Ghana’s Currency, Millennium Challenge and Economic Prospects

The Millennium Challenge Corp. recently signed a second compact with the Republic of Ghana.http://www.state.gov/secretary/remarks/2014/08/230295.htm  This compact’s focus on the power sector addresses a major challenge to Ghana’s economic growth and to Ghanaians’ overall quality of life. The signing of the MCC compact is a good time to reflect on current economic and business conditions in Ghana.
Ghana is potentially a strong economic engine for the region and Secretary of State Kerry is right to cite Ghana’s commitment to good governance and economic prosperity. However the country faces some major challenges. Among them is the rapid depreciation of Ghana’s currency. Our data shows that the cedi lost about 27% in the 1st half of the year and has continued to fall since then. Currency weakness in Ghana is a symptom of persistent trade deficits as well as rising government spending. The financial community has noticed and has raised the issue in several forums and publications. It doesn’t change the longer term story of Ghana’s growth potential (in fact dollar based investors might find favorable prices for Ghanaian assets) but it does raise questions about how government will handle the problem while remaining investor friendly.
Red flags went up earlier this year when the government began to restrict the movement of currency, damaging Ghana’s reputation for financial openness. The more sensible answer is to change the character of Ghanaian trade. Surpluses might be a lot to ask but Ghana should at least aim for smaller trade deficits. Ramping up the nascent oil sector would help but there should also be greater orientation toward exporting in several sectors. This is why reliable electric power is so crucial. It’s location, general business friendliness and political stability make Ghana a logical export platform for the West Africa region as well as destinations further abroad. However for indigenous and foreign investors to locate in Ghana reliable electric power is essential. For that reason we should all hope for the success of this second MCC compact.

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What Tech Hubs Are Getting Wrong in Africa (and How to Fix It)

advansa:

Tech hubs and accelerators are a good way for investors to build relationships in the target market and to get acquainted with the local entrepreneurial community. This can mitigate some of the risk inherent to angel/venture investing. Social investors should consider becoming the kind of corporate partner the author suggests are necessary for accelerators to become sustainable.

Originally posted on :

In a post about Africa’s growing tech hub community, researcher Dan Evans (whose work we’ve covered previously), writes:

“Based on the maturity and business viability of many of the small tech firms that we have met with over our data collection visits, and the modification of many incubators’ business models, we completely understand the thought-process behind this “pivot” in strategy. For example hubs that we have previously visited like iceaddis and iLab in Liberia, andHiveColab in Uganda have all scaled back their original lofty aspirations. These hubs originally planned for a multi-tier membership model, charging rent for office space, and acquiring equity of the companies that were the most mature. Based on these assumptions, they thought they could be self-sustaining in a short period of time. All have scaled back their expectations and operate more as collaboration spaces for the local tech community and offer technical training…

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Call for proposals – your green idea could win up to US$15,000

Originally posted on caribbeanclimate:

Untitled

greenovators_EN

Are you a young innovator?
Are you a citizen of Latin America and the Caribbean?
Are you passionate about climate change?

If so, you are eligible to participate in the Greenovators contest, organized by Inter-American Development Bank (IDB) and EARTH University, in collaboration with the Ibero-american General Secretariat and Costa Rica’s Ministry of Environment and Energy.

The proposed project must provide specific indicators to monitor the impact of the project because the work that are awarded seed funds must commit to a monitoring report for evaluation by the end use of funds to deliver. Your project should be in one of the following areas:

  • Education and Awareness
  • Energy Efficiency
  • Renewable Energy
  • Sustainable Transport
  • Sustainable Business
  • Resilient Agriculture
  • Water resources
You could win
  • 5 prizes of US$ 15,000
  • 10 prizes of US$ 10,000
  • 15 prizes of US$ 5,000

Contest participants can also win a trip to Costa Rica and participate in the…

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5 Bad Reasons to Start a For-Profit Social Enterprise

Originally posted on HBR Blog Network - Harvard Business Review:

Should a new social good organization choose a for-profit model or a nonprofit one? This is a question we face each year at my organization, Echoing Green, when we evaluate thousands of business plans from social entrepreneurs seeking start-up capital and support. This year, nearly 50% of those plans proposed using a for-profit model. And when we asked these entrepreneurs why, some of their reasons were just plain bad.

They are not alone. New entrepreneurs are increasingly starting for-profit firms whose primary purpose is social impact. Supporting this trend is a tremendous increase in capital available for “impact investing.” According to a recent JPMorgan/GIIN report, impact investors invested nearly $11 billion across 4,900 deals in 2013, up 250% from 2011.

