This puts Africa in a particularly enviable position, as it holds over USD 30 trillion worth of rare earth minerals required for batteries and other equipment necessary for a complete green energy transition. The continent also has about 48% of the world’s manganese, 22% of natural graphite, 55% of the world’s cobalt deposits, and notable shares of nickel and lithium.

The Democratic Republic of Congo is responsible for 70% of global cobalt production. South Africa, Gabon, and Ghana produce 60% of global manganese.

But the arrangements from its colonial past still linger on in the African economy, as Western governments and corporations still view the continent as a mine to extract resources from rather than a genuine partner who can add value and create industrial products useful for the global economy.

No major international player is speaking about Africa using its wealth for internal economic transformation. Most just see it as an ore supplier. And though ore supplies will create a few jobs, it will continue to be an aftermath of colonialism. Africans desperately want to be a part of the refining, processing and manufacturing side of the supply chain.

Domestic plants could create thousands of jobs as opposed to the few hundred jobs offered through traditional resource extraction. Policymakers in Africa have long called for local beneficiation (value addition done on African soil). They want the critical minerals to be used for industrialisation at home and not just for global decarbonisation.

For example, Africa has $2.8 trillion worth of iron ore, which could be worth $25 trillion in steel if it adds value. The USD 834 billion in bauxite could be worth USD 15.4 trillion in aluminium with full processing.

Industrialisation is a matter of urgency for the continent as its population is exploding, with 30 million people born annually. Without manufacturing jobs, most of these young workers wouldn’t be able to land their first job. Building a mineral-to-manufacturing corridor will reduce Africa’s import bill by USD 16 billion annually.

Mining jobs in the DRC support over 100,000 people. In Namibia, there are 20,000 workers, and in Zambia, there are over 70,000. With value addition, millions more can enter the workforce.

The myriad nations of Africa cannot hope to bargain with the great European and American powers alone. It’s only through a grand union that they can even hope to negotiate a fair deal.

This is exactly why African Continent Free Trade Area (AfCFTA) is an important part of this equation. Without the AfCFTA coordinated policies on taxes, prices and beneficiation will be impossible. The exploitative bilateral deals which have stolen wealth from African mines will no longer hold in front of a unified front.

Africa has over 1.4 billion people, and the vast continent with so many people can make value addition seamless as opposed to a single country taking this route. For example, cross-border power grids could supply energy to all plants and make African companies competitive and sustainable.

This grand ambition is constrained by persistent challenges, including governance risks, infrastructure deficits, global resistance to domestic processing, and regulatory inconsistencies. But there is hope left, as reforms in Ghana (bauxite), Zambia (copper), and Kenya (digital licensing) indicate policy progress. America and Europe prefer or even incentivise processing on their own turf. But Africans must negotiate fair inclusion in the value chains if they are going to remain relevant in the 21st century.

Energy and sustainability are also a big headache. No mineral-based industrialisation is possible without reliable and clean power. Africans can explore several options for sustainable power refining, including green hydrogen, hydropower, and geothermal energy. Clean energy can be combined with mineral processing, particularly in East Africa, for a competitive edge.

The IEA says that lithium demand would be fivefold in 2040, and demands for cobalt and rare earth may rise by 50%-60%, with copper by about 30%-50%.

A deal without technology transfer, skill development, and joint ventures is not in Africa’s interest. According to AfCFTA, if the strategy is effective, African nations could increase their bargaining power to a level comparable to the GCC’s bargaining power at the height of oil production in the 20th century.

The post IF Insights: Rare earths emerge as Africa’s new leverage point appeared first on International Finance.

Touted as a “holy grail” for boosting intra-African trade, spurring industrialisation, and accelerating economic development, the AfCFTA agreement carried immense hopes when it was signed in 2018. Yet six years on, analysts warn that AfCFTA is at risk of joining the list of Africa’s missed opportunities.

A few months back, in May, the continent quietly marked the sixth anniversary of AfCFTA’s signing, a milestone that arrived with more frustration than fanfare. In principle, nearly the entire African Union (AU) supports AfCFTA’s ideals. Almost 54 out of 55 African countries have signed on, with only Eritrea holding out after openly questioning the deal’s value. Of those signatories, 48 have officially ratified the agreement.

In practice, however, even countries that ratified appear stuck at the level of rhetoric. In fact, three ratifying states—Burkina Faso, Mali, and Niger—are currently suspended from AU activities after military coups, slowing their participation.

This gap between vision and action is becoming increasingly glaring. Africa Kiiza, a researcher and PhD fellow at Germany’s Universität Hamburg, describes the situation bluntly: “The aspirations and ambitions of AfCFTA are brilliant. The problem was in putting the cart before the horse.”

In Kiiza’s view, African leaders were so eager for a continent-wide trade pact that they rushed to sign a “shell” agreement long before resolving the many practical obstacles that stand in the way. Now, as political and economic landscapes shift both within Africa and globally, tackling those unresolved hurdles is proving to be a Herculean task.

Lofty goals vs languid reality

From the outset, AfCFTA was imbued with sky-high expectations. It was enshrined as a flagship project of the AU’s Agenda 2063, elevating it as a linchpin for Africa’s future development. On paper, the agreement’s goals paint a rosy picture of transformation.

By creating a single continental market for goods and services, a market of 1.3 billion people with a combined GDP of roughly $3.4 trillion, AfCFTA aims to fundamentally reshape African economies. The ultimate vision is to pave the way for a continental customs union and eventually an African Common Market, echoing the progression of the European Union.

More immediately, AfCFTA proponents tout a laundry list of concrete benefits anticipated from freer trade within Africa. These include boosting intra-African trade by 53%, addressing the historically low trade integration on the continent (where, before AfCFTA, African countries traded only 12–18% of their goods among each other). They also include expanding the manufacturing sector by $1 trillion, as reduced barriers encourage industrial growth and diversification beyond raw commodity exports. And generating $450–$470 billion in income gains, as businesses access new markets and more efficient value chains take shape.

The union also hopes to create 14 million jobs, from farms and factories to logistics and services, helping absorb Africa’s growing labour force and lift 50 million people out of poverty, roughly 1.5% of the continent’s population, by opening opportunities and reducing consumer prices through competition.

Such outcomes would be revolutionary. Achieving them, however, depends on translating the agreement’s text into real changes on the ground—and that is where progress has been painfully slow. Now, six years down the line, the cart-before-horse nature of AfCFTA’s launch has become starkly evident.

Consider the basics: AfCFTA’s administrative backbone, the AfCFTA Secretariat, was only established in 2020 and remains surprisingly reliant on external support. In fact, the German development agency GIZ has been footing much of the bill, including financing the Secretariat’s operations, supporting technical negotiations, and helping draft legal frameworks.

To be sure, GIZ’s assistance has been invaluable in moving the agreement forward on paper, for instance by helping finalise rules of origin in many sectors, setting up a dispute settlement mechanism, and developing protocols for digital trade. Yet this dependence exposes an uncomfortable truth about African integration efforts.

Slow start to a long journey

After years of preparation and delays, trading under the AfCFTA officially commenced on January 1, 2021. However, the volume of commerce happening under AfCFTA preferences remains well below initial expectations. Before the agreement, formal trade within Africa was only about 15% of the continent’s total trade, lagging far behind regions like Europe or Asia.

Today, that figure is still stuck below 20%. In 2022, the AfCFTA Secretariat launched a “Guided Trade Initiative” to jump-start commerce under the new rules. This pilot programme selected eight countries to begin exchanging specific goods under AfCFTA conditions, testing customs procedures, documentation, and tariff reductions in practice.

The good news is that intra-African trade is showing slight growth. In 2023, trade between African countries rose about 7.7%, reaching $208 billion, according to the African Export-Import Bank. There are also signs of gathering momentum, and by the end of 2024, 31 of the 45 AfCFTA-ratifying states had initiated at least some form of trade under the AfCFTA framework, a big jump from only seven countries trading under AfCFTA in early 2023.

Moreover, African negotiators have continued ironing out the deal’s details by adopting new protocols on investment, intellectual property, and competition policy to complement the core trade agreement. These developments signal that African governments are, on paper, committed to building out the AfCFTA architecture and gradually bringing more countries and products on board.

Despite these positive steps, the scale of trade happening under AfCFTA rules remains a drop in the ocean relative to Africa’s ambitions. The agreement’s target to boost intra-African trade to 53% of total trade by 2030 or shortly thereafter would put Africa on par with other continents where regional trade is dominant. By comparison, about 68% of Europe’s trade is within Europe, 59% of Asia’s trade is within Asia, and North America stands at 51% internal trade. AfCFTA’s current performance is still far from these levels.

