Ghanaian Growth to Drag on Africa’s 3rd-Worst Currency

Ghana’s economic growth, set to beat the African average for a sixth year in 2013, risks boosting imports and fueling further weakness in the region’s third-worst performing currency, according to Standard Bank Group Ltd. and Ecobank Transnational Inc.

The cedi, which has declined 14 percent against the U.S. currency this year, may slump to 2.15 a dollar over the next 12 months, according to Ecobank’s head of economic research, Angus Downie. Samir Gadio, emerging-markets strategist at Standard Bank, sees the Ghanaian unit at 1.95 a dollar by the end of 2013. It weakened 0.3 percent to 1.9065 a dollar by 2:15 p.m. in the capital, Accra, according to data compiled by Bloomberg.

“We expect the cedi to depreciate, driven by continued strong demand for imports, both of capital and consumer goods,” Downie said in an e-mailed response to questions on Dec. 20. “We think real gross domestic product will expand by around 8 percent in 2013 due to robust domestic demand and growth in exports.”

Since the start of oil exports in December 2010, Ghana’s expansion has spurred demand for imported fuel, food and consumer products. Growth in the 67.4 billion-cedi ($35 billion) economy is forecast to reach 8.2 percent in 2012 year and 7.8 percent in 2013, outpacing the 5.7 percent projection for next year in sub-Saharan Africa, according to the International Monetary Fund.

Exchange Rate

Ghana will continue to attract investment into energy, construction and services industries, Sampson Akligoh, head of research at Databank Financial Services Ltd. in Accra, said by phone on Dec. 20. “We see this trend continuing together with the associated demand for dollars to import inputs,” he said, forecasting the cedi at 2.01 a dollar by the end of 2013.

The Bank of Ghana sells dollars from its gross foreign reserves to companies, pegging the amount offered at irregular sales to demand in a bid to steady the exchange rate. It sold $4.2 billion in the year to Nov. 13.

As the cedi dropped 18 percent in the first half of 2012, the central bank also boosted rates on its benchmark three-month Treasury bills to make local assets more attractive than dollar investments and stem the currency’s decline. The yield reached 23.12 percent on Oct. 19, the most in almost three years.

At the latest auction on Dec. 21, the rate was 23.08 percent, the highest in Africa. That compares with Kenya’s 91-day rate of 8.14 percent, while its currency lost 1.1 percent this year. Nigeria’s naira has gained 3.2 percent in 2012 and it’s three-month borrowing costs were 12.02 percent at the Dec. 19 auction.

Dollar Deposits

Ghana also this year re-introduced bills with maturities of 30, 60, and 270 days to provide other ways to invest in cedis. Lenders were asked to keep reserves on dollar deposits accounts in cedis and provide 100 percent cover for cedi accounts held by foreign financial institutions.

“If Bank of Ghana continues with these measures, the cedi will gain to as much as 1.7 a dollar next year,” Benjamin Dzoboku, treasurer at HFC Bank Ghana Ltd. in Accra, said in an interview on Dec. 19. The currency has gained 2.2 percent in the second half of 2012.

The 91-day yield will decline next year in line with falling government financing needs, London-based Gadio said in an e-mailed response to queries on Dec. 20. It may drop as much as 1,000 basis points, or 10 percentage points, by the last auction in 2013, he said.

The budget deficit may narrow to between 4.5 percent and 5 percent of gross domestic product next year as spending slows after the election campaigns of 2012 drove up expenditure, Gadio said. The fiscal gap widened to 7.3 percent of GDP in the nine months through September from 1.9 percent a year earlier, according to the central bank.

“The key challenge for Ghana is to achieve a sustainable growth path that does not destabilize the country’s external fundamentals and exchange-rate dynamics,” Gadio said.

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