On 20 April, Ghana became the first African country to ease lockdown measures (after being in place for three weeks since March) in its two biggest cities, Accra and Kumasi. Schools remain closed and the ban on large gatherings is still in place. President Nana Akufo-Addo said the decision to lift the lockdown was necessitated by the severe impact of the coronavirus outbreak on the poor and vulnerable.
Figure 1: Countries with the highest coronavirus cases in Africa (as at 5 May 2020)
Source: Africa CDC
Infections on the rise: Since the lockdown eased, Ghana has seen the number of infections steadily rise, as confirmed cases rose to 2,719 (as at 5 May) from 1,550 by 27 April and 1,042 on 20 April (when the lockdown was lifted). The reported number of deaths doubled to 18 as at 5 May from 9 in 20 April. By way of comparison, although the number of confirmed cases in Ghana (2,719 as at 5 May) is marginally less than in Nigeria (2,950 as at 5 May), Ghana has a population of nearly 30mn people, which is about a sixth of Nigeria’s population (c196mn).
Nevertheless, the government expects its capacity to test and isolate as well as the public's adherence to hygiene and social distancing protocols to stop the virus. So far, Ghana has administered nearly 68,501 tests (about 1.5% have tested positive), making it one of the countries with the highest testing rates in Africa.
Figure 2: Covid-19 cases in Ghana after lockdown eased
Source: Ministry of Information Ghana
Will Ghana’s ailing economy rebound? Recall that Ghana cut its GDP forecast for 2020 to 1.5% from 6.8% (the lowest growth rate in 37 years) on account of the coronavirus outbreak and lower oil prices. One of the main reasons why the government lifted the lockdown was the severe impact on the livelihoods of a majority of Ghanaians (an estimated 80% of the economy is in the informal sector and relies on daily earnings for sustenance). As in other countries, many Ghanaians lost their jobs because of the pandemic and, as the government does not provide unemployment benefits, were hit hard. Critics of the government highlighted its inability to provide safety nets for vulnerable people in the country during the lockdown, despite announcing a sizable stimulus package of GHS600mn (US104mn). For now, Ghanaians largely welcome lifting the lockdown, as it would mean increased economic activity, improved consumer spending and prevent further layoffs.
Equity strategy view on Ghana: The main determinants of Ghana’s economic and equity market fortunes are largely out of its control:
(1) Covid-19 related disruption as discussed above (although we note that Ghana has announced one of the lowest fiscal responses – effectively close to net zero fiscal stimulus – across emerging and frontier markets);
(2) Commodity prices (gold is 50% of exports, oil 20% and cocoa 15%); and
(3) Capital flows into frontier markets (external debt to GDP is 40%).
Potential positive catalysts for Ghana
(1) Oil, cocoa, gold output growth: The government targets a doubling of oil output from 200,000 barrels per day in 2019 to 420,000 in 2023 (data points to monitor on this are updates from Aker Energy and Tullow Oil), the cocoa crop should improve this year after the incidence of tree disease in 2019, and gold output should increase (a data point to monitor is any AngloGold Ashanti announcement on whether Obuasi gets to 400,000 mtpd by end-2020).
(2) Interest rate cuts and falling inflation: Real interest is 6.7% (with a 14.50% policy rate, after a 150bps cut so far this year, and 7.8% latest inflation) and this suggests there is room for further easing, all other things being equal (note that with inflation already decelerating in 2019, despite FX rate depreciation and utility tariff increases, there is also potential for reducing the target range of 8% +/- 2%).
Regional trade is not a likely a catalyst: Re-opening of the border with Nigeria is unlikely (and Nigeria accounts for merely 2% of exports anyway) and it is likely far too early to place much hope on AfCFTA (African Continental Free Trade Area).
Potential risks specific to Ghana
(1) Fiscal deficit: This was already on course (5.5% average deficit from IMF forecasts for 2020-21 from last October, pre-crisis) to push through the previously-set ceiling (5% under the 2018 Fiscal Responsibility Law) and in an election year (7 December 2020), there risk of further slippage.
(2) FX rate pressure: Gross FX reserves heading into the crisis were merely 4 months of import cover (this might erode the capacity for rate cuts mentioned above).
(3) Banking distress: A second round of non-performing loan distress and calls for further depositor protection.
Low probability risks include:
(1) FATF shift from grey to black list (the FATF has accepted Ghana’s commitment to improve its anti-money laundering procedures, so a downgrade looks very unlikely);
(2) Disruption around the election is unlikely given Ghana’s long track record of orderly elections, even with close contests as seen in 2008 and 2012, and the absence of any major disagreement between politicians over orthodox macroeconomic policy.
Ghana equities, measured by the local Ghana SE Composite index, are down 9% ytd in US$ total return terms. This broadly matches the devaluation of the Cedi of 11% and is notionally significantly better than the declines of 23% seen in both MSCI Africa ex-South Africa and MSCI FM. Trailing price/book of 1.8x, in line with the 5-year median. Note that Ghana traded value is extremely low and the two largest stocks in the local index (Tullow and AngloGold Ashanti, which collectively make up about a 60% weight) barely trade at all.