An economic outlook on what to expect in 2023

In a year when government and the International Monetary Fund (IMF) are expressing differing sentiments about Ghana’s economic prospects following a difficult 2022, it is obvious that 2023 is going to be full of uncertainties.

While government is bullish that the US$3billion bailout programme it agreed with the IMF at staff level last December can restore much-needed stability following a disastrous 2022, when inflation reached over 50 percent, the Bretton Woods institution on the other hand is predicting a difficult year ahead. Come what may, the economy’s various sectors will be impacted to varied degrees depending on both internal and external factors.

The Business and Financial Times (B&FT) takes a dive into the economy’s various sectors and offers brief outlooks as to what to expect in 2023. Enjoy the read.

Economy

Following the Ghanaian economy’s mixed performance in the third quarter of 2022, it is expected to continue losing ground through 2023. The country’s provisional real quarterly gross domestic product (QGDP) growth rate – which includes oil and gas – came in at 2.9 percent annually, according to data released by the Ghana Statistical Service.

The Q3 2022 GDP marked a slowdown from the 6.5 percent growth rate seen in the same period of 2021 – the lowest in eight quarters during the COVID-19 pandemic and since 2020 Q3 when GDP logged at -3.3 percent.

Through 2023, the reduced growth will come on the back of rising price pressures and monetary-tightening weighing on private consumption and investment, and as government spending declines. Government is anticipated to resume rigorous fiscal consolidation while continuing its attempts to rationalise expenditures.

Additionally, it is anticipated that the central bank’s hawkish monetary policy stance, which it has adopted to stabilise the cedi and control inflation and expectations, will have a negative impact on the expansion of private-sector lending.

During 2022, the central bank cumulatively increased the benchmark policy rate by 1250 basis points to 27 percent – the highest rate in almost two decades. Inflation currently sits at 50.3 percent, thus 5.1 times outside the upper limit of the central bank’s medium-term inflation target band, and continues to adversely impact economic activity and consumer behaviour.

The central bank has noted that it may remain hawkish at least through Q1-2023 until inflation shows signs of moderation, and the implementation of other available monetary tools to control money supply and rein-in inflation take effect.

The tighter monetary policy stance of various central banks around the globe, and global recession risks, could also potentially weigh on Ghana’s economy. The central bank expects inflation to peak in Q1-2023, then decline to around 25 percent by the end of 2023.

Effectively, the Q4-2022 growth outturn is expected within the band of 1.7 percent to 2.5 percent year-on-year, given the factors at end-2022.

Debt restructuring

Due to the country’s high risk of debt distress and urgent need for IMF assistance, it is anticipated that the US$3billion deal will be approved by the Fund’s executive board by mid-2023 after a staff-level agreement was approved in December 2022. However, a successful debt restructuring is still essential.

Financial sector to remain under immense pressure in 2023

The financial sector is set to come under scrutiny as the country navigates economic uncertainty, with banks and the broader securities industry set to come under sustained scrutiny.

The Bank of Ghana’s Monetary Policy Report shows that despite a robust performance in the first 10 months of 2022, when the value of the industry’s assets accelerated to GH¢249.9billion, cracks had begun to appear in the once-resilient sector.

Currently, banks are rebalancing their portfolios and cutting back on new advances due to increasing pressure and a decline in Capital Adequacy Ratio amid concerns over Non-Performing Loans. This trend is expected to continue.

The Domestic Debt Exchange Programme will also put additional pressure on this segment, since commercial and rural banks as well as institutional investors hold about 60 percent of the nation’s domestic debt.

Deposits, which remain a major component of banks’ funding mix, are anticipated to take a hit as customers hold onto cash due to increasing lack of confidence. However, the likelihood of a run on banks remains very unlikely.

Despite the industry’s NPL ratio declining from 16.4 percent in October 2021 to 14 percent in October 2022, the nominal stock of NPLs increased to GH¢11.3billion in October 2022 from GH¢8.4billion in October 2021. Analysts remain concerned that tighter economic conditions will only raise the stock further.

However, to further alleviate thissituation, the Bank of Ghana has granted relief measures such as reducing the Cash Reserve Requirement ratio and access to a GH¢15billion Financial Stability Fund (FSF). Although analysts have already expressed concern about the source of funding for the FSF, particularly as none of the development partners which have been touted to contribute to it has yet to make any commitment.