The road to progress

Why has AfCFTA’s promise been so difficult to realise? The truth is that the agreement faces a tangled web of structural, logistical, political, and economic obstacles. Overcoming these will require sustained effort and political will, both of which have been in short supply.

One fundamental challenge is resistance born of economic disparity and fear of unequal gains. Not all African countries are convinced they will benefit equally under AfCFTA, and some of the smallest and poorest states worry they could lose out. Many least-developed countries have historically pursued inward- focused development strategies.

For them, opening up borders feels risky, as it could mean being flooded by imports from larger African economies like South Africa, Nigeria, or Egypt. There is a perception, fair or not, that AfCFTA might primarily serve the interests of Africa’s biggest economies, those most eager to find new markets for their industrial and consumer goods, at the expense of smaller nations that have fewer competitive industries. In other words, critics fear the agreement could turn into a pursuit of profit for Africa’s giants rather than a project in pan-African equity.

Kiiza provides a striking example of the uneven playing field within Africa.

“A US citizen has the luxury of travelling to 24 African countries without a visa. For a Ugandan national, visa-free access applies to only nine countries,” he points out.

This highlights how even basic facilitators of integration, such as free movement of people, are far from reality.

African governments have been hesitant to implement the AU’s Protocol on Free Movement of Persons, fearing migration or security issues. To date, only four countries have ratified that protocol, leaving Africa one of the most visa-restricted regions for its own citizens.

Such reluctance directly undermines the spirit of a continent-wide free trade area, since trade isn’t just about goods and capital—it’s also about the ability of people (business travellers, workers, service providers) to move freely.

Trade itself is beset by examples of counterproductive barriers. Take Ghana and South Africa: Ghana is the world’s second-largest cocoa producer and has a nascent chocolate-making industry. Yet if Ghana wants to export chocolates to South Africa, those products face a hefty 30% tariff upon entry.

Contrast that with chocolates from Switzerland (a non-African country), which enter South Africa tariff-free, thanks to pre-existing trade arrangements. An African product is penalised by African tariffs, while a European product enjoys preferential access. Af- CFTA is supposed to eliminate such inconsistencies, but until its tariff reductions are fully in force, these old rules remain a hindrance.

Then there’s the disparity in economic scale. Burundi’s entire economy is worth only about $3 billion, while Nigeria’s is around $487 billion (the largest in Africa). Yet under AfCFTA’s framework, both countries are theoretically expected to open 97% of their markets to duty-free trade over time. Many economists argue that asking a tiny, fragile economy to liberalise at nearly the same pace and extent as a regional heavyweight is a recipe for trouble.

“The idea that liberalisation and tariff removal before building the capacity of small nations will automatically increase trade is flawed,” Kiiza notes.

He suggests that African leaders need to ‘apply the brakes on political expediency’— in other words, not just rush for feel-good announcements of unity but instead focus on building the fundamental blocks that would allow weaker economies to compete. That includes developing industrial capacity, improving productivity, and strengthening local businesses so they can actually take advantage of a larger market.

Beyond politics and policy, practical obstacles significantly raise the cost of doing business across African borders. Chief among these is the infrastructure conundrum, the simple fact that it is often prohibitively expensive and cumbersome for African companies to move goods to a neighbouring country. Transport networks are underdeveloped and often oriented toward overseas trade rather than intra-African commerce.

For instance, African ports, railways, and roads were historically designed to extract commodities out of Africa to global markets, not to facilitate continental trade. As a result, it can be cheaper to ship goods from Africa to Europe or Asia than to send them overland to the next African country. Maritime transport starkly illustrates this, as an estimated 98% of Africa’s shipping traffic is handled by foreign-owned shipping lines.

These global carriers optimise routes for profit, and it is often more lucrative for them to bring in finished goods from abroad and carry out raw materials rather than facilitate inter-African trade routes.

The imbalance is evident when containers that arrive full of imported products often leave African ports either empty or filled with unprocessed commodities, highlighting how African producers struggle to utilise those same vessels to export within the continent.

On land, rail connectivity between countries is minimal and accounts for as little as 0.1% of freight movement in some estimates, due to underinvestment and incompatible rail systems inherited from colonial times.

Then there are non-tariff barriers (NTBs), a broad category of bureaucratic, regulatory, or informal restrictions that hinder trade just as surely as tariffs do. NTBs have become a favoured tool for governments looking to protect domestic industries or pursue political ends without overtly violating trade agreements.

These include things like import quotas or bans, onerous customs procedures, arbitrary product standards, corruption at checkpoints, and subsidies that give local businesses an edge over imports. Within the East African Community, for example, NTBs cost businesses an estimated $17 million in direct losses in 2023 alone, through goods delayed or turned back at borders. And the problem could be pervasive under AfCFTA if not checked.

Tariff reduction is itself moving more slowly than planned. African negotiators agreed to gradually eliminate tariffs on 97% of tariff lines over 15 years (with a bit more leeway for least-developed countries). The clock is ticking, and the deadline to achieve near-full liberalisation is 2034—less than a decade away. Yet many countries have yet to implement even the initial cuts they signed up for. Some nations find tariffs a vital source of government revenue, and slashing them means losing funds that pay for public services.

Others are genuinely afraid that local firms, often less efficient or more expensive than competitors in neighbouring states, will be forced out of business if markets open too quickly. Many African economies export a narrow range of similar commodities and import manufactured goods. With countries not yet specialising in complementary industries, they worry that free trade would simply pit them against each other in a race to the bottom rather than fostering synergies.

Can AfCFTA succeed?

The coming years will be decisive for AfCFTA. The agreement is not an instant fix but rather a framework that requires continuous negotiation, adjustment, and, above all, implementation. To avoid AfCFTA becoming another well-intentioned plan that fails to deliver, African leaders and institutions will have to confront head-on the challenges that have surfaced.

Firstly, infrastructure and connectivity must be improved. It is often said that “you cannot trade where you cannot travel.” Investing in trans-African highways, modern rail links connecting key trade hubs, improved port facilities, and digitised border systems would dramatically lower the cost and increase the speed of cross-border trade.

Secondly, Africa needs to address the “software” of trade, not just the hardware. This means harmonising regulations, simplifying and unifying customs procedures, fighting corruption at border points, and actively identifying and eliminating non-tariff barriers.

Thirdly, support for smaller economies and vulnerable sectors is crucial to get all countries on board. Recognising that liberalisation has winners and losers, the AfCFTA includes a $10 billion Trade Adjustment Fund intended to help governments offset revenue losses from tariffs and assist industries that might be disrupted.

Perhaps most importantly, Africa must break the colonial economic pattern that still defines its trade. AfCFTA’s promise will ring hollow if countries simply continue to export unprocessed minerals and agricultural goods to each other and import finished products.

True success lies in value addition, like processing cocoa into chocolate, cotton into textiles, or cobalt into batteries. This requires investments in manufacturing, skills, and innovation, and creating a business environment where private-sector players feel confident to build factories and supply chains spanning multiple African countries.

The post Dream deferred: The AfCFTA story appeared first on International Finance.

Ghana’s growing reputation as a West African investment powerhouse, combined with its track record of political stability and business-friendly regulations, helps draw in foreign capital. The industries that demand attention include financial services, tourism, infrastructure, mining, oil and gas, agriculture and agro-processing, particularly cocoa, and information and communications technology.

China, the United States, Germany, Japan, Italy, and Ireland are among the larger economies with businesses operating in Ghana. Procter & Gamble, Volkswagen, Toyota, and Sinotruk are among the more well-known brands. International telecom providers include Vodafone, AirtelTigo, Huawei Technologies, and MTN of South Africa.

Incoming mining operators include Newmont Ghana Gold Ltd, Gold Fields Ghana Ltd, and Anglogold Ashanti Ghana Ltd., while foreign companies seeking to increase production are also entering Ghana’s relatively new oil industry. These companies include Tullow Oil, Kosmos Energy, and Italy’s ENI.

Despite growing interest, Ghana’s annual FDI has fluctuated due to macroeconomic uncertainty, culminating in a debt crisis in 2022.

According to Macrotrends, an investor research platform, FDI inflows into Ghana increased by 35% to $2.5 billion in 2021. However, inflows fell to $1.3 billion in 2023, a 7.6% decrease from 2022.

