Increased Gold and Oil Exports to Boost Growth in Ghana


Thursday, June 29, 2017 9:07 AM / BMI Research

BMI View: Ghana will see robust economic growth in the next few years led by rising oil and gold exports. Private and government consumption will also see gains, although growth in these subcomponents will be relatively constrained in the face of the still elevated interest rates and efforts by the Ghanaian government to maintain its deal with the IMF.

Ghana's real GDP growth will rebound in the next year after a slowdown in oil production saw growth weaken between 2014 and 2016. Rising oil output and improving cocoa and gold production will boost exports.

Meanwhile, private and government consumption will also see gains, with the former benefiting from slowly falling inflation, and the latter set to benefit from the new government's efforts to fulfil its campaign proposals.

The still elevated interest rates and Ghana's desire to maintain its deal with the IMF, requiring fiscal prudence, will constrain the extent of growth of these subcomponents.

On the back of these developments, we forecast Ghana's real GDP growth to reach 6.3% in 2017 and 6.2% in 2018, from a decade-long low of just 3.8% in 2016.

TEN Oilfield and Gold Mine Expansion To Boost Exports

Rising oil output and modest gains in gold and cocoa production will offer significant tailwinds to Ghana's export growth.

After the TEN oilfield came online in August 2016, we expect it will continue to ramp up operations in the years ahead, which will massively boost Ghana's oil output in the coming years. Indeed, we expect oil output to increase by 15.2% and 26.6% in 2017 and 2018 respectively.

Gold exports are also set to increase modestly as Golden Star has brought its Wasaa Gold Mine on line, which we expect will increase the country's gold production 1.5% in 2017 and 1.0% in 2018.

Gold is Ghana's single biggest export, making up 38.5% of total exports in 2016, meaning any increase in output will have a significant impact on exports.

Rising cocoa production will also support exports in 2017 due to excellent growing weather in the 2016/17 harvest, although we expect harvests will be less productive in subsequent years.

Falling Inflation To Provide Tailwinds for Consumption

Private consumption will be bolstered by rapidly cooling inflation, falling interest rates and improving investor sentiment. Since its peak of 19.2% y-o-y in March 2016 inflation has fallen dramatically to 12.8% by March 2017.

We forecast that headline inflation will average 13.0% in 2017 and 9.3% in 2018, enabling monetary easing to continue. The easing cycle has already seen loan growth recover from 8.6% y-o-y in June 2016, the weakest growth since April 2011, to a robust 18.3% in January 2017 (latest available data).

The recovery won't be dramatic as the policy rate is still very high at 23.5% and only likely to decrease to 22.0% by end of 2017, but the positive trajectory will support consumption growth.

Increasing government spending will also offer tailwinds to growth, although the uptick in spending will likely be far less than indicated in the government's 2017 budget projections.

The budget projected a 13.7% increase in spending to fund over 216 factories as well as numerous development projects and such investment would boost GDP.

While we anticipate some increase in spending, Ghana's desire to maintain its commitments under its programme with the IMF will temper the extent of spending.

This will only be exacerbated by the revelation of a previously undisclosed USD1.6bn hole in the budget, inherited from the previous administration.

Consequently we expect to only see a modest uptick in government spending, curtailing the extent of growth in government consumption.

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