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Sep 22, 2011

Economy remains appealing


The fundamental equity story for Ghana remains appealing: the economy is arguably the fastest-growing in the world and fiscal and monetary policy continues to promote a relatively stable backdrop for future growth, the latest African Markets Revealed report by Standard Bank has said.

The report, titled “African Markets: Navigating slowing global growth currents”, predicts that the country’s economy is expected to grow by 16.3 percent this year -- but will slow down to 8.25 percent in 2012.

According to provisional figures for the first quarter of this year, Ghana’s real GDP grew 23.0 percent year-on-year -- up from 9.5 percent year-on-year in the last quarter of 2010, making it the fastest-growing economy in the world.

This month, the International Monetary Fund (IMF) projected the country’s economy to grow around 13.0 percent this year, supported by the start of oil production and the strong performance of other sectors of the economy.

“We are reasonably happy that the eventual framework (which includes a benchmark oil price formula, a stabilisation fund and a future generation fund) will be robust,” said Standard Bank.

After months of delay, the country finally passed an oil revenue management bill and related legislation setting out local content -- the level of obligatory Ghanaian participation in the sector.

Ghana pumped oil for the first time on Dec. 15, 2010. Initial output had been expected to normalise in the second quarter at 120,000 barrels per day (bpd), rising to 250,000 bpd by 2013 -- placing the country among the world's top 50 producers.

Industry analysts say if used properly, oil is a potential game-changer for Ghana -- helping it to consolidate its transformation from an aid-reliant economy.

But with an election looming, questions remain over how well government can use the oil money and manage the high expectations that it creates.

Although the report predicts that next year’s Presidential and legislative polls are likely to be closely run again, it cautions that the key political risk in coming months remains excess fiscal spending.

However, it is quick to point out that “we do not envisage the fiscal excesses seen in the run-up to the Dec 08 elections, which led to significant macro-economic instability. Economic overheating remains a real risk, but it is on the same page with the IMF in giving the government the benefit of the doubt on its fiscal plans.

The Mills administration will spend an additional GH¢1.46billion this year, following the approval by Parliament of a supplementary budget in August.

According to government, the extra spending was necessary to build infrastructure and social projects to create jobs.

Touching on the local currency, the mother-company of Stanbic Ghana says the Ghanaian cedi has basically traded sideways against the dollar in a 1.50-1.54 range since the sharp move in January 2011, and the core scenario is for this range to persist in coming months and probably into next year.

The Bank of Ghana left its policy rate unchanged at 12.5 percent this month, but the country’s year-on-year inflation rate rose for the first time in six months to 8.41 percent in August from 8.39 percent in July.

Ghana, the second-largest cocoa grower, hit 1million tonnes in the just-ended 2010/12 season due to good weather and improved farming techniques.

Standard Bank’s African outlook includes comprehensive data and analysis for twenty African economies across the continent.

These include Angola, Botswana, Côte d’Ivoire, DRC, Egypt, Gabon, Ghana, Kenya, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Rep of Congo, Senegal, South Africa, Tanzania, Tunisia, Uganda and Zambia.

Standard Bank Group says that the downward pressure on global economic growth will almost certainly impact the growth outlook for the African continent.

Stephen Bailey-Smith, Standard Bank Group's Head of Africa Research says: “The relative isolation of sub-Saharan Africa (excluding South Africa) from global markets and trade flows will however again serve it well, limiting macroeconomic instability and downward growth pressures.”

Source: B&FT/Ghana