At Echoing Green, the social impact of our portfolio is our highest priority, so we’re agnostic on which form the organization takes. With the new possibilities for for-profit models (including B Corps,

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Coral Reefs Report and Climate Change News

Originally posted on caribbeanclimate:

With only about one-sixth of the original coral cover left, most Caribbean coral reefs may disappear in the next 20 years, primarily due to the loss of grazers in the region, according to the latest report by the Global Coral Reef Monitoring Network (GCRMN), the International Union for Conservation of Nature (IUCN) and the United Nations Environment Programme (UNEP).

The report, Status and Trends of Caribbean Coral Reefs: 1970-2012, is the most detailed and comprehensive study of its kind published to date – the result of the work of 90 experts over the course of three years. It contains the analysis of more than 35,000 surveys conducted at 90 Caribbean locations since 1970, including studies of corals, seaweeds, grazing sea urchins and fish.

The results show that the Caribbean corals have declined by more than 50% since the 1970s. But according to the authors, restoring parrotfish

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Dr Mark Bynoe on GCCA and Climate Financing

Originally posted on caribbeanclimate:

Dr Mark Bynoe, the Caribbean Community Climate Change Centre‘s senior environment and resource economist, discusses the benefits of the Global Climate Change Alliance, as well as the challenge of accessing climate finance and how to ensure this reaches those most in need.

Credit: Capacity4dev.eu

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3 African Currencies – Outlook for Direct Investors

What follows is a brief analysis of the behavior of currencies in 3 important African economies.

GHANA CEDI
The persistent trade deficit that is the norm in Ghana seems to be increasing. That deficit contributes to price inflation and the two conditions combine to weaken the currency.
The Ghana Central Bank is fighting back by raising interest rates which are already high. The cedi is likely to remain weak until the general pattern of Ghanaian trade changes. One of the reasons for Ghana’s growing trade deficit is the increase in equipment imported to support oil production which has not yet reached the desired production levels. When oil production will grows to the point at which it reduces the need to import, and when Ghana develops additional sources of high value export earnings, then a lower trade deficit will become the norm.
Although investors should build currency weakness into their assessment of Ghanaian deals and projects, they should also build the ability to raise prices locally into financial forecasts, and consider Ghana as a possible export platform.

KENYA SHILLING
The shilling has fallen only about 1% in the last year and a half through March 2014. Since then it has stayed within a narrow range.
Kenya’s trade surplus is rising and so are international reserves. The Kenyan Central Bank has kept interest rates steady and treasury bills have fallen slightly. It seems a radical devaluation is not likely, though the shilling/dollar rate might move outside the 86-88 range where it has been for about the last 18 months.

NIGERIA NAIRA
Recent inflation has been falling on a quarter on quarter basis. Nigeria’s trade surplus increased during 2013. Interest rates held within a narrow band during 2013 and have fallen a bit in 2014. Naira has stayed between 155-165 for 2 years. While the naira could lose a little ground vs the dollar simply due to much lower US inflation, many investors consider it stable for investment purposes.

 

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Climate, Economy, Finance- Everything you need to know about the IPCC 5th Assessment Report- Mitigation of Climate Change

Originally posted on caribbeanclimate:

On April 15th the third and final volume of the IPCC Fifth Assessment Report on Climate Change was presented. The report is the most comprehensive survey of scientific knowledge about climate change, updated after the 2007 edition. Working Group 3 of the Intergovenmental Panel on Climate Change focuses on actions and policies for mitigating climate change, that is on the possibility of reducing the concentration of greenhouse gases in the atmosphere.

The report makes clear why climate change cannot be dealt with solely from an environmental point of view, given its powerful financial and economic repercussions, on both the global and domestic levels. While the continuous rise in global emissions furthers us from the aim of maintaining temperature increase below 2° C at the end of the century, science is seeking ways to control climate change that also take into account economic efficiency and equity…

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Major Latam Stock Index & Exchange Rate Changes in Q1-2014

 

 

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Latin America, and the Caribbean.

Table 1 

 STOCK MARKET INDEX TRACKER 1ST QUARTER 2014

LATIN AMERICA/CARIBBEAN

COUNTRY

1ST QUARTER PCT CHANGE

ARGENTINA MERVAL-Local Currency

16.22%

ARGENTINA MERVAL-US$

-2.65%

BRAZIL BOVESPA-Local Currency

-6.02%

BRAZIL BOVESPA-US$

-0.36%

COLUMBIA IGBC-Local Currency

5.11%

COLUMBIA IGBC-US$

2.59%

JAMAICA MAIN INDEX-Local Currency

-4.12%

JAMAICA MAIN INDEX-US$

-7.07%

MEXICO-Local Currency

-6.33%

MEXICO-US$

-6.56%

MSCI LATIN AMERICA-Local Currency

-1.61%

MSCI LATIN AMERICA-US$

-4.20%

MSCI EMERGING MARKETS-Local Currency

0.79%

MSCI EMERGING MARKETS-US$

-0.23%

Sources: Stock exchangewebsites, Financial Times, Advansa International data

 