On the stock market front, where a loss of 12.38 percent was recorded in 2022 compared to more than 43 percent gain in 2021, limited activity is expected this fiscal year – while financial and technology stocks are anticipated to be bright spots.

Unlike technology stocks, however, financial stocks are expected to experience some level of pressure from uncertainty in the wider industry. The consensus among industry experts is that, irrespective of the direct economic losses the financial sector might experience in the medium term, the loss of investor confidence will pose the biggest challenge this year and beyond.

Tricky year ahead for mining

Locally, the mining industry is undergoing a number of reforms – including the domestic gold purchasing programme and ‘gold for oil’ barter policy.

While the policies are envisioned to build on the country’s gold reserves, compel miners to retain at least 20 percent of their revenue in local currency, ease pressure on the cedi and ultimately help to restore economic stability, the Ghana Chamber of Mines says compelling its members to retain a high percentage in cedi could have negative repercussions for the industry, due to its wobbly nature.

Other challenges like the ongoing redundancies of mine workers and illegal mining remain a threat to the sector’s future. Gold output for 2022 is projected at 3 million ounces, up from 2.7 million in 2021.

Energy sector faces daunting future

The energy sector – comprising petroleum upstream and downstream and power (electricity), ideally should be at the centre of what is seen as a ‘year of bouncing back’ from the shackles of 2022. However, the sector faces mounting challenges ranging from dwindling production volumes, high cost of fuel and lack of liquidity in the power sector, among others.

In the upstream sector, the first three quarters of 2022 saw windfall revenue of US$1.6billion, US$550.5million more than 2021, due to high international prices but against a lower output. Should this price surge trend continue in 2023, industry watchers expect that the impact of dwindling production volumes will not be felt.

However, given that demand and supply uncertainties remain a concern owing to the Russia-Ukraine conflict, the COVID pandemic and expected global economic recession, a fall in international oil prices could spell doom for government.

This could be exacerbated by the falling production volumes, with Ghana having failed to add to its three producing fields – Jubilee, TEN and Sankofa – since 2018. The situation, compounded by government’s reluctance to incentivise exploration according to the Ghana Upstream Petroleum Chamber, does not portend well for the upstream industry.

Similar to the upstream industry, the downstream faces price volatility challenges which could make or undo government’s efforts to restore microeconomic stability.

Crude prices on the international market are expected to remain stable in the first quarter of 2023, which should be welcoming news for local consumers; but going into the rest of the year, China’s easing of economic restrictions and the EU’s sanctions on Russia may drive prices up. The expected contraction in the global economy, which is likely to drive down demand, may also bring about lower prices.

Meanwhile, the defining moment for the power sub-sector rests on whether government can settle its indebtedness to independent power producers, which currently stands at over US$1billion.

The quarterly review of utility tariffs – where a substantial hike in tariffs is expected in the coming weeks on the back of rising inflation, currency depreciation and high fuel prices – could further increase the burden on consumers. Equally important to the power sub-sector’s future will be how the Electricity Company of Ghana can effectively collect revenue to pay for the power it buys from power producing companies.

Agriculture

Although government spending on the agricultural sector in 2023 has increased marginally to 1.95 percent above the previous year’s figure of 1.86 percent, many industry players believe more funding is needed.

Ghana is a signatory to the Comprehensive African Agricultural Development Programme of 2003 (Malabo Declaration), in which member-countries were expected to increase agricultural investment to 10 percent of annual budgets to culminate into, at least, six percent growth in the sector annually; but the country has failed to do so since then.

Though it is unlikely that government will prioritise financing in the agricultural sector, it is still necessary that spending in the sector increases from the current 1.86 percent. This will ensure the necessary measures are put in place to ensure food security going forward.

Meanwhile, the Managing Director for GIRSAL, Kwesi Korboe, indicated last year that 2022 witnessed willingness on the part of banks to lend to agribusiness – cutting across the value chain.

“We have also done a lot of work in the area of policy and issued more guarantees this year. We have seen an upward trajectory of growth in terms of the value of guarantees we are issuing and number of agribusinesses we are supporting. We also have an agreement with the Development Bank of Ghana that we think will be beneficial to the sector,” he said.

But to increase gains in the sector, it is necessary that much attention be paid to policy decisions so as to ensure efficiency in the sector, attract investors for the value chain and encourage import substitution.

