Government Cuts Fuel Subsidies

Ghana cut fuel subsidies on February 19, 2013 in a bid to narrow a 2012 budget deficit that reached 12.1% of GDP, nearly double its target of 6.7%. The Central

Bank pointed to excessive public sector wages, a shortfall in projected tax revenue, and widening fuel subsidies as the main causes of the increased deficit.

Fuel prices jumped 20%, and liquefied petroleum gas (LPG) rose by 50% following the unpopular cuts, which Minister of Finance Seth Terkper said were long overdue. Ghana planned to implement these measures last year after pressure from the IMF and World Bank, but it delayed the move ahead of the December presidential election.

Days before the announcement, Fitch rating agency placed Ghana’s B+ rating on a negative watch, reflecting the deterioration in the fiscal deficit. However, both Fitch’s and Moody’s rating agencies indicated that Ghana is likely to “achieve strong growth as oil and gas come online and taxes start flowing in. The government should be able to plug its deficit without too much difficulty,” although it noted that the country still remains highly susceptible to external financial shocks.

Mr. Sampson Akligoh, head of research at Accra-based Databank Financial Services Ltd., said that the rising cost of the subsidies—expected to cost the government $1.3 billion in 2013, an increase of 140% over last year—could cripple the country’s budget as “Ghana doesn’t have enough fiscal space to absorb subsidies.” Ghana’s last attempt to cut subsidies more than two years ago resulted in protests.

Despite the fuel price hikes, the Ghanaian government will maintain a total fuel subsidy of about $23 million (based on a crude oil price of $116 per barrel), which will target particular social programs. ★

Sources:http://www.bloomberg.com/news/2013-02-12/ghana-fuel-subsidies-to-cost-1-3-billion-agency-says.html http://www.reuters.com/article/2013/02/17/ghana-subsidy-idUSL6N0BH0TZ20130217http://blogs.ft.com/beyond-brics/2013/02/19/ghana-africas-star-economy-loses-a-little-sparkle/#ixzz2LT8CHQ3s

Investment Climate Update: Ghana

INSI

DE: Shedding Light on the Future of Ghana’s Power Production . . . . . . . . . . . .2

Regulating the Oil Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Ghana Cyber City to Be Built in Accra . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Takoradi—Opportunities Beyond Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Update: The Ghana Investment Promotion Council . . . . . . . . . . . . . . . . . . . . 4

FAST FACTS:

March 2013 | Vol 3, No 2

n 46 .6% of Ghana’s population have joined the middle class . (Grail Research)

n The start of oil production in 2011 led to a sharp increase in Ghana’s GDP of nearly 14 .4% . For 2013, growth is expected to slow to around 7%, with an average annual rise of 5% in GDP for 2014 and 2015 (Oxford Economics) .

n Ghana has been ranked one of the three fastest-growing economies among a group of 25 global rapid-growth markets (RGMs)( Ernst & Young) .

n Petroleum revenue contributed 4% to the Ghanaian government’s total capital spending in 2011 .

Africa Business Initiative

Page 2

Africa Business Initiative

Investment Climate Update: Ghana

Shedding Light on the Future of Ghana’s Power Production

Ghana boasts one of the strongest economies and most stable democracies in Africa. However, an inconsistent power

supply—which only reaches 72% of the total population—remains an issue for investors as the nascent oil sector has yet to meet the country’s energy needs. Ghana’s increasing population growth rate (1.8%, 2012 est.) and economic growth rate (forecasted 7.8%, 2013 est.) are projected to drive annual electricity consumption across the country.

Current challenges, including rolling blackouts, are largely attributable to damage caused to a natural gas pipeline off the coast of Togo in August 2012. The delay in its repair has resulted in daily losses of $500,000 to the West African Gas Pipeline Company and months of electricity cuts in Ghana as well as in Nigeria, Benin, and Togo.

In addition, Ghana’s ability to supply, generate, and distribute power is also largely impacted by the country’s economic expansion without commensurate infrastructure in the energy sector. President John Dramani Mahama has emphasized his commitment to 100% accessibility of electricity for the country by 2016.