Table 2

1ST QUARTER 2014 EXCHANGE RATE CHANGE

LATIN AMERICA/CARIBBEAN

COUNTRY

1ST QTR PCT CHG

YTD

MAR PCT CHANGE

ARGENTINA

-18.87%

-18.87%

BRAZIL

5.66%

5.66%

CHILE

-4.88%

-4.88%

COLOMBIA

-2.51%

-2.51%

COSTA RICA

-8.05%

-8.05%

JAMAICA

-2.95%

-2.95%

MEXICO

0.24%

0.24%

PERU

-0.91%

-0.91%

TRINIDAD & TOBAGO

0.47%

0.47%

Sources: Financial Times, Advansa International data

In the Americas as in Africa the correction in emerging markets has become clearly visible in the 1st quarter of 2014. The MSCI Latin America index lost 1.6% and several currencies lost value, with Argentina being the standout due to continued high inflation. Exports of commodities played a bigger role in Latin America’s growth story than in other regions. Consequently, declining exports to Asia have put pressure on the trade balances of the big exporters like Argentina and Peru. Rising interest rates have helped the Brazilian real recover from previous losses but slow growth has contributed to lower stock prices. The long term outlook among investors is optimistic, with the length and depth of China’s economic slowdown being a major risk factor. Long term growth can resume if the future brings:

  • Political reform or even change of governments in some of the more volatile countries.
  • Adopting policies that enhance the region’s human capital (i.e. promoting education and entrepreneurship) and position their societies to enter high value industries that are more inclusive, and less dependent on undependable commodity prices.

 

 

 

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Major African Stock Index and Exchange Rate Changes in Q1-2014

 

 

 

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Africa.

Table 1 

 STOCK MARKET INDEX TRACKER 1ST QUARTER 2014

AFRICA

COUNTRY

1ST QUARTER PCT CHANGE

GHANA-Local Currency

11.37%

GHANA-US$

-0.80%

KENYA-Local Currency

1.76%

KENYA-US$

0.88%

NIGERIA-Local Currency

-4.72%

NIGERIA-US$

-7.45%

SOUTH AFRICA-Local Currency

0.48%

SOUTH AFRICA-US$

3.68%

WEST AFR. BOURSE-Local Currency

5.07%

WEST AFR. BOURSE-US$

4.88%

MSCI AFRICA-Local Currency

3.80%

MSCI AFRICA-US$

0.33%

MSCI EMERGING MARKETS-Local Currency

0.79%

MSCI EMERGING MARKETS-US$

-0.23%

Sources: Stock exchangewebsites, Financial Times, Advansa International data

 

Table 2

1ST QUARTER 2014 EXCHANGE RATE TRACKER

AFRICA

COUNTRY

1ST QTR PCT CHG

YTD

MAR PCT CHANGE

CFA AREA*

-0.18%

-0.18%

GHANA

-12.16%

-12.16%

KENYA

-0.88%

-0.88%

NIGERIA

-2.73%

-2.73%

SOUTH AFRICA

-1.12%

-1.12%

TANZANIA

-3.30%

-3.30%

UGANDA

-1.88%

-1.88%

Sources: Financial Times, Advansa International data

*Includes most French speaking countries such as Benin, Cameroon, Cote D’ivoire, Guinea, Senegal, Togo and others

2014 marks a change in investor sentiment towards the emerging and frontier markets. We see a shift from the mad rush into EMs of the past 3-4 years to people wondering if all the emerging market hype is a bit overblown. The announcement of tapering by the US Fed in 2013 was the trigger. In Africa the new outlook is manifest in continued currency weakness and retrenchment in several key stock indexes.

Every currency in our table lost ground in the first quarter. This is in spite of monetary tightening and rising interest rates across the board. Indeed, monetary policy in most of these markets has been fairly rational. On the fiscal side, however governments are finding it difficult to control spending. These are countries with young populations climbing out of poverty. They are at a developmental stage that demands rapid growth and are under tremendous political pressure to deliver social services and better infrastructure, all of which leads to deficits in the trade and fiscal accounts.

Ghana is a conspicuous example among this group. We see from the tables that Ghanaian stocks performed quite well while the currency was the weakest among prominent African economies. Many companies are performing well and investors anticipate future growth so stock prices are rising. However the trade benefits of the nascent oil sector have not materialized and have in fact generated additional imports as production ramps up. Thus the trade balance deteriorates. The resulting inflation on top of politically driven spending increases puts downward pressure on the cedi.

Yet it is these same characteristics that make the emerging markets such as Ghana attractive to investors. Among the larger markets that attract most of the trading volume, the currency issue is not as urgent. If this is a short term correction and if governments and investors don’t panic, then the long term trends will continue to imply growth and favorable investment outcomes.

 

 

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