Ghana

Although the development of the financial sector in Ghana has made considerable progress in recent years, there are still major challenges. The capacities of the Central Bank of Ghana are not yet sufficient to effectively implement oversight of the many financial institutions in the country, and despite the sheer number of financial institutions, much of the population, particularly in the rural and economically weak regions of northern Ghana, still has no access to financial services. In the rural north of Ghana, the closest bank branch is often several hours' away on foot. As a result, the population living there has few opportunities to transfer money, obtain credit or save through the formal financial system. Often out of necessity, loans are taken out from informal moneylenders and savings deposits are entrusted to what are known as “Susu collectors”. This involves not only high fees but also a considerable risk of losing savings altogether. These inadequacies mean that micro, small and medium-sized enterprises (MSMEs) and low-income households in particular have so far enjoyed only very limited economic participation. The low concentration of domestic savings deposits in the formal sector means that financial institutions lack an important and stabilising source of financing. This often prevents investments by private households and small businesses that would stimulate growth and employment.

With the aim of helping to establish efficient structures in the Ghanaian financial sector, the Federal Republic of Germany is promoting various projects to develop the Ghanaian financial sector as part of a financial cooperation with Ghana. The focus is on microfinance projects and the promotion of what are known as structure-building projects (development of national cashless payment transactions, including mobile banking and deposit insurance). In recent years, various microfinance institutions have been given debt and equity capital to promote product diversification and the development of rural regions in accordance with the guidelines of responsible finance. Furthermore, the introduction of the nationwide cashless payment system “e-zwich” is being supported with the aim of making the formal banking sector accessible to all sections of the population in the future, thus increasing the security of transactions and reducing the costs of business activities. Promoting the development of a deposit insurance system is intended to strengthen Ghanaians' confidence in financial institutions and thus shift savings from the informal to the formal and regulated financial sector.

Ghana has had two administrative levels since the early 1990s: one being the nation state and its subordinate regional administrations, the other being the district level with its municipal structures.

Municipal authorities suffer from problems in practice: it is often not clear exactly what expenses they are supposed to assume. Moreover, the staff is not sufficiently qualified to provide the expected services. Funds are ultimately lacking, particularly for the social infrastructure because the funds from the financial compensation system are inadequate.

The project financed by KfW to support decentralisation and the districts makes up for this financing gap. It is supported by Germany through KfW together with Switzerland and the Ghanaian government. Additional funds will go to the 254 districts in the country for investments that the community considers particularly important. An annual review is conducted to determine whether the districts meet defined minimum requirements. Only those districts receive additional funds that are performing well.

In this way, the project contributes to positive competition between the district administrations. The decentralised approach allows local priorities and needs to be taken into account. In addition, financing is provided for a national training programme for all employees of the district administrations.

KfW also supports Ghana in two other areas that are highly important for Ghana's political and economic development. Cooperation with the Ghanaian Court of Auditors aims to improve the financial reporting of the Ghanaian administration. And cooperation with the Ghanaian tax authorities is improving the tax system, both in terms of the transparency of tax collection and in terms of increasing tax revenues.

Project information - Governance  (PDF, 337 KB, non-accessible)

As West Africa’s second-largest and growing economy, the demand for fresh food is increasing, though the productivity of agriculture is still low. Its share of GDP has reduced to 22%, but it employs still 50% of the country’s working population. However, most farmers cultivate only small plots, and many of them can barely secure their own subsistence with farming. The famous cocoa-industry in Ghana impressively shows that things could be different. Ghana also offers opportunities from the export of cashew nuts, palm oil, rubber, yam, fruits (mainly pineapples, mangoes and papaya) as well as fresh vegetables. Large volumes of rice, poultry, fish which could be produced locally, are imported and significant opportunities arise from the growing domestic demand.

The German Development Cooperation, which has been one of the consistent development partners in the agricultural sector in Ghana since the 1970s, is in complete alignment with the development strategy of the Government of Ghana. The objective of the cooperation is to create jobs and increase families´ income. KfW on behalf of the German Government supports the “Outgrower and Value Chain Fund (OVCF)”. The OVCF integrates smallholder farmers into commercial agricultural development by providing improved access to medium and long-term financing for investments for both smallholder farmers and Technical Operators (processors, exporters). This is achievable only due to a close and contracts based collaboration between smallholder farmers, successful agribusinesses, and local financial institutions.

A reliable and affordable energy supply is crucial for Ghana's future economic development. For decades, Ghana was able to meet its entire electricity requirements with a large hydropower plant, the Volta Dam. With increasing economic and population growth, however, the Ghanaian government has in recent years increasingly relied on thermal power plants, which are financed by private companies but often entail high offtake prices for the Ghanaian grid operators. From the perspective of the Ghanaian government, the “bad” contracts led to high debts for the Ghanaian electricity companies and high electricity costs for the consumers. The Ghanaian government has recognised this problem and plans to fundamentally consolidate and reform the energy sector. At the same time, more emphasis is to be placed on solar and wind power. On behalf of BMZ, KfW Development Bank is supporting its Ghanaian partners by financing solar power plants and a transmission line, among other things. The Compact with Africa initiative launched in 2017 under the German G20 presidency has further deepened KfW Development Bank's commitment in Ghana's energy sector. Along with Côte d'Ivoire and Tunisia, Ghana was one of the first three “reform champions” selected by the BMZ in 2017. Ghana thus benefits from additional funding commitments for the energy sector with a strong focus on renewable energy. Financing for concrete measures is embedded in a policy dialogue conducted on the basis of pre-defined reform measures. The motto “Promoting and challenging” applies. The strategic course of the reform partnership goes beyond the energy sector to include the basic framework conditions for private sector involvement. It can therefore be judged a huge success for investors in Ghana that in September 2019 the decision was made to finance Ghana's membership in African Trade Insurance (ATI) from funds stemming from the reform partnership. Covering political and economic risks will make it easier for private individuals to invest in the expansion of economic and social infrastructure in the future. But this is not enough. In close cooperation with the EU, reform financing is also planned for important areas of “good governance”.