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While Ghana’s retail market size is relatively small, the country’s middle income population is expanding
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For Hong Kong companies looking to diversify markets, the “land of the warrior king” – the meaning of the word “Ghana” – certainly deserves consideration. Robust gold revenues, record cocoa harvest and the addition of oil production to its economic portfolio, are value-driven trade, as is its growing economic links with the Chinese mainland. Ghana’s economy has expanded at a pace faster than the average in Sub-Saharan Africa (SSA) since 2008.
While much of the world has been struggling to ward off a fresh downturn, Ghana’s economy last year expanded 14.4 per cent, thanks to the discovery of an offshore oil field that helped the country join the ranks of Africa’s oil exporters. That makes Ghana among the world’s fastest-growing economies.
With 25 million people, or some eight per cent of the population of West Africa, Ghana appeals to foreign investors because of its stable political environment, liberal economic policy, rich natural resources and strategic geographic location.
In short, Ghana is a leading destination for foreign investment in West Africa and a shining example for the continent’s democracies. As the first SSA country to gain independence from European colonialism, 55 years ago, Ghana has established a sustainable democracy, holding five consecutive elections without a serious hitch over the past two decades.
The country ranked ninth among the 47 countries in SSA and 78th in the world, in the Economist Intelligence Unit’s “Democracy Index 2011,” comparing well with such places as Hong Kong and Singapore.
With a well-established and sustainable political regime, the Ghanaian government has focused on economic reform, making the country the easiest place to do business in West Africa. According to the World Bank’s “Doing Business 2012,” Ghana ranked 63rd in ease of doing business, ahead of Turkey (71st), China (91st), Vietnam (98th), Indonesia (129th) and India (132nd), as well as topping the list in West Africa.
Political risk is often seen as one of the most challenging issues for foreign investors in Africa. Violence and political instability have compromised the growth potential of many African countries. Little wonder, given its political background, that Ghana is considered one of the best places in which to establish regional offices.
“Gold Coast” Resources
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Port facilities welcome Hong Kong products
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Called the “Gold Coast” by the Portuguese and British, Ghana has Africa’s second-largest gold deposits, trailing only South Africa.
Gold accounts for more than 90 per cent of Ghana’s mineral exports, which totalled some US$3 billion last year alone. It ranks as the world’s 10th largest gold producer, with some four per cent of world production, according to the US Geological Survey Mineral Resources Program.
Although Ghana’s gold production represents about one-quarter of the mainland’s (China being among the world’s largest producers), the sector is a bigger contributor to Ghana’s economy than the precious metal is to China’s, producing 3.7 grams of gold per person, about 15-fold that of the mainland’s 0.2 grams per person.
Despite its volatility, world gold prices have risen more than four-fold over the past decade. With the bullish gold market, sturdy gold revenues will continue to be a key driver of the Ghanaian economy.
Ghana also has enormous agricultural resources. About 57 per cent of its 24 million hectares of land is arable, about 123 times the total area of Hong Kong. The agricultural sector accounted for more than a quarter of the Ghanaian GDP last year, with crop production the dominant output, accounting for some 19 per cent of GDP.
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Ghana is one of the world’s largest cocoa producers (photo: iStockPhoto.com)
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Ghana is one of the world’s largest cocoa producers, second only to Cote d’Ivoire, its West African neighbour. Thanks to its advanced cropping technology and national grading system, Ghana produces higher quality cocoa beans than Cote d’Ivoire, boasting the world’s best-quality cocoa and commanding a premium price in the international market.
Ghana and Cote d’Ivoire together produce 3.5 million tonnes of cocoa, representing more than half of the world’s output. As a result, harvests there influence world prices and, consequently, chocolate prices. A favourable climate last year saw an exceptionally good harvest in Ghana, with cocoa crops increasing by some 20 per cent, while world cocoa prices fell about 25 per cent.
The state-owned Cocoa Marketing Board (Cocobod) works closely with the Cocoa Research Institute of Ghana (CRIG) to develop hybrid cocoa seeds that are high-yielding and early-bearing. Cocobod has tried to raise the competitiveness of its cocoa exports by promoting Fairtrade, an international trading partnership that promotes dialogue, transparency and respect for the rights of marginalised producers and workers.
