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THE INTERMARKET YEARBOOK 2014 / 2015 CONTENT The Intermarket Research Yearbook highlights key issues in Ghana’s economy and the stock market with a view to presenting a summary account of the preceding year, while looking forward to the year-to-come. It is put together by the research arm of Intermarket Group; a financial Services Company in Ghana operating in the savings and loans, asset management, stock brokerage, corporate advisory, commodities trading, shortterm finance, and insurance segments of the economy. o o o o o o Foreword Ghana’s Political Scene Economic Review Stock Market Performance Special Reports & Insights News Highlights of the Year FOREWORD • • • Significant risks to the global economy has arisen from deflationary fears in Europe and Japan; steep price declines in oil and gold arising from geo-political issues and faltering growth in China. With an increasingly globalised world economy, these developments are expected to have important consequences for the sub region and Ghana. Ghana’s economy in 2014 was itself bedeviled by hyper currency depreciation in the first three quarters of the year; only easing in the final quarter due to the country’s successful third Eurobond offer and receipts from the forward sale of cocoa. The shortfall of electricity generation persisted from 2013 into 2014 and affected economic activity resulting in a slowdown in growth from 7.2% in 2013 to a • projected 6.9% in 2014. The fiscal deficit remained in the double digits in 2014 with the total government debt stock edging above 60% of the country’s Gross Domestic Product (GDP). These have prompted rating agencies such as Standard’s & Poor’s and Fitch to downgrade the country’s debt. In the face of these economic challenges, the government is currently seeking funds support from the International Monetary Fund (IMF) and though discussions are still on-going, there are indications that the traditionally austerity-leaning policies of the IMF will dominate the economic governance regime in 2015. This will include revenue generation measures such as the recently announced 17.5% Special Tax on Petroleum and the Value Added Tax on Financial Services. Government is also expected to rein in its expenditure and this is expected to result in the low growth projections for 2015 of 3.9% (2015 Budget Statement). However, despite the short term economic difficulties that are anticipated for 2015; Ghana’s medium to long term prospects are very bright. The recent commencement of production of the Atuabo Gas Project and the continuing development of the TEN oil and gas fields represent a significant addition in terms of the country’s gross domestic product, energy sufficiency and current account balance. Ghana’s status as an island of political stability and important investment destination in the fastdeveloping sub-saharan African region is also a critical factor that could help lift the country from its economic doldrums as early as the fourth quarter of 2015. POLITICS 2015 GHANA’S POLITICAL SCENE • Political activity has not quieted despite the end of the official electoral period after the decision by the Supreme Court in 2013 concerning the election petition brought before it by the opposition New Patriotic Party (NPP). This fervor is expected to persist into 2015 and could result in a quite volatile political climate in 2016. This is however, not expected to escalate into a major conflict situation in the country or threaten the relatively established democratic structures of Ghana. • The major political parties, the National Democratic Congress (NDC) and the New Patriotic Party (NPP) have conducted their internal elections for polling stations, constituencies, regional, national executive officers and a flag bearer; with the exception of the expected acclamation of the sitting president, John Mahama as the flag bearer for the NDC. • The 2016 elections will therefore be a replay of the battle in 2012 between President John Mahama and Nana Addo Dankwa Akufo Addo. There is the expectation that 2015 will see strategic positioning by the two parties to present themselves as the party ready to govern the country beyond 2016. The issue of a ‘secondterm’ will be crucial as Ghanaian voters are more likely to retain Mr. Mahama if they view 2016-2020 as his second term as President rather than the third term of the NDC. SPECIAL REPORT – Ghana in the 2014 Global Competitiveness Report • The 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Ghana was ranked 111th out of 144 countries in the 2014 Global Competitiveness Index published by the World Economic Forum (WEF). Ghana ranked 114 in 2013. Below are the areas the country did well and also the sectors which need improvement and are important policy issues to consider as we enter the The electioneering period. 1. 2. country’s best performances are in; 3. Intellectual Property Protection 4. Judicial Independence 5. Wastefulness of Government Spending 6. Efficiency of Legal Framework in Settling 7. Disputes 8. Strength of Investor Protection 9. Quality of Management Schools 10. Extent of Market Dominance 11. Effect of Taxation on Incentives to Invest 12. Total Tax rate as a % of Profits 13. Effect of Taxation on Incentives to Work 14. Women in the Labour Force 15. Financing through Local Equity Market 16. Venture Capital Availability 17. Legal Rights 18. Nature of Competitive Advantage 19. Capacity for Innovation 20. Corporate Spending on R&D country’s worst performances are in; Business Costs of Terrorism Organised Crime Quality of Overall Infrastructure Quality of Electricity Supply Fixed Telephone Lines Government Budget Balance Inflation HIV Prevalence Infant Mortality Life Expectancy Quality of Primary Education Secondary Education Enrolment Internet Access in Schools Intensity of Local Competition Prevalence of Trade Business Burden of Customs Procedures Flexibility of Wage Determination Redundancy Costs Individuals using Internet Fixed Broadband Internet Bandwidth THE ECONOMY ECONOMIC REVIEW • • • • On the economic front, a number of factors including a steep depreciation in the cedi, high interest rates and increases in utility and fuel prices in the domestic economy have raised the general cost of living and inflationary pressures and affected business and consumer confidence for most of 2014. Economic performance, as measured by growth in the Gross Domestic Product (GDP), however was relatively robust and the medium-term prospects of the country are • bright. Recent Economic Developments The economic challenges of the country in 2014, though short term in nature, are important considerations for any business activity. These are further enumerated below: • High Budget Deficits – There was a record budget deficit in 2012 of 11.5% of GDP. The figure for 2013 was 10.1% with a provisional 2014 deficit of 9.5% of GDP (GHC 10.9 biliion). Inflation on the Rise –End Inflation rate for • 2013 was 13.1%, above the single-digit target set by the Bank of Ghana. November Inflation for 2014 was 17%. • Depreciation of the Cedi – The Cedi depreciated by an average of 12% against major trading currencies in 2013. Depreciation in 2014 was almost 30%. High Public Sector Wages & Labour Agitations – Public Sector Wages for 2014 is projected at GHC 11 billion or 70% of non-earmarked tax revenues. Further efforts by Government to control the impact of this recurrent expenditure in 2014-2015 are expected to result in more labour disputes and agitations. High Public Debt & Interest Payments – Public Debt is currently at $21.70 billion (60.8% of GDP). Total Interest Payments for 2014 is projected at GHC 7.8 billion (22% of Total Expenditure) The Issue of Unemployment – Youth unemployment remains a big issue for government to address. Energy – The shortfall in Ghana’s electricity generation has persisted for three years now and is undermining the manufacturing sector and general economic growth. ECONOMIC REVIEW(2) • • Structure of the Economy Ghana is a lower middle income economy with a GDP per capita of about US$1,900. The sectoral distribution of Ghana's GDP are as follows: services (50%), industry (30%) and agriculture (20%). However, in terms of workforce, the agricultural sector employs more than half of the workforce (55%), being mainly small landholders. The services sector employs 30% of the total • labour force while industry absorbs 15%. Headline Inflation - Headline inflation rose from 13.80 per cent in January 2014 to 17 per cent in November, 2014. The increase during the year was driven by a variety of factors; depreciation of the cedi, rising fuel prices at the pump, transportation price hikes, increase in utility prices by over 100 per cent and the impact of a much weaker fiscal stance. Looking ahead, the inflation projections show that inflationary pressures are likely to persist for the first quarter of 2015 but will begin to taper-off from the second quarter, bringing down inflation towards the target ranges of 10 to 12 per cent by close of 2015. • • Interest Rates - The Bank of Ghana policy rate increased to 21.0 per cent in October 2014 from 16.0 at the beginning of the year in response to underlying inflationary pressures. The interest rate on the 91-day Treasury bill rate for December 2014 is 25.81% (19.22% in January, 2014). Similarly, as at December 2014, the rates on one-year and two-year fixed notes stood at 22.50% (17.00% at the end of December 2013) and 23.0% (16.80% at the end of December 