Negative return on oil cash investment

IT has emerged that the performance of the Ghana Petroleum Funds’ portfolios declined in the second of 2016.

In an era where Ghana paid between eight and 10.75% interest on Eurobonds, it is worrying to know that return on investment of Ghana Heritage Fund (GHF) in instruments abroad for the second half of 2016 was negative 2.99%.

Similarly, the Ghana Stabilisation Fund (GSF) returned only 0.24% interest within the same period.

Also striking is the fact that, net return on investment of the Ghana Petroleum Funds since inception in 2011 to end 2016 is $18.91million.

This is contained in the Semi-Annual Report of the Petroleum Holding Fund & Ghana Petroleum Funds between July1 and December 30, 2016.

The report was prepared by Ghana Petroleum Funds Secretariat at the Bank of Ghana (BoG)

$120.77 Petroleum Holding Fund in 6 months

The report stated that during the second half of 2016, an amount of $120.77million was received into the Petroleum Holding Fund (PHF).

This comprised $93.39million being proceeds of the33rd and 34th liftings undertaken by the Ghana Group and $27.38million from, corporate tax, surface rentals and interest earned on un distributed funds held in the PHF

Other petroleum receipts comprised surface rental US$0.03 million, corporate tax $27.31 million, and interest earned on undistributed funds US$0.04million

Situation criticised

Some economists and Civil Society groups say instead of this worrying development, the money should be invested locally to offer better returns as well as boost economic growth.

For Example, Dr. Emmanuel Steve Asare Manteaw, a member of Public Interest and Accountability Committee (PIAC), believes such monies can be loaned to businesses in Ghana at higher interest rates.

“We had our recent Eurobond at 10.75% interest rate whereas we have some monies sitting somewhere earning us less than 1%. Does it really make sense to put the heritage and stabilisation fund outside the economy knowing very well its potential impact on the local currency which is declining”, he asked?

He argued that “for you to stabilise your local currency, you need a certain constant flow of foreign exchange which is why we export a lot…now we have foreign currency from our oil production sitting outside the economy and we go borrowing to shore up our local currency”.

Dr. Manteaw added that “there is an economic rationale for keeping oil money outside the economy which is to avoid overheating.

He noted that “if you are producing at a certain level over what your economy can contain, then you need to put some of the money away because if you have too many dollars into the economy, your local currency will become too strong”.

He explained further in order for our currency not to become too strong because we are an export driven economy, and we don’t want our exports prices to be too high compared to other competing countries, we put some of the money outside the economy – through investing the Heritage and Stabilisation Funds abroad.

The New Patriotic Party (NPP) government in its manifesto planned to amend the Petroleum Revenue Management Law and Dr. Manteaw wants the amendment to include investing the money in the Ghanaian economy which, he said, would yield better returns.

ABFA -$53.31m

The Semi-Annual Report of the Petroleum Holding Fund & Ghana Petroleum Funds between July1 and December 30, 2016, revealed that total amount received by Annual Budget Funding Amount (ABFA) for the second half was $53.31 million compared to $45.07 million for first half of 2016.

GNPC - $65.73m

The report stated that Ghana National Petroleum Corporation (GNPC) received an amount of $65.73million for Carried and Participating Interest (CAPI) as well as Equity Finance Cost (EFC) during the period compared to $22.77 million in first six months of 2016.

The GSF and the GHF received $15.99 million and $6.85million respectively during the period under review while an amount of $13.52 million and $5.79 million were received respectively in first half of 2016.

ABFA - $1.4billion (2011-26)

According to the report, between 2011 and of 2016, the ABFA received a total of $1,473.45million representing 43 percent of the total revenue.

GNPC- $$1billion (2011-26)

Similarly, GNPC received a total amount of $1,057.30 million equivalent to 31 percent of total revenue.

GSF - $633.87m (2011-26)

The report stated that GSF and GHF had each received an amount of $633.87million representing 18 percent and $262.57million representing 8percent respectively.

$3.4billion (2011-26)

According to the report, total lifting proceeds and other income distributed to ABFA, GNPC, GSF and GHF from inception to the end of December 2016 amounted to $3,427.19million.

Outlook for 2017

The global economy is expected to grow at a pace of 3.4% in 2017 having expanded at a rate of 3.1% in 2016.

Global disinflationary pressures appear to be dampening somewhat with firming commodity prices and broad manufacturing indicators in emerging and advanced economies in expansionary territory.

The Federal Open Market Committee (FOMC) has increased the forecasts for US economic growth due to tightening in the labour market, a pick-up in inflation and prospects of more expansionary fiscal stimulus.

These forecasts have driven nominal bond yields in advanced economies significantly higher and increased the pace of future increases in the range of the federal funds rate.

The European Central Bank has also reduced the size of monetary stimulus from €80 billion a month to €60 billion a month as upside inflationary pressures gradually build up.

Where these growth expectations are met, bond yields will extend their upward trajectory and the performance of the Ghana Petroleum Funds will be subdued in the short to medium term as we adjust the portfolios to reflect higher yield levels.

However, there are considerable uncertainties to this outlook. The details of the timing, size, and composition of any future fiscal and other economic policy initiatives in the US are currently unclear.

Economic growth would be faster or slower than currently anticipated depending on the mix of tax, spending, regulatory and other policy changes

Consequently, growth forecasts may be revised downwards unexpectedly when market expectations on expansionary fiscal stimulus and policy mix are not met.

These would lead to measures of inflation expectations edging down and nominal bond yields falling to enhance the performance of the Ghana Petroleum Funds

Additional appreciation of the foreign exchange value of the US Dollar and financial vulnerabilities in some advanced and emerging market economies could impact negatively on global growth resulting in bond yields falling.

De-globalisation stemming from trade protectionist policies (under-currents exposed by Brexit and Trump’s America first agenda) will exacerbate anaemic global trade and slow down growth considerably.

The terms of Britain’s exit from the European Union have not been concluded.

Upcoming elections in Germany, France, Italy and other European Union countries have potential for adverse economic consequences resulting in investors moving their funds from high-risk assets to investment safe havens.

This will cause safe haven bond yields to fall, which will impact positively on the portfolios of the GSF and GHF.