This is one of a series of country briefings produced by NRGI to summarize the evolving situation with respect to the pandemic and its economic impacts. The analysis it contains is subject to change with circumstances, and may be updated in due course.
- The coronavirus pandemic has severely impacted the Ghanaian economy, with the IMF projecting growth will barely reach one percent in 2020.
- The government has suspended the fiscal responsibility rules for 2020 to mitigate the impact of the pandemic on the economy.
- Ghana’s poor credit rating and significant debt have prompted the government to explore alternative means of raising capital to address pandemic-related spending needs.
- Effective oversight of the management and utilization of Ghana’s mineral royalties is the main natural resource governance challenge facing the country.
- While Ghana is not oil-dependent, the government has shown worrying indications of reliance on oil revenues despite the uncertainty around the future of oil.
Summary of economic impact of the coronavirus pandemic
Ghana’s economy has been severely affected by the impacts of the coronavirus pandemic. The International Monetary Fund (IMF) has predicted that growth in 2020 will barely reach 1 percent, down from a December 2019 projection of 5.8 percent. The most recently available data from the Ghana Statistical Service (GSS) reveals that gross domestic product (GDP) contracted by 3.2 percent in the second quarter of 2020 compared with growth of 5.7 percent for the same period in 2019.
On 19 April, despite increasing infection rates, President Nana Akufo-Addo ended Ghana’s three-week lockdown citing the impact on livelihoods. The minister of finance admitted that the Ghanaian economy, which is largely informal, could not sustain the lockdown beyond three weeks. From July, the government began a phased relaxation of the restrictions on economic and social activities. The airport was reopened in September for international travel following adherence to health and safety protocols. Current guidelines allow for events and meetings of up to 100 people if coronavirus protocols are followed. Overall, Ghana is seen as one of the countries that has managed the pandemic well due to clear communications, adherence to protocols, and aggressive test-and-trace measures.
The country’s economy is, however, impacted by external factors including the drop in oil prices as well as a disruption to supply and demand of a range of products, linked to how the pandemic is playing out in other parts of the world. A study by the GSS, the United Nations Development Programme and the World Bank, published in August, found that just over one quarter of Ghana’s workforce experienced wage reduction during the country’s lockdown. The pandemic also led to reduction in working hours for close to 700,000 workers.
Ghana faces significant challenges with sovereign debt. The government will likely run a deficit in excess of 12 percent of GDP instead of the projected 4.7 percent of GDP this year. In September S&P Global, the credit rating agency, lowered Ghana's long-term foreign and local currency sovereign credit ratings, a move sharply criticized by the government. In October the IMF stated that Ghana’s debt-to-GDP ratio would reach a worrying 77 percent this year.
In December President Akufo-Addo won a second term in office after securing 51.6 percent of the vote. The elections were contentious, and the opposition has claimed that irregularities occurred and has challenged the outcome. President Akufo-Addo has promised a substantial recovery package of spending, despite Ghana’s economic and debt challenges.
Impact on the oil and gas sector
Ghana held its first competitive oil block licensing round in 2018-19. (The government had previously engaged directly with companies.) The government announced bid winners in August 2019, but further negotiations with companies, already delayed before the pandemic, remain at an early stage. Sources within the Ministry of Energy have indicated that virtual negotiations with companies have begun but there are open questions on fiscal terms. Companies are requesting a review of the fiscal terms due to the impact of the pandemic on the sector, while government officials prefer to stick to the fiscal terms included in the bid process. Concerns about the cost of developing Ghana’s oil and gas reserves have already impacted some projects. For example, in February Aker Energy postponed a final investment decision on the Pecan offshore development in response to the pandemic and the associated drops in the price of and demand for oil and gas. In June the company stated that it was actively pursuing a development concept for the Pecan field with a breakeven price that is “sustainable and resilient also in a low oil price environment.”
The Ghanaian government had planned a second open oil licensing round for 2020, but this has been postponed. In September, the Ministry of Energy issued invitations to oil and gas companies for direct negotiations on petroleum exploration and production licences in the offshore eastern basin. The move back to direct negotiation—likely intended to attract investors at a difficult time—is a troubling reversal in the progress made in Ghana on transparency of oil and gas licensing.
Impact on the mining sector
Gold dominates Ghana’s mining sector with a substantial portion of gold mining conducted by small-scale operators. Gold prices have increased by 20 percent since the start of 2020 and there has been no suspension of production in Ghana. The Ghana Chamber of Mines is confident that the sector will improve on last year’s production of over 4 million ounces of gold, despite the pandemic. The chamber’s CEO said that this assertion is based on AngloGold Ashanti’s Obuasi mine coming onstream, a ramp-up by some miners and the strong demand for gold on the international market.
Despite the rise in the global gold price, the Ghana Chamber of Mines has called for certain exemptions on value-added tax for companies in order to encourage new investment in exploration activity, which the chamber describes as high-risk investment. This request has not yet been granted by government.
In addition to gold, Ghana also has major reserves of bauxite and has committed significant production to China in exchange for major infrastructure development. Some of the planned infrastructure projects may be delayed as result of the pandemic.
Successive Ghana Extractive Industries Transparency Initiative (EITI) reports from 2006 to 2018 show limited mineral revenue for Ghana, given production levels. NRGI research and discussions with government officials suggest that the fiscal regime provides fair government take. However, bloated costs, profit shifting and reinvestments by companies that reduce dividends on state equity may weaken revenue collection.
Oil production started in December 2010, and as of 2013 oil revenues surpassed mining receipts. Greater transparency, such as publication of mining contracts by the Minerals Commission, and transparent management and utilization of mineral royalties can help in this effort.