2013) respectively. We expect further depreciation in the interest rates in 2015 to between a range of 15% - 18%. Performance of the Ghana cedi - On the currency market, the Ghana cedi posted significant losses against its major trading currencies for the first three quarters of 2014. The depreciation of the Ghana cedi was caused by intense demand pressures for foreign exchange, fuelled by strong import demand and premature redemption of portfolio investments by non-residents. By August 2014, the Ghana cedi has depreciated on the interbank market by 29% against the US dollar year-to-date. During the same period, the Ghana cedi depreciated by 29% and 26% against the pound sterling, and euro respectively. There was however, some stability at the end of the year and this will persist in 2015. Gross Domestic Product (GDP) - GDP growth slowed from 7.9% in 2012 to 7.1% in 2013. Provisional data from the Ghana Statistical Service (GSS) indicated GDP growth of 6.7% for 2014. Growth figures for 2015 are projected at 3.9% 2015 BUDGET HIGHLIGHTS • • • • • • The 2015 Budget Statement was presented under • the theme; “Transformational Agenda: Securing the Bright Medium Term Prospects of the Economy”. The following are summaries of major issues and • policies outlined in the statement; Government’s clearing of all outstanding arrears • on the Single Spine Salary Structure (about GHC 3 billion) Completion of Ghana Gas pipelines and processing plant to exploit 200 billion cubic feet • of gas from the Jubilee fields Plans to issue energy bonds that draw on synergies among the Balance Sheets of capable State Owned Enterprises (SOEs) and the private sector. There is therefore a possibility of a second line of longer term Cocoa Bonds by COCOBOD to fund its long term capital and infrastructure needs • The takeover of Ghana National Gas Company by GNPC to create a gas subsidiary for the latter. Also the possibility of further consolidation • involving TOR and BOST. Implementation of the remaining VAT measures for fee - based financial services and commercial real estate with a change in the VAT on real • estate to a flat 5 percent Imposition of Special Petroleum Tax of 17.5 percent as part of a rationalization of VAT regime and change in the petroleum pricing structure, including a reversal of excise tax on petroleum from ad valorem to specific Extension of the National Fiscal Stabilization Levy of 5 percent and special import levy of 1-2 percent to 2017 Increase the withholding tax on Directors’ remuneration from 10 percent to 20 percent. Cap on the Ghana Stabilisation Fund revised to a moving cap, beginning with US$300 million from January 1, 2015 and, rising to a maximum of US$400 million during the year. Remove VAT on specified locally produced pharmaceuticals and some of the raw materials used for the production of these pharmaceuticals. Government will also remove import duty and VAT on inputs for the production of machetes and also the production of exercise books and textbooks. Import duties on smartphones will be removed. Operationalize the Sinking Fund to manage the orderly redemption of Sovereign Bonds and other debt instruments The Ghana Infrastructure Investment Fund is to begin effective operations in 2015 after the announcement of the Board and Advisory Council members. Creation of a Ghana Export-Import Bank to lead in the strategic positioning of Ghana as an export -led economy. 2015 BUDGET HIGHLIGHTS Indicators Real GDP Growth (inc. oil) Real GDP Growth (non oil) Nominal GDP (GHC) Agriculture Sector Industry Sector Services Sector Inflation Broad Money Supply (M2+, Growth) Credit to the Private Sector (Growth) US Dollar/Cedi Pound/Cedi Euro/Cedi Trade Deficit Balance of Payment Deficit Gross International Reserves Fiscal Deficit (% of GDP) Public Debt Stock Public Debt (% of GDP) Total Revenue & Grants Total Expenditure & Arrears 2014 6.9% 6.2% 110b 5.3% 4.6% 4.6% 16.9% 33.6% 50.6% 31.19% 29.32% 23.63% $681.3m $699.7m $5.68b 9.5% $21.73b 60.8% GHC 25b GHC 32b 2015 Projections 3.9% 2.7% 131b 2.9% 5.2% 3.9% 11.5% n.a. n.a. n.a n.a. n.a. n.a. n.a. n.a. 6.5% n.a. n.a. GHC 32b GHC 39b INSIGHTS & SPECIAL REPORTS INSIGHT – Prince Abbey (Head, Research) Intermarket G h a n a ’s E c o n o m i c C h a l l e n g e s i n 2 0 1 4 The Issues & Solutions • • • HOW WE GOT HERE: GOVERNMENT’S BORROWING It is important that in prescribing possible solutions to our economic malaise, we first try to decipher the root cause of the problems. This is important, firstly, because it enables better recommendations suited to our particular • circumstances and secondly, because it could help prevent this from happening again. The issue of government’s borrowing has tended to be a hotbed of political dispute and hence a murky area to debate. We however, believe this to be a classical economic problem that, not only is it not a problem unique to this • administration; but that it is not even a uniquely Ghanaian problem. It is inherent in the nature of financial stability in that ‘Stability breeds Instability’. This is described by Hyman Minsky (a prominent American Economist) as being about how the non-government sector causes financial instability by moving from hedge borrowing to • speculative borrowing and then to ‘ponzi’ borrowing. Hedge borrowing is when the borrower is capable of paying both the principal and interest of the debt from current cash flow generated by investments. Speculative borrowing is when the cash flow can cover the interest payments but is unable to pay for the principal. The last stage is ‘Ponzi’ borrowing where the borrower is aware that his current cash flow from investments is unable to cover either the principal or the interest on the debt. When there is a certain critical mass of ponzi borrowers in an economy, then financial crisis becomes imminent. This analogy is well applicable in the case of governments; when as in the case of Ghana, borrowing is done not based on the present ability to pay back the principal and interests on the debts; but rather premised on anticipated revenue inflows from our main export commodities; Cocoa, Gold and Oil. This means that in the years that the global commodities markets are unfavorable to our traditional exports, there is a severe shock to the economy, resulting in the nation becoming cash-strapped; a depreciation of the cedi and a galloping increase in prices of goods and services. Though it can be argued that this phenomenon is not peculiar to Ghana; our intense and partisan political atmosphere has exacerbated an already difficult situation and resulted in very rapid business cycles, which can be termed as ‘political-economic cycles’ of 4 and 8 years. G h a n a ’s E c o n o m i c C h a l l e n g e s i n 2 0 1 4 The Issues & Solutions • • • Government tends to spend heavily on capital projects in election years; raking in huge budget deficits that are mostly financed by debt. In the situations where revenue inflows miss the mark as in 2012-2013; government suddenly has very • little room to maneuver and the hang-over from the debt binge results in a major economic headache. This analysis lays the foundation to now look at some possible solutions in the short-term. However, as a postscript, it is possible to address, fundamentally, this recurring problem of government borrowing by separating the functions of government between capital expenditure and recurrent expenditure. This means that recurrent expenditure such as the statutory funds and workers’ compensation will remain a function of the current structure of government finance and will be discharged solely from revenues that accrue to government in the year. Capital expenditure, on the other hand, will no longer be financed directly from government revenues; but rather a combination of a special tax; such as the Infrastructure fund tax out of VAT, and private investments. This new system of implementing capital projects can be overseen by an Economic Council; comprising the Government’s Economic Management Team, National Development Planning Commission and representatives from Parliament. The institutional framework must be built to edge out any semblance of partisanship in deciding capital projects, and spending must be strictly restricted to whatever funds have been raised. This Council will also help prevent the arbitrariness of capital project implementation across the country and could result in a more holistic approach that could significantly transform the country. The Solutions Ahead Recommendations of the Senchi Report (Page 15) Building the Institutions to Manage Ghana’s Economic Transformation (Page 16) Energizing Economic Growth in Ghana: World Bank’s Report on the Power Sector (Page 20) A Brief on the Economic Partnership Agreement (Page 22) Ghana as a Commercial Economy (Page 26) SPECIAL REPORT – Recommendations of the ‘Senchi Report’ • • • • • • • • • • Government should use its leverage as the largest borrower to influence interest rates • downwards Pension funds could provide long-term finance for infrastructure development. The role of the • pension funds subsector should therefore be critically examined and appropriate legislation introduced to leverage resources in the sector for growth-oriented projects. A national vision should be anchored in selected • high-impact flagship programmes and projects in which the country can develop comparative and • competitive advantages. The following may be considered: Building key infrastructure projects, such as • highways, ports, ICT backbone