Country risk: Ghana remains a safe bet ahead of its elections

Ghanaian fishermen: Riding the waves, much like their country

As in other countries, Ghana is having to cope with the Covid-19 shock weighing on its macroeconomic indicators, softening GDP growth and widening the fiscal deficit.

In April, the IMF predicted the country’s GDP would grow in real terms by just 1.5% this year, before picking up pace again in 2021. The current account was seen temporarily widening to 4.5% of GDP, and the fiscal shortfall to 10% of GDP. 

A few months on, it seems an even worse outcome is possible, with the world crisis worse than envisaged.

Despite this, Ghana has performed admirably in recent years and there is no reason why it should not do so in future, given its political strengths, which are largely responsible for the improvement in Euromoney’s country risk survey this year.

Ghana seems to have achieved relatively durable political stability, especially following the many years of political instability (coups) in the 1970s 

 - Augustin Fosu, ISSER

Whereas many countries have been downgraded by analysts, Ghana is one of Africa’s successes, gaining risk points (implying it is safer), and moving up eight places in the global rankings to 75thfrom 174 countries, making it the fourth safest investment on the continent behind Botswana, Namibia and the Seychelles.

That means Ghana is on a par, on investor risk terms, with Russia and Mexico, two countries with higher credit ratings but also becoming riskier in Euromoney’s ‘crowd-sourcing’ survey of economists and other risk experts, and a safer bet than South Africa, which is now around two points worse off, ranking 83rd.

Lockdown measures

Augustin Fosu, professor at the Institute of Statistical, Social and Economic Research (ISSER), University of Ghana, is a contributor to the survey who says the government has handled the Covid-19 situation quite well through a measured lockdown.

A three-week partial lockdown was lifted on April 20. So far the country has had just 199 deaths from the disease, though it is early days and the number of cases is still rising.

Naturally, the economy will be affected, but Ghanaian authorities and multilateral lenders have stepped-up to provide considerable support.

The Bank of Ghana too has responded by lowering its monetary policy interest rate, its reserve requirements for banks and specialised deposit-taking institutions, and commercial banks’ capital buffers, among other measures to ease liquidity strains.

Besides this, Fosu points out the country has performed adequately since the economic reforms of the 1980s: “This has led to Ghana being selected as a role model for development success in Africa”.

Also Ghana is a standout because its political risks are low by regional standards and have continued to improve. This year, all six political risk indicators have ameliorated, notably the information access/transparency and government stability factors, despite the onset of elections towards the end of this year.

“Ghana seems to have achieved relatively durable political stability, especially following the many years of political instability (coups) in the 1970s,” says Fosu.

“The immediate post-independence period actually sowed the seeds in terms of building a nation-state by not encouraging regionalism. 

“Paradoxically, this feat required authoritarian centralism, which subsequently led to political instability; when the country subsequently adopted electoral democracy in the wake of the 1992 constitution, there was less incentive for military coups.

“There have also been active attempts to obviate violence during elections, despite the usual fierce contests between the two leading parties”. 

Investor friendly

Investors cannot overlook the fact that democracy is rated highly in Ghana and that an investor-friendly regime will be preserved whichever party wins the forthcoming general election scheduled for December 7.

The presidential race will once again see Nana Akufo-Addo of the New Patriotic Party take on his predecessor John Dramani Mahama, representing the National Democratic Congress. Mahama won in 2012, but Akufo-Addo took the prize four years later.

The NDC, favoured by more older voters – as opposed to the NPP, which seems more attractive to those who are younger – with a female vice-president nominee boosting its appeal among women, is more likely to win the election, although the latest poll does not attempt to assess actual voting intentions.

Akufo-Addo has continued with his predecessors’ affordable housing project and hospital building, and is promising more industrialization as well as compensation for investors in failed financial institutions in an effort to encourage voters to entrust him with a second term.

It might just work, but analysts are not overly concerned.

Ghana’s political risks are not about to spike and its diversified international markets and commodity export base, which includes oil, gold, cocoa and timber among its prized resources, make it an attractive market.

Indeed, as Ghana’s risks have eased consistently for many years, it only serves to underscore the fact that where political and social stability is assured, it is often associated with decent long-term returns.