Ghana’s construction industry is expected to slow down by 4.1 per cent year-on-year in 2022, a slowdown compared to the estimated growth of 5.7 per cent year-on-year in 2021, owing to declined investments, according to Fitch Solutions.

The research firm noted that compared to other markets, Ghana’s infrastructure construction industry is unlikely to benefit from higher oil and gold prices in a period where Ghana’s access to international capital markets are constrained in the near term. “…We expect that increased public revenues will be channelled towards debt servicing and Ghana’s high public wage bill rather than capital projects.”

More so, Fitch forecasts that government capital expenditure would shrink to 3.3 per cent year-on-year of GDP in 2022 and 2.9 per cent year-on-year of GDP in 2023, down from 3.7 per cent year-on-year in 2021.

While this puts capital expenditure levels above those in 2018-2020, when construction industry growth averaged -0.1 per cent per year, it remains below the comparatively high annual average levels of 4 per cent of GDP between 2010 and 2017, Fitch noted. In 2023, Ghana’s construction industry will accelerate slightly as the depreciation of the Cedi against the USD slow down to 4.6 per cent year-on-year.

Generally, this will reduce revenue risks for foreign investors, while lower inflation will improve demand for residential and non-residential construction. However, Ghana’s access to international capital markets will remain constrained and will continue to weigh on public infrastructure spending as well as the market’s construction industry growth.

Market’s Strong Fundamentals

The market possesses strong fundamentals, including a track record of private investment in energy infrastructure, comparatively high political stability and security, and a relatively diverse competitive landscape.

Despite these positive fundamentals, “we expect that a substantial depreciation of the Cedi against the US dollar in 2022 will in the near term make private investors more reluctant to invest in Ghana’s infrastructure sector”.

“We thus do not expect that private investment will meaningfully cushion the negative impact of subdued public infrastructure spending on the market’s construction industry growth. We forecast that in 2022, the Ghanaian Cedi will depreciate by 22.7% against the US dollar, significantly increasing revenue risks for the foreign investors that rely on expatriation of revenues.”
Fitch Solutions

At the same time, Ghana ranks in first place out of the 16 West African markets in the proprietary Fitch Solutions Operational Risk Index. With a Trade and Investment Risk score of 50.9 out of 100, Ghana outperforms the West Africa average of 36.4 and ranks in a competitive 2nd position regionally, and in 88th place out of 201 markets globally.

Similarly, with a Crime and Security Risk score of 51 out of 100 Ghana outperforms the West Africa average of 33.3 and ranks in 1st place regionally and in 90th place out of 201 markets globally.

Based on Fitch’s analysis, a substantial depreciation of the Cedi against the US dollar in 2022 will in the near term make private sector investors more reluctant to invest in Ghana’s infrastructure and construction sector. This will offset the adverse impact of subdued public infrastructure spending on the market’s construction industry growth.