demand exceeds 170,000 barrels per day.
Two major fiscal policy measures have greatly exacerbated the government’s roaring budget deficit: the clean-up of the banking sector, and the abolition of school fees for 15- to 18-year-olds. The IMF has confirmed Ghana’s debt-to-GDP ratio increased from 65% to 80% during the COVID-19 pandemic, and government attempts to improve debt sustainability have failed to convince investors that they are fit for purpose, hence the twin flight from the cedi and Ghanaian debt.
The government insists “the ravages of the pandemic, worsened by the effects of Russia’s invasion of Ukraine” are the primary causes of Ghana’s economic woes, but investors have lost confidence is the country’s ability to manage its finances, forcing it to go ‘cap-in-hand’ again to the Fund.
Ghana’s deteriorating economic and financial outlook triggered across-the-board sovereign credit downgrades in August from BBB to CCC, thereby preventing the country from tapping the international capital markets for fresh loans to help it navigate the current crisis.
The government therefore had no option but to seek an IMF bailout. The 300-basis point interest rate hike to 22% imposed by Central Bank of Ghana to shore-up the cedi and help tame inflation is only a first step, with more pain is on the way before the country has any prospect of bringing some stability back to the public finances.
Ghana’s fiscal position was already in jeopardy before the pandemic and the fallout from the Russia/Ukraine crisis starting in February 2022 reverberated across the global economy, and it is likely to be some years before macroeconomic stability returns to the highly indebted West African country.
President Akufo-Addo has pledged to return the country to the average 7% economic growth rate it experienced between 2017 and 2019 by 2024. However, with more austerity on the cards for the foreseeable future, there is likely to be a political price to pay at the ballot box in the 2024 presidential election.
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