Stabilisation successful

When Ghana and the International Monetary Fund finalised a loan support agreement in May 2023, it might have marked the start of a new era. The stabilisation was further reinforced by the presidential election in December 2024.

In a December 2024 report, the IMF stated, “The capital and financial account is expected to gradually improve over the coming five years, with FDI projected to increase to 3% of GDP by 2028 following the completion of the debt restructuring and gradual reform implementation.”

Recently, fund representatives visited Accra to evaluate Ghana’s economic performance and structural changes under the stabilisation plan.

In his March 2025 budget speech, Minister of Finance Cassiel Ato Forson said, “The commitment to continue implementing the ongoing IMF-supported programme and reforms to forge macroeconomic stability and debt sustainability will restore investor confidence, resulting in further improvement in FDI flows.”

According to Ghana’s Exemption Act of 2022, manufacturing, minerals and mineral processing, mining by Ghanaian indigenous people, oil and gas (value addition), real estate (property development and road infrastructure), pharmaceuticals, agro-processing, and tourism are among the priority investment sectors that will benefit from investor tax incentives.

Politically speaking, Marcel Okeke, a former Senior Economist at Zenith Bank, Nigeria’s top lender, argues that Ghana’s peaceful election in December means that democracy has come to stay.”

John Dramani Mahama, a former president, was chosen by Ghanaians to succeed President Nana Akufo-Addo. There was no demand for court intervention during the changes in government and political party, which suggests that a time of stability may be on the horizon.

There have been some benefits from the financing arrangement with the IMF. A bigger trade surplus and more IMF borrowing were the main drivers of Ghana’s modest gains in external reserves, which grew to $8.8 billion in 2024 from about $6 billion the year before.

Notwithstanding these encouraging indications, difficulties still exist. Although the increase in reserves is a good thing, Ghana still owes $28.3 billion in external debt, which includes a portion of eurobonds whose payments have had to be postponed. In 2027, more than half of the $8.7 billion in foreign debt service is due.

“We will fix it,” Forson said, adding that “these humps are cancerous and pose a significant risk to the economy.”

With only $8.8 billion in total reserves, Ghana’s central bank might run out of money in roughly three and a half months because it owes the IMF about $2.5 billion, or nearly 30% of its reserves.

Emeka Ucheaga, head of Research and Business Intelligence at Credit Direct, a financial company based in Lagos, said, “The reserves are too low to offer tangible protection to investors in the event of external shocks.”

Ucheaga cautions that despite the economy’s improved GDP growth in the second and third quarters of last year, macroeconomic fundamentals are still precarious. Rising inflation is eroding investor profits and purchasing power. According to official data, the rate barely decreased to 23.1% in February 2025 from 23.8% in December 2024. After a brief upswing toward the close of 2024, the Ghanaian cedi has since reverted, falling 5.3% in the first quarter.

Cautious optimism post-crisis

Foreign investors and analysts have reacted to Ghana’s post-crisis landscape with a mix of caution and guarded optimism. In mid-2023, as Ghana grappled with debt restructuring, Fitch Solutions warned that uncertainty and a sharply devalued cedi would “keep foreign investors cautious,” noting that sentiment remained weak and FDI inflows were unlikely to return to pre-pandemic levels immediately.

Memories of the 2022 default still loom large, and investors have been awaiting clear signs of stabilisation.

Emeka Ucheaga, head of research at a Lagos-based finance firm, argues that Ghana must “demonstrate a sustained commitment to economic stability,” from taming inflation to building reserves from non-debt sources, before confidence truly returns.

That said, there are growing rays of optimism. The International Monetary Fund’s support programme, secured in 2023, and the successful presidential election in 2024 have improved the outlook.

“Over the coming five years, the capital and financial account is expected to gradually improve,” the IMF observed in late 2024, projecting FDI to rise to 3% of GDP by 2028 once debt restructuring and reforms are complete.

Ghana’s officials echo this optimism: “Commitment to…reforms to forge macroeconomic stability and debt sustainability will restore investor confidence, resulting in further improvement in FDI flows,” Finance Minister Cassiel Ato Forson affirmed in the 2025 budget speech.

Some regional analysts are bullish on Ghana’s prospects given its stability. Marcel Okeke, a former chief economist at Zenith Bank, points out that, unlike some neighbours plagued by insecurity, “We do not hear about [terrorism] in Ghana… Investors look for a place to put their money and go to sleep. That is why investors will want to put their money into Ghana.”

In short, while scepticism remains until reforms bear fruit, many see Ghana turning the corner, provided it stays the course on prudent policies.

Stacking up against regional peers

Ghana’s bid to attract FDI cannot be viewed in isolation. It competes with regional peers like Kenya, Cote d’Ivoire, and Nigeria, which each offer a different mix of opportunities and risks.

In 2023, Ghana drew about $1.35 billion in FDI inflows, a respectable sum, but slightly behind Cote d’Ivoire (around $1.75 billion) and Kenya (about $1.5 billion).

Notably, Ghana far outpaced Nigeria, which saw FDI plummet to just $377 million amid its own economic challenges. These numbers tell a story. While Ghana remains one of West Africa’s top FDI destinations, accounting for roughly 20% of the region’s FDI stock, it has lost some momentum to rivals.

Cote d’Ivoire has emerged as a standout, steadily growing its FDI even through global turbulence. The Ivorian economy, buoyed by annual growth above 5%, attracted more investment in 2022 and 2023 than it did pre-pandemic. Abidjan’s government has implemented pro-business reforms, such as digitising administrative procedures and a major development plan. These changes, combined with political stability, make it a favourable destination for foreign investors.

The result is diversified inflows spanning industry (over 50% of FDI), services, and agriculture, with investors from Europe, Asia, and the region. Even neighbouring Burkina Faso was a top source.

Kenya, for its part, leverages its status as East Africa’s commercial hub. Nairobi hosts numerous regional headquarters for multinationals and has nurtured a dynamic tech sector. These factors helped Kenya remain among Africa’s largest FDI recipients.

Even though FDI to Kenya dipped 5.8% in 2023, totalling $1.5 billion, the country’s appeal lies in its relatively diversified economy and investor-friendly climate. Over nearly two decades, Kenya climbed global rankings for ease of doing business thanks to regulatory improvements. These changes have made it attractive for manufacturing and service offshoring projects.

Nigeria presents a more cautionary tale. Africa’s biggest economy has an unquestionable market size and oil wealth, yet chronic issues have driven foreign investors away.

In 2023, Nigeria’s FDI inflow was not only a fraction of Ghana’s, but it fell by 19% to $377 million, an extraordinarily low figure relative to Nigeria’s GDP.

Capital flight from Nigeria stemmed from political uncertainty, high operating costs, and an unfavourable business climate that saw major multinationals in oil and telecoms curtailing or divesting investments. However, late-2023 policy shifts under a new administration, including removing fuel subsidies and liberalising the exchange rate, have started to restore some confidence. This was evidenced by a modest uptick in capital inflows in Q4 2023. If Nigeria follows through on reforms, such as tackling forex shortages and security issues, it could regain ground. For now, Ghana holds an edge in stability and predictability.

The comparison reveals Ghana’s relative strengths and areas for improvement. Unlike Nigeria, Ghana has maintained peace and a smoother regulatory environment, and unlike smaller peers, it boasts a sizeable consumer base and abundant natural resources.

Yet, Kenya and Cote d’Ivoire have been more aggressive in reforms and infrastructure investment, which enhances their FDI appeal. Ghana still ranks behind Kenya on some competitiveness measures and has recently been leapfrogged by the Ivory Coast in annual FDI.

Ghana’s FDI numbers

Digging into the data reveals where Ghana’s FDI is coming from, and where it is not. According to the Ghana Investment Promotion Centre (GIPC), FDI project commitments in 2023 totalled $649.6 million, spread across 122 projects.

The figure based on GIPC-registered projects was barely half of the previous year’s, mirroring the sharp drop in actual inflows recorded in the balance of payments.

The investments Ghana did secure in 2023 were concentrated in a few key sectors. Manufacturing led the pack, accounting for about $280 million, which was the single largest FDI value by sector. Close behind were services, which drew roughly $226 million, reflecting investor interest in Ghana’s financial services, telecom, and hospitality segments.

