July 2010

UK-Ghana Investment Forum

The Republic of Ghana: Economic Overview

Actual Projections

2008 2009 2010 2011

Real GDP Growth (%) 7.3 4.7 6.1 20.1

Headline Inflation (%, end of period) 18.1 16.0 9.5 8.0

Exports (US$ mn, fob) 5,270 5,715 6,972 10,292

Imports (US$ mn, fob) -10,269 -8,437 -9,480 -11,174

Ghana’s Economy Continues to Grow

3

Figures from the IMF and Ministry of Finance

Trade balance (US$ mn, fob) -4,999 -2,721 -2,508 -882

Current Account (% GDP) -18.7 -5.1 -12.1 -8.1

Central Government Balance (% GDP) -14.5 -9.7 -8.0 -4.5

Gross International Reserves (US$ mn) 2,036 3,165 3,701 4,651

Dramatic improvement across the board on key macroeconomic indicators in 2009.

Growth held up well despite the financial crisis

2.0%

4.0%

6.0%

8.0%

10.0%

10,000

20,000

30,000

40,000

50,000

Ghana’s Economy is Highly Resilient vis-à-vis the G20

Along with China, India and Indonesia, Ghana has exhibited strong economic growth through the downturn

4

Chin

a

India

Ghana

Indonesia

Austr

alia

Bra

zil

Saudi A

rabia

Kore

a

South

Afr

ica

Fra

nce

Canada

Arg

entina

United S

tate

s

United K

ingdom

Italy

Germ

any

Japan

Turk

ey

Mexic

o

(10.0)%

(8.0)%

(6.0)%

(4.0)%

(2.0)%

0.0%

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

Source: IMF

2009E Real GDP Growth Rate (LHS)

2009E GDP/Capita (US$) (RHS)

Country

Avg Annual Real GDP

Growth Rate 2000 - 2010E (%) Country

Standard Deviation of Real GDP

Growth Rate 2000 - 2010E (%) Country

2009 GDP per

Capita (US$)

China 9.9 Argentina 6.70 Chile 9,525

India 7.2 Turkey 5.04 Turkey 8,723

Vietnam 7.1 Russia 4.70 Russia 8,694

Russia 5.3 Mexico 3.48 Brazil 8,220

Ghana 5.3 Peru 3.09 Mexico 8,135

Ghana Has Entered A New Era of Faster and More Stable Growth

Ghana enjoys the twin benefits of sustained rapid growth with very low volatility

Ghana exhibits extremely stable and rapid growth compared to its peers

5

Peru 5.2 Costa Rica 3.00 Argentina 7,726

Indonesia 5.2 Malaysia 2.91 Malaysia 6,897

Egypt 5.0 Thailand 2.59 Costa Rica 6,345

Malaysia 4.7 Colombia 2.28 South Africa 5,824

Morocco 4.6 Pakistan 2.14 Colombia 5,087

Philippines 4.5 Brazil 2.09 Peru 4,356

Pakistan 4.4 South Africa 2.07 Thailand 3,940

Thailand 4.2 Morocco 2.04 China 3,678

Costa Rica 4.0 Chile 2.04 Morocco 2,865

Turkey 3.9 India 2.03 Guatemala 2,662

Colombia 3.8 Philippines 1.87 Egypt 2,450

Chile 3.8 Guatemala 1.54 Indonesia 2,329

Argentina 3.6 Egypt 1.50 Philippines 1,746

South Africa 3.5 China 1.41 Vietnam 1,060

Brazil 3.5 Vietnam 1.03 India 1,031

Guatemala 3.3 Ghana 1.03 Pakistan 1,017

Mexico 2.1 Indonesia 0.81 Ghana 638

Source: IMF

5.0%

6.0%

7.0%

8.0%2000: Dot Com bubble bursts

July 2007: The worst floods for over 30

years destroy much of Ghana’s annual

harvest

2005: Instability in Togo sends

refugees into Ghana

2009: Global financial crisis

2001: Recession in the US and

September 11th

attacks

2002: Civil conflict in neighboring Côte d’Ivoire intensifies

Growth Has Proven Impervious to a Wide Range of Challenges

Ghanaian economic growth has been resilient over the last decade

6

0.0%

1.0%

2.0%

3.0%

4.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E

April 2002: State of emergency declared in the

north

Dec 2008: John Atta Mills elected

as president

June 2007: Major off-shore oil discovery

announced

July 2009: Ghana secures $600 million through

IMF PRGF

July 2004: Ghana reaches HIPC

Completion Point

September 2006: Serious energy

shortages in Ghana

Dec 2010: Oil production to come on-line

December 2004: President John

Kufour re-elected

Internal event External event

Source: IMF, new sources

Real GDP Growth (%)

