Ghana: Economy expanding

Steady growth in Ghana’s economy has seen the country maintain its position on the World Economic Forum’s “Global Competitiveness Index 2011-12”, with the country keeping its 114th position among 142 countries. The economy is also posited to continue growing, with 20% expansion expected this year on the back of increased oil, gold and cocoa prices.

The economy’s first-quarter growth reached 23%, according to the World Bank, higher than the lender’s June forecast of 14%, which was also in line with the Ministry of Finance’s projection of 14.4% announced in July.

The country is home to a handful of major industries and a wide range of young but rapidly expanding sectors. National economic stalwarts include the agriculture and mining sectors, both of which are expected to continue to play a major role in the coming years. Newer growth industries include the energy sector, which is expected to boost government income modestly in 2011 and subsequent years.

Despite steadily increasing industrialisation and urbanisation over the past decade, agriculture continues to account for a substantial percentage of the economy ¬– around 30% of GDP in 2010. Some 55% of the country’s work force is employed in the sector as a whole. Major crops include cocoa, palm oil, maize and rice, among others.

The country is the world’s second-largest cocoa producer, and around 17% of the national work force is employed in the cocoa segment in some form or another. The Ghana Cocoa Board, which oversees all aspects of the industry, recently rolled out a number of new initiatives in an effort to boost productivity, largely by increasing training and the use of technology. Similar projects in many other agricultural segments bode well for continued agriculture-driven economic expansion in the future.

The mining sector, like agriculture, is a cornerstone of Ghana’s economy. While the country boasts substantial bauxite and manganese deposits, the industry’s primary focus is gold. According to a recent report released by the Bank of Ghana, the country’s central bank, gold exports accounted for around 48% of the government’s total export earnings in 2010.

Despite a number of challenges, including illegal mining and environmental concerns, total gold production jumped to 2.97m ounces in 2010, up 1.4% on the previous year. With gold prices rising on international markets – the metal’s price reached $1921.15 an ounce in early September and traded at $1832.18 in mid-September – the industry is expected to continue to grow in the coming years.

While cocoa and gold are expected to continue to make major contributions to Ghana’s economy in the near future, the nation’s burgeoning energy industry will provide a modest boost in a number of areas, increasing capital inflows and underwriting infrastructural investments.

The Jubilee discovery in 2007, which was one of the most substantial hydrocarbons finds in West Africa in recent years, has the potential to turn the nation into one of the larger oil producers in Africa within the decade. The start of commercial production, which now touches 120,000 bpd, will not prompt any massive transformations of the broader economy – indeed, were the revenue to be distributed amongst every Ghanaian equally, the per capita income would be between $50 and $75 per year – but it will help strengthen the country’s current account and the government’s bottom line.

With this in mind, the state is expected to invest its new income in a variety of areas and industries. Priority areas include Ghana’s road transport network, which is relatively underdeveloped outside the capital region and other urban centres. Improving road surfaces along major transport routes could have a major positive knock-on effect on a wide variety of industries, including agriculture and mining, which will, in turn, benefit a substantial percentage of the population. Similarly, oil revenues could be used to speed up development in the industrial sector, by increasing energy supply and feedstock availability, which has the potential to be a major economic contributor in the coming years.

However, Ghana must continue to monitor its macroeconomic situation closely. Inflation, which has been on the decline since hitting a high of around 18% at the end of 2008, had dropped to 13.2% by the first quarter of 2010 and to 8.6% by June 2011. While this trend is expected to continue for the foreseeable future, a series of upcoming spending and subsidy cuts has the potential to mitigate this decline.

In addition, unemployment is a major concern, particularly given the significant size of Ghana’s informal market. The country’s steadily expanding population and growing workforce mean the challenge of creating enough jobs is likely to get harder rather than easier in the coming years.

Still, Ghana is in a good position to expand its economy, particularly as revenue from the Jubilee field flows in. While there are concerns over commodity dependency, if the country can maximise returns on rising gold, cocoa and oil prices, a continued double-digit growth forecast is more than likely.