Retail and trading activities also saw some investment ($75 million), while sectors like agriculture and construction made up smaller portions of the pie. This sectoral breakdown aligns with Ghana’s traditional strengths: processing of resources (cocoa, gold, etc.), consumer goods manufacturing, and a growing services economy. Oil and mining, often major FDI magnets, were not explicitly broken out in the GIPC figures, likely because much of the recent activity there involves reinvestment by established players rather than new inflows.

Another way to analyse the FDI is by source and structure. Ghana has long welcomed investors from around the globe. By 2023, the stock of FDI in the country had swelled to $47.3 billion, with multinationals from South Africa, the United Kingdom, and the Netherlands, France, Mauritius, and China among the top contributors over time.

Recent project data, however, show a shifting mix of countries driving new investments. In 2023, China was the standout, responsible for the largest portion of new FDI, about $212 million across 31 projects. This likely reflects Chinese firms increasing their footprint in Ghana’s resource and industrial sectors.

Surprisingly, Turkey contributed a substantial $173 million through only four projects, suggesting that a few large Turkish ventures, possibly in construction or manufacturing, made a significant impact. Other notable sources included India ($78 million), traditional partners like the United States ($26 million) and the Netherlands ($22 million).

The dominance of China, which provided one-third of 2023’s FDI value, underscores Ghana’s pivot toward Asian capital. Meanwhile, relatively smaller contributions from Western investors indicate that there is room to rebuild confidence among US and European firms in the post-crisis period.

In terms of investment type, Ghana’s FDI inflows are primarily equity-based. This includes mainly greenfield projects and business expansions, rather than debt-financed deals. For instance, in 2022, Ghana recorded 39 new greenfield projects valued at approximately $1.33 billion, which aligns with the total FDI inflow for that year. This indicates that foreign companies are focused on establishing or expanding their businesses locally, rather than acquiring stakes in or lending to local firms.

By contrast, portfolio investment and loans experienced major volatility during the debt saga. The joint venture model is also significant. In 2023, around 32 out of 122 FDI projects were joint ventures between foreign and local partners, with the remainder wholly foreign-owned. These joint ventures not only bring in capital but also involve Ghanaian stakeholders, which can promote local employment and facilitate knowledge transfer.

Overall, the data depict an FDI profile in transition. While overall volumes have declined, the manufacturing and service sectors have remained resilient. Meanwhile, newer investors like China and Turkey play a more prominent role. Encouragingly, early 2024 showed signs of a rebound. Ghana’s central bank reported net FDI of $1.74 billion for the year, up 32.7% from 2023.

In late 2023, the macroeconomic stability improved, and investor funds began returning. However, reaching the pre-crisis high of over $2.5 billion in 2021 will require sustained investor confidence, underpinned by structural reforms and perhaps a few landmark investments.

The government’s targeted sectors for incentives, including manufacturing, mining value-addition, agriculture and agribusiness, infrastructure, and tourism, highlight where it hopes the next wave of FDI will land. The challenge will ensure that future FDI flows align with these priorities and that policy consistency sustains momentum.

A positive view

Ucheaga said, “When combined, these indicators show a country still in the early stages of stabilisation rather than in a phase of renewed investor confidence. This ongoing uncertainty is reflected in the fluctuations in FDI inflows.”

He argues that investor sentiment continues to be influenced by memories of Ghana’s December 2022 debt default, as well as a broader global economic environment marked by rising protectionism and the looming threat of a global trade war, even in the face of improved trade data and IMF backing.

Ucheaga emphasises that Ghana must show a consistent commitment to economic stability to reverse this trend. That involves steadily increasing foreign reserves through reliable, non-debt-driven sources, maintaining a trade surplus, and continually expanding the real economy.

He also stresses that to preserve the value of investments, inflation must be under control and the exchange rate must be stabilised. The government has outlined targets for economic growth, including a non-oil GDP expansion of 4.8%, an overall real GDP growth of at least 4%, and an inflation rate aimed at reaching 11.9% by the end of the year.

The post Ghana’s economic stabilisation: A new dawn? appeared first on International Finance.

This is the first national anti-gold smuggling effort in Ghana. In the past, the government attempted to clean up artisanal mining, but these efforts failed to stop illicit extraction and prevent the revenue losses that mostly affect African gold producers.

In 2025, Ghana established GoldBod, a new gold board, to centralise gold trading. During the inauguration of the new task force, Mahama stated that the first five months of 2025 saw record official exports of 55.7 metric tonnes of gold worth USD 5 billion.

“This is money that would not have come back to Ghana because traders would have taken it and kept the foreign exchange outside,” Mahama said.

Mahama explained that informants would receive 10% of the value of gold seized as a result of their tips to encourage public cooperation with the new anti-smuggling task force, which will include both police and soldiers.

“Ghana intends to switch to refined gold exports by 2026 and establish a national gold traceability system,” Mahama continued.

To increase the value of gold, the African nation will also establish a specialised manufacturing hub and an assay laboratory certified by the International Organisation for Standardisation to ensure quality.

The governments of West Africa are working to increase their revenue from the rising prices of commodities. Democracies like Ghana and the Ivory Coast seek gradual reforms through increased royalties and improved revenue-sharing agreements, while military-led countries are implementing punitive measures such as revising mining codes, renegotiating contracts, and seizing assets.

According to Reuters data, in April 2025, gold prices reached USD 3,500 per ounce, a 25% increase so far this year.

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Access Bank Cameroon, a wholly owned subsidiary of Access Bank PLC, proudly reflects the heritage of Africa’s largest bank by customer numbers.

Established in May 2022, Access Bank Cameroon has quickly emerged as a key player in the nation’s financial sector, demonstrating exceptional growth and a steadfast commitment to financial inclusion. The bank’s exponential rise has been a glorious part of Access Bank Group’s wider journey, which began in West Africa in 1989.

“Our strategic goals align with the Access Corporation’s promise of delivering service beyond banking. By leveraging technology and innovation, Access Bank is migrating most of its customers to digital platforms and expanding its footprint to the 24 African countries in which it currently has presence. As Access Bank Cameroon continues to support trade, payments, and investment flows within Cameroon, across Africa, and beyond, its mission remains clear: to be the world’s most respected African bank while driving financial inclusion and innovation,” the bank told International Finance.

A Legacy Of Excellence: Africa’s Gateway To The World

With roots tracing back to 1989 in West Africa, Access Bank has grown into a banking giant, servicing over 65 million customers across 24 markets, including 16 in Africa. Its presence also extends to the UAE, United Kingdom, France and Hong Kong, with representative offices in China, India, and Lebanon.

In 2024, Access Bank executed several major strategic acquisitions, deepening its presence across Africa. These included acquiring Standard Chartered Bank’s subsidiaries in Angola and Sierra Leone, signing a binding agreement to acquire Bidvest Bank in South Africa, and taking over Atlas Mara’s assets in Zambia. These moves highlight the bank’s long-term commitment to connecting African markets and enabling cross-border trade and investment. Credit agencies also have taken note of these measures, with Fitch and Moody’s praising Access Bank for enhancing profitability through smart expansion.
The bank’s efforts have also earned it prestigious recognitions, such as “Best Bank in Ghana by Global Finance,” “Best Bank for ESG in Nigeria and Ghana by Euromoney,” and “Best Trade Partner Bank in West Africa by the IFC.”

Access Bank Cameroon: A New Powerhouse

Access Bank Cameroon is rapidly emerging as a major player in the country’s financial ecosystem. Established in May 2022, the bank has made remarkable strides in just two years.

Customer deposits have grown by XAF 146 billion, a testament to its growing trust. The expansion of its branch network in Douala and Yaoundé, alongside the launch of innovative digital products, demonstrates the bank’s commitment to providing easy access to quality banking services.

In 2024, Access Bank Cameroon was widely recognised for its achievements, and it won honours like Global Brands Magazine’s “Best Banking CEO, Cameroon,” “Leading Mobile Banking App, Cameroon,” “Best CSR Bank, Cameroon,” “Excellence in Banking Innovation – EcoMatin,” “Fastest Growing Bank – Cameroon English Newspaper Publishers,” “Best Customer Service Bank – Guardian Post and International Finance Magazine,” and “Best Services Provider and Best Non-Primary Dealer Bank for Cameroon.”

Driving Financial Inclusion

With only 15% of Cameroonian adults having access to formal financial services, Access Bank Cameroon has prioritised financial inclusion. Its tailored solutions cater to SMEs, youth, women, and unbanked populations. Some of the key innovations undertaken by the venture include AccessMore Mobile App (a smart, user-friendly app for transfers, bill payments, and Payday Loans), USSD Banking (a solution that enables banking access without internet connectivity), PrimusPlus (a platform for seamless account management and transactions across CEMAC), TradePlus (facilitating local and international trade finance), and Prepaid and Debit Cards (offering secure, global payment and withdrawal options).

