The Country’s and Region’s Financial Health Essay
Economic indicators show that as a developing country, Ghana has a favorable economic and financial performance especially compared to the other countries in the region. The GDP of the country was estimated to be $59.15 billion for 2006 which amounts to $2600 GDP per capita. These figures showed that there was a healthy growth of 5.7% in that year (CIA, 2007).
Other important factors that must be considered before making an investment decision in the country are high exchange, interest and inflation rates which have been adversely affected by the increasing prices of petrol.
Import and Exports
The country earns foreign exchange mainly from export of gold and cocoa (CIA, 2007) and the increasing prices have lead to a lot of growth in the country (EDC, 2006). Its major imports include capital goods and petroleum (CIA, 2007). This has an obvious effect on the cost of production within the country. However, the government supports industrial growth through oil subsidies and other such measures. Such measures put a lot of pressure of Ghana’s budget deficit. Therefore in accordance with its fiscal policy of reducing budgetary deficit and domestic debt, there has been a recent reduction in oil subsidies (EDC, 2006).
Ghana has one stock exchange called the Ghana Stock Exchange which has 22 listed companies by the end of the 1990’s which are of mainly of gold, cocoa, banking and brewing industry. However, market movements are mainly determined by the Ashanti Goldfield stocks.
Local Exchange Rates and Trends,
The currency of Ghana is called Ceti (GTC). Till the early 1980’s the exchange rate of the currency was artificially maintained. But once this policy was abolished and the currency was devalued and floated its value began to decrease significantly. In 1995, a policy to use exchange rates to control inflation was adopted which lead to “considerable intervention in the exchange rate market”. The exchange rates continued to move upwards until the end of the 90’s. However, since the tightening of the monetary and fiscal policies, lower debt service payments and lower inflation rates the exchange rates have become quite stable in the past five years. (EIU, 2006)
Currency Control or Repatriation Issues to Be Addressed,
With the proactive efforts to bring down inflation rate to a single digit figure by the end of 2007 (Coutsoukis, 2004), policy makers have again adopted the strategy of using exchange rates to control inflation by using donor aid and remittances to buy Cetis to control money supply. Thus, even though, the exchange rates are stabilizing in nominal terms, the real exchange rate increased by 11.5% in 2005. Therefore, one has to consider whether the policy will be able to sustain the stability in the exchange rates in the future. (EIU, 2006).
With the increasing global energy demands there has been a huge increase in oil and gas exploration activities through out the world. The total revenue generated by the oil and gas exploration and production sector was $2,269.8 billion which represents a 22.8% growth over a five year period. (Datamoniter, 2006)
The important producers and exporters of petroleum in Africa are Algeria and Nigeria who are both OPEC members. Angola, which is not a member of OPEC, is also becoming an important producer of oil as various off-shore fields have gotten discovered here.
Ghana had proved oil reserves of 8.255 million bbl at the end of 2001 and 23.79 billion cu m proved natural gas reserves at the end of 2004 (CIA 2007). The discovered oil reserves are located at five sedimentary basins -Tano, Saltpond, Accra/Keta, Volta, and Cape Three Points basins (Stultz-Karim) and some deep-water locations. Hence, Shell has to consider both on shore and off shore exploration activities. Large investment in equipment will be required especially if Shell is considering deep water prospecting.
According to the 2004 estimates Ghana’s consumption of oil was 44000 bbl/ day. Only about one-sixth of this demand was catered by local supply of 7477 bbl/day. Natural gas produced and consumed however was 0 cu m.
Oil prices had been fixed for manufacturers for many years to support industrial growth however this increased the debt burden on the government. Cutting back the subsidies that control the local oil prices, “the prices are regularly adjusted to cost-recovery level” which include taxes, distributor margins, debt recovery levies etc (EIU, 2006).
Primary Market Characteristics
Demand for Fuel is more than the supply
Ghana has an increasing need for supply of fuel to feed its growing industries. The demand is being fulfilled mainly through import of Petroleum from Nigeria. Once the West African Gas Pipeline begins operating gas will also be provided to Ghana through the same country.
Removal of Subsidiaries on Petroleum—Higher cost of production
As subsidiaries on petroleum have been cutback the industrial costs have increased. Consumer wants fuel that costs less.
Only one Refinery
The country only has one refinery which is called Temo Oil refinery in which Shell also has a shareholding (Coutsoukis, 2004). It has a refining capacity of 45,000 bpd (Stultz-Karim) which is able to fulfill only 70% of the country’s demand.
Ghana’s main source of power is hydroelectricity. Most of its energy demands are fulfilled by Hydroelectricity. But this is not enough as petroleum has to be imported to fulfill other demands
Secondary Market Characteristics
There are two authorities that deal with petroleum exploration and production market. One is Ghana National Petroleum Corporation (GNPC) and the other is the National Petroleum Authority (NPA). GNPC is responsible for encouraging and facilitating the oil and gas exploration and production process (Coutsoukis) while NPA is responsible for overlook the downstream petroleum trade (Stultz-Karim).
Market Segmentation by Type
The market can be segmented into two ways natural gas exploration and crude oil prospecting. Ghana some proved reserves of both the resources. Ghana covers its fuel requirements through oil the major portion of which is imported. The new gas pipeline that has been developed will soon allow Ghana to have another alternative fuel. Even though Ghana has produced some petroleum from its oil fields, its gas fields have so far been hardly touched.
Opportunity Market Possibilities
As already mentioned gas reserves in Ghana have so been untouched. This offers a lot of opportunities to Shell. However, Ghana does not have a gas processing plant and the government may not be interested in having one if they find gas from Nigeria to be much cheaper. On the other hand if the quantity of gas reserves is substantial the government may be more interested.
Most of the exploration that has been near to the shoreline of Ghana but with its financial and technical strength, Shell can also indulge in deepwater prospecting.
Economic Intelligence Unit. 2006. Ghana. Country Profile. Retrieved January 30, 2007 from EBSCO database
Stultz-Karim, S. P. West Africa Oil and Gas. Corporate Africa. Retrieved January 30, 2007 from times-publications.com: http://www.times-publications.com/publications/corporate_africa/articles/oil_gas2.html
Investment Overview. Ghana Country Review. Retrieved January 30, 2007 from EBSCO database
Central Intelligence Agency. 2007. Ghana. The World Factbook 2007. Retrieved January 29, 2007 from CIA.gov: https://www.cia.gov/cia/publications/factbook/geos/gh.htm
Export Development Canada. 2006. Ghana. Export Development Canada. Retrieved January 30, 2007 from edc.ca: http://www.edc.ca/english/docs/gghana_e.pdf
Coutsoukis. 2004. Ghana Petroleum Exploration. Retrieved on January 29, 2007 from Photius.com: http://www.photius.com/countries/ghana/economy/ghana_economy_petroleum_exploratio~113.html
Gas Sector Booming. Africa Monitor:
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Datamoniter. 2006. Oil & Gas Exploration & Production Industry Profile: Global. Retrieved February 2, 2007 from EBSCO database