It is also important, as suggested by some experts, that various stakeholders must be deliberate in organising training for directors of banks and other financial institutions who are key policymakers, so as to gain more interest and raise awareness. It is high time the agricultural sector received the necessary attention to make it more attractive as calls for youth to venture into it increase.

Tourism holds a positive view

With key tourism initiatives including the ‘Beyond the Return’ agenda, Ghana continues to enjoy a high level of goodwill in its quest to become a tourism hub in the sub-region and the continent as a whole.

As the country becomes a major destination for African-Americans in the diaspora, Ghana’s heritage and historical tourism credentials are unmatched on the continent – and this trend is expected to continue into the long-term.

For 2023, total global tourist spend is projected to exceed US$1.4trillion, according to Euromonitor International’s index. This means the country must be strategic in order to attract a chunk of this expenditure.

Last year, there was an estimated one million visitors into the country (international arrivals). Official figures from the Ghana Tourism Authority (GTA) indicate that there were some 645,047 visitors from January to September 2022.

With key projects, including the anticipated completion of the Kwame Nkrumah Mausoleum by March this year and starting the construction of amphitheatres across the country, the Tourism Ministry is surely rallying all available resources to increase diaspora visitor numbers into the country.

According to the ministry, an amount GH¢350million has been allocated to modernise tourist attraction sites and embark on product development, as part of a broader plan to enhance the sector’s fortunes.

The sector’s modernisation will continue this year, according to the ministry, while it is further projected that government will continue allocainge more resources into the sector.

Consequently, the Tourism Development Fund (TDF) is targetting some GH¢19.6million in revenue for 2023 against the GH¢15.9million collected in 2022. The Fund is key in the country’s tourism promotion.

There is also a significant potential to expand upon Ghana’s niche tourism segments, with some of West Africa’s largest national parks, diverse wildlife and UNESCO World Heritage sites spread across the country.

Ghana, just like Kenya and South Africa which are known for their successful wildlife tourism industries, has the potential to expand its ecotourism resources through the development of wildlife and natural sites: including Mole National Park, Kakum National Park, the Ankasa Conservation Area, the Shai Hills Resource Reserve and the Wli waterfalls – the highest falls in West Africa.

In addition, Ghana has a vast array of wildlife, with 773 recorded species of birds, the Bobiri Forest and Butterfly Sanctuary, the Boabeng-Fiema Monkey Sanctuary and several national parks that are home to elephants and other large animals. The potential for ecotourism, as well as wildlife and wellness tourism resorts, is substantial given the large area of Ghana’s natural reserves and its expansive coastline.

Could 2023 be the year to finally unlock the country’s tourism potential?

ICT, digital economy in focus

With government’s strategic digitalisation agenda positioning the country as a fertile ground for data science research and development, the Ghanaian digital economy is expected to provide unique opportunities to accelerate economic growth and connect citizens to services and jobs.

The development is also expected to create the right tools and environment necessary to develop Artificial Intelligence (AI) solutions for the country’s agriculture, health, education and financial sectors this year – a move expected to help in the restoration of macroeconomic stability.

And for the ICT sector or the digital economy to play a critical role in solving the country’s uncertain macroeconomic outlook in 2033, there’s a need for an effective digital transformation agenda.

The Ministry of Communications and Digitalisation has already started stakeholder engagement efforts on the draft economy policy for inputs to ensure inclusiveness and comprehensiveness.

With telecom services as the main driver of the country’s ICT for Accelerated Development (ICT4AD) policy – unlocking economic pathways by leveraging the mobile phone as a tool for connectivity, information services and digital financial services over the last decade – the country’s ICT sector and digital economy are expected to see massive advancement.

Areas such as the local tech entrepreneurial ecosystem, related skills development, digital government platforms and the explosion of data and other emerging technologies – such as artificial intelligence, advanced data analytics, IoT, blockchain metaverse and quantum computing – are all expected to leverage on these advancements.

The sector will also experience some activities in the development XR in Ghana and Africa, which is an emerging umbrella-term for all the immersive technologies similar to augmented reality (AR), virtual reality (VR) and mixed reality (MR).

Last but not least, the ICT sector will be rigorously regulated this year. Laws governing the sector are expected to see greater enforcement by the National Information Technology (NITA). This is to ensure that the ICT ecosystem is governed by globally acceptable standards and professionals with the requisite certification and capacity to man the systems being deployed to put the sector at the forefront of the country’s economic development and transformation.