These tools empower individuals and businesses, facilitating broader economic participation and growth.

Commitment To Sustainability And Social Impact

Access Bank Cameroon champions a corporate culture rooted in empowerment, innovation, and community impact. Its ESG (environmental, social, and governance) and CSR (corporate social responsibility) initiatives have reached over 200,000 Cameroonians in 2024, aligning closely with the United Nations Sustainable Development Goals (SDGs). In 2024, the venture undertook school infrastructure support and financial literacy outreach, along with providing free health screenings and essential medical supplies in the African country.

On the environment front, Access Bank Cameroon undertook clean-up drives and waste management programmes, along with providing microloans and business training to upcoming entrepreneurs in partnership with government bodies, NGOs, and associations.

In early 2025, the bank partnered with Cameroon’s Ministry of Youth and Civic Education (MINJEC) to support the distribution of biometric youth cards. Other collaborations with microfinance institutions have helped bring financial services to underbanked communities.

Access Bank Cameroon is on a mission to transform banking into a platform for progress. Its 2025 strategic priorities include expanding its branch and digital network, supporting intra-African trade, empowering SMEs and women entrepreneurs, and enhancing national development through financial innovation.

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Bawumia’s loss ended the eight-year NPP rule under President Nana Akufo-Addo, during which the West African nation grappled with high inflation and a debt default. For Mahama, who served as president from 2012 to 2017, the victory marks a triumphant return after unsuccessful bids in 2016 and 2020.

Mahama also becomes the first leader in Ghana’s Fourth Republic to regain the presidency after losing re-election. He has pledged to tackle corruption by creating an office to scrutinise government procurement exceeding $5 million, to curb graft.

However, as per Theophilus Acheampong, Associate Lecturer, University of Aberdeen, the West African nation immediately needs to find a balance between the dual objectives of living within its means and achieving economic growth that creates sustainable jobs for its teeming youth.

What are we talking about?

Ghana has been facing an economic crisis since 2022 when it was forced to seek assistance from the International Monetary Fund (IMF) in order to meet its payments to the rest of the world and restore the health of its government finances. This was the second time in three years that Ghana had to tap the IMF, and the 17th since independence in 1957.

“Though inflation which peaked at 54% in 2022 and the country’s currency, the Cedi, have stabilised somewhat since mid-2023 under IMF-supported reforms, these improvements have not been significant enough to be felt by citizens. Inflation remains sticky. Monthly consumer inflation figures have averaged 22.85% from January to November 2024, below the pre-crisis (2017-2021) average of 10.14%,” Professor Acheampong said.

The average unemployment rate in Ghana rose to 14.7% in the first three quarters of 2023. The number of unemployed youth aged between 15 and 35 rose from about 1.2 million to over 1.3 million during the same period, while the rate among females remained consistently higher than males.

According to a recent report on voter concerns (prepared by the National Commission for Civic Education), the major poll issues that emerged were the economy, jobs, education, and roads and infrastructure provision. The key concern of the economy is the declining living standards.

The study, published in October 2024, saw voters being particularly focused on issues surrounding the government’s Free Senior High School (SHS) policy, while younger voters were increasingly concerned about employment opportunities.

The Ghanaian government, in the lead-up to the polling day, also took aggressive steps to halt the decline of the national currency Cedi amid a challenging macroeconomic environment.

The Cedi has been under pressure for several years. Like practically every African and emerging market currency, the Cedi weakened against the US dollar during the COVID-19 pandemic, during which time traders on foreign exchange markets sought the perceived safety of dollar-denominated assets.

The Cedi suffered further in 2022, when Ghana defaulted on most of its external debt amid rising debt costs, higher interest rates, and excessive government borrowing. Since the start of 2020, the US dollar has gained almost 180% against the Ghanaian Cedi, which currently sits at 15 to the dollar, an increase from 11 in May 2023.

In its attempt to halt further declines in the currency, the government tried to prevent pension fund managers from investing in offshore assets in an attempt to limit foreign exchange outflows. While Ghanaian pension funds have tended to invest in domestic assets such as government bonds, this has changed in light of the debt default, and more fund managers have taken to increasing their exposure to overseas assets.

Under current laws, pension funds are allowed to invest up to 5% of their total assets abroad, but the national pensions regulatory authority allegedly threatened to sanction funds who attempt to move assets, as per the Reuters report which emerged in December 2024. The authorities, however, denied there was any resistance to asset movement.

As per Joseph Appiah, vice-president at Accra-based investment banking firm Black Star Group, attempts to stabilise the Cedi have “impacted” market dynamics, particularly as efforts are made to maintain currency stability in the lead-up to the election period. While the Cedi has regained some ground against the dollar over November 2024, appreciating by about 7%, Appiah doubts this can be sustained.

Ghana is known for its high reliance on imports for essential goods, including staples like rice and poultry. The collapse in the value of the Cedi has contributed to significantly higher inflation on these goods. As per Appiah, a weak Cedi has also resulted in the households’ purchasing power getting reduced, along with their daily incomes.

In 2023, prices rose in Ghana at a rate of over 37%, with the World Bank reporting that “high inflation – particularly in food prices – has worsened living standards, pushed more people into poverty, and increased the risk of food insecurity.”

The historically weak Cedi has also become a threat to the Ghanaian authorities’ attempts finally to escape the cycle of frequent default. While Ghana reached a deal in January 2024 to restructure $5.4 billion in debt to its official creditors, and recently bondholders agreed to accept a 37% haircut on $13 billion worth of debt, the West African country is still grappling with a debt pile in excess of $50 billion. A weak Cedi is problematic because it makes dollar-denominated debt repayments more expensive in local terms.

Economic crisis and its impact

As Ghana’s economic fundamentals took a plunge in the past few years, the outgoing NPP administration sought to blame the aftershocks of the Russian-Ukraine war and the pandemic behind the phenomenon, However, as per Professor Acheampong, evidence shows otherwise.

“The major contributory factor was the poor management of its public finances, which meant the country did not have enough buffers to withstand these external shocks. Ghana’s economy and finances were already precarious before Putin invaded Ukraine in February 2022. Fiscal policy in Ghana is notably procyclical with a clear bias towards overspending during good times. This is related to commodity and electoral cycles. That is, fiscal deficits tend to increase sharply in election years, and have been even more so following the commercial discovery of offshore oil in 2007,” he added.

The effects of the economic and financial crises since 2022 have been 20-year-high inflationary trends, local currency depreciation, dwindling foreign reserves, rising debt vulnerabilities, and increased poverty. At its height in December 2022, inflation reached 54%, the highest levels in nearly 20 years and public debt was 109% of GDP.

The above-mentioned economic challenges also forced Ghana to default on its external debt obligations in December 2022 and approach the IMF for a $3 billion bailout, which was approved in May 2023. Ghana recently completed a three-step, domestic, bilateral, and commercial, debt restructuring process, which began in December 2022.

Poverty, on the other hand, has been rising in Ghana since 2022. About 850,000 citizens in 2022 were pushed into poverty due to rising costs of goods and services. Ghana’s poverty rate is forecast to rise to 30.6% of the population by 2026, indicating the extent of the impact of the economic and financial crises on many citizens.

When Nana Akufo-Addo won the presidential election on his third attempt in 2016, many saw it as a turning point. He became the first person to unseat an incumbent. Mahama, the 2024 victor, was vanquished back then. Alleged corruption had ballooned under his rule. Cedi depreciated by 200% within a decade of its redenomination to equal the dollar and the country sought a bailout from the IMF to stabilise the economy.

Coming back to December 2024, As Akufo-Addo prepares to leave the Presidential office, he has legacies like two oilfields being discovered in 2019, which boosted government revenues and allowed the administration to spend more on social programmes. Salaries for teachers and medical personnel were increased.

However, critics also accuse the outgoing President and his deputy, Mahamudu Bawumia of steering the African country into hardship. While Cedi’s downfall has been a testimony towards those charges, let us also not forget the fact that Ghana returned to the IMF for another bailout in 2022, as it could not meet its debt obligations, despite being one of the world’s leading gold and cocoa producers.