Government seeks $1 billion in renewable energy sourcesBeyond constant efforts to improve the oil sector, the government is seeking at least $1 billion over the next eight years to develop the country’s renewable energy sources. These include solar, biomass, wind, and mini-hydro.

Renewable energy investments could add 500 MW of power to the nation’s capacity and help expand electricity provision to all parts of the country, particularly isolated areas. The government has also set the goal for 10% of the nation’s electricity to be generated from renewable sources by 2020.★

Sources:http://www.bloomberg.com/news/2012-11-07/ghana-seeks-1-billion-for-renewable-energy-resources.htmlhttp://www.un.org/africarenewal/magazine/january-2013/ghana%E2%80%99s-%E2%80%98new-path%E2%80%99-handling-oil-revenuehttp://www.oxfordbusinessgroup.com/economic_updates/ghana-oil-activity-risinghttp://www.ghana.gov.gh/index.php/news/features/5860--ghanas-petroleum-revenue-management-billhttp://www.ghanaoilinfo.com/?page=exploration&factid=957http://ghanaian-chronicle.com/ghana-faces-blackout-ecg-ordered-to-shed-400mwhttp://vibeghana.com/2013/02/19/wereko-brobbey-allow-private-sector-to-control-energy-sector

Regulating the Oil SectorThe government remains dedicated to implementing an

effective regulatory framework for the oil industry and is following best practices from several countries, for example Norway, on the most effective ways to avoid the “resource curse.”

Here’s some key legislation:

n The Petroleum Revenue Management Act details a clear framework for the collection, distribution, and management of oil earnings. It also calls for a high standard of transparency and accountability in managing of petroleum revenues.

n The Petroleum Holding Fund (PHF) receives and disburses all petroleum revenues, of which 70% are to be disbursed to the government budget and the remaining 30% is deposited into two newly created funds. The Heritage fund (9%) and the Stabilization fund (21%). The funds established an endowment that supports development for future generations (after Ghana’s petroleum resources are depleted) and to sustain public expenditure during periods of unanticipated revenue shortfalls.

n The Petroleum Commission Act established an independent body, the Petroleum Commission, to monitor and regulate the petroleum sector. Such powers were previously reserved for the GNPC, which will move into a primarily commercial role.

n The Public Interest and Accountability Committee was established to monitor and evaluate government and corporate compliance in the management and use of petroleum revenues. Critics of the committee claim it is ineffective and underfunded.

Page 3

Africa Business Initiative

Investment Climate Update: Ghana

n The most highly anticipated piece of legislation, the draft of the Petroleum Exploration and Production Bill, has yet to be finalized by the Attorney General’s department. The legislation is intended to replace the GNPC Exploration and Production Law and will address critical issues such as contracting and licensing processes.

In addition to this legislation, boosting local content, or the participation of domestic firms in the oil sector, is a government priority and a significant trend to monitor. According to Stephen Manteaw, chairman of the Civil Society Platform on Oil and Gas, many Ghanaian firms are priced out of the market due to unrealistic capital requirements. Nevertheless, the government remains committed to local content to ensure the effective growth of its oil sector and to a broader development strategy.

Sources:http://www.reuters.com/article/2013/02/17/ghana-subsidy-idUSL6N0BH0TZ20130217http://www.bloomberg.com/news/2013-02-12/ghana-fuel-subsidies-to-cost-1-3-billion-agency-says.html http://www.oxfordbusinessgroup.com/economic_updates/ghana-oil-activity-risinghttp://www.oilreviewafrica.com/gas/gas/unrepaired-wapco-pipeline-may-cause-losses-worth-us-2-4-billion

Ghana Cyber City to Be Built in Accra

Known for its oil and cocoa production, Ghana may soon be a regional leader in another industry: technology.

A joint venture of Gateway Innovations Ltd., Ghana and Xallex Limited of Washington, D.C. has led to the development of the Ghana Cyber City (GCC), a proposed $100 million Technology Park in Accra designed to position Ghana as the new technology hub of West Africa.

An Information and Communications Technology (ICT) City

GCC will be built on approximately 40 acres of centrally located land owned by the University of Accra and will create an ideal environment to incubate startups, provide high-tech office space and data centers, foster innovative technological developments, and manage offshore IT ventures.