• Increasing recognition of macroeconomic benefits: Remittances are highly durable, have no associated capital outflow and are channeled to

households that need the most help, all of which provide insulation from shocks

• Higher tax base: Even if they are not taxed directly, remittance flows indirectly increase the revenue that the government receives from consumption- and

trade-based taxation since they contribute to higher consumption of domestic and imported goods

• Debt Sustainability: In a key new paper, the IMF recommends that the traditional Debt/GDP ratio should be modified to create a more accurate

representation of debt sustainability. Remittance-dependent countries may need to view stability through using both debt-to-GDP and debt-to-GDP plus

remittances when evaluating the appropriate stance of fiscal policy

Positive Impact of Remittances

Ghana is among the global leaders in remittances

7

Remittance inflows have tripled in the last decade… … And contribute to an improved debt-sustainability metric

Source: IMF/Bank of Ghana

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2004 2005 2006 2007 2008 2009

Debt/GDP Debt/(GDP + Remittances)

0

200

400

600

800

1000

1200

1400

1600

1800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US$ m

Ghana is an Emerging Commodities Powerhouse

• Ghana is well positioned to become one of Africa’s leading commodity producers

• The mixture of gold, cocoa and oil provides a diversified commodity backbone which underpins broader economic growth in Ghana

• Demand for gold and cocoa, Ghana’s two primary exports, have proven highly resilient even during the global economic downturn

− In particular, gold’s safe-haven status has provided Ghana with a countercyclical buffer

Ghana’s commodity endowment forms a powerful foundation for growth

8

• Ghana will become an oil-producing country in the last quarter of 2010, providing a further significant boost to the long-run growth trajectory of the country

• Ghana has formulated an Oil Revenue Management Bill, providing a clear system of controls for the oil revenue and ensuring oil revenues are managed transparently and fairly

• Critically, the government is committed to ensuring the responsible management of resource windfalls

− This is reflected in the stability of Ghana’s economic growth over the last decade

300

220210 210

250

300

350

Pro

du

cti

on

(m

to

ns)

Reserves(m tons)

Global Leader in Gold Production

1,900 5,800 3,000 6,000 5,000 1,400 1,000 3,000 1,600 1,700

Ghana’s gold production supports the country’s resilience in times of economic distress

Ghana is one of the largest producers of gold in the world with sizable reserves

• Ghana consistently ranks amongst the top ten gold producers in the world, ranking number nine in 2009 with 85 metric tons

− Gold is the predominant mineral produced in the country; second only to South Africa in gold production in Africa

• Ghana opened the gold mining sector up to foreign private interests in mid-1980’s

− Proceeds from mining activities provide the largest foreign exchange earnings for the nation

9

185 180

100 100

85 85

0

50

100

150

200

Chin

a

Austr

alia

Unite

d S

tate

s

South

Afr

ica

Russia

Peru

Canada

Indonesia

Ghana

Uzbekis

tan

Pro

du

cti

on

(m

to

ns)

Source: U.S. Geological Survey

foreign exchange earnings for the nation

− Agreements with private interests usually stipulate a sizable windfall of revenues through taxes and royalties to the government

− Major source of FDI and employment

• Gold is often seen as a countercyclical commodity and offers countries with large reserves a hedge against economic downturns

− Gold’s recent performance during the financial crisis period has held up well while other commodity prices have sharply declined

− Many financial experts identify gold as a safe haven investment and as a way to escape inflation

2009E

• Ghana is the second largest cocoa producer globally,

accounting for more than a fifth of global demand

• The Ghanaian cocoa crop is known for its high and consistent

quality

− As a result, Ghanaian cocoa commands a premium on the

international market

• Cocoa prices have remained buoyant throughout the financial

crisis, supporting Ghana’s balance of payments. Cocoa

market forecasts remain robust (see figures at right)

• Ghana will increase production to around 1 million tons over

the next two seasons, from 700,000 tons currently, via farmer

Solid performance from Ghana’s cocoa market Upward trending ICE cocoa prices

Ghana’s World-Class Cocoa Industry

10

409

398

435

395

340

497

737

583

741

615 680

710

650

850 1

,000

300

600

900

1,200

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0E

10/1

1E

11/1

2E

Production (mt in 000s)

the next two seasons, from 700,000 tons currently, via farmer

incentives, increased use of advanced fertilizers, and other

more efficient production methods

Source: Ghana Cocoa Board, AfDB, Standard Chartered Research, news/public sources Source: Standard Chartered & Bloomberg (Jun 2010)