Impact on extractive sector revenues
According to EITI, the extractive sector contributes 17 percent to Ghana’s government revenues and accounts for 67 percent of exports. Ghana’s 2020 budget assumed an average oil benchmark price of $62.60 per barrel. In the 2020 mid-year budget the government reset the benchmark price at $39 per barrel. The budget statement noted that, based on performance of crude oil production for the first six months of 2020, revised production volumes for 2020, and the revised crude oil prices, the total petroleum receipts have been revised downwards by 57.9 percent from USD 1.57 billion to $660.5 million.
The revenue shortfall will translate into reduced transfers to the Ghana Stabilization Fund, the Ghana Heritage Fund and the national oil company, Ghana National Petroleum Corporation (GNPC). GNPC executives appeared before the parliamentary Public Accounts Committee in September 2020. They noted that in addition to the impact of the coronavirus pandemic on GNPC’s operations, unrecovered loans and guarantees it has made to state entities since 2015 have additionally strained its financial resources. As a future sustainability measure, GNPC is discussing incorporating diversification of energy sources and alternative revenue streams into its corporate strategy.
Gold remains Ghana’s leading mineral in terms of revenue generation. Due in large part to mineral exports, Ghana is unlikely to face a balance-of-payments crisis over the next year. However, the country’s debt situation remains deeply worrying.
The government has proposed several policies to address budget challenges. Some of these have implications for oil revenue management. One proposal was to amend the Petroleum Revenue Management Act (PRMA) to allow the use of the Ghana Heritage Fund (GHF) to support the budget. This proposal had not advanced. A second initiative was to use a portion of the Ghana Stabilization Fund (GSF), established to enable Ghana to cope with oil price volatility, to help bridge the overall budget shortfall caused by the coronavirus pandemic. The government accomplished this by reducing the cap on the GSF from $300 million to $100 million, allowing the transfer of $200 million for contingency spending.
Civil society groups, including NRGI, raised serious concerns about both proposals because they undermine the original purpose of the two funds, and could lead to repetition of the government’s past failure to invest in the constitutionally mandated Contingency Fund, which was established to mitigate the impact of unanticipated fiscal imbalances.
In August, on the back of a high gold price and facing severe pressure on the national budget, the government proposed leveraging future mineral royalties. The government presented this as an “innovative financing solution.” Under the plan, Ghana’s government would assign a significant portion of its future gold mining royalties to an offshore company that it has created, in return for cash up front (estimated at approximately USD 500 million). The government plans to raise the money by listing the company on the London and Ghana stock exchanges while retaining majority ownership. The news raised alarm among civil society organizations and the political opposition. Among the main concerns were whether the deal would benefit Ghana in the long term and the failure of the government to engage in broad-based consultation on such a significant economic move.
In October the government suspended the deal to allow a special prosecutor to carry out a corruption risk assessment. In November, the special prosecutor released his report, highlighting a range of corruption risks, including flaws in procurement and contracting processes and conflict of interest issues. He noted that there is no guarantee that the Agyapa deal, as presently structured, is good for the people of Ghana. Following the report the president instructed the minister of finance to return the deal to parliament for review, which will now take place in the wake of the election.
On 16 November the special prosecutor resigned his post. In a press release he cited negative reactions to his report and his concern that he was “not intended to exercise any independence as the Special Prosecutor in the prevention, investigation, prosecution, and recovery of assets of corruption.”
Impact on natural resource governance
Ghana’s government is proposing changes that affect the governance of extractives. Officials may also contemplate changes to the petroleum fiscal regime to make it more competitive, with the risk that Ghana overcompensates in its concessions and lowers future revenues. Moreover, the government seems ambivalent on its previous moves towards competitive bidding in the oil sector. More recent moves to directly negotiated deals are a governance and transparency concern. Ghana’s legal and regulatory requirements for transparency in direct negotiation are far weaker compared to those for competitive bidding, raising concerns about corruption and bad deals.
Ghana’s government is increasingly leveraging mineral resources for financing including infrastructure-based resource-backed loans and the use of special purpose vehicles such as the offshore Agyapa royalties deal. The use of such vehicles, and the removal of management of processes and proceeds from public view, make it more difficult for citizens and civil society actors to exercise oversight of extractive revenues.
Now returned to power, President Akufo-Addo and his party will likely continue to some extent their extractives-related policies. From a resource governance perspective, revenue mobilization and management will be critical issues for Ghana in the coming year. The country faces tough challenges, with limits to its ability to borrow in global markets at a time when it is under pressure to increase spending to address the impacts of the pandemic. While innovative measures may be warranted, transparency around resource-backed borrowing and debt accumulation is critical. The Agyapa deal remains unresolved and the controversy surrounding it has raised questions about the appropriate use of Ghana’s gold royalties more generally. Government officials and parliamentarians should carry out consultations to address the many public concerns raised by the Agyapa deal and build consensus around the arrangements for optimizing Ghana’s oil royalties.
Ghanaian authorities should also take steps to prevent an increased dependency on oil and associated borrowing. While Ghana is not “oil-dependent,” the government has shown worrying indications of reliance on oil revenues despite the uncertainty around the future of oil. Civil society organizations and accountability actors must continue efforts to convince the government to implement a national development plan. Ghanaian officials must guard against backsliding on transparency gains made in its petroleum licensing regime.
It will also be important that Ghana strengthens the contribution of mining to the economy and improves overall governance of this sector. Authorities are currently reviewing Ghana’s mining sector legal framework, offering an opportunity to review the fiscal regime, improve revenue collection and strengthen transparency on the management of the mineral sector.