Supporters of the project hope that it will produce at least 5,000 jobs in five years and will strengthen Ghana’s market share in the offshore outsourcing industry. Project developers said that there is currently a $40 million investment opportunity available related to construction of the initial phases of the GCC.★

Sources:http://ghanacybercity.com/http://www.scribd.com/doc/28388120/Ghana-Cyber-City-Overviewhttp://www.howwemadeitinafrica.com/can-ghana-position-itself-as-the-bangalore-of-west-africa/22692/

Meeting ExpectationsIt took just 42 months from discovery for Ghana to begin oil production; however, it has taken longer than expected to reach initial production targets . Inadequate infrastructure and technical constraints precluded Tullow Oil and its partners from reaching current production levels (110,000 bpd) in 2011, but they expect to reach full capacity (120,000 bpd) this year .

Oil revenue contributes less than 1% of GDP to Ghana’s fiscal revenue . According to Moody’s rating agency though, “This will increase substantially once production ramps up to capacity and the tax regime for the petroleum sector is finalized .”

Page 4

Africa Business Initiative

Investment Climate Update: Ghana

The discovery and development of the offshore oil fields in Ghana’s Western Region has transformed the once quiet, coastal town of Takoradi into a boom town that

continues to grow and present new opportunities for investors. Indeed, Takoradi serves as the nearest commercial port to the country’s offshore oil fields and is now considered one of the new hot spots in Western Ghana for African property developers.

The emerging mix of industrial, residential, commercial, retail, and leisure facilities in Takoradi are expected to support the growth of the Ghanaian economy through increasing employment opportunities and support for commercial activities in the Western Region.

One example is the construction of a Protea Hotel in Takoradi, one of the first internationally branded hotels to be built in Ghana’s Western Region. The 4-Star Protea Select Hotel, sponsored by Capital Alliance Property Investment Company (CAPIC) and funded through a $5.45 million loan from the IFC to Alliance Estates Limited, will be located in close proximity to the Takoradi airport and will feature 136 international standard rooms, as well as meeting and conferencing facilities.

Another example of Takoradi’s growth can be found in the proposal for King City, a planned modern commercial city, [developed by the Renaissance Group] that will be located approximately 10km from Takoradi Harbour. 2,400 acres of land have already been procured for the construction of King City, which will feature contemporary homes, shops, offices, industries, and public spaces designed around a live-work-play concept.★

Sources:http://ghanaian-chronicle.com/protea-select-hotel-to-begin-operation-soonhttp://www.howwemadeitinafrica.com/seeing-potential-in-ghanas-oil-boom-town-takoradi/18302http://www.howwemadeitinafrica.com/are-new-cities-the-future-of-africas-urban-development/21035http://www.kingcity.com.gh

Update:The Ghana Investment Promotion Centre

Mrs. Mawuena Dumor Trebah was appointed by President John Mahama to serve as acting CEO of

the Ghana Investment Promotion Centre (GIPC). She replaces former CEO Mr. George Aboagye, who was forced to resign following the inappropriate use of funds. Mrs. Trebah was previously a corporate services executive of telecommunications giant MTN.★

Takoradi—Opportunities Beyond Oil

To learn more about ABI, visit www.uschamber.com/international/africa.Contact ABI staff at abi@uschamber.com.

»

ABOUT ABI

ABI is the leading advocacy-driven initiative representing America’s top companies

doing business across Sub-Sahara. The initiative focuses on market access and trade facilitation, financing, and engagement with the governments of the United States and African nations.

ABI works with the U.S. business community to develop legislative policies that foster foreign direct investment in Africa. It also provides tailored guidance to American companies doing business in African nations and introduces U.S. companies to the continent’s vast economic opportunities.

Under ABI’s leadership, U.S. corporate representatives engage key members of Congress, the administration, and foreign governments in strategic dialogues to promote private sector engagement. ABI is also home to two bi-lateral business councils – the U.S. – Côte d’Ivoire Business Council and the U.S. – South Africa Business Council. ★