Ghana – Hydrocarbons to Fuel Strong Growth


Thursday, November 09, 2017 5:25 PM / BMI Research 

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The Ghanaian economy will post strong headline growth in the coming years, due chiefly to a huge increase in output from the hydrocarbon sector. Growth will be more modest in other sectors of the economy, but improving access to credit will facilitate a gradual acceleration. 

Ghana will see a rebound in real GDP growth in the coming years, following a challenging 2016. Economic gains will be led primarily by the strong performance of the hydrocarbons sector, though the large services sector will also begin to accelerate as monetary easing gradually boosts credit to consumers.

The large agricultural sector will offer a somewhat more mixed picture over a multiyear time horizon, with structural constraints set to weigh on growth, though this will not be sufficient to undermine the largely positive economic trajectory of the country.

In light of these factors we expect that Ghana's economy will see real growth of 6.3% in 2017 and 6.2% in 2018, up from 3.7% in 2016. Finally, we note that the risks to this already positive growth forecast likely lie to the upside, with scope for a series of deals with China to boost infrastructure and mining growth.

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Extractive Sector Leading the Charge

The chief source of Ghana's strong growth in the coming quarters will be the hydrocarbons sector. The TEN oilfield has already begun to come online and further rigs are poised to become operational in Q417. Meanwhile, the Ghana National Petroleum Corporation ('GNPC'), Vitol and Eni have completed the Sankofa oil and natural gas project ahead of schedule. In light of this our Oil and Gas team have revised up their forecasts for Ghana's oil and gas output, now expecting a 35.0% increase in output in 2017 and 60.0% in 2018. 

Illustrating the dominant impact of hydrocarbons on GDP, headline growth was 6.6% y-o-y in Q117 according to the Ghana Statistical Service, while non-oil growth was only 3.9%. Gold production will see more tepid growth, despite the opening of the Wassa gold mine in January 2017, as the government's attempts to crack down on illegal mining will weigh on overall gold output in the coming months and years.


Nevertheless, the enormous uptick in oil sector growth will ensure extractive sector will remain the key driver of growth in our forecast period.

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Monetary Easing To Offer Support to Services Sector

We also expect the tertiary sector of the economy will slowly begin to post more significant gains in the coming quarters as monetary easing facilitates credit growth, boosting previously tepid consumer demand. An expansion in the financial services sector has been hampered by high interest rates, after the BoG enacted a sharp hiking cycle in 2014- 2016, which made Ghana's policy rate one of the highest in the world.


However a more benign inflation environment has prompted a shift to monetary loosening; we have already seen 450 basis points (bps) worth of cuts since January 2017 and anticipate 150bps more.


Likewise, we expect that retail will see a boost as a combination of monetary easing and cooling inflation encourages greater consumer spending. We therefore expect to see the services sector grow at a greater pace over 2017 and 2018, albeit more modestly than the extractive sector.


Growth in Agriculture to Be Modest

The agricultural sector has a somewhat more mixed growth outlook over a multiyear time horizon. The majority of Ghana's farmers are smallholders and they have struggled to grow output due to a lack of irrigation and fertilisers, caused in part by difficulty in accessing credit. Monetary easing will therefore offer some support to the agricultural sector as a whole.


Meanwhile, cocoa will see a bumper harvest in 2017, posting 21.5% growth. In 2018 though, a combination of low global prices and funding shortfall for government buyer Cocobod – delaying payments to farmers – will see production drop into negative territory.  

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Chinese Deals Offer Significant Upside Risks

While our core view anticipate that Ghana's real GDP growth will easily outpace regional growth, there is a major upside risk to our forecasts stemming from a series of agreements made during the Vice President of Ghana's trip to China in June. Around USD15bn worth of deals were signed, aimed to foster investment into Ghana which could see the country's bauxite sector developed more substantially as well as offering funding for the Ghanaian government's industrialisation and development projects.


These deals have the potential to put enormous tailwinds behind construction, mining and infrastructure and could also facilitate some industrialisation. However, for now, given significant questions about both the feasibility of a number of these projects as well as a lack of details on the timing, we have not yet factored these projects into our forecasts (see 'Chinese Deals Likely Not A Game Changer', July19).  

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