Ghana: Fast Money, Fast Growth

Via Ventures Africa, a detailed look at Ghana:

The Economist once labelled Africa “The Hopeless Continent”. In a U-turn it then granted Africa the label – “Hopeful Continent”. Ghana is now the fastest growing economy in the “Hopeful Continent”. More and more, the prospects for African countries are beginning to stir exciting opportunities for investors and capitalisation prospects. Significantly, the USAID has identified Ghana’s openness to dialogue a vital ingredient to its development so far. Commentators have recently iterated that considering the rapid growth Ghana is experiencing, her democracy is arguably stronger than even that of South Africa.

The story makes for an ideal ‘read’, achieving independence in 1957 from the Slave Coast and returning the “Gold Coast’ to a mechanism for economic development. Since and through exploration Ghana has discovered a wealth of oil reserves that has formed the crutch for economic growth trajectory the country has experienced to date.

With a population of 24.6 million people, Ghana is set to reach 27 million people by 2020.  With a rich heritage, Ghana has more than 100 different ethnic groups making it one of the most diverse countries on the African continent.  A positive spin of colonialism is that the official language is English.

Recently, the IMF (International Monetary Fund) estimated that by 2015 seven (7) of the top ten (10) fastest growing economies will be in Africa. In 2012 Ghana had the fastest growing economy pegging growth at annual growth rate of 13.5 percent and hitting highs of 17 percent. Despite the slow, Ghana is still forecast to reach annual growth of 8,3 percent in 2013, averaging above all other African countries. Oil was not the only revenue node for Ghana who is leveraging off the mining industry significantly comprising of Gold, Manganese and diamonds as major exports.

Currently, 60 percent of Ghana’s exports are from the mining industry resources. From the agricultural sector, pineapples, mangos and bananas are large export produce.

The main reason for the growth hike in development and inflow of capital has been the discovery of “black Gold” – oil. This has attracted significant foreign investment, exposing a hive of additional opportunities that this country has to offer.

Almost two years ago Ghana started producing oil from the offshore Jubilee field. There are two licenses to this oil field. The latest studies show estimate that Ghana’s reserves lie somewhere between 780 and 4000 million barrels. Productions can be pegged at 120 000 barrels a day and can sustain for 20 years. On average this can yield $1.8 billion annual revenue, significant enough for a country of its size in population per capita. Ghana’s potential reserves also are significantly lower than that of global suppliers i.e. Saudi Kingdom with 265 billion barrels.

Thus Ghana’s reserves form the foundation for significant contribution to speed up economic recovery and development and set up sovereign infrastructure that will benefit the generations to come and serve future economic activity.  The government has set in place policies and systems that are helping the country leverage from trade. The Ghanaian government has apportioned 5 – 20 percent of oil revenues will be allocated to a stabilization fund, yielding a safety net for future fiscal shocks that are eminent due to the current state of the global fiscal climate.

From an infrastructure perspective Ghana generates much of its revenue via her ports. In addition, with a storage capacity of 124,000,000 acre-feet (153,000,000,000 cubic m) of water, Ghana’s Lake Volta is one of the largest man-made lakes in the world. It generates via her hydro-power plant, 2000MW of power and will this will increase to 5000MW in 2020.

In brief, Ghana has established increasing revenues from other sectors, namely; textiles, fashion, natural fibres, tourism, crafts and the service industry in general.

Availability of Capital

 The banking industry in general over recent years has enjoyed not only an influx of banking services but also healthy competition. The Bank of Ghana has since and also due to the global financial crisis issued a directive that banks hold adequate working capital. By the close of December 2012, a minimum operating capital of GH¢60 million ($32 million) was to be held by banks. By the end of December 2012, all foreign commercial banks complied, but local banks experienced difficulty meeting the deadline.

Another reality is that the Ghanaian Stock Exchange does not yield the capability to assist local banks beef up their reserves.

It seems that competitive retail banking products have a place in the Ghanaian financial services sector. Strategic partners are needed to beef up liquidity positions by financing compulsory delivery systems via loan facilities. Ghanaian commercial banks, some of them at least do require recapitalization and probably this can be done through mergers, trading agreements and capital facilities.

The opportunity brings about potential brand injection and exploration, especially in the light of capital intensive gearing for economic and infrastructural development projects. Any mergers may also require internal cost cutting to increase liquidity, possibly stripping a competitive edge.

Current banks are looking to the capital markets for recapitalisation in response to policy changes triggered by weak links in the global banking system.

So why add this to the article?

The global financial meltdown exposed weaknesses but also exposed Africa as a recipient of aftershocks from the US and Europe. In addition, Africa is making progress in spheres of economic performance and management but this is hindered by a weak financial architecture.

Considering that 100 out of 128 banks in Nigeria failed and collapsed as a direct consequence of liquidity readings, mismanagement, extensive overtrades notwithstanding regulatory deficiencies, including not being able to compete with foreign banks. There was also overlap in terms of these banks playing in the Ghanaian market, lending the effects.

Since 2011 five Ghanaian commercial banks have not been able to meet the trading liquidity requirements.

The two aspects of an economy cannot be unbundled from each other. There has to exist, sector resources that form critical parts of economic activity and the other plugin is the financial sector that must liquid, regulated with a sustainable conscious and benefit the continent.

This entry was posted on Sunday, February 17th, 2013 at 9:26 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.