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Ghana ranks best investment hub in the Sub-region and Africa

Adnan Adams Mohammed

Ghana has been ranked the best nation among it peers in Sub-Saharan region for trading and investment, Fitch Solutions Operational Risk Index has indicated.

Ghana’s Trade and Investment Risk assessment scored of 50.9 out of 100 to outperform the West Africa average of 36.4. The score also was the second best on the continent while ranking 88th out of 201 markets globally.

Despite the global challenges facing the economy, the report pointed out that Ghana’s markets have strong fundamentals, including a track record of private investment in energy infrastructure, comparatively high political stability and security, and a relatively diverse competitive landscape. It however expressed worry about the depreciation of the cedi which it said will in the near term make private investors more reluctant to invest in Ghana’s infrastructure sector.

It therefore does not expect private investments to meaningfully cushion the negative impact of subdued public infrastructure spending on the market’s construction industry growth.

“We expect that a substantial depreciation of the cedi against the US dollar in 2022 will in the near term make private investors more reluctant to invest in Ghana’s infrastructure sector”, Fitch Solutions, the research arm of rating agency Fitch, has noted in the report released last week. “We thus do not expect that private investment will meaningfully cushion the negative impact of subdued public infrastructure spending on the market’s construction industry growth.”

The index reported also concluded that, Ghana scored 51 out of 100 in the Crime and Security Risk parameters to outperforms the West Africa average of 33.3 and also ranked first place in Africa.

Below is the full report from Fitch:    

Lower Public Investment To Slow Down Ghana Construction Industry Growth

Key View

•       We forecast Ghana’s construction industry to grow by 4.1% y-o-y in 2022, a slowdown compared to the estimated growth of 5.7% y-o-y in 2021. Ghana’s infrastructure construction industry is unlikely to benefit from higher oil and gold prices, as we expect that increased public revenues will be channelled towards debt servicing and Ghana’s high public wage bill rather than capital projects.

•       We expect that a substantial depreciation of the cedi against the US dollar in 2022 will, in the near term, make private sector investors more reluctant to invest in Ghana’s infrastructure and construction sector and offset the adverse impact of subdued public infrastructure spending on the market’s construction industry growth.

We forecast Ghana’s construction industry to grow by 4.1% y-o-y in 2022, a slowdown compared to the estimated growth of 5.7% y-o-y in 2021. Unlike in other markets, Ghana’s infrastructure construction industry is unlikely to benefit from higher oil and gold prices, as we expect that increased public revenues will be channelled towards debt servicing and Ghana’s high public wage bill rather than capital projects, as Ghana’s access to international capital markets will be constrained in the near term.

Accordingly, we forecast government capital expenditure to shrink to 3.3% y-o-y of GDP in 2022 and 2.9% y-o-y of GDP in 2023, down from 3.7% y-o-y in 2021. While this puts capital expenditure levels above those in 2018-2020, when Ghana’s construction industry growth averaged -0.1% per year, it remains below the comparatively high annual average levels of 4% of GDP between 2010 and 2017, which enabled the construction industry growth rates averaging 8.1% per year.

In 2023, we forecast Ghana’s construction industry growth to accelerate slightly as we forecast the depreciation of the Cedi against the USD to slow down to 4.6% y-o-y.

Generally, this will reduce revenue risks for foreign investors, while lower inflation will improve demand for residential and non-residential construction.

However, Ghana’s access to international capital markets will remain constrained and will continue to weigh on public infrastructure spending as well as the market’s construction industry growth.

Muted Public Spending Limits Construction Growth

Ghana – Government Capital Expenditure, % of GDP; Construction Industry Value, real growth, % y-o-y

Despite the market’s strong fundamentals, including a track record of private investment in energy infrastructure, comparatively high political stability and security, and a relatively diverse competitive landscape, we expect that a substantial depreciation of the cedi against the USD in 2022 will, in the near term, make private investors more reluctant to invest in Ghana’s infrastructure sector.

We, thus, do not expect that private investment will meaningfully cushion the negative impact of subdued public infrastructure spending on the market’s construction industry growth. We forecast that in 2022, the Ghana cedi will depreciate by 22.7% against the USD, significantly increasing revenue risks for the foreign investors that rely on expatriation of revenues.

Economic Openness Boosts Operating Environment In Ghana

Ghana & Regional Average – Trade & Investment Risk

Note: Scores out of 100; higher score = more attractive market. Source: Fitch Solutions Trade and Investment Risk Index

At the same time, Ghana ranks in first place out of the 16 West African markets included in our proprietary Fitch Solutions Operational Risk Index.

With a Trade and Investment Risk score of 50.9 out of 100, Ghana outperforms the West Africa average of 36.4 and ranks in a competitive 2nd position regionally, and in 88th place out of 201 markets globally.

Similarly, with a Crime and Security Risk score of 51 out of 100 Ghana outperforms the West Africa average of 33.3 and ranks in 1st place regionally and in 90th place out of 201 markets globally.

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