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Fitch warns investors of increased project costs, investment delays in Ghana’s infrastructure sector

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Fitch, infrastructure

Fitch Solutions has issued a word of caution to both domestic and foreign investors of increased project costs and potential investment delays in Ghana’s infrastructure sector.

According to the research agency, it anticipates elevated project costs to investors engaged in the sector in the near term.

In addition to the elevated project costs, is increased revenue risks that is likely to weigh on investments into the sector.

Increment in project costs, Fitch Solutions asserts in its review of the country’s infrastructure sector, will be on the back of increased prices of imported construction materials driven mainly by the depreciation of the local currency (cedi).

In the near term, we expect increased revenue risks and higher elevated project costs to weigh on private sector investment in Ghana’s infrastructure sector. While inflation will threaten to undermine project revenues and thereby exacerbate revenue risks for both domestic and foreign investors, we expect that a likely increase in construction materials prices would increase project costs and pressure developers to delay investments.

“Ghana imports large volumes of construction materials, with domestically produced cement amounting to less than 60% of domestically consumed cement throughout the largest part of the past decade. In 2021, Ghana’s trade deficit for iron and steel products is estimated to have exceeded USD1.2bn, up from an estimated deficit of over USD780mn worth of iron and steel products in 2020.

In light of the Ghanaian construction industry’s reliance on materials imports, we expect that the Cedi’s weakness will add to upward pressures on construction materials prices from existing supply chain disruptions. This, in turn, will further contribute to increased project costs and potential investment delays in the near term,” it said.

“In the medium term, Ghana will likely recover as a supportive market for private infrastructure investment in Sub-Saharan Africa, as revenue and project cost risks subside and investors benefit from a comparatively strong institutional and legal enabling environment, as well as relative political stability and a positive track record of private infrastructure investment. We expect inflation to slow down and pressures on the Cedi to reduce significantly in 2024, lifting downward pressures on private sector participation in Ghana’s infrastructure sector,” it added.

Meanwhile, the total value of Ghana’s Private Public Partnership [PPP] infrastructure projects in the pipeline, is estimated to be around $8.4bn.

Aside Nigeria which has a PPP pipeline projects value of $9.6 billion, Ghana’s $8.4bn total market value of PPP pipeline projects, is the second largest in the West African sub-region.

COUNTRY CUMULATIVE PROJECTS (US$)
Nigeria 9.610 billion
Ghana 8.496 billion
Guinea 1.800 billion
Senegal 753 million
Sierra Leone 404 million
Mali 371 million
Liberia 100 million
Niger 70 million

According to Fitch Solutions, Ghana’s huge PPP market size reflects strong legislation, which it says bodes well for PPP development over the coming years.

Again, it pointed out that Ghana has made significant progress in financing PPP projects despite a sophisticated planning and legal structure.

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