While electricity blackouts, illegal mining, corruption and nepotism are still around, there has been dissatisfaction on the job front too. Since 2017, thousands if not millions of schoolchildren have benefited from the flagship free senior high school policy and free meals for those in lower cadres. However, a 2023 Afrobarometer report shows that while young Ghanaians are indeed more educated than generations before them, they are also more unemployed.

Then there was a call by the president Akufo-Addo for members of the Black diaspora to visit Ghana and settle there. While the move may have worked some wonders from 2019, as thousands of people flocked in and the government too reportedly made millions in revenue from it, but as per the local people, the action triggered inflation, particularly in the real estate and hospitality sectors.

As the COVID-19 arrived in 2020, Akufo-Addo handled the situation impressively on the economic front, as a trust fund was set up as well as a $209 million relief fund. But then the senior government officials faced accusations of misappropriating funds meant for health workers. Also, a tax instituted to cushion government coffers at the time is still being collected four years on, on everything from food to toiletries.

Challenges galore for the incoming President

The economy began rebounding in 2024, with a 6.9% growth in the second quarter, but experts remain cautious.

“Whoever becomes the next president has their work cut out for them. In terms of the path that we are on, we are seeing great signs of recovery in the economy…[but] this is also on the back of an IMF programme. When Ghana is under an IMF programme, the evidence is there, the country does well…[but] when we exit the programme, then the fiscal indiscipline comes in and the cycle continues,” said Baffour.

Despite Inflation moderating and Cedi stabilising against the US dollar, on the back of IMF-supported reforms, they proved to be too little, too late for the incumbent New Patriotic Party, as the latter had to suffer a defeat.

While both the NPP and the National Democratic Congress put economy at the centrestage of their election campaigns, as per Professor Theophilus Acheampong, the proposed spending plans, if implemented, likely lead to Ghana breaching its debt sustainability thresholds. This would threaten the implementation of the current IMF programme which runs until 2026.

“The key concern remains whether Ghana will be able to live within its means going forward by reducing corruption and waste in government spending. This will avoid the procyclical boom-bust behaviour especially tied to the electoral cycle,” he noted.

In short, the incoming government will have very little fiscal space to use to meet the several promises, including on infrastructure provision and the several tax breaks, announced in the National Democratic Congress’ pre-election manifestos.

As per Rabah Arezki, who is a former chief economist and vice president at the African Development Bank and former chief economist of the World Bank’s Middle East and North Africa region, a more expedient debt resolution for Ghana is a necessary condition for an economic reset.

“One key objective for Ghana is to rebalance its structure of external capital away from external debt and toward foreign direct investment. This would shift the international investment position away from debt and toward equity. That accrued foreign direct investment would bring much more stability to its external financing, a needed boost to productivity, economic growth, and job creation that Ghanaians have been longing for. But Ghana must also achieve a radical governance shift in key sectors to deliver that economic growth,” the analyst commented.

Ghana’s export structure is dominated by three commodities—gold, oil, and cocoa—constituting respectively 47.7%, 26.1%, and about 10% of its total merchandise exports. The country is also the world’s second-largest producer of cocoa, and the cocoa sector employs millions of workers, apart from having a Cocoa Board, a state-controlled organisation that supports the production, processing, and marketing of cocoa. Yet, the African nation has been structurally unable to develop efficient production and move up the value chain by transforming cocoa beans. In spite of skyrocketing cocoa prices, expected to last until 2026, the cocoa industry has been unable to attract financing, and investment has plummeted. This sector may immediately require policy support from Mahama to become a true growth engine.

Talking about Ghana’s oil sector, investors have been wary about the business climate in the country. The gold sector, on the other hand, also enjoys rising prices and is mostly controlled by private operators.

“The government is eager to boost production and attract more investment, but the gold sector throughout the continent is faced with major transparency challenges, with gold smuggling leading to significant losses in government revenues. What’s more, illegal mining is causing environmental and health challenges, including river pollution. To reset its economy, Ghana needs to inject radical transparency in these key sectors to maximise government revenues and benefits to its citizens. Ghana also needs to achieve a better balance between the need for private sector investment and the state’s role in regulating investment in these sectors,” Arezki continued.

Mahama will need to work toward achieving macroeconomic stability while boosting the competitiveness of the country’s economy. Yet, poverty is already rampant, with inflation further eroding the purchasing power of the country’s impoverished population. Therefore, the sequencing of reforms must account for that social context. The new administration will need to focus on increasing transparency and removing corporate subsidies—whether public or private—rather than removing household subsidies, which many rely on for subsistence. However, in Arezki’s opinion, for its reform agenda to work, Ghana must receive all the support it can get from the international community to expedite its debt restructuring.

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This airline crisis was just the tip of the iceberg. The reality is that Africa has become a hot zone of suffering for multinational corporations. The main culprit? Weak local currencies. These currencies made repatriating profits a nightmare. Assets held by local subsidiaries lost value. Unlike Emirates, which chose to make noise, most multinationals packed up and left without much fuss. Others, unable to leave entirely, have scaled back their operations, hoping to minimise their losses.

Irmgard Erasmus, a senior economist at Oxford Economics, said, “The high cost of doing business, bureaucratic red tape, and the looming risk of further currency devaluations have rendered operations in Africa unprofitable.”

Across Africa, the currency crisis is spreading. South Africa, Nigeria, Egypt, Kenya, Ghana, Zambia, Ethiopia, and Zimbabwe are all facing the brunt of it. Egypt’s pound, for example, has lost over two-thirds of its value since early 2022. In 2023, Nigeria’s naira was ranked among the worst-performing currencies globally, having depreciated by 49.4%.

Zimbabwe has fared no better. Its dollar has lost over 70% of its value on the official market since January 2024. Traders have abandoned it, favouring US dollars. In response, the Reserve Bank of Zimbabwe launched a new currency, the ZiG, backed by gold reserves and foreign currencies. But for ordinary citizens, the shift has not brought immediate relief. Many are struggling with rising prices and diminishing purchasing power, with basic commodities slipping further out of reach.

Out of Africa

The currency crisis has led to widespread suffering and sleepless nights for policymakers. For foreign companies, the impact has been devastating. Many have found it impossible to endure the economic pain. UK’s financial conglomerate Atlas Mara cited currency volatility as a key factor in its 2021 decision to exit Africa, reporting a staggering $145 million decline in the dollar value of its assets due to depreciating local currencies.

Barclays Bank, Procter & Gamble, GlaxoSmithKline, Cadbury, Eveready, Bayer, Nestle, and Unilever have all exited or drastically scaled down operations. Although other factors have been involved, weak currencies were the common denominator.

Foreign investors in Africa’s capital markets are also feeling the pain. The Johannesburg Stock Exchange saw $53 billion in foreign investment outflows over the past eight years. In 2023 alone, equities worth $8.3 billion were dumped. In Kenya, the situation has been similar: foreign investors sold $17 million worth of stocks in the first quarter of 2024.
The biggest hit for investors is not just repatriation issues; it’s the conversion loss when weak African currencies are exchanged for dollars or pounds.

Jonathan Munemo, an economics professor at Salisbury University, said, “The exits and outflows are a sign of how quickly foreign investors will flee when a cratering currency shakes their confidence.”

The causes of this crisis are both internal and external. Structural imbalances within countries are coupled with pressures from the outside. Tight global funding conditions, geopolitical risks, and aggressive rate hikes by the United States Federal Reserve since March 2022 have all played a role. The result? The dollar soared, and African currencies dived. Many countries are stuck in a cycle of dependency, reliant on external borrowing to stay afloat, with each new loan increasing vulnerability.

Turning up the heat

Global food and energy prices soared due to the war in Ukraine, adding more fuel to Africa’s inflation fire. High debt loads meant countries spent dwindling revenues on costly debt repayments. About 40% of Africa’s public debt is external, and over 60% is in US dollars. Countries like Kenya, burdened with an $82 billion public debt, have faced persistent deficits and shrinking reserves.

Between March 2022 and December 2023, the Kenyan shilling fell by 22% against the dollar. The decline only stopped after Kenya’s government concluded a buyback operation on a maturing $2 billion Eurobond in early 2024.

The broader impact of these conditions has been devastating for ordinary citizens. Inflation has eroded purchasing power, with prices for staples like bread, cooking oil, and fuel surging across the continent. In Ghana, the inflation rate hit 54% in late 2023, and many households have had to make difficult choices: cutting back on meals, delaying healthcare, and even pulling children out of school to save money.

