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New President Spells Greater Scrutiny for Investors in Ghana

Nana Akufo-Addo, the leader of Ghana’s opposition New Patriotic Party (NPP) claimed victory in last week’s presidential election, defeating the incumbent John Mahama of the National Democratic Congress (NCP).  Akufo-Addo secured nearly 54 percent of the vote, compared with 44 percent for Mahama.

The election saw Ghana reinforce its reputation as a strong democracy in a region that frequently sees leaders remain in power for a generation.  Presidential polls held in The Gambia last week saw President Yahya Jammeh defeated at the ballot box after 22 years in office.  Jammeh has since pledged to challenge the result.  By comparison, Mahama had served a single four-year term having taken over from John Atta Mills who died in 2012.  Since 2000 the NPP and NCP have both been in power for two electoral terms before being voted out.

As he takes office next month, President-elect Akufo-Addo will inherit a significant budget deficit and large amounts of public debt brought about by the economic crisis that blighted Mahama’s presidency. Until 2013 Ghana was one of Africa’s fastest growing economies, spurred by sizeable exports of cocoa and gold. Economic growth received a further boost when it began oil production in 2011.  But after the 2012 elections the economy began to spiral on the back of falling commodity prices, rising inflation, and large fiscal and public debts.  Economic growth slowed from a high of 13.6 per cent in 2011 to 4.2 per cent in 2014 forcing the government to seek external support.  In February 2015 Ghana reached a deal with the IMF for a US$918 million loan to improve economic stability and boost jobs.

Since 2015 the economy has shown signs of recovery and the IMF has reported a reduction in debt and the fiscal deficit.  Buoyed by new gas projects and higher energy prices the economy is set to grow by 7 per cent next year and by more than 8 per cent in 2018, according to the Central Bank of Ghana. However Akufo-Addo will need to redouble efforts to stem public spending and ensure Ghana meets the requirements of the three-year IMF deal.

 

Meanwhile, despite some positive forecasts, the new president will face significant pressure to boost Ghana’s investment environment, a vital policy area if he is to deliver on campaign promises to develop infrastructure, revive the economy and ensure jobs in a climate of high unemployment.  However any enticements for investors will likely be balanced with a need to shore up economic stability by maximising revenue collection through taxes and greater regulation.  That will likely lead to increased scrutiny on foreign investors and could lead to reviews of existing contracts and operating terms.  While several foreign investors have stabilisation agreements in place, some are likely to be left vulnerable when these expire during Akufo-Addo’s presidency.

 

Following on from Mahama’s government, one area that is expected to attract significant attention under Akufo-Addo is local content policy.  Parliament passed a local content law governing its oil and gas industry in 2014 however concerns over the employment of Ghanaians and skills development have recently extended to broader infrastructure projects and, in particular, the mining sector.  Further regulation could increase pressure on mining companies who, following the economic crisis, already faced a more challenging business environment.  The downturn and increased public spending forced the government to raise corporation tax and VAT, and many investors were also hit with greater wage demands from workers struggling with high rates of inflation.

 

Ghana’s oil sector is another area focusing attention. The Ghana National Petroleum Corporation (GNPC) expects production to increase to 240,000 bpd by 2020 but last month the Africa Centre for Energy Policy think tank warned that the government needed to act fast to improve the upstream investment climate in the wake of one company’s withdrawal and another’s request to renegotiate the terms of its investment.  The Petroleum Act 2016 and the Income Tax Act 2015 establish greater certainty for investors in the oil sector however the think tank urged the government to boost current activity by attracting more experienced companies.  Ghana does not currently benefit from proven long term reserves, further increasing the likelihood of tighter regulation for investors in the short to medium term.

 

A key focus for the new president will be Ghana’s energy sector and developing the country’s self-sufficiency, one of the most serious obstacles to investors.  Thanks to several domestic gas projects the government is steadily reducing its dependence on an unstable gas supply from Nigeria which enters Ghana via the West Africa Gas Pipeline.  Broader progress on this path would put the government and investors on a more stable footing.



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