An integrated petroleum sector (oil and gas); Agricultural transformation with special emphasis on agro-processing, cocoa processing, and exports; Efficient exploitation and value addition of the extractives industry (the non-oil industry). Minerals – (e.g. bauxite and iron ore); • Tourism development Government subsidies should be made efficient, structured and targeted The number and functions of statutory funds should be reviewed with a view to prioritising and rationalising them and, subject to the applicable legal and administrative considerations, • aligning their use with the priorities of the national budget. There is the need to review the Pensions Act to allow the investment of pension funds in longterm investments such as electricity. Substitute blanket input subsidies such as tractors and fertilizers with the provision of guaranteed prices for some selected goods that can be produced on a large scale, as happens in the case of cocoa, for instance. Industry should not be made to subsidise residential usage of power. Municipal bonds need to be quickly introduced and used in a manner that they are not part of the central government debt. Bank of Ghana should accelerate the automation of forex bureaux operations; Enforce already existing rules and regulations and enhance the supervision of the forex bureau segment of the market; and Review the licensing regime of forex bureaux by increasing minimum capital requirements. Regulators should be made to make listing on the Ghana Stock Exchange a licensing requirement for all commercial banks, telecommunication companies, insurance companies and mining companies. This will enable us to improve on the stability of the local currency, as not all the profits will be transferred outside the country as dividends. SOLVING ‘SENCHI PROBLEMS’ WITH INSTITUTIONS– Building the Institutions to Manage G h a n a ’s E co n o mi c Tr a n s f o r ma t i o n Depreciation of the Currency: • • One of the main issues raised by the Senchi • Consensus was the lack of policy credibility in managing the fundamentals of the macroeconomy., hence the need for institutions. In this regard, we first recommend the setting up• of a National Currency Board to regulate the country’s foreign exchange market and manage the Cedi. A Currency Board is a monetary authority that makes decisions about the valuation of a nation's currency, specifically whether to peg the exchange rate of the local currency to a foreign currency, an equal amount of which is held in reserves. The currency board • then allows for the unlimited exchange of the local, pegged currency for the foreign currency. GHANA CURRENCY BOARD A currency board can only earn the interest that is gained on the foreign reserves themselves, so those rates tend to mimic the prevailing rates in the foreign currency. The value of this system is that questions of currency stability no longer apply. The drawbacks are that the country no longer has the ability to set monetary policy according to other domestic considerations, and that the fixed exchange rate will, to a large extent, also fix a country's terms of trade, irrespective of economic differences between it and its trading partners. Specifically in Ghana’s case, currency boards have advantages for our small and open economy which already find independent monetary policy difficult to sustain. Currency Boards can also form a credible commitment to low inflation. Building the Institutions to Manage G h a n a ’s E c o n o m i c Tr a n s f o r m a t i o n Fiscal Indiscipline: GHANA ECONOMIC COUNCIL • There is also a concern about addressing fundamentally the recurring problem of government’s huge fiscal deficits and borrowing. We propose that an option to finding a permanent and realistic solution to this problem is by separating the functions of central government between capital expenditure and recurrent expenditure. • This means that recurrent expenditure such as the statutory funds and workers’ compensation will remain a function of the current structure of government and will be financed solely from • revenues that accrue to government in the year. Capital expenditure, on the other hand, will no longer be financed directly from government revenues; but rather a combination of a special tax; such as the Infrastructure & Investment Fund tax on VAT, and private investments. This new system of implementing capital projects can be overseen by an Economic Council; comprising the Vice President, Government’s Economic Management Team, National Development Planning Commission and representatives from Parliament. The institutional framework must be built to edge out any semblance of partisanship in deciding capital projects and spending must be strictly restricted to whatever funds have been raised separate from government’s traditional revenue sources. This Council will also help prevent the arbitrariness of capital project implementation across the country and could result in a more holistic approach that could significantly transform the country. Building the Institutions to Manage G h a n a ’s E c o n o m i c Tr a n s f o r m a t i o n Revenue Mobilization: • A significant problem for government is the low • and significantly undiversified tax revenue sources. This means that government must borrow to finance, sometimes, not just for capital expenditure but recurrent expenditure including interest payments on the loans. • The fact that about 70% of Ghana’s economic activity is in the informal sector means that very few Ghanaians carry the tax burden and there was a consensus at Senchi that this class of Ghanaians feel overtaxed. • • An Informal Sector Tax will be a tax on all registered businesses that market or sell their products and services through the informal sector. The tax will be an ad-valorem tax on the proportion of sales that flow through the informal channels. Consequently, sales made through formal channels will escape the tax. I N F O R M A L S E C TO R TA X The proposed Informal Sector Tax for Ghana will have a number of impacts on our economic fortunes. First, it will increase the revenue in taxes for government. Secondly, this increase in taxes will eventually be a tax on the Informal Sector though it will first be applied on the Formal Sector, as businesses in the informal sector would be forced to register their businesses if they are to escape the effects of the punitive tax. Thirdly, this will in effect result in the growth of the formal sector of Ghana’s economy; improving productivity and market viability. Building the Institutions to Manage G h a n a ’s E c o n o m i c Tr a n s f o r m a t i o n L o n g Te r m D e v e l o p m e n t : • • NATIONAL MARKETS AUTHORITY The Consensus noted many structural problems • with several market systems in our economy including the financial markets, foreign exchange markets, money markets, capital markets, insurance and pension funds and leasing markets. These markets also feed into the real sector markets such as agricultural financing, trade markets and entrepreneurial development. This role as facilitator will be different from the traditional regulators of these markets as it will take a more forward and aggressive approach in pushing for the key factors of a good market structure such as Availability of Information, Liquidity, Low Transaction Costs, and Internal Competition • They will also operate across many different markets which mean they will be able to adopt a more holistic approach to creating a developed Ghanaian economic market that is resilient and at the same time vibrant, and delivers sound economic growth even in challenging times A facilitating body, as in a National Markets Authority could be set up to address the identified market imperfections. Their role will be to make the various markets work for consumers, businesses and the economy. SPECIAL REPORT– Energizing Economic Growth in Ghana: Wor ld B a n k ’s R e p o r t o n t h e Powe r S e c t o r • The focus of this World Bank Report was to highlight specific policies and decisions that Ghana’s government needs to take to ensure that Ghana’s emergence as a middle-income economy is not held back by the energy sector. Their recommendation centered on Government making a concerted effort to “think big” and provide more direct and proactive leadership to the energy sector. This report comes on the back of a decade or so of periodic major energy disruptions that threatens to derail the years of economic gains made by the country. A major, avoidable power crisis in 2006–7 is estimated to • have cost the country nearly 1% in lost growth of gross domestic product during those years. Five years later, Ghana once again was plunged into power shortages, which also could have been avoided if lessons from the past had been learned and decisions taken to ensure that adequate dual-fuel generation capacity was built. The present recent power shortages, arising from maintenance works and a cut-off of imported gas from Nigeria, could have been mitigated if Ghana’s own gas from the Jubilee field had been developed in a timely manner in parallel with oil production that began in 2010. The Report identifies two major challenges faced by the power sector arising from forces external to the sector: these are the lack of adequate and secure quantities of reasonably priced fuel for power generation, and the lack of adequate public funds to finance the sector’s investment requirements. These challenges are exacerbated by the poor technical and financial