Analysts at Sarpong Capital believe Ghana’s inflation will continue to taper, due to the sustained reforms by the government. Yomi Mayomi-Akinola, Head of Research at Sarpong, joined CNBC Africa for this discussion.
The analysts at Sarpong Capital believe Ghana's inflation will continue to taper due to the sustained reforms by the government. Yomi Mayomi-Akinola, Head of Research at Sarpong, shared some insights on the inflation slowdown and investment landscape in Ghana. Take a look. As you rightly confirmed, inflation is going in the right direction. However, it still remains well above the government's target band of 6% to 8% to 10%. When you drill down to the actual numbers, you see food inflation declined to about 19.1%, while non-food inflation, there was a slight uptick to about 21.5%, and that's things like housing, utilities, fuel, education and health services. In the same vein, when you look at locally produced items, it still remains high, inflation of 22.2%, and for imported items as well, they continue to reflect currency pressures at about 16.5%. So we aren't out of the woods yet, encouraging numbers, but we aren't out of the woods yet. Yes, sure. And talking about whether or not the country will be out of the woods by the end of this year, the finance ministry is also forecasting that inflation should decrease about to 15% by the end of this year. Are you optimistic about this number? That might be a slightly optimistic gauge, for lack of a better expression. When you look at the core baskets, the contributing factors to inflation, thinking about agricultural produce, for instance, there is a tomato situation, you know, in terms of vegetables and meat in particular. We also can't ignore regional inflation figures. Yes, we're seeing positive numbers coming out of positive numbers coming out of greater Crap, for instance, some of the regions in the north, because there's some level of import dependence from countries like Burkina Faso and Niger, we're seeing them still have elevated inflation rates. Then we also must be mindful about seasonal upticks. We're approaching Q4 at the moment, so there's festive season. There's also a difference this year, being the general elections in December. So all these are contributing factors to what we expect to be a slowdown in the disinflation process over the next few months. Sure. And we've also seen the Ghana MPC also maintain its key interest rate at 9% since the start of this year. For you, what are the options here when we are looking at the next moves from the Monetary Policy Committee? What are you expecting? So we're expecting the MPC to favorably consider these improvements in inflation. So it means that some of the policies that have been taken by the Bank of Ghana are trickling down into actual reality. However, we do not anticipate any interest rate cuts for at least the September meeting. The reason being that might be counterproductive, given the current macroeconomic terrain, and then still trying to keep a rein on price stability. We expect maintenance of the status quo, basically, perhaps until we start to see some more movement or we get a sense of what the global rate cuts are going to look like. Yeah. And concerns are also being raised around the stability of the local currency against the greenback. Now, the question is also centered around where is the fair value of our local currencies here within the west of the continent? For you now, what's your forecast of stability of the Ghana CDI on the back of the IMF program and other initiatives the country is taking on? The pressure still remains, wouldn't you say? So in terms of the currency pressures, yes, we've seen quite a bit of that this year, largely driven by liquidity constraints, just not enough dollars in circulation. But that's not to say the Bank of Ghana has done its best in terms of interventions into the market, and they are trying to manage that as best as they can. But again, it's a supply-demand gap at the moment that they're trying to manage. Yeah, I think that's how much I'll say on the current side. Inflation as well, there is some elements that we're seeing of the foreign currency trickling into prices. As a side note, perhaps if inflation-linked bonds have been issued by the government, given the high interest rate regime, perhaps there might have been some significant government benefits. I mean, countries like South Africa have leveraged this. So it's a delicate balancing act, I would say, yes. Definitely a delicate balancing act here. But now let's just tilt the conversation a little away from the FX pressures at this point in time. Now, it's also counted down to the invitation of bondholders to swap their $13 billion holdings for new bonds as well. Now, in terms of the options here, how much of a buy-in do you expect? Given the backdrop of the domestic debt exchange programme, we expect pretty high levels. The key thing is to ensure that all the bondholders have access to the actual information. We've seen the two options that have been tabled. So there is the power option and there's a discount option. The power option is capped at about $1.6 billion, whereas there's no cap for the discount option. So it's a first-mover advantage in that regard. But we believe most people will fall into the discount option bucket. And given there's no other option, we might see pretty high participation levels. Sure. And talking about how much of investors buying Ghana can also weigh in at this point in time, we have the 2024-2025 COCO season as well, which has already kicked off. The question around financing this season, whether or not opting for local funding sources or international borrowers. But the question also still remains the viability of the Ghanaian market from the COCO market to other key sectors of the economy. What's your take on the investment appetite here? So the COCO situation is a combination of two things. One is financing and one is actual output. The COCO fields have also suffered a bit of a setback climate and some of the illegal mining activity, which has impacted yields. So the government is doing all it can to ensure that going forward, first of all, the farmers are also paid fairly. They've recently increased the price of a bag to about 3,000 Ghana CDs from 2,000 off of the back of the global COCO price increases. There's other initiatives to ensure that the syndication, the syndicated loans are coming on time so that planting the season is also on time, which was something that we saw last year that there was a bit of a delay and that impacted output. Sure. And wrapping up the conversation, we wouldn't let it go without touching on the intricacies at play at the Ghana equities market. Yes, it's still relatively quiet, but what's your outlook for the rest of this month and the last quarter of the year? Okay, so as you rightly said, there has been some subdued activity on the equity space with telecommunications and commodity stocks driving day-to-day performance. We expect continued subdued participation levels for most of the year, especially as investors adopt a cautious approach ahead of the elections. If you look at the Ghana Stock Exchange Composite Index, you would see it as flatlined over the last few weeks compared to the spikes. I mean, it reached a high in July off of performance. So we expect relatively flatline, no surprises there as people adopt a cautious approach. Interestingly, if you have a little bit of time, in addition to the usual telecommunications as MTN Ghana trades that we always see, there has been some consistent activity for new gold exchange-traded funds, which of course the underlying commodity is gold. It appears to be a hedging strategy, but we're watching that alongside other sectors. And what's your optimism around new listings as well now? We're wrapping up the last quarter of the year already and not so much. We had the new Atlantic listing and others come through, but your take on how much more the country can wean here? Sorry, can you just repeat that? In terms of new listings, what's your optimism? They're actually working hard to improve participation on the exchange, further listing activities. So they're proposing further requirements for mining companies, for instance. There was a recent formal launch of an OTC market just to ensure that there is more listing and more investor participation on the exchange. So these are work in progress.
Theme: Ghana's Inflation Trends and Investment Prospects Analyzed by Sarpong Capital
Ghana's economy has been a focal point for investors and analysts alike, particularly in the context of inflation trends and investment opportunities. Analysts at Sarpong Capital are of the opinion that Ghana's inflation is on a downward trajectory due to the sustained reforms implemented by the government. Yomi Mayomi-Akinola, Head of Research at Sarpong, provided valuable insights on the current state of inflation and the investment landscape in Ghana. The country's inflation rate, while showing improvement, still remains above the government's target band of 6% to 10%. Food inflation has seen a decline to about 19.1%, whereas non-food inflation, comprising categories like housing, utilities, fuel, education, and health services, witnessed a slight increase to approximately 21.5%. Locally produced items continue to experience high inflation at 22.2%, reflecting the challenges faced by the domestic market. Imported items are also not immune to currency pressures, registering an inflation rate of around 16.5%. Despite these encouraging trends, it is evident that Ghana is not completely out of the woods yet. The finance ministry's forecast of inflation decreasing to 15% by the end of the year may be overly optimistic. Several factors, such as regional disparities in inflation rates, seasonal upticks due to the festive season, and the upcoming general elections in December, are expected to contribute to the slowdown in the disinvestment process in the coming months. The Monetary Policy Committee (MPC) of Ghana has maintained its key interest rate at 9% since the start of the year. While improvements in inflation are likely to influence the MPC's decisions, experts do not foresee an interest rate cut in the near term. The delicate balance between promoting economic growth and ensuring price stability necessitates a cautious approach to any potential policy changes. Currency stability remains a concern for Ghana, with the local currency, the Ghana Cedi, facing pressures against the US dollar. Liquidity constraints and supply-demand imbalances have led to fluctuations in the exchange rate. The Bank of Ghana's interventions have attempted to mitigate these challenges, but maintaining stability in the foreign exchange market requires ongoing attention. Inflation-linked bonds could offer a potential solution to address the impacts of foreign currency fluctuations on pricing. The recent domestic debt exchange programme, inviting bondholders to swap their holdings for new bonds, is expected to receive substantial participation. Clear communication and transparent options for bondholders are crucial to ensuring the success of the exchange programme. The ongoing 2024-2025 cocoa season in Ghana presents opportunities for financing and investment in the cocoa sector. The government's initiatives to support farmers and enhance productivity aim to bolster the cocoa industry's viability. It is essential to balance the financing needs of the cocoa season with the broader investment landscape in Ghana, encompassing sectors beyond cocoa. The Ghana equities market has exhibited subdued activity, with telecommunications and commodity stocks driving performance. Investors are adopting a cautious approach, particularly ahead of the upcoming elections. Despite the flatlining of the Ghana Stock Exchange Composite Index, there is interest in new gold exchange-traded funds, reflecting a hedging strategy amidst market uncertainties. Efforts to attract new listings and enhance investor participation through initiatives like the OTC market launch are underway, signaling a commitment to strengthening the country's capital markets. The outlook for new listings and increased market activity remains positive, with ongoing efforts to promote diversification and growth in Ghana's equities market.
"The delicate balance between promoting economic growth and ensuring price stability necessitates a cautious approach to any potential policy changes."
['Ghana', 'inflation', 'investment landscape', 'Sarpong Capital', 'Monetary Policy Committee', 'Ghana Cedi', 'foreign exchange', 'cocoa sector', 'equities market', 'economic growth']