Economic Recovery Analysis and Outlook: According to the AGI Barometer, Business Confidence Inched Up In The Second Quarter Of 2015

Business confidence for the second quarter of 2015 inched up marginally by 2.9 bases point in the latest Business Barometer report by the Association of Ghana Industries (AGI). The AGI has described the increase as insignificant considering that it is below the average indicator point of 100 bases point.

The base rate of the second quarter of 2015 is at 87.9 base points, which is below the base index of 100 having increased by 2.9 base points as compared to the first quarter of 2015, which stood at 85.0.

The Business Barometer calculates the current business mood and expectations for the future. According to the Chief Executive Officer of the AGI Seth Twum-Akwaboah told Starr Business: “Businesses are still not happy about the business environment.” Explaining what the marginal improvement means to industries, Twum-Akwaboah said: “That improvement at least is good because it didn't worsen. What you never want to see is your confidence level dropping.

“We saw a drop in the first quarter, second quarter we didn't see a further drop which is good. But that marginal improvement is insignificant so you can't say there has been an improvement in the confidence level so much.” He added: “If it is significant, if you are 85 you should be moving towards a 100 but we didn't achieve anything close to that so it means that the slight rise is good but it is not good enough, we need to improve upon it.”

According to the report, the major challenges in the 2nd Quarter were the Cedi depreciation/exchange rate volatility, inadequate power supply, and multiplicity of taxes, access to credit and cost of credit. This positive economic guidance comes on the heels of recent positive economic developments such as:

1. Economic Recovery Mode: The recession seems to have bottomed out, and it has now resumed what can be classified as the very early stages of a full recovery. Hence the increase in economic activity and all related expansionary activities should continue through the month of August.
2. Seasonal and Other Scheduled Inflows: Expectations of the seasonal foreign exchange flows in the last quarter of the year will provide additional support to the currency. The mere anticipation of this positive economic event should serve as a psychological booster that should help improve both consumer and business sentiments in August.
3. Also, scheduled anticipated inflows of more than US$4 billion from the Eurobond issue, syndicated cocoa financing as well as other programmed inflows in the second half of the year will provide a strong buffer and help sustain stability in the foreign exchange markets as well.
4. Potentially Increased Commerce: According to the Bank, the Cedi's appreciation is good in so far as this appreciation leads importers/traders to return to the market to pay off their import bills, the country should see some uptick in commerce in August.
5. Improved Purchasing Power and Real Incomes: The Central Bank is of the view that if the currency's appreciation heads off inflation through its impact on petroleum prices, both consumers and businesses should see some uptick in the service sector as consumer's purchasing power increases.
6. Medium and Long-Term Policies: Nevertheless, developments supportive of stability over the medium and long-term can be seen. Among them:
   1. The introduction of electricity and water price tariffs to reflect costs.
   2. Continued spending restraint.

   Increased Donor Support: Increased international Donor support for infrastructure related projects. A good example is the $700 million guarantee by the World Bank. The guarantees are expected to mobilize roughly $7.9 billion in new private investment for offshore natural gas, representing the biggest foreign direct investment in Ghana's history.

   Amended Petroleum Revenue Management Bill: Also, an amendment to the petroleum revenue management bill has been passed aiming to direct funds to the Ghana Infrastructure Fund (alongside savings for the Heritage and Stabilization funds).

   Further Stabilization of the Appreciating Cedi: The Cedis' surge and appreciation against the US Dollar should continue even if mildly. Based on comments from Central Bank officials in the last couple of weeks since the beginning of the currency's surge, it is clear that they do not wish to cause a volatile appreciation against the dollar. Hence we should expect to see a very measured but persistent appreciation through August.

   Sustainability of the Central Banks Currency Appreciation Efforts: The sustainability of the BOG's current liquidity risk management program will likely have the following three components:

   1. Daily funding management: Stand ready to inject liquidity based on daily or weekly market demands to support the Cedi.
   2. Monitoring: Continuous monitoring of marketplace factors and actors for Liquidity Crunch Early Warning signs.
   3. Stress testing and contingency funding: The central bank will be ready to inject necessary liquidity whether $20 million per day or even more based on daily market liquidity demands.

   Increasing Investor Confidence: The outlook is supported by burgeoning confidence in the economic plans outlined by the government and its donor partners including the IMF.

   Reduced Fuel Prices: Oil Marketing Companies (OMCs) yesterday reduced prices of petroleum products in conformity with the de-regulation of petroleum products, which took effect from June 16. The reduction was attributed to the marginal appreciation of the local currency to the dollar and fall in world crude oil price during the third de-regulated pricing regime for the period of July 16 to July 31.

   About the author:
   Anang Tawiah is a New York City based Business Economics and Technology Analyst. He continues to guide many Fortune 500 brands and government as a Business and Technology Consultant. You can read more of his analysis or reach him for further professional consultations and guidance at:

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