Recently Rand Merchant Bank, the Corporate and Investment Banking arm of FirstRand Group, in the 2019 edition of its annual “Where to Invest in Africa” report ranked Ghana as the 9th best investment destination on the continent. We produce here the key aspects of the bank’s presentation on Ghana at First National Bank’s Economic and Business Breakfast Forum as presented by Celeste Faucconier and Neville Mandimika. TOMA IMIRHE provides the accompanying narrative.
Even though Ghana has dropped five places down the rankings of Rand Merchant Bank as one of Africa’s best investment destinations – it places 9th for 2019, down from 4th in 2018 – it is still an impressive placing for a country that has been under an International Monetary Fund supervised programme since April 2015, and is only now emerging from a currency crisis which at its peak gave its national currency the dubious distinction of being the worst performing currency among 140 tracked worldwide by Bloomberg.
Firstly, RMB sees fiscal expansion and recovery in loan growth boosting non-oil growth in2019 and 2020. Importantly the bank forecasts faster growth for Ghana than the average for sub-Saharan Africa from now to at least 2022.
The analysts expect inflation to taper off and remain in single digits through 2019. They identify the reasons for the cedi’s volatility since 2015 but forecast an end of 2019 exchange rate of GHc5.20 to US$1. They provide seven solid reasons why they expect the cedi to be stable for the rest of this year. Indeed, they expect an exchange rate of GHc5.36 to US$1, even one and a half years from now – by September 2020 -meaning they trust that Ghana will provide better local currency stability than most other alternative investment destinations in sub-Saharan Africa.
The report shows that Ghana is more exposed to the sentiments of foreign investors through their higher holdings of local bonds than the average for emerging markets world wide, but this is also a show of confidence in Ghana by the international portfolio investment community. Ghana ranks 6th out of 23 emerging market economies tracked by RMB with regard to the proportion of local bonds held by foreign investors and actually expects the proportion of local Ghana bonds held by offshore investors to rise from the current level of 40 percent to about 55 percent by the start of 2022.
RMB rates Ghana, over the forecast period 2019 to 2021 as a leading performer with regards to GDP growth but average with regards to both inflation and current account balance (which the analysts forecast will remain in deficit) over the next three years, as compared with the other African leading investment destinations.
The analysts see cause for worry though. For one thing, there are worries about election year spending. RMB acknowledges the new 5 percent of GDP cap on the fiscal deficit but insists that Ghana needs to establish a track record of compliance before investors will fully have faith.
Another worry is the effect of cuts in capital expenditure on growth, as revenue shortfalls persist.
RMB expects the public debt as a proportion of GDP to fall to 58 percent this year (in fact it already has) but predicts that high debt servicing costs and local currency depreciation will keep this key ratio above 50 percent over the medium term.