performance of the Electricity Company of Ghana (ECG) and Volta River Authority (VRA), and policies and practices that seriously damage the financial health of ECG, VRA and the Ghana Grid Company Limited (GRIDCo). SPECIAL REPORT – Energizing Economic Growth in Ghana: Wor ld B a n k ’s R e p o r t o n t h e Powe r S e c t o r • • • • • • • • • • The recommendations of the Report can be summarized in these 17 points; Large-scale private-sector investment is essential to generation. Power sector subsidies have reached unsustainable levels. Performance of ECG, VRA, PURC, and EC needs improvement. Natural gas is essential for current and future power generation. Gas-based power generation will be much more expensive than hydro generation, and oil-based generation will be much more expensive than gas-based generation. Energy efficiency and demand-side management can be much cheaper than thermal generation. Pay ECG amounts owed by public bodies. Take over VRA’s short-term debt incurred for Light Crude Oil purchases. Appoint top-notch technical adviser on Independent Power Producers in the Ministry of Energy. Formalize GRIDCo’s responsibility for preparing the indicative medium- and long-terms plan for power generation requirements. • • • • • • • Merge Bui Power Authority with VRA. Shut down VALCO until generation using Light Crude Oil ceases, or else the subsidy should be borne directly by the national budget, not the power sector. Reassess the clearinghouse payments mechanism to institute direct payment of electricity bills by as many state bodies as possible Task the Energy Commission to draw up aggressive energy efficiency and demand-side management plans in all end-user sectors. Set professional eligibility criteria for Board membership of energy sector SOEs. Recognize that Power generation is the highestvalue use of Ghana’s gas. Note that delays in the flow of local gas amount to an additional cost of US$ 1 million a day for buying light crude oil. A Background on the Economic Partnership Agreement (EPA) • Over the past few months, the issues on the Economic Partnership Agreement between Europe and ECOWAS (Ghana included) have become a subject of discussion and disagreement among Ghanaians. While the Government insists that the benefits of joining the EPA outweighs the demerits; segments of civil society have insisted that the Agreement will have huge, irreversible and negative economic consequences. Below is a background on the EPAs • EPAs are trade agreements covering trade in goods and services and also ‘behind the border’ issues, such as competition, government procurement, intellectual property, and trade • facilitation. EPAs, according to the European Commission is to help to improve African Caribbean & Pacific (ACP) countries’ trade and business environment, promote growth and increase ACP’s ‘overall competitiveness’ which will, in turn, aid their integration into the global economy (European Commission, 2000: Article 3537). • In December 2007, Ghana and the EU initialed an Interim Economic Partnership Agreement (IEPA) in Accra, which provides a framework for trade in goods only between the two parties. The IEPA was necessitated by the looming deadline for the previous agreement that governed trade and aid relations between the ACP countries and the EU. The previous agreement, known as the Cotonou Agreement, had been in existence since 2000. The Cotonou Agreement was preceded by four Lome Accords. These agreements set the terms for trade between the EU and ACP from the post-colonial period of the late 1950s up to 2007. A special feature of these agreements was their being underpinned by the so-called ‘special relationship’ between the EU and the ACP Countries, which among other things, sought to grant ACP Countries preferential access to the EU market. The Lome Accords, as well as the Cotonou Agreement, however violated the WTO rules regarding Reciprocity which stipulates that trade agreements between two parties must be essentially reciprocal, have extended coverage and not create new obstacles for trade with third parties. These agreements also violated the Enabling Clause which allows for more favourable trade conditions to be applied to a group of nations defined by economic or development criteria only. The favourable treatment of ACP countries provided by the EU through the preferential guarantees in the Lome and Cotonou Agreements also contradicts the WTO principle of ‘Most Favoured Nation (MFN) Treatment’. Economic Partnership Agreement (EPA) • • Under the WTO agreements, countries cannot normally discriminate between their trading partners. When special consideration, such as a lower customs duty rate for one of their products is given to a country the same has to • apply for all WTO member countries. The EU countries and most of the ACP Countries are members of the WTO and are therefore subject to WTO rules. Consequently, there was a pressing need to replace the Cotonou Agreement with a WTO compatible agreement and the EU proposed the EPAs as the next best thing that came closest to the provisions of Cotonou Agreement without violating the WTO rules. Nonetheless, there was strong opposition to the EPAs in their original form, as they covered non-trade issues like services and investments. This resulted in a stalemate that would have proved damaging especially to vulnerable economies within the ACP, states such as Ghana. The Cotonou Agreement was also not renewable or extendable; therefore, countries governed by the agreement would have reverted to Generalised Scheme of Preferences (GSP), which applied to all developing countries. The terms of GSP are, however, much less favourable than those of the Cotonou Agreement, thus requiring the countries affected to find alternatives that matched the favourable terms of Cotonou. Moreover, it was agreed upon in principle at the signature of the Cotonou Agreement that, upon expiration, it could only be replaced by a WTO compatible accord. The expiration of the Cotonou Agreement was, however, bound to have differential impact on ACP countries within and across regions in Africa. Countries classified by the UN as Least Developed Countries (LDC), 33 of which are in Africa, even without EPA would still have full tariff-free, quota- free access to the EU market under its Everything But Arms (EBA) program. In West Africa, 12 of the 15 countries of the regional block, the Economic Community of West African States (ECOWAS), are classified LDC, with Cote d’Ivoire, Ghana, and Nigeria classified as non-LDC. Like other oil-producing countries in Africa, Nigeria is secured by its major export commodity being exempt from tariffs. Thus, for Nigeria, reverting to GSP would have no significant impact on overall exports to Europe. With respect to Cote d’Ivoire, being a member of the West African Economic and Monetary Union (UEMOA), provided a potential exit strategy should ECOWAS not had come through with a viable agreement. Economic Partnership Agreement (EPA) • • Under these circumstances, Ghana was left in the precarious position of being the only country in West Africa without a viable alternative to the Cotonou Agreement. With a budding nontraditional export sector and an economic growth strategy based on the expansion of exports, Ghana would have faced serious economic setbacks if the Interim EPA was not initialed in 2007. Exports of processed cocoa, horticultural products and tuna, among others, would have been faced with tariffs that could have threatened the viability of the entire sectors. EPA negotiations started in 2002 on an all-ACP level; in 2004 they were then devolved to the regional level. The main pitfalls were: (1) Differing interpretations of the development component. - While the ACP countries wanted to tie import liberalisation commitments to development aid arguing that guaranteed access to long-term funds is crucial to overcoming supply-side constraints and diversifying the production base, the European Commission insisted that EPA negotiations and talks on development finance were two separate issues. (2) Lack of improved market access – In addition to the lack of long-term, guaranteed funding to aid the implementation of EPAs, the EU’s DFQF (duty and quota free) market access offer was also considered insufficient. Despite the fact that 97.6% of ACP exports entered the EU market duty free in 2006, the EU was not prepared to grant full DFQF market access to ACP countries in 2008. The Commission’s ‘generous offer’ continued to restrict ACP countries’ rice and sugar exports for a period of up to seven years. As it stood, the EU’s offer amounted to little more than €100m (£75.5m) in 2008 – compared to €1.4bn (£1.1bn) were all products to be included (Overseas Development Institute, 2007d). • Two West African countries, Côte d'Ivoire and Ghana, initialed bilateral "stepping stone (or "interim") EPAs" with the EU at the end of 2007. The interim EPA with Côte d'Ivoire was signed on 26 November 2008. The interim EPA with Ghana has not been signed. Neither agreement has been ratified. West-Africa-European Union negotiations of an Economic Partnership Agreement were closed at Senior Officials level on 24 January 2014 in Dakar and by Chief Negotiators on 6 February in Brussels. On 28-29 March 2014 in Yamoussoukro, Ivory Coast, ECOWAS Heads of State endorsed 'in principle' the conclusion of the EPA. The European Union’s deadline for signing the EPA was October, 2014 Economic Partnership Agreement (EPA) • The ‘policy-hypothesis of growth’ theory states • that an open trade regime is a prerequisite for economic growth because it increases domestic competition, attracts investment, promotes diffusion of technology, stimulates cooperation and learning processes and leads to economies of scale. The EPAs will also foster ACPs integration into the world economy thereby promoting their sustainable development. • The removal of customs duties on imports from Europe, could however have serious repercussions • on national economies in Africa; A fall in customs’ levies, would induce an increase in European imports, but to the detriment of the local producers; as well as to those exporters from non-European countries. Furthermore, this reduction of customs tariffs, could trigger-off significant shortfalls in government revenues, and consequently, in public expenditure • Many African countries actually experienced a reversal in development gains as socio-economic indicators declined and unilateral preferences failed to initiate a change in the EU-ACP trade structure. ACP countries’ share of total EU imports has more than halved in the past 30 years and is still heavily biased towards a few primary products with fuels and minerals the major revenue earners (European Commission DG Dev, 2006a). Reasons for this poor impact of the Economic Partnership Agreements (EPAs) to date include the ACP countries’ manifold supply-side constraints which prevents them from increasing and diversifying their production base; the missing emphasis on ‘good governance’ and institution-building.; the unilateral character of the preferences dictated by the EU with individual countries rather than by consensus, which contributed to highly-protected, noncompetitive economies. The EPA relationship has traditionally not been marked by a ‘partnership of equals’ but by the EU’s increasing negligence of ACP development concerns. The main reason for this negligence is the fact that more and more EU member states have no colonial ties and, like ACP countries, face huge development challenges. Insight GHANA AS A COMMERCIAL ECONOMY • • • As a follow up to the discussion of the EPAs, it is important to take note of an ongoing transformation in the economy of Ghana from one of an agricultural or resource based economy to a commercial economy. This crucial distinction, if true, should inform how government addresses the current problems of the economy in the medium to long term. It could also mean that the current economic challenges the country faces are also a consequence of a false start by a fledging lower-middle income economy to becoming an increasingly commercial economy. Essentially, a commercial economy is one characterized by economic growth that is not driven by increased labour, hence jobless growth; improvements in investments and capital flow, more production or increased importation, low or reduced consumption of locally manufactured goods, currency fluctuations and the breaking down of trade barriers. If these are true of Ghana’s present economy, and one can argue they are; then it is important that government, not the Central Bank designs a more comprehensive program of economic reform to keep step with the consequences of managing a commercial economy. Some important reform ideas will include; - Developing a currency policy that will ensure competitiveness in Ghana’s international trade. This may mean keeping the cedi low, but stable, against its major trading countries in order to encourage exports and improve the balance of payments. It is important that the government aims for proven and long term strategies in maintaining a stable currency such as stringent fiscal discipline and strong growth in real GDP over a long period rather than strategies such as international capital controls and inflexible currency markets that will result in an overvalued cedi in the short term. - Developing a trade policy that is focused on industrialization. This does not necessarily mean protectionism but rather the promotion of imports that feed into industry rather than consumption. Local manufacturers should be able to import their inputs at very low tariffs while imports purely for the sake of consumption face very high tariffs. For example, it should be cheap to import leather but very expensive to import shoes. - Developing a labour policy that encourages private businesses to employ more people. This could include tax cuts and subsidies for certain sectors of the private economy that are labourintensive and labour practices that promote productivity-induced wage growth and flexibility in hiring. - An investment in technological advances in the manufacture of local goods for which Ghana has a comparative advantage over its trading partners, so as to be able to satisfy domestic demand hitherto supplied by imports. Industries that will be obviously strategic in this regard will include those in the textiles and furniture sectors GHANA’S STOCK MARKET GHANA STOCK EXCHANGE • • Trading activities on the Ghana Stock Exchange in 2014 was not impressive in terms of price appreciations , with a marginal 5.40% rise in the GSE-Composite Index, to end the year at 2,261.02 points. This compares unfavorably with a market return of approximately 79% in 2013. Financial Stocks however, fared better with 25.58% upsurge to 2,243.63 points compared to 72% return of the GSE Financial Stocks Index in 2013 Market Capitalisation improved by GH¢3.19 billion to GH¢64.35 billion from GH¢61.16 billion in 2013. The Intermarket Recommendations Index provides prospective investors and analysts with a straight-forward assessment of a stock’s potential to deliver returns in terms of share price appreciation and dividend payout in the short to medium term. The Index focuses on 3 indicators in rating listed equities on the GSE– Performance, Profitability & Perception. Performance is measured by the current trend in the share price of the stock (i.e. year-to-date return) and has a weight of 30% on the index. Profitability is measured by the Dividend Yield and the Earnings per Share and has a weight of 20% and 10% respectively. Perception makes up 40% of the Index and takes into consideration the capitalization of the stock on the market, past performance and future prospects. The top * Figures as atfor31end December, 2013 are listed in the table stocks year 2014 • Indicators Level (Dec 31 2014) % YTD Change 2,261.02 5.40% GSE Financial Stocks Index 2,243.63 25.58% Volume Traded 210,000,000 -10.71% Value Traded GHC 350 million -12.50% Market Capitalisation GHC 64,352.42 5.22% GSE Composite Index Top Gainers for 2014 HFC Bank (56%), Mega African Capital (50%), Ecobank Transnational Incorporated (47%), Standard Chartered Bank (36%), Ecobank Ghana (35%), Sam Woode (33%), Societe Generale (33%) Top Losers for 2014 African Champions (-67%), PZ Cussons (-62%), Aluworks (-60%), Starwin (-50%) Top Stocks on the Intermarket Recommendations Index Sam Woode (2.23), UT Bank (1.87), Standard Chartered Bank (1.87), Ecobank Ghana (1.74), PZ Cussons (1.72) S TO C K S O N T H E G S E Listed Companies African Champions AngloGold Ashanti Aluworks YTD Change (2014) Outlook for 2014 Listed Companies YTD Change (2014) Outlook for 2014 -66.67% NEGATIVE Golden Web -25.00% NEGATIVE 0.00% NEUTRAL HFC Bank 56.25% POSITIVE -60.00% NEGATIVE Mechanical Llyod -26.32% POSITIVE POSITIVE Ayrton Drug Benso Oil Palm Plantation CAL Bank 5.88% NEUTRAL Mega African Capital 50.00% 27.73% POSITIVE 0.00% NEUTRAL 4.12% POSITIVE -29.41% NEUTRAL Clydestone -25.00% NEGATIVE Pioneer Kitchenware Produce Buying Company Camelot Cocoa Processing Company Ecobank Ghana Enterprise Group Ecobank Transnational Fan Milk Ghana Commercial Bank Guinness Ghana Ghana Oil Golden Star -25.00% NEUTRAL PZ Cussons -62.03% POSITIVE Standard Chartered Bank 36.21% POSITIVE SIC Insurance -5.13% NEUTRAL POSITIVE Starwin Products -50.00% NEGATIVE POSITIVE Societe Generale 33.33% POSITIVE Sam Woode 33.33% NEUTRAL Trust Bank Gambia -31.43% NEGATIVE Total Petroleum 20.55% POSITIVE Transaction Solutions 0.00% NEGATIVE 0.03% -41.56% -44.44% NEUTRAL POSITIVE POSITIVE Call 0.00% 35.47% -6.91% NEGATIVE 47.37% POSITIVE -20.69% POSITIVE 9.28% POSITIVE -48.39% 17.98% -14.91% POSITIVE POSITIVE NEGATIVE (302) 667 426/668 437 Tullow Oil Unilever Ghana UT Bank for Further Details on Our Recommendations * Figures as at 31st December, 2014 Personal Note – Perseverance in the Eye of an Economic Storm • Ghana has experienced a turbulent macroeconomic situation for 2014. This resulted in a sharp depreciation of the value of the cedi especially during the first three quarters of the year; an increasing rate of inflation; an energy crisis and high utility prices. • How are you; an individual or business going to survive and thrive during this economic downturn? How are you going to persist in spite of the difficulties or the delay in achieving economic and financial success? We will discuss 10 Perseverance tools you can use to weather the storm and keep your personal and business finances in order. • • Perseverance Tool 1 – Cash is King; Keep a substantial part of your income in cash and • near-cash investments; such as short-term investments and interest bearing accounts. This will help you guard against unexpected crisis and also to take advantage of unanticipated opportunities that can arise. A strong cash-flow also gives you flexibility in regards to business decision-making. Perseverance Tool 2 – Beat Inflation; Put your money in investments that give you returns that beat the inflation