Links to the State Department’s website for background on the country’s political environment.
Ghana offers a relatively stable and predictable political environment for American investors. The country has a solid democratic tradition, having organized seven successful general elections since returning to democratic governance in 1992. After another handover of power in January 2017, the New Patriotic Party (NPP) assumed the reins of government, ousting the opposition National Democratic Congress (NDC). Though there are other registered political parties, the country seems to be heading in the direction of a two-party state since the other parties have seen a steady decline in their political fortunes. In the 2016 General elections, NPP and NDC posted a combined share of 98 percent of votes in the presidential race and the current 275-member Parliament is made up of elected representatives from only these two parties.
The next general election is scheduled on Dec. 7, 2020. Despite the effects of the coronavirus pandemic on Ghana’s economy and healthcare system, the country’s Electoral Commission has indicated that it will go ahead with organizing the elections, mainly to avoid a potential constitutional crisis where the mandate of the current government would expire without a legitimately elected successor.
The two main political parties have concluded their internal processes of selecting the candidates to represent them in both the presidential and parliamentary elections and these were largely peaceful, with a few reported incidences of violence. There are also a few individuals seeking to run as independent presidential and parliamentary candidates.
After a series of objections mainly from the opposition party and some civil service organizations to the decision of the Electoral Commission to compile a new Voters Register to guide the election, the matter was settled when Ghana’s Supreme Court gave the Electoral Commission the go ahead to compile the Register according to the Electoral Commission’s plan.
It is expected that the elections will proceed peacefully without threat to the country’s stability.
The Ghanaian economy can be described as resilient with a positive outlook despite the effects of the global coronavirus pandemic. This is mainly due to the strong fundamentals that have been developed in the past few years, thanks to good economic management and fiscal discipline exhibited in adherence to recently enacted legislation. Notable among these are the Fiscal Responsibility Act, 2018 (Act 982), which places a 5 percent cap on the fiscal deficit in any given year; Public Financial Management Act, 2016 (Act 921); Public Financial Management Regulation, 2019 (L.I. 2378).
Though the world economy is expected to take a huge hit as a result of the global coronavirus pandemic, Ghana is expected to experience a reduced rate of growth rather than the economic contraction forecast for some countries. Ghana concluded a four-year $925 million Extended Credit Facility arrangement with the International Monetary Fund (IMF) in 2019. The arrangement was aimed at restoring debt sustainability to foster a return to high growth and job creation while protecting social spending.
The positive effect of the arrangement has already been felt. The Ghanaian economy outperformed the world economy since 2017. The country experienced a GDP growth rate of 6.26% in 2018, while the GDP growth rate in 2019 was 6.5%. The initial projection for Ghana’s GDP growth rate for 2020 was 6.79%. However, as a result of the effects of the global corona virus pandemic, this has now been revised downwards to 1% GDP growth in 2020.
The services subsector continues to be the leading contributor to Ghana’s production, with an output of 46% of GDP in 2019. It is followed by the industry subsector, which contributed 34%. Agriculture contributed about 20% to Ghana’s GDP in 2019.
2020 Budget Summary
The Budget Statement and Economic Policy of the Government of Ghana for the 2020 Financial Year, called, “Consolidating the gains for growth, jobs and prosperity for all,” highlights the following key areas of focus for the Government:
- Advancing plans to establish Ghana as an international financial services center – this is to build on the recent financial sector clean up and steadily advance plans to realize the Government’s vision of establishing Ghana as a regional financial services center in West Africa.
- Broadening domestic revenue mobilization – rather than impose new taxes on the Ghanaian populace and businesses, the focus going forward will be to make domestic revenue mobilization more efficient with the implementation of fundamental policies and institutional reforms that will lead to a growth in the tax-to-GDP ratio from the current 13 percent to 20 percent over the medium term.
- Digitization of the economy – aimed at formalizing the Ghanaian economy by leveraging technology to improve administrative systems and increase transparency of operations in the country.
- Implementing business regulatory reforms – aimed at empowering local businesses and fast-tracking the country’s ambition of being the gateway to business in the West African region.
- Accelerating infrastructure development – the aim is to strengthen the capacity of the Ghana Infrastructure Investment Fund (“GIIF”) and other infrastructure-focused savings funds such as the Ghana Petroleum Funds (“GPFs”) to leverage the global financial markets.