Free SHS survival could determine sustainability

Funding for the Free Senior High School (SHS) policy over the past six years has been a combination of government of Ghana’s tax revenue streams and the Annual Budget Funding Amount (ABFA); or simply put, oil revenue.

These funding sources for the policy have received much criticism from industry players, who maintain that the current funding module is unsustainable as it is primarily taking away a huge chunk of the sector’s allocation at the expense of investment into critical infrastructure.

For instance, data from the Public Interest and Accountability Committee (PIAC) show that from an oil revenue allocation of 38.7 percent in 2021 to 40.5 percent in 2022, Free SHS is being funded solely from oil revenue in 2023. This complete shift from what has been practiced for the past six years seems to be a sign of what to expect for the next three years under the pending IMF programme.

The ABFA, which is the amount of oil revenue that goes into the national budget, has four priority areas – of which the education sector is one. If all funding allocations to the education sector for the next three years are channelled into the funding of Free SHS, then other sectors of education such as basic education infrastructure, construction of new Junior High Schools (JHSs) in remote areas for primary schools without JHS, and textbooks for the new curriculum could all suffer a setback this year and beyond.

The return of government to the International Monetary Fund (IMF) is expected to further tighten its spending ability and limit allocations to the education sector far below the international benchmark of at least 15 to 20 percent of projected expenditure, by about eight percent.

Notwithstanding, the World Bank is currently reviewing governments’ flagship programmes including the Free SHS initiative. The expectation is that this will better inform government on the way forward regarding the initiative’s implementation and sustainability.

Implications

Due to the overconcentration of government spending on the Free SHS, other levels of the education sector are feeling the pinch.

For example, three years after the commencement of a new curriculum for basic schools, under 30 percent of textbooks have been released to schools – covering only three subjects: English, Science and Creative Arts. This leaves the remaining subjects to the discretion of schools’ heads and teachers.

These limited textbooks were procured with Ghana Education Trust Fund (GETFund) inflows, raising questions over the cap placed on the Fund by the Finance Ministry.

With this complete shift from what has been the practice for the past 6 years, if the Free SHS is able to survive on the ABFA without significantly impacting the ability of other critical projects and programmes, it is tempting to conclude that the policy can then survive at least for the next three years under IMF stewardship.

SMEs must innovate to stay afloat

Small and Medium Enterprises (SMEs) and startups undoubtedly have a major role to play in the country’s economic recovery journey. Contributing about 60 percent to the country’s Gross Domestic Product (GDP) and accounting for 90 percent of all businesses, SMEs also provide around 80 percent of the total employment in Ghana.

The space was not spared the challenging times of 2022 but has witnessed quite a number of funding opportunities from financial institutions, the Ghana Enterprises Agency (GEA) and non-governmental organisations; and also embraced events geared toward strengthening their activities to ensure business sustainability.

However, SMEs must rethink and reassess their operations and consider cutting back or outsourcing to manage their cost of production, especially since all indicators are pointing to increases in their cost of production this year. Instructively, the key concern for the industry this year is how it can successfully navigate the ongoing economic crisis so as to ensure growth and sustainability.

Parliament

The first meeting of the Third Session of the 8th Parliament of the Fourth Republic is expected to commence this month, after the House adjourned “sine die” (without any appointed date for resumption) in December last year.

Upon resumption, President Nana Addo Dankwa Akuffo-Addo is expected to present the State of the Nation Address to the House. As is usual with the practice of the House, bills are expected to be presented. The House will also work on some bills, if there are any at the committee level; and some other instruments at various stages of consideration may be presented as well.

The First Meeting will also see the Speaker of Parliament admitting Papers, Petitions and Motions for debate, as well as questions for sector ministers to answer.

This year, the two major parties – the ruling New Patriotic Party (NPP) and National Democratic Congress (NDC) – are gearing-up for their internal elections. This will likely present a challenge to certain aspects of parliamentary business, as incumbent members may abandon their legislative duties to focus on retaining their tickets.

Absenteeism has been a topic for discussion, and a major challenge to business. Successive Speakers have attempted to deal with the situation in their own way. The current Speaker Alban Bagbin’s position is no different on the matter of absenteeism, particularly for MPs who double as ministers.

The Eighth Parliament is in its third year and so much has happened already, including the E-levy brawl and the eventful night of inauguration for the 8th Parliament. With the current economic crisis faced by the country, the current IMF deal and the cedi’s performance against the dollar, this meeting promises to be an interesting one with various economic uncertainties.