of your basket of goods (Note that the general inflation; currently at 17% may be very different from your personal inflation). Therefore don’t simply keep your cash in a bank account or stuffed away. A good rate for an investment this year should be about 25% to enable you earn a positive return over inflation (Such investments include fixed income investments and stocks). Perseverance Tool 3 – Don’t Overleverage; Don’t over-borrow to finance your short-term needs; as these funds will probably come at a very expensive interest cost. Rather, make every effort to live within your means. Practice austere measures. Look at other ways of raising funds rather than loan financing; such as equity investments, mezzanine financing, leasing, bank overdrafts, and advances from customers and suppliers. Perseverance in the Eye of an Economic Storm • Perseverance Tool 4 – People Matter; This is the • time to keep up on your business and social connections. Most of the referrals you will get in these hard times will come from people who know you and trust you. Keep your employees happy and appreciated. You may not be able to increase salaries or pay bonuses but if you show that you care; they are more likely to stand by you and the business and work harder to ensure success. Seek good counsel from mentors and more successful people in your industry. Perseverance Tool 6 – Get Knowledge; Seek Knowledge as a major source of competitive advantage; develop new skills and expertise; improve your experience and education. Learn beyond your chosen professions and industry, as ground-breaking innovative ideas usually occur at the intersections of different knowledge areas. Develop ‘centers of knowledge’ in your workplace; such as organizing brainstorming meetings, training seminars and circulating opinionated articles. • Perseverance Tool 5 – Prepare for the Future; • “Never let a good crisis go to waste” ― Winston Churchill. You are already biting the bullet; so there is no reason not to do that harder now in the short term and rather make long-term strategic investments. Such difficult times are actually an opportunity to do things you thought you could never do before – There is now less opportunity cost; you stand to lose less but with potential of making great gains. Perseverance Tool 7 – Diversify Revenue Streams; Develop non-core revenue sources to augment your traditional sources. Audit your business processes and individual capabilities to see where you can develop profitable ventures and make good gains. Pursue new areas of growth such as online, mobile technology and big data. Diversifying your revenue streams also lowers your risk profile and gives you capacity to withstand unexpected shocks. Perseverance in the Eye of an Economic Storm • • Perseverance Tool 9 – Seek Help; Don’t be afraid or ashamed to seek help whenever and however. People are always more ready to help than you give them credit for and all it will take is to ask! Seek out mentors and benefactors that can support your business through ‘angel financing’; and can offer sound counsel when you are faced with a crisis situation. Talk to institutions such as your bankers, trade associations, government support and regulatory bodies, main suppliers and customers. Get these people on your side. Perseverance Tool 8 – Prioritize; There is no • better time to be good at making a list of priorities than doing these times. Have a budget list for how to use money; prioritize your time; segment your family, friends and relationships; Do the important before the urgent; Get the right people to work with and the wrong people off the bus. Absolute discipline will put you ahead of many others in the race during economic hardships. Perseverance Tool 10 – Have Faith in God; Finally, be sure that the God you serve will come through for you no matter the circumstances. ‘Weeping may endure for a night, but joy comes in the morning’. You can be assured that this economic downturn will not last long for you. Like Isaac, you will sow in the land during a time of famine and the same year you will reap a hundredfold because the Lord will bless you – Genesis 26:12 NEWS HIGHLIGHTS FOR 2014 NEWS HIGHLIGHTS OF THE YEAR • 2nd June 2014 - The Volta River Authority (VRA) has agreed a long-term deal with Gasol LNG Import Limited for the supply of gas to the state-controlled power generator for electricity generation. The conditional gas supply agreement that the VRA has signed will require Gasol to supply 100 million standard cubic feet of gas per day, providing an alternative gas supply source for the Authority. ghanaweb.com • 9th June 2014 - Tullow Oil has received approval from government to flare gas from the Jubilee Field as it awaits completion of the Atuabo Gas Project. The inability of the Ghana Gas Company to complete the gas processing facility has had serious consequences for oil production from the Jubilee Field, with operators having to re-inject the gas back into the wells. Currently, the operators of Jubilee Field have pegged average production for the year at 100,000 barrels per day (bpd). thebftonline.com • 1. 2. 3. 4. 5. 6. • 16th June 2014 - The Bank of Ghana has revised some of the measures it introduced earlier in the year to stem the steep depreciation of the cedi against other currencies. The revisions • include; Mandatory repatriation of export proceeds within 60 days has now been reversed and made dependent on agreement terms between trading partners Mandatory conversion of export proceeds within 5 days is reversed. 60% of receipts can be retained with 40% converted within 15 working days Exporters and Providers of goods and services can receive payment in foreign currency from non-residents Over-the-counter cash withdrawals permitted up to a limit of $1,000 • Threshold for transfers aboard without documentation increased from $25,000 to $50,000 Foreign currency loans to be granted by banks for international trade-related transactions 23rd June 2014 - Government’s GH¢1.8 billion indebtedness to bulk oil distribution companies (BDCs) has taken a new dimension, with the potential to negatively affect the supply of petroleum products across the country in the coming weeks. This is because international suppliers of petroleum products have put under ‘lock and key’ one week’s supply of petrol and diesel until the BDCs honour their debt obligations to the suppliers. To compound the problem, local banks have declined to issue letters of credit (LCs) to the BDCs to pay off their debts to their international suppliers because the current debt is threatening the survival of the banks. citifmonline.com 7th July 2014 - Parliament has approved a 156 million dollar loan facility between the government of Ghana and the International Development Association (IDA) of the World Bank to finance the Ghana Secondary School Education Improvement Project. The project forms part of government’s promise to build 200 new Senior High Schools across the country. Part of the loan facility will also be used for intervention programs such as scholarships for students in deprived areas who may have difficulties in paying their fees; and the provision of sanitary pads to girl students to reduce absenteeism. citifmonline.com 14th July 2014 - The government has released GHC 370 million to clear accumulated statutory payments. The beneficiaries are District Assemblies Common Fund, GHC 207,483, 526.75; Ghana Education Trust Fund (GETFund), GHC 98,096,708.29 and the National Health Insurance Levy (NHIL), GHC 63,963,001.40. Most statutory payments have been in arrears for several months and have recently been a point of a legal suit when the Courts ruled that government must make all payments to the GETFund as prescribed by law. peacefmonline.com NEWS HIGHLIGHTS OF THE YEAR • • • • 21st July 2014 - Organised Labour has declared a one-day • national protest and is asking all workers under its umbrella to boycott work on Thursday, 24th July, 2014. According to the General Secretary of the Trades Union Congress (TUC), the move is to express the displeasure of labour over government’s recent decisions on various matters and what they describe as the worsening economic situation in the country. There are indications that this nationwide protest could include workers both in the formal and informal, as the leaders of organized • labour try to rally all workers to stay away from work and converge at designated locations in Accra and other regional capitals to demonstrate. Source: ghanaweb.com 28th July 2014 - Hundreds of Importers and Exporters are set to hit the streets today to demonstrate against high levies at the ports. Their complaints include high taxation coupled with the Bank of Ghana introduced measures which means importers and exporters can no longer do internal transfers of foreign currencies. The Bank of Ghana measures include a direction that all transactions in the country should be conducted in Ghana cedis. It also stated that cash withdrawals over the counter from foreign accounts shall not exceed US$10,000 or its equivalent in • convertible foreign currency. The Association insists the costly levies coupled with the depreciation of the cedi and the general challenges with the economy may force them out of business. Source: myjoyonline.com 4th August 2014 - The Government of Ghana has directed the Ministry of Finance to open discussion with the IMF (International Monetary Fund) to support Ghana’s ailing economy. Ghana’s President, Mr John Mahama, after a meeting with