Tight monetary, fiscal discipline trigger increase in FDI to Ghana – IMF

The International Monetary Fund (IMF) says the increase in inflow of foreign direct investments to Ghana has been triggered by the country’s adoption of tight monetary and fiscal discipline.

The IMF attributed the increase in Ghana’s FDI in 2010 to tight monetary and fiscal discipline in 2009 and 2010 in addition to strong performance of the cocoa and gold sectors. The start of oil production last December, it added also contributed to increase.

The IMF’s Regional Economic Outlook on Sub-Saharan Africa report which was released on May 3, 2011 also classified Ghana as a frontier market as indicated by its growth dynamics and perspectives, financial market development, general institutional conditions and evolution, natural resource richness, and political conditions and perspectives.

Ghana recorded $1.2 billion worth of investments in 2010 according to the Ghana Investment Promotion Centre (GIPC). This figure, the IMF says is indicative of private investment levels before the 2007-2009 global financial crisis.

The report said that private investors are being drawn by country-specific pull factors after some of them lost money during the financial crisis.

The GIPC also said the FDI component of the estimated value of the projects that were registered for the first quarter of 2011 was $351.75 million, which is 118.02% above the 2010 total of $161.34 million for the same period.

However, the IMF report indicates that the rise in global food prices is impacting populations in developing countries.

The report citing work done by IMF staff, says the average lag between international food price increases and domestic prices is about six months in sub-Saharan African countries.

It therefore says the sharp increases in international food prices that occurred late in 2010 may well be felt more earnestly in most countries around the middle of this year.

In its analysis, the IMF believes that the degree of pass-through from international to domestic food prices tends to vary quite a bit across the region. On average, it says the cumulative impact of a 10 percent increase in international food prices on domestic food prices is three percent. But the effect ranges from a full 10 percent pass-through in Kenya and Guinea-Bissau to very limited or even no pass-through in Nigeria and Ghana.

In its projection of global oil prices, the report assumes an oil price of $107 per barrel in 2011 compared to the $80 per barrel that prevailed in 2010.

“The impact of this 34 percent increase in oil prices is likely to be substantial in most of the oil-importing countries of the region but is likely to vary considerably from country to country.,” it adds.

By Emmanuel K. Dogbevi & Dode Seidu

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