Economy to shine in 2013 ...but Gov’t can’t be complacent

Despite the fact that Ghana’s 2013 economic outlook appears to be brightening, in line with a long-awaited bounce-back in the oil sector announced by Tullow last week, Gold Coast Securities Research wants to maintain that 2013 is no time for complacency by government. Currently, Ghana has shown itself among countries with the potential for high growth in 2013.

Ghana’s economy will thrive and provide the needed growth in the private sector, which will be spearheaded by manufacturing, if government does not repeat the wrongs committed in the past year. The issue to do with alleged corruption, abuse of incumbency and foreign exchange volatility that nearly marred the brilliant macroeconomic stability achieved from 2008-2012 should be avoided.

Government needs also to work hard to avoid strike actions by civil servants and strikes similar to those staged by traders last year on the need for reforms in retail trade, which almost paralysed economic activity in 2012.

Perceived corruption needs to be erased by fighting corruption to zero levels to encourage donor support and heighten external confidence.

The unexpected volatility experienced by the Ghanaian cedi during the last half of 2012 requires that the central bank implements an accommodative monetary policy that can boost confidence in the local currency, making it easy for people to access credit from commercial banks for investment.

The general investor confidence exhibited during the bond issues in 2012 puts Ghana’s economy in the category of a safe haven; however, the implications of the high rate of foreign participation, rather than domestic participation, in the bonds should be a cause for concern for managers of the economy.

Ghana’s economy would shine in 2013 if government supports the export market since the eurozone crisis seems to have affected Ghana’s exports to Europe.

As we await government’s policy statement, it is very important that the 2013 budget spends resources on productive sectors like agriculture, industry, manufacturing and infrastructure among others to increase output for the local and foreign market. The high unemployment situation in the country can be solved if attention is given to the private sector to grow and efforts made to fight the Dutch disease, which might show up if government takes its eye off the radar.

It is also imperative that as we pressure government to open up the private sector, there should be the need to mobilise people to take advantage of the opportunities and work in productive sectors instead of looking backwards. If all these factors play towards the right direction, 2013 will be a better year.

The country's year-on-year inflation marginally went down in December to 8.8%, showing a drop in three consecutive months (October to December) and adding up to 31 consecutive months of single digit inflation in the country. Clearly, Ghana has maintained single-digit inflation and macro-economic stability for a long while.

However brilliant this may be, some commentators have argued that the strong macro-economy has not reflected directly in the micro-economy, which is worrying and creates doubt in people’s minds. These commentators during the year experienced their doubts over single-digit inflation because of the volatility experienced by the weak cedi and the higher oil prices that should have increased headline inflation.

According to government, its prudent fiscal policy management and continued monetary restraint helped anchor inflationary expectations, while partly lower food prices placed a lid on headline inflation for 31 months.  Food inflation, after rising steadily from 4.3 percent in February 2012 to 5.5 percent in July, fell steadily, reaching 3.9 percent in December. On the other hand, non-food inflation increased from 11.2 percent in February to 12.5 percent in August, before dropping to 11.6 percent in December. 

For the record, a declining inflation provides strong evidence of an economy that is growing at a fast rate. Subsequently, a strong macro-economy creates the environment for businesses to plan long term and access cheap long-term capital that eventually reflects in growth.

As we predict a brilliant outlook for 2013 and caution government of complacency, critical questions needs to be asked as to whether we can maintain single-digit inflation in the face of imminent petroleum and utility price hikes that should happen in the first half of the year.

We need also need a strong cedi outlook, as a high rate of inflation will precipitate negative real interest rates, which then would undermine confidence in the local currency. 

We expect the government’s budget for 2013 to focus on a strong economic growth path, tight fiscal stance, low levels of interest rates to spur private sector investment, and a more resilient exchange rate performance. In the end, we expect inflation to end the year at 9.8%, after all the shocks have been absorbed in the first half of the year, with GDP growth of 10% for 2013.

A Gold Coast Securities Analysis