his Economic Advisory Committee, “directed that immediate initiatives be taken to open discussions with the International Monetary Fund and other Development Partners” in support of Ghana’s “programme for stabilisation and growth”. Government's three-year bond was heavily oversubscribed last week by investors. Government wanted to raise about GH¢400m, but it got GH¢644m worth of bids from investors. However it would be paying about 25.4% as interest on the funds raised. Government is hoping to use proceeds from the auction to support its finances in the coming months. Commercial banks in Ghana can now import dollars, pounds and other international currencies for their operations. This follows the Bank of Ghana’s decision to lift the ban on importation of foreign exchange by commercial banks last week. This is part of the Bank’s measures to improve supply of dollars on the market and possibly help stabilize the falling Ghana cedi. peacefmonline, ghanaweb, myjoyonline 11th August 2014 - Ghana’s Central Bank has reviewed the directives it introduced some months ago to shore up the local currency against the dollar and other major foreign currencies. The directive, among other things, placed a limit of $1000.00 on over-the-counter foreign exchange cash withdrawals at the country’s banks. In a statement announcing the review, Friday, the Bank of Ghana said the directives are reviewed with immediate effect. It however stated that:"The Ghana cedi remains the sole legal tender in Ghana. Therefore, pricing, advertising, invoicing, receiving, and making payments for goods and services should be done in Ghana cedis, unless otherwise authorised by the Bank of Ghana”. ghanaweb.com 18th August 2014 - The Board of the Export Trade, Agricultural and Industrial Development Fund, in June and July this year, approved GH¢57.1million in grants and credit in favour of 28 beneficiaries. The beneficiaries of the above facility comprise 15 smallholder cooperatives and associations, eight companies and five public institutions. A grant facility of GH¢48.5million was approved in support of government’s initiatives and interventions in different sectors of the economy. Major among these was an approval of GH¢21.7million toward expanding local rice production. Also, a huge step was taken towards large-scale shea butter cultivation in Northern Ghana with an approval of GH¢3.43million. Other activities that received approval were: GH¢6.37million to support establishment of the Ghana Commodities Exchange; GH¢2.88million for the cultivation of the kenaf plant by smallholders to serve as raw material for manufacturing of jute sacks in Ghana. Approval was also given for honey production, oil palm processing, fish production and production of organic fertiliser. thebftonline.com NEWS HIGHLIGHTS OF THE YEAR • • • • • 25th August 2014 - The Bank of Ghana has moved to prevent microfinance companies in operation, from changing their names to cover their tracks after failing to manage depositor’s funds prudently. The Central Bank said the move follows its observation that some of the companies change their names in an attempt to hide liquidity challenges and seek a fresh start. The Head of Other Financial Institutions Department of the Bank of Ghana, Raymond Amanfu said the central bank took the decision to bar name-changes in the microfinance sector due to continuous abuse of that privilege by companies seeking a fresh start after undergoing difficult times. More than 50 microfinance companies have collapsed since 2013 due to poor managerial skills, while some have been used as a conduit for the perpetration of fraud through Ponzi schemes that lure depositors with absurdly lucrative investment interest rates. citifmonline.com • 1st September 2014 - A team from the International Monetary Fund (IMF) will hit the shores of Ghana this week to discuss how the country’s ailing economy can be salvaged. The team will engage government in negotiations and then fashion out a programme to suit the country’s needs as well as discuss policy alternatives with the Bank of Ghana. The Bank of Ghana financed 70 percent of the government's GH¢4.8billion budget deficit in the first half of the year, continuing a trend of excessive lending to the government which • analysts warn could harm the economy. The level of financing appears immoderate when compared to recent years, as analysis of deficit- financing sources since 2008 showed no time when the level of central bank lending to government was more than 60% of the first-half budget deficit. About a quarter of Ghanaians are poor, the Ghana Living Standards Survey (GLSS) has revealed. The GLSS, conducted by the Ghana Statistical Service (GSS), says a seven-year assessment has • also revealed that the dynamics of poverty is still very much a rural phenomenon. The report was based on the findings of sixth GLSS (GLSS6). It was carried out nationwide in 18,000 households in 1,200 enumeration areas, between October 2012 and October • 2013 by the GSS. citifmonline.com, thebftonline.com, ghananewsagency.org 8th September 2014 - Ghana will seek just $1 billion from a Eurobond this year as it heads into talks with the IMF aimed at restoring fiscal balance as part of a larger plan of economic reform, President John Mahama said in an interview on Friday. The West African country may look for further financing if it can secure an assistance deal with the International Monetary Fund (IMF), Mahama said, adding that former finance minister Kwesi Botchwey would lead talks due to start on September 16. Two emergency power barges are being constructed by the government to generate 450 megawatts (MW) of power to stabilise energy supply in the country, the Minister of Energy and Petroleum, Mr Emmanuel Armah-Kofi Buah, has said. The two power barges, each of which has 225 MW, are expected in the country by the end of the second quarter of 2015. reuters.com, ghanaweb.com 15th September 2014 - Ghana’s annual consumer price inflation rose to a fresh four-year high of 15.9 percent in August from 15.3 percent in July, the West African nation's statistics office said on Wednesday. Non-food inflation rose by 24.0 percent from July while food inflation stood at 5.1 percent in the same period, a rise of 0.1 percent month on month. The government hopes seasonal factors including the harvest will help lower inflation later this year. Ghana sold a $1 billion Eurobond on Thursday at a coupon rate of 8.125 percent, lower than analysts had expected given the fiscal difficulties faced by the West African producer of cocoa, gold and oil. The bond was oversubscribed with orders of up to $3 billion. Ghana's cocoa regulator signed a $1.7 billion loan with international banks on Thursday to finance purchases for the next cocoa season. The loan was oversubscribed by 15 percent and Cocobod will receive an additional $200 million on demand to be drawn in the first three months next year. reuters.com NEWS HIGHLIGHTS OF THE YEAR • 22nd September 2014 - The Bank of Ghana has maintained the policy rate at 19%. The Governor of the Bank, Dr Kofi Wampah in a presentation to the media on developments in the economy cited positive outlook in the general macro-economic environment to leave the rate unchanged. He said the latest forecast shows that inflation is likely to stay slightly above the revised target of 13 plus or minus two percent by the end of the year. Dr Wampah said the expected inflows from the Eurobond and the cocoa syndicated loan will provide liquidity on the foreign exchange market. Dr Wampah said the Central Bank survey on consumer and business confidence in the economy improved during the second quarter. gbcghana.com • 29th September 2014 - Ghana has taken legal action under a U.N. convention to resolve a maritime border dispute with Ivory Coast over water close to oil fields licensed by British firm Tullow Oil. Ghana filed the suit under the U.N. Convention on the Law of the Sea after 10 bilateral meetings failed to resolve the issue. The two countries have never officially agreed on the boundary and their maps of territorial waters overlap. A resolution is crucial for oil and gas exploration and it could end any uncertainty for Tullow, which first discovered the Tweneboa, Enyenra, and Ntomme (TEN) cluster development in 2009 in Ghana's Deepwater Tano licence close to the disputed area. reuters.com • 6th October 2014 - Ghana sharply raised the price it will pay • cocoa farmers for the new 2014/15 season to 5,520 cedis ($1,720) per tonne in a bid to deter smuggling to Ivory Coast, authorities have said. The rise represents a 63 percent increase on the 3,392 cedis price cocoa regulator Cocobod paid last season. It is also slightly higher than the price the world's top producer, Ivory Coast, announced this week that it would pay to its farmers for the new season. Ghana, the world's second biggest producer, will aim to produce more than 1 million tonnes in the season to begin on Friday, up from a forecast of 900,000 tonnes in the just-ended season. reuters.com • 13th October 2014 - The International Monetary Fund (IMF) estimates Ghana's debt to gross domestic product (GDP) ratio for year-end 2013 to be 56 percent, a release received from the fund on Saturday stated. It said the projection by the fund was consistent with the figures released by the Bank of Ghana, the country's monetary authority. On Wednesday, some media houses referred to the latest edition of IMF's report dubbed the Fiscal Monitor which had put Ghana's debt-to-GDP