ECONOMIC INDICATORS THAT AFFECT INVESTMENT

Ghana has a market based economy with relatively few policy barriers to trade and investment in comparison with other countries. Ghana is well endowed with natural resources. Ghana’s economy was strengthened by a quarter century of relatively sound management, a competitive business environment and sustained reduction in poverty levels. However, in recent years, Ghana has suffered the consequences of loose fiscal policy, high budget and current account deficits, a depreciating currency.

Some major economic indicators include, real GDP (Gross Domestic Product), M2 (money supply), consumer price index (CPI), producer price index, consumer confidence survey,current employment statistics, retail trade sales and food, service sale, housing statistics, manufacturing and trade inventories and sales,stock index among others. The economic indicators that affects investment basically include, inflation, interest rate, exchange rate, government policies, confidence and trust levels among others.

Investment is the action or process of investing money for profit. Investment is to allocate money in the expectation of some benefits in the future. In finance, the benefits from an investment is called return. Some types of investment include, growth investment, shares, property, defensive investment, cash , fixed investment among others.

High interest rate will discourage people to  invest more and low interest rate will also influence consumers to invest more . Interest rate is one basic economic tool that influence investment. This will lead to low productivity, which will later make the economy inefficient and unproductive.

Inflation is also a major factor. Inflation is the persistent increase or decrease in the prices of goods and services. The current inflation rate in the Ghanaian economy according to bank of Ghana  is 7.8℅The inflation rate in Ghana has always been high and this has the tendency to influence individuals to invest rather than consuming their incomes on goods and services. When inflation is high, investment will also be high and when inflation is low, investment will also be low. The current inflation rate is undesirable. The least inflation rate the economy is to have is 2℅. However, deflation isn’t too good for the economy either.

Again, the exchange rate in the country also influences the rate of inflation. The rate at which the Ghana cedi exchange the currencies of other countries. Apparently, the exchange rate according to bank of Ghana per a dollar in the Ghana cedi is about gh¢5.33. This is soo not good and would definitely influence people not to invest in Ghana. That is to say, high exchange rate reduces the level of investment and low exchange rate influences high investment. The exchange rate also explain the devaluation and depreciation of the Ghana cedi.

Confidence can also be replaced with freedom from doubt, believe or trust in something. With the recent development in the Ghanaian financial market, confidence in the sector has an effect on investment decisions of the citizenry. Thousands of people don’t know if its safe to try investing in the economy now or not. If you ask a few around their comments will be to hold on for some time to see how events will turns up since no one can tell if the shocks are over or not.  According to Keynes, he noted that confidence wasn’t always rational. Confidence will be affected by economic growth and interest rates, but also the general economic and political climate. If there is uncertainty (e.g. political turmoil) then individuals may cut back on investment decisions as they wait to see how event unfold.

In any financial system, the degree of confidence in the sector does attract investors into the financial system. The believe that the institutions will not be taken by any government policy or regulatory requirements does affect the investment decisions of people. As confidence in the sector increases, the interest in taking on investment decisions by individual increase as trust is built and doubt is minimized.

Also, government policies also affects investment. Government can set rules which would discourage investors and government can also set good policies and laws which will encourage both foreign and local investors in the country. Some government policies seem very unfavorable for investors and hence drive them away.

Finally, all these outlined economic indicators do have a way of influencing consumers’ decisions as to whether to invest now or in the near future.

By Hamidatu Saeed