Cadbury, which owns Dairy Milk, the United Kingdom’s best-selling chocolate bar, has increased its cocoa sourcing from Ghana since its product became a Fairtrade-certified brand in 2009. Following Cadbury’s lead, Nestlé and Mars have branded their chocolate flagships, Kit Kat and Maltesers, respectively, as Fairtrade products. Moving up the value chain, Ghana has been producing chocolate from its cocoa for decades under the Golden Tree brand, selling it in the United States, Europe and other markets. Hong Kong companies intending to ride the wave of rising chocolate consumption in Asia, particularly on the mainland, should consider the Ghanaian approach.
Black Gold
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Consumer electronics in Accra
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After decades of oil exploration, Ghana struck oil in 2007. The discovery of reserves in Ghana’s offshore Jubilee oil field is the largest find in West Africa in recent years, drawing international investors.
While Ghana represents only five per cent of West Africa’s GDP, it received 22 per cent of the region’s inward foreign direct investment (FDI) in 2010, the region’s third-largest FDI recipient. The oil discoveries have also allowed the government to build infrastructure to process crude oil and natural gas, as well as related logistics infrastructure.
Jubilee Field’s reserves are estimated to be more than 600 million barrels of quality light sweet crude oil, larger than Tunisia’s proven reserves of some 400 million barrels, with the potential to reach 1.8 billion barrels.
China Ties
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Hong Kong Electronics
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The Ghanaian middle-income population is expanding, thanks to the economic boom and growth in the services sector, although the country’s retail market size is not especially big.
With per-capita income of about US$1,500, Ghana’s consumer buying power is comparatively weaker than the mainland’s (US$5,400), though better than India’s (US$1,400). Hong Kong companies, however, should not overlook business opportunities from Ghana. During the five years to 2011, Ghanaian per-capita income grew by about 60 per cent and is expected to see another leap of some 50 per cent by 2016, according to the International Monetary Fund.
Hong Kong’s exports to Ghana grew at an average annual rate of 30 per cent over the same period. Understanding consumer spending patterns is key to successfully tapping the Ghanaian market. Most Ghanaians’ discretionary spending may not be high, but many are willing to spend on trendy electronic gadgets, particularly smartphones.
Ghana has a high mobile phone penetration rate of more than 70 per cent, second only to SSA’s most developed country – South Africa. Moreover, Ghana’s customs removed import duties on mobile phones a few years ago, helping to create higher demand for these products.
Electronics products are Hong Kong’s major export to Ghana, accounting for 61 per cent of the total. About 95 per cent of the electronics products are finished products. Telecom equipment, accounting for 86 per cent of electronics products, has been the best received, posting an average annual growth rate of 57 per cent over the five years to 2011.
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The mainland has been increasing its investment in Ghana in recent years, particularly in resources, construction and trading. The mainland extended a US$3 billion credit line to Ghana last year, prioritising projects with participation by Chinese enterprises. According to the Ghanaian government, the nation is expected to need an estimated US$1.6 billion annually to meet infrastructure needs over the next decade.
Apart from the anticipated increase in infrastructure projects, there will also be a boom in the commercial property market, particularly hotels and shopping malls, driven by growing demand from foreign investors and businesspeople, as well as the expanding middle-income population in the country.
Some Chinese investors are now developing hotels in the capital, Accra, to ride the economic boom. About 500 Chinese companies have set up their regional bases in Ghana. Most are small and medium-sized enterprises, mainly importing machinery, building materials and vehicles from China to Ghana. Bilateral trade between China and Ghana has been growing at a rapid pace, up 69 per cent in 2011. Although the mainland recorded a trade surplus with Ghana, imports from Ghana grew at a faster rate than exports.
The mainland’s imports from Ghana last year surged 195 per cent, to US$363 million. The mainland’s trade surplus is expected to narrow, as it increases imports of resources and agricultural products from Ghana, including iron ore, crude oil and cocoa.
Corruption in Ghana is not considered serious relative to most of its African counterparts, while red tape has notably moderated over the past decade.
High import duties and segmented retail markets, however, may continue to pose challenges to foreign traders and retailers, which may not be fully resolved over the short to medium term. Identifying a reliable local distributor or partner may help increase exposure of imported products, thereby expediting the penetration of products into the Ghanaian market.
Security is not a major concern for business travellers, as it is in neighbouring Nigeria. Still, it would be worth contacting the Ghanaian business association and industrial federations, including some local Chinese business associations in Ghana, when making forays into this rich new market.
For more on new markets, please see the June issue of the HKTDC Trade Quarterly, which can be ordered at: http://bookshop.hktdc.com/.
