Ghana’s next oil boom is just around the corner


Jeremy Weltman
Published on:

The sovereign has recorded one of the largest improvements of any sub-Saharan borrower this year in Euromoney’s country risk survey – the recovering oil market, contract certainty and plans to expand the extractive industry explain why.


What goes up… The reviving oil price is helping Ghana, but the country is still
vulnerable to a negative oil shock

Ghana’s reduced risk profile has sent the country soaring 10 places this year to 88th from 186 countries worldwide in Euromoney’s global risk rankings, and higher up the fourth of five risk categories synonymous with a B- to BB+ rating.

Such movements tend to predict a credit rating action, and so it proved last month when S&P revised its B- credit rating of Ghana from stable to positive.

Moody’s has kept its B3 (B- equivalent) stable and Fitch still awards a stable B rating, but with Ghana now as safe as Bolivia and Senegal, both of which command higher credit ratings, it seems all three rating agencies must soon acknowledge the trend.


The reviving oil price is helping.

After the price of oil reached its lowest point in June, worsening – as expected – Ghana’s prospects in the short term, it is looking to end the year comfortably above $60 per barrel, steadily improving after the crisis sent oil producers into a spin.

Ghana’s oil production is increasing and will continue to do so since resolving a maritime territorial boundary dispute with Côte d’Ivoire – freeing up several exploration projects put on ice awaiting the legal outcome.

Essential repairs to a damaged floating oil production vessel scheduled for 2018 and the approval of a new expansion programme for the extractive industry have raised prospects for a strong rise in production from the Jubilee field operated by Tullow Oil.

Expansion of the ENI-operated Sankofa field took effect earlier this year and gas production is due to start next year from the Tweneboa-Enyenra-Ntomme oil field, another Tullow operation.

This will substantially raise Ghana’s economic potential from 3.5% real-terms GDP growth last year to 8.9% by 2018, according to the IMF.

Inflation will remain high, but will ease from 17.5% to 9% over the same timescale.

These improvements are reflected in analysts upgrading two-thirds of Ghana’s economic, political and structural risk indicators. Its score for capital access has been similarly uprated.

Cautious optimism

Yet Ghana is still a medium-to-high risk option, vulnerable to a negative oil shock or political risk erupting, but does not face elections for several years.

Its external economic profile requires careful management, with a current-account deficit of around 5% to 6% of GDP, large debts to service and FX reserves that have dwindled this year to around $5 billion, testing the three-month minimum level of import cover.

Gaimin Nonyane, head of economic research at Ecobank, acknowledges these risks, noting the challenging fiscal situation necessitating public spending cuts, and a fragile sovereign debt burden remaining close to the heavily indebted poor countries threshold of 70% of GDP.

She continues: “The authorities have recently issued local currency energy bonds – one a seven-year bond that was oversubscribed and another, a 10-year bond that was undersubscribed, largely because of investor concern that it was not a sovereign-backed bond, but backed by oil levies.”

Positively, Nonyane says: “The authorities are considering enacting a fiscal responsibility law to strengthen fiscal discipline, capping fiscal spending at 5% of GDP.”

She recognises fully enforcing this law will be challenging, but the authorities are making headway by containing spending.

“[Moreover, Ghana’s growth prospect appears positive following the recent court ruling in favour of Ghana’s ocean boundary with Côte d’Ivoire – a move that will boost oil exports – resilient gold prices, increased trade and the continuation of reforms,” she says.

Other experts echoed the views of local oil contractors asserting the fact the government has built a regulatory framework akin to Norway – a transparent and predictable framework gaining the trust to invest.

What’s clear is that Ghana is moving in the right direction. The regulators are cooperative, the operating environment is efficient and the government can be trusted to respond appropriately to turn the economy around, promising a raft of pro-business reforms and fiscal prudence.

It might not be another oil bonanza, but Ghana is suitably positioned to enjoy another cyclical upswing.

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.