The depreciation of currencies has forced foreign companies to rethink their African investments. Hasty actions by governments to stabilise domestic currencies have, in many cases, made things worse. Risks associated with repatriation are acute, especially in countries with rigid forex regimes. Even in nations with flexible regimes, currency convertibility remains a thorny issue.

Desperation has driven many African governments to take extreme measures. Nigeria’s President Bola Tinubu has pursued reform policies such as unifying exchange rates and allowing market forces to determine the exchange rate. His government aims to raise $10 billion to boost foreign exchange liquidity. These reforms have also included subsidy removal and public sector cost-cutting, moves that have made life tougher for ordinary Nigerians in the short term but aim to restore economic balance in the future.

Egypt, too, has been forced to acknowledge that economic transformation requires painful sacrifices. The country adopted a flexible exchange rate to access an $8 billion IMF bailout. Moreover, it secured $35 billion from the UAE, $7 billion from the European Union, and $6 billion from the World Bank.

These funds eased Egypt’s forex crunch and allowed the pound to float more freely. But the effects on the ground have been mixed; while foreign reserves have stabilised, the impact on inflation and the cost of living has been severe. Many Egyptians are finding it hard to afford necessities like bread and electricity.

Hard road ahead

The efforts to fix structural issues, such as liquidity problems, market distortions, and a lack of transparency in forex markets, have yielded mixed results. Nigeria’s naira took a turn for the better in early 2024, becoming one of the world’s best-performing currencies, rising 12% in April after a 14% rise in March, according to Goldman Sachs.

However, it’s a hard road ahead. Many African countries are willing to accept tough measures for long-term currency stability. Ethiopia, for instance, still clings to a rigid forex regime. As a result, foreign interest in Ethiopia’s ambitious privatisation and liberalisation plans remains lukewarm.

The government has tried to incentivise investment, in September 2023, the National Bank of Ethiopia approved offshore accounts for strategic investors, making it easier for them to manage their funds and guaranteeing currency convertibility for dividends and loans.

Despite these initiatives, progress has been slow. Ethiopia’s economy remains under pressure, and the reluctance to fully open up its forex market is holding back potential growth. Businesses continue to struggle with access to foreign currency, which has hindered imports of essential goods and stunted industrial activity. Meanwhile, inflation in Ethiopia climbed to 30% by early 2024, driven by rising food prices and a depreciating birr.

The parallel forex market is thriving across Africa. In some countries, it’s a lifeline, offering better rates than official exchanges. While the black market may provide a crucial source of foreign exchange, it also undermines stability.

When restrictions are imposed to stabilise exchange rates, companies and individuals look for ways around them. This fuels black market activity.

That entanglement with the dollar, and other hard currencies, has caused tremendous suffering for Africa. This is why leaders, including Kenya’s William Ruto, are calling for de-dollarisation and the development of local currency debt markets. There is a belief that advanced economies, in pursuit of stability, often ignore how their actions create havoc for developing nations. Borrowing in their currencies would shield African nations from volatile exchange rates and the impact of rising global interest rates. But this is easier said than done.

A lack of deep financial markets, political instability, and the sheer scale of existing foreign-denominated debt make de-dollarisation a daunting task. Still, some progress is being made. In 2024, Nigeria announced plans to issue more bonds in naira rather than in dollars, attempting to wean itself off foreign dependency. Ghana is also exploring options to tap into domestic capital markets to finance public projects.

Moving forward

To address this crisis, Africa will need support and must continue demonstrating the resilience it has always shown. Leaders must make tough decisions, often unpopular ones, to bring stability. Citizens must keep adapting, keep working, and keep believing that better times will come. And the rest of the world? It must not look away. Africa’s struggle is a shared challenge, one that demands a collective response.

International support must go beyond loans and aid. There is a need for technology transfer, capacity building, and fairer trade practices that allow African economies to flourish. The international community must help create an environment where African nations can stand on their own, reduce their debt burden, and build resilient economies.

Africa’s currencies may be shaky, but its spirit remains unbroken. It is this resilience that will ultimately prevail, because it always has. Within the hardship lies an opportunity for change, a chance for a more balanced and just global economy, where no nation is so vulnerable to another’s economic whims.

These nations are now taking steps to boost regional trade and reduce dependency on foreign goods. The African Continental Free Trade Area (AfCFTA), launched in 2021, aims to create the largest free trade area in the world by connecting over 1.3 billion people. This initiative could be a game-changer, reducing reliance on external markets and fostering intra-continental economic resilience.

However, for AfCFTA to fulfil its promise, political will and infrastructure development must align to remove trade barriers and streamline customs processes.

If successful, such initiatives could allow African economies to diversify, boosting manufacturing and value-added services that have long lagged. For now, Africa remains at a crossroads, one path leads to deeper crisis and greater dependency, while the other points toward sustainable development and self-sufficiency. The choice will depend on the decisions made by its leaders and the support provided by the global community.

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The producer of gold, oil, and cocoa, which has been battling the worst economic crisis in a generation as a result of skyrocketing public debt, has made significant progress toward recovery with strong growth.

“The 6.9% growth rate is the highest since the second quarter of 2019 and it was driven largely by strong expansion in the extractive sector, just as we saw in the second quarter of 2019,” government statistician Samuel Kobina Annim said, as reported by Zawya.

The mining and quarrying industry drove the 9.3% growth in Ghana’s overall industry sector, while the 23.6% growth in the gold sector during the quarter marked the third consecutive period of expansion.

According to Annim, there was a 5.8% growth in the services sector and a 5.4% growth in agriculture. But in the second-largest cocoa producer in the world, the industry shrank by 26.2% for the fourth straight quarter, underscoring the effects of a consistent drop in crop productivity brought on by disease and unfavourable weather.

As the West African state restructures its debt, the economic recovery is a welcome addition. The company has reached a preliminary restructuring agreement with two bondholder groups and invited holders of its approximately USD 13 billion in foreign bonds to exchange their holdings for new instruments.

Bondholders have until September 30 to accept the offer though those who agree to do so before an early deadline on September 20 will be eligible for a 1% consent fee.

Meanwhile, President Nana Akufo-Addo of Ghana has started building a 300,000 barrel-per-day oil refinery, which the government hopes will make the West African nation the petroleum hub of the region.

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The Finance Minister, Dr. Mohammed Amin Adam, stated that this would be crucial to resolving the financial issues facing the nation’s energy industry, which are mostly the result of recent nationwide power outages.

As part of Ghana’s last preparations for the just concluded International Monetary Fund (IMF)/World Bank Group (WBG) Spring Meetings in Washington, the Minister was addressing a press briefing that the Ghana News Agency was watching.

He pointed out that even if the nation lacked extra capacity; it still had legacy debt in the energy sector to pay off in addition to the debt it had accrued.

“Because of this, we have renegotiated the debt structure with the IPPs, and the debt overhang shortfall will decrease once the negotiations are done. I can confirm that we will be finalising the debt restructuring with the IPPs within the next month,” he remarked further.

After the shortages were closed, Dr. Amin Adam continued, “We should be working towards bringing the sector into financial sustainability in line with the Energy Sector Recovery Programme.”

There is currently a USD 1.9 billion financing deficit in Ghana’s energy industry, which the Minister stated during a previous engagement at the spring meetings had forced the government to take the “bullet” to close.

He said, “We reassure investors that, despite the difficulties, as a government, we’re brave enough to take the required shot to place the industry in a more sustainable manner so as to address the concerns that investors are normally worried about.”

The Energy Sector Recovery Programme, which went into effect in 2019, is one of the reforms. Another is the renegotiation of Independent Power Producers’ (IPPs’) agreements to lower their generation costs.

The establishment of a cash waterfall method and a quarterly tariff adjustment review that takes into account changes in the generating mix, inflation, and exchange rate depreciation is another.

To boost income and promote value chain operational performance, he revealed the government’s proposal to purchase around one million revenue-efficient metres through cooperation with the World Bank under a “Programme-for-Result” initiative.

In the meantime, Ghanaians can now enjoy affordable and dependable power thanks to a request from the Institute for Energy Security (IES) for the Ministries of Finance and Energy to work together and promptly provide the funding needed to address the current difficulties facing the energy sector.

The Institute also emphasised how crucial it is that the government provides resources to the Electricity Company of Ghana (ECG) to reduce its losses on the technical and business fronts.

The deployment of additional smart metres, which can identify theft, as well as a more effective distribution system to boost income are two things that Nana Amoasi VII, Executive Director, IES, said should receive such support.