- Intensifying the drive for foreign direct investment – linked to the agenda of implementing business regulatory reforms to hasten the transformation agenda and attract foreign investment.
- Science and technology development – to support the industrialization agenda over the medium- to long-term. An effort will be made to complement advances in human capital in the education sector with a push to develop the national technological capability.
- Enhancing financial support to local enterprises – the government aims to deploy in 2020 a number of initiatives including, but not limited to, the establishment of a new National Development Bank; the Ghana Incentives-based Risk-Sharing System for Agricultural Lending (“GIRSAL”); the Ghana Commodity Exchange; a strengthened Venture Capital Trust Fund that will enhance access of Ghanaian businesses (irrespective of the stage in the business cycle) to finance, including medium- and long-term capital.
Most of the economic indices have been pointing in the right direction in recent times. Inflation, for instance, has been well managed. It ended the year 2019 at 7.2 percent. For the first quarter of 2020, inflation rose slightly, to 7.8 percent, however due to the effects of the imposition of lockdown restrictions as one of the measures to curb the spread of the global coronavirus pandemic, there was a rush to stock up on mainly food items, which led to excess demand ,and hence the rate for April 2020 rose to 10.6 percent and further rose to 11.3 percent in May 2020.
The domestic currency, the cedi, experienced a 12.9 percent depreciation against the U.S. dollar in 2019. It however started 2020 on a very strong note and was even voted the best performing currency in January 2020 by Bloomberg. However, the currency has weakened more against the dollar since the global pandemic took hold, and it is projected to end 2020 with a depreciation of 8.6 percent against the U.S. dollar.
Interest rates in Ghana continue to be high mainly because of monetary policy by the Central Bank, the high cost and risk of doing business and a high default rate. The monetary policy rate, which serves as the basis for most commercial banks determining their interest rate, is pegged at 14.5 percent in mid-2020.
Summary of growth prospects in 2020
After the preceding three-year period, when growth in GDP was driven by increasing output in the extractive sector, especially that of oil and gas, the main drivers of growth for 2020 are investments in construction and manufacturing. This will therefore mean many infrastructure projects such as roads, schools and hospitals and the establishment of more manufacturing plants to boost domestic production.
Foreign Exchange Controls
Since the enactment of the 2006 Foreign Exchange Act, there are no restrictions on payments for goods and services being imported into Ghana. However, banks must submit reports of all payment transactions to the Bank of Ghana. Residents and non-residents are permitted to maintain foreign exchange accounts with local banks. Importers are allowed to undertake imports through direct transfer from these accounts up to $50,000 without pre-submitting documentation (an increase from $25,000 in 2014). Foreign exchange bureaus are in operation throughout Ghana.
The Central Bank has taken steps to stem the tide known as the “Dollarization of the Economy,” which is a trend where many products and services are quoted in U.S. dollars rather than the domestic currency. Although the practice is prohibited, it is still common in advertising and sales of real estate, automobiles, hotel accommodation, rent and education, especially schools offering international courses. The current rule is for institutions that believe they have a business case for pricing their products or services in U.S. dollars may apply for a license from the Central Bank, however many businesses that do not have such licenses still engage in the practice.
The Central Bank has given strong indication that it will no longer grant such licenses and strictly enforce the laws by identifying and prosecuting such offenders.
Effects of the coronavirus pandemic
Like most countries around the world, Ghana has been affected by the pandemic. A three-week partial lockdown of major metropolitan areas in April 2020; supply chain interruptions and workforce interruptions caused by self-quarantine; and the closing of Ghana’s airport to international passenger flights have contributed to a slowdown in economic activity. Working with international and domestic public health organizations, the government has tried to achieve a balance between fighting the pandemic with border closures, limits on large gatherings, school closings; contract tracing and quarantine measures and keeping the economy running. Fighting the pandemic with the proper protective equipment and testing materials has led to significant unplanned expenditures, which have to be financed to the keep the economy afloat.
The government accessed a $1 billion Rapid Credit Facility from the International Monetary Fund in April 2020, which carries an interest-free five-and-a-half-year moratorium and must be repaid in 10 years’ time. The main areas of expenditure of the facility are to finance the 50 percent subsidy granted on electricity and water consumption and the additional allowance and tax incentives to all frontline workers engaged in the fight against coronavirus, and as a general budgetary support.
As a result of the expected loss in production, there has been a downward revision in the GDP growth rate from more than 6 percent to a maximum growth rate of 1 percent in 2020.