Q2 10 Q3 10 Q4 10 Q1 11 Q2 11

Standard Chartered Bank 3,075 3,000 2,950 3,000 3,050

Forward Curve 2,973 2,938 2,968 2,991 3,004

Economist Intelligence 2,866 2,866 2,645 2,645 2,601

Commerzbank AG 3,300 3,200 3,000 3,000 2,900

Barclays PLC 3,350 3,400 3,450

In USD/t

Strong historical and projected production growth Cocoa market forecasts remain robust

Responsible Framework to Manage Oil Wealth

Ghana will generate significant oil

revenue in 2011 and beyond, and is

determined to manage it responsibly

and reduce associated volatility

Spending of oil revenues will follow

a rule based approach, with the

spendable revenue calculation

based upon a 5-year moving

average of oil prices and production

The first portion of revenues will be

appropriated as normal government

revenue through the budget

1

2

3

Annual Budget

3

Oil Ministry of Rule-based

Stabilization

421

11

revenue through the budget

Another portion will finance a

stabilization fund, acting as a

strategic buffer. In years with price

or production shocks, the

stabilization fund will make up any

shortfall in budget allocation

The final portion of revenue will flow

into a “future generations fund”,

funding future educational and

social needs of the Ghanaian

population

4

5Future Generations

Fund

5

Oil Revenue

Ministry of Finance

Spending Approach

Stabilization Fund

Ghana is ensuring oil revenues are sustainably managed for the benefit of the country

Partial capital account

liberalization

Financial

Administration Act

passes, outlining public

sector financial

management rules

Successive Reform Ensures Foundation for Future Growth

Privatization of Ghana

Telecoms

Ghana Integrated

Financial Management

System implemented

Ghana has undertaken key reforms to lay the foundation for future growth

Oil & Gas Management

Bill introduced,

Extractive Industries

Transparency Initiative

signed

Excise duty and tax

review to improve

efficiency and eliminate

abuse

12

Financial reform

2003 2004 2005 2006 2007 2009 20102008

Ghana reaches HIPC

Completion Point and

earns debt relief

Improved securities

regulations adopted

Legal reform

Anti-Money Laundering

Act passed

Single revenue

authority established to

centralize and

modernize tax

collection

Macro-fiscal reform

PPP policy introduced

to support private

sector participation in

infrastructure

Fair Wages Commission

established to take a

systematic approach to

wage setting

9,579

8,000

10,000

12,0002008

Rank Country

Overall

Score

2007

Rank

2006

Rank

1 Mauritius 82.8 1 1

2 Cape Verde 78.0 2 3

3 Seychelles 77.1 3 2

4 Botswana 73.6 4 4

Ghana’s High Quality Governance

Ghana consistently ranks amongst the top ten in good governance in Africa…

…Yet has the lowest GDP per capita, demonstrating an institutional framework for future growth

Ghana’s institutional strength is comparable to that of Africa’s middle income countries

13

7,3446,982

5,678

4,1493,903

3,193

1,090791 713

0

2,000

4,000

6,000

8,000

Seychelle

s

Mauritiu

s

Bots

wana

South

Afr

ica

Nam

ibia

Tunis

ia

Cape V

erd

e

Sao T

om

e a

nd

Princip

e

Lesoth

o

Ghana

• Ghana is ranked number seven overall in the Ibrahim Index of African Governance and has been in the top 10 since 2000

− Recently improved by one notch in 2007

• Ghana exhibits the institutional maturity of much wealthier countries

− This lays the foundation for continued rapid growth over the next decade

5 South Africa 69.4 5 5

6 Namibia 68.8 6 6

7 Ghana 66.0 7 8

8 Tunisia 65.8 8 7

9 Lesotho 61.2 9 9

10 Sao Tome and Principe 60.2 10 10

###

Source: Ibrahim Index, World Bank

Ghana’s Ease of Doing Business Ranking

Ghana outperforms its Sub-Saharan and low-income peers in the World Bank’s 2010 Ease of Doing Business Survey

20%

40%

60%

80%

100%

Ghana ranks highly in the 83rd percentile on average against its peers1

14

1 Average percentile ranking taken on selected indicators

Source: World Bank

• Ghana is an excellent place to do business when compared with its Sub-Saharan and low-income peers

• This peer group includes highly visible investor locations like South Africa and Vietnam

• Importantly, Ghana is in the 88th percentile for Protecting Investors

• Ghana also performs particularly well in registering property and trading across borders, ranking highly in the top 90th

percentile

0%

Ease of Doing

Business

Registering Property Getting Credit Paying Taxes Protecting Investors Trading Across

Borders

Enforcing Contracts Closing a Business

Sub-saharan Low Income