ratio at 71 percent, describing it as unsustainable. The release however explained, the 71 percent mentioned by an IMF official at a press briefing, was a projection for the end of 2015. "The number corresponds to the level projected at end-2015 under our baseline scenario published in the World Economic Outlook, which assumes the continuation of current economic policies," the statement added. Ghana accessed 1.0 billion U.S dollars in Eurobonds last month, while the country's cocoa regulator, the COCOBOD also raised 1.7 billion dollars in a forward-trade of the country's cocoa stock for next year. globalpost.com 20th October 2014 - Ghana's annual consumer price inflation rose to a fresh four-year high of 16.5 percent in September from 15.9 percent the previous month, the country's statistics office said on Wednesday. The increase was driven by non-food inflation with the highest rises in housing, water, electricity, gas and other fuels, government statistician Philomena Nyarko told a news conference. These saw 63.5 percent inflation. "The non-food inflation rate of 24.1 percent is about four times as high as the food inflation rate of 5.8 percent," Nyarko said. The overall figure is the highest since March 2010 and it left inflation well above the government's full-year target of 13 percent, plus or minus 2 percent. The government revised the target in July from an earlier 9.5 percent forecast. reuters.com NEWS HIGHLIGHTS OF THE YEAR • 27th October 2014 - Twelve labour unions, including public health and education sector workers, have declared a nationwide sit-down strike, over what they refer as "government's failure and undue delay" in paying part of their pension contributions into a private account. The mandatory work-based two-tier pension scheme is aimed at providing employees higher lump sum benefits than previously available under the Social Security and National Insurance Trust, and expected to be managed privately. The government has been working to contract Pension Alliance Trust (PAT) to manage it, although PAT, a licensed insurance company has capacity to handle this second tier, workers see it as an attempt by government to impose the firm on them. Instead they are calling on government to allow full operationalisation of the Public Sector Pension Scheme expected to focus more on public sector workers. theafricareport.com • 3rd November 2014 - The US Federal Reserve has called time on its $4.5tn bond-buying programme, halting a radical monetary policy introduced nearly six years ago to steer the world’s largest economy through the financial crisis. The central bank, led by Janet Yellen, said the final tranche of bonds under its quantitative easing programme would be bought this month, but it committed • to keeping record low interest rates for “a considerable time”. However, starting next year the Bank of Japan will increase its balance sheet by 15 percent of GDP per annum and will extend the average duration of its bond purchases from 7 years to 10 years. theguardian.com, forbes.com • • 10th November 2014 - Provisional Foreign Direct Investments (FDI) figures for Ghana from January to September has hit 1.3 billion dollars. That is according to provisional figures put forward • by the Ghana Investment Promotion Centre (GIPC). The amount represents projects registered with the Centre by foreign investors and represents about a 100 percent jump from what was recorded for the same period last year. myjoyonline.com • 17th November 2014 - The Monetary Policy Committee MPC of the Bank of Ghana has increased the policy rate, the rate at which commercial banks borrow from the Central Bank by two hundred basis points. The policy rate which was at nineteen percent now stands at twenty-one percent. The Governor of the Bank of Ghana and chairman of the MPC, Dr Henry Kofi Wampah at a media briefing in Accra said latest forecasts indicate inflation will continue to remain outside the target band. He said the increase in the rate is to ensure that the existing tight monetary policy stance is maintained. gbcghana.com 24th November 2014 - The 2015 Budget, presented recently in Parliament by Ghana's Finance Minister, Seth Terkper, looks to reduce the country's high fiscal deficit, in part through the imposition of a special petroleum tax. In 2015, the Government will implement a number of outstanding value-added tax (VAT) measures and in particular the introduction of VAT on fee-based banking and financial services at the headline 17.5 percent rate, as well as a 5 percent VAT rate on real estate, already passed by Parliament. In addition, the Government is proposing to impose a special petroleum tax of 17.5 percent on petrol, diesel, liquefied petroleum gas, natural gas, and kerosene, as part of this VAT reform, alongside a change in the petroleum product pricing structure. Excise tax on petroleum will newly be levied by volume, rather than by value. In addition, the National Fiscal Stabilization Levy, charged at five percent on the profits of specific companies, and the special import levy of one to two percent will be extended to 2017. Last, the withholding tax on directors' fees will be increased from 10 percent to 20 percent. tax-news.com NEWS HIGHLIGHTS OF THE YEAR • • • • 1st December 2014 - Gold prices slid downward after Swiss voters nixed a measure to bump up the nation’s gold reserves, while oil prices also fell to a five-year low as the Organization of the Petroleum Exporting Countries (OPEC) decided to maintain • crude oil production levels. The rejected Swiss proposal, defeated by 78% of voters, would have required the Swiss National Bank to more than double its gold reserves, holding at least 20% of its assets in the precious metal. The measure would have challenged the bank’s policy of capping the Swiss franc at 1.20 per euro. After the vote, gold at one point fell more than two percent to $1,142.90 per ounce XAU=, while silver prices, which usually mirror gold prices, hit a five-year-low at $14.50 per ounce XAG=. Meanwhile, oil prices also slumped to $64.10 per barrel after OPEC rejected calls from some member states, including Iran and Venezuela, to tighten crude oil output and vie to keep oil prices from tumbling amidst a flurry of growth in the U.S. shale oil market. time.com 8th December 2014 - According to the latest report by Transparency International, Ghana has improved marginally in terms of corruption in the last three years. In 2012, Ghana scored 45 points out of 100, 46 points in 2013 and 48 in 2014 [0 means highly corrupt while 100 means very clean]. Ghana is currently ranked 61st out of the 175 countries surveyed across the world. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived. Ghana is ranked the 6th least corrupt in Africa and 2nd in West Africa after Cape Verde. Ghana also performed better than countries such as South Africa, Kenya, Italy, China, Russia and 114 other countries in total. citifmonline.com, transparency.org 15th December 2014 - Ghana and the International Monetary Fund probably won’t come to an agreement on aid until April and the country will struggle to meet revenue targets next year, according to Fitch Ratings Ltd. The world’s second-biggest cocoa producer turned to the Washington-based lender as it struggles to narrow its fiscal deficit. A target to reduce the gap to 6.5 percent of gross domestic product in 2015 from 9.5 percent is “exceptionally ambitious,” said Carmen Altenkirch, director of the sovereign group at Fitch. “I’ve penciled in a figure of 8 percent,” she said at a conference today in London. “The real challenge for them will be raising revenue at a time when the economy isn’t performing well.” bloomberg.com 22nd December 2014 - The US government has expressed its support to Ghana’s decision to seek financial bailout from the International Monitory Fund (IMF). The US government believes that decision and other measures including the Millennium Challenge Compact and the coming on stream of the Atuabo Gas plant, it is confident that the country’s economy will bounce back within six to 12 months. Mr Cretz, US Ambassador to Ghana, noted that the country has experienced economic challenges over the past few years and he believes that with the kind of confluence of positive events that are taking place, the Ghana’s economic prospects look much brighter than it has been in the past. “The MCC second compact which is really a vote of confidence in Ghana because there are very few countries that will get a second compact and that second was the result of the commitments that were fulfilled by Ghana in the first MCC compact,” he said. The US Ambassador added that, “this one is $498 million and we hope that it is going to transform the electric power sector. I think that is going to be a critical game changer for the future of Ghanaian economy.” myjoyonline.com OUR PEOPLE & CONTACTS EXECUTIVES • Emmanuel K. Adu-Sarkodee Group Chief Executive LLB, MBA, BA (Hons.) • Desmond Nartey Executive Director, Securities MBA, MA, BA, CVA [email protected] • Martin Asamoah Executive Director, Savings & Loans CA, MBA, Bcoms, DEdu [email protected] • Seth Aryitey Executive Director, Asset Management MBA, CIMG, ID, BA [email protected] RESEARCH TEAM • Prince N. D. Abbey Research PhD (Ongoing), MSc. BSc. [email protected] • Akua Kumia Asset Management MBA, BSc. [email protected] CDH House 36 Independence Avenue North Ridge Accra P.O. Box 14911 Accra Tel: (302) 667 426/668 437 Fax: (302) 662 167 Email: [email protected] Website: www.cdhgroup.co