Speaking to GNA, Nana Amoasi VII pointed out that carrying out this action will contribute to the achievement of ECG’s objective, which is to supply high-quality, dependable, and secure energy services to promote economic development and progress.

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Due to unmanageable food and fuel prices that sparked protests and political unrest, Sri Lanka was the first country to stop paying its foreign bondholders. Following its entanglement in a web of sanctions, Russia followed in June 2022.

Sri Lankan economists consider default risk in 2023 to be El Salvador, Ghana, Egypt, Tunisia, and Pakistan. The concern comes from World Bank Chief Economist Carmen Reinhart and long-term emerging market debt experts like former Elliott Management portfolio manager Jay Newman as the cost to insure emerging-market debt from non-payment surges to the highest level since Russia invaded Ukraine in 2022.

Carmen Reinhart said, “Debt dangers and debt crises are not hypothetical in low-income countries. We’re pretty much there already.”

The number of emerging nations with sovereign debt that trades at distressed levels, yields that show investors feel default is a serious possibility, has more than doubled in the previous six months. More than 900 million people live in those 19 countries, and some of them, like Sri Lanka and Lebanon, are already in default.

Therefore, $237 billion of notes currently trading distressed are at risk due to foreign bondholders. According to data, that amounts to about a fifth, or roughly 17%, of the $1.4 trillion in external debt emerging-market sovereigns have outstanding, denominated in dollars, euros, or yen.

And as crises have repeatedly demonstrated in recent years, the financial collapse of one country can have a cascading effect, or what is known as “contagion,” as nervous investors pull money out of nations that are experiencing similar economic difficulties, hastening the demise of other countries. The 1980s Latin American debt crisis was the mother of such crises.

Emerging-market observers claim that the current situation is similar to a certain extent. Similarly, the Federal Reserve is raising interest rates rapidly to stop inflation, which has caused the dollar’s value to soar and made it difficult for developing countries to service their foreign debt.

Smaller nations with a more recent history of international capital markets are frequently those that are most under pressure. Larger developing countries like China, India, Mexico, and Brazil can claim to have solid external balance sheets and foreign exchange reserve holdings.

However, there is a lot to worry about the future in nations that are more at risk. Worldwide political unrest is escalating in response to rising food and energy prices, throwing doubt on the future bond payments in heavily indebted countries like Ghana and Egypt, some argue it would be better served by utilizing the funds to aid their citizens. In addition, the cost for certain countries may be unacceptable due to the Ukraine war, rising interest rates, and the dollar’s dominance.

Reaching the limit

A quarter of the countries monitored by the Bloomberg EM USD Aggregate Sovereign Index have distressed trading, commonly characterized as yields more than ten percentage points higher than those on Treasury securities of comparable maturity.

The gauge has fallen nearly 20% in 2023, surpassing the full-year loss it recorded in 2008 during the global financial crisis. Naturally, some result from significant losses in the underlying rate markets, but credit degradation has been a critical factor for the most troubled countries.

Samy Muaddi, a portfolio manager at T. Rowe Price who assists in managing assets worth approximately $6.2 billion, says it was “probably” one of the worst sell-offs of emerging-market debt ever.

He points out that many emerging nations hurried to sell foreign bonds during the COVID period when spending requirements were high and borrowing costs were low. Some will now be at risk as central banks in developed countries tighten financial conditions, forcing money out of emerging markets and leaving them with high expenses.

This is a challenging time for many developing nations, according to Samy Muaddi.

Active traders buying insurance against default in emerging markets are victims of the spread of risk aversion. However, the price is still slightly below its peak from earlier 2022, when Russia invaded Ukraine.

During a Bloomberg Intelligence Webinar, Caesar Maasry, head of emerging-market cross-asset strategy at Goldman Sachs Group, said, “Things might get worse before they get better. The cycle is late. There isn’t a convincing recovery to believe in.”

Foreign money managers have fled developing economies as a result. According to the Institute of International Finance, investors withdrew $4 billion from emerging-market bonds and stocks in June 2022, marking a fourth consecutive month of outflows as the Russian invasion of Ukraine and the war’s effects on commodities prices and inflation weighed on investor mood.

According to Gene Podkaminer, head of research at Franklin Templeton Investment Solutions, “This might have long-term consequences that affect the way we think about emerging markets, particularly in a strategic framework.”

“The first thing it does is confirm that emerging markets are notorious for being unpredictable. There have undoubtedly been times when investors may have forgotten this, but it’s becoming increasingly difficult,” the official commented.

Increasingly sharp trade-offs between keeping interest rates accommodative to support shaky post-COVID recoveries and tightening rates to preserve currencies and suppress inflation are raising central bankers’ concerns about ballooning bond spreads. In addition, multilateral organizations like the International Monetary Fund have warned of increased conflict due to rising living costs, particularly in areas where governments are ill-equipped to protect households.

Widespread electricity outages and soaring inflation increased inequality and contributed to Sri Lanka’s political unrest. According to Christian Keller and other Barclays Plc analysts, that might happen somewhere in the second half of this year.

His team stated in a mid-year study that “populations suffering from high food costs and shortages of supply can be a tinderbox for political instability.”

What happens when a country defaults?

In theory and in a perfect world, governments would receive money through taxes and investments to cover their debts. However, governments frequently borrow money and spend beyond their means, just like people do. Governments do this by issuing bonds committed to repaying the bond’s face value plus interest at the maturity rate.

The national/sovereign debt is the sum of a country’s internal and external debts. Bonds that the government issues and sells to international investors in foreign currencies are known as external obligations. Internal debts are obligations to citizens of the same nation.

Fiscal and monetary policy can finance internal debts by increasing taxes and printing more money. Still, external debts can take money away from other sources of income because they must be repaid in currencies that the government does not control. So what follows a default by a nation?

If an individual/business files for bankruptcy, the creditors can seize the assets. However, its creditors cannot take a country’s help, and the government cannot be forced to make payments in the event of a default using funds it does not have.

This is false for the nation’s assets that are located abroad. For example, Argentina’s naval training ship in Ghana was confiscated after it fell into default in 2012.

The creditor of the defaulting nation’s only choice is to renegotiate the loan’s terms. As a result, the value of government bonds will be “haircut,” or rescheduled, for postponed payment.

Argentina committed to pay back a third of its debt to creditors after missing an $81 billion loan payment in 2011. In this sense, 93% of the debt was converted into performing securities between 2005 and 2010. However, Argentina didn’t give the vulture fund its money back for the remaining 75% of the debt until 2016.

What effects does moving into default have?

The immediate default cost is the loss of principal and capital to the creditor due to a partial debt cancellation or restructuring.

The government is more likely to forgive debts owed to foreign private creditors since reprisal is less likely.

Additionally, like in any other crisis, government defaults lead to skyrocketing inflation, unemployment, and political pressure on the defaulting government.

Instability in the financial system leads to bank runs since domestic banks carry most household debt. Bank runs happen when a sizable sum of money is removed from a bank due to public anxiety and a lack of trust. The government aims to restrict the amount of money each depositor can withdraw through capital restrictions, which are in place to prevent this.

Greek banks were forced to close for nearly 20 days in June 2015, restrict bank transfers to foreign institutions, and cap cash withdrawals at €50 per day to prevent a banking crisis. In addition, a sovereign debt crisis may result in economic and currency crises as overall demand declines and the global market loses faith in the nation’s currency.

The inability of a defaulting nation to access the credit market is another predictable effect. It will either receive a loan at a high-interest rate or none at all. As a result, the defaulting nation’s credit rating will drop, discouraging international investment.

Conclusion

The current situation with debt and default in the third world is a cause for concern among economists and emerging market debt experts. The risk of default is high, and several countries are already experiencing it. The increasing food and fuel prices have sparked protests and political unrest, leading to some countries stopping payments to foreign bondholders. The worry is that this will lead to a contagion effect, where nervous investors pull money out of other nations, causing them to default.

The situation is similar to the Latin American debt crisis of the 1980s, and the Federal Reserve’s rapid interest rate hikes to stop inflation are making it difficult for developing countries to service their foreign debt. The smaller nations with a more recent history of international capital markets are most under pressure, but even larger developing countries may be affected by the crisis. The consequences of a default are severe, leading to skyrocketing inflation, unemployment, and political pressure on the defaulting government.

The inability to access the credit market discourages international investment, and bank runs happen when a sizable sum of money is removed from a bank due to public anxiety and a lack of trust. The situation is challenging, and the worry